Never in the field of human history has so much been taken from so many by so few

By Simon Davies and Donald Hunt
SOTT.net

The last week in March started with the coordinated call from Russia and China for a new non-national reserve currency, an idea that was greeted as one would expect with some derision until US Treasury Secretary Timothy Geithner said he supported such an idea. We can only speculate that he forgot his role in this Act 2 of the international stage tragedy "Global Financial Crisis" and used his lines from Act 4 which has of course yet to come. In this Act the role of the US is to resist such calls.

The week ended with the G20 summit and more importantly with the G20 final communique which promises a dark future; for wrapped in the cloth of "free trade", a trillion dollars for the IMF and "trade finance" and the regulation of banker's pay is the formation of a global overseer, the Financial Stability Board and the announcement that "the era of banking secrecy (which means privacy) is over."

There is a great deal in the G20 final communique and what with the general goings on this coming week with the NATO summit following the G20 and US President Obama's visit to Ankara that we will be providing an analysis of the G20 summit and its context during the course of next week.

This week we take a closer look at who really benefited from the AIG bailout and the true size of the US governments financial commitments to the "Global Financial Crisis". With apologies to Winston Churchill and the fighter pilots of the Battle of Britain:-

Never in the field of human history has so much been taken from so many by so few

Markets

Since Tuesday, March 31st was the end of the first quarter of 2009, let's look at the quarterly numbers. The dollar gained ground in the first quarter, gaining 5% on the euro and 7.6% on the yen. The major world stock indices fell during the first quarter, with the Dow losing almost 16%, the FTSE 14%, the DAX 18%, the NIKKEI 8.5%, and the Hang Seng down 9.75%. The Brazilian BOVESPA was up 1.7%. Gold was up 5.5% in dollars and 11% in euros. Oil rose 7% in dollars and 12.6% in euros. [This week's and the quarter's data tables are at the end of this article].

For the week and two days since Friday, March 20th, world stock indices were up, mostly in the 2% to 6% range, as was the dollar (up 2.5% against the euro and 3% against the yen). Gold fell 3% and oil fell almost 5% in dollars.

Here are some charts following currency and commodity prices since January 2005. Note that oil prices and the dollar/euro exchange rates are very close to what they were in the beginning of '05. Gold, however, has more than doubled despite the immense downward pressure exerted by the world gold cartel as it seeks to maintain a cap on the price of gold and silver.

Dollar/Gold -- Note the ceiling at $1000

Dollar/Oil - back to Jan 05 levels

Euro/Oil

Dollar/Euro

Gold:Oil ratio - quite a change in a year!


Reserve Currency

Some confusion was generated, deliberately or not, last week when U.S. Treasury Secretary Geithner told the Chinese that he was "quite open" to a new reserve currency besides the dollar.

The dollar plunged instantly against the euro, yen, and sterling as the comments flashed across trading screens. David Bloom, currency chief at HSBC, said the apparent policy shift amounts to an earthquake in geo-finance.

"The mere fact that the US Treasury Secretary is even entertaining thoughts that the dollar may cease being the anchor of the global monetary system has caused consternation," he said.

Mr Geithner later qualified his remarks, insisting that the dollar would remain the "world's dominant reserve currency ... for a long period of time" but the seeds of doubt have been sown.

The markets appear baffled by the confused statements emanating from Washington. President Barack Obama told a new conference hours earlier that there was no threat to the reserve status of the dollar.

What are we to make of this? As the Financial Times wrote, changing reserve currencies is quite an undertaking which ultimately hangs on "sovereign credibility and power":-

Global reserve currency

Athenian owls, Roman denarii, British sovereigns, US dollars. There have been many pseudo reserve currencies down the ages. Now the governor of the People's Bank of China has called for a new global currency "disconnected from individual nations". Russia, too, wants to move away from a world dominated by the dollar. Kazakh president Nursultan Nazarbayev suggests such a currency could be called the acmetal - an amalgam of "acme" and "capital".

But is there a case for one? In theory, yes. (Although no one was banging the table for change when emerging growth rates were still being powered by deliberately undervalued domestic currencies.) The reserve currency status of the dollar helped to create nasty global imbalances - one of the main culprits of the current downturn. As China, for example, recycled export earnings back into dollar-denominated assets, the US could happily run profligate trade deficits with impunity. That helped push up the price of US assets, particularly house prices.

Now surplus countries are stuck. They cannot diversify fast enough and a rapid sell down of US assets would destroy their portfolios. Not only that, global central banks holding about two thirds of their reserves in dollars are hostage to the Obama administration. Unsurprisingly, huge budget deficits and the Federal Reserve's leap into quantitative easing have foreigners fretting over the longer term health of the dollar.

Theory is one thing, however. In reality, currencies live and breathe more than just short-term economic air. The two other life forces for a reserve currency are sovereign credibility and power. China, Russia and India simply do not have long enough economic track records to justify backing a reserve currency. Find a single investor in this crisis that has panicked out of dollars into roubles. Of course, if China one day emerges as the dominant economic and military power, the status quo will change. Until then, investors cannot be rushed.

What the Financial Times seems to be avoiding is the obvious fact that the idea of a new international reserve currency means that it will be supra-national and the "power' and "credibility" will be delivered by a supra-national body or bodies. Such a body or group of bodies would have the effect of being a World Government.

One thing is clear, if destroying the dollar moves the Plan to concentrate control of the world into fewer hands, among which will be a handful of megabanks, it will happen; conversely, if the Plan calls for a strong dollar, that will happen. For the moment it appears that the confusion caused by Geithner's and China's statements was intended; or, as we said in our introduction, perhaps Geithner forgot which Act of the play we are in.

Gold

Once more we see gold being manipulated, this time ahead of the G20 summit being sold down aggressively to the $900 mark. At the summit we heard the same old tired story of IMF gold being sold into the physical market; a story that just keeps getting trotted out whenever the physical market looks likely to burst through the downward pressure exerted through the futures market.

Seeking Alpha has come across an interesting change in the futures market:-

NYSE Runs Out of Gold Bars: What Happens Next?

The NYSE-Liffe futures exchange has, it seems, run out of 1 kg bars of gold. Futures markets, like NYSE-Liffe and COMEX, try hard to maintain the fiction that they will deliver physical gold, [o]n completion of executed contracts. Indeed, to prevent fraud, U.S. law requires clearing members to keep a stockpile, of one kind or another, consisting of a minimum of 90% of metal. Up until October, 2008, it didn't matter. Only about 1% of long buyers of paper gold futures contracts typically took delivery. Now, the situation is very different. Demand has surged and, it appears, one major futures exchange, NYSE-Liffe, and by extension, the COMEX gold warehouses it shares with its larger cousin, are unable to meet the requirements of their contracts, vis-a-vis, delivery of 1 kg. bars.

As of December 31, 2008, the NYSE-Liffe mini-gold (YG) contract specifications were changed to read, in pertinent part, as follows:

33.2 fine troy ounces (+10%), no less than .995 fineness. Seller's discretion delivery of one vault receipt representing one bar or one Warehouse Depository Receipt (WDR) representing either 1/3 interest in one full size gold NYSE Liffe vault receipt or full interest in a NYSE Liffe Mini Gold vault receipt. Delivered to exchange approved vaults by exchange approved carriers.

But, before that, on August 26, 2008, it read as follows:

33.2 troy ounces (±5%) of refined gold, assaying not less than .995 fineness, contained in no more than one bar.

In summary, there is now so much demand for delivery of the mini-contracts that the exchange can no longer deliver 1 kg bars. When the wording was changed, a flurry of complaints resulted. Technically, in my opinion, if you bought a mini futures contract from an NYSE-Liffe clearing member, prior to December 31st, you could bind them to their legal contract with you, and force them to either deliver the 1 kg bar, or pay for you to obtain it on the open spot market. Based upon the original wording, NYSE-Liffe and its clearing members are legally obligated to deliver that 1 kg bar per contract, whether they want to or not, and regardless of the internal rules of the exchange. Whether anyone will force compliance, however, is an open question.

On top of this or perhaps because of it, COMEX has announced that it is launching a new E-Mini future contracts on gold and silver on April 19th covering, yes you guessed it, 1kg of gold and 1000oz of silver for which they is absolutely no mechanism for physical delivery. With no mechanism for delivery and only cash settlement the floodgates of market manipulation through naked short selling will be opened. Theodore Butler summed these new contracts up perfectly:-

Let me be as clear as I can - because these new contracts do not contain actual metal delivery clauses, they are, in my opinion, fraudulent contracts. The CME should be ashamed of itself for introducing them, and the CFTC disgraces itself (again) for not preventing their introduction.

With ever greater quantitative easing and the resulting inflationary pressures we can only wonder how long the blatant rigging of the bullion market can continue.

Monetary Policy, Inflation, Stimulus

If you are trying to keep score, according to Bloomberg, the U.S. has spent or committed almost $13 trillion on bailouts, rescues, and stimuli. Note the attitude displayed of the bankers and economist in the article below and ask yourself, with respect to each of them, if this is the attitude of a person who really understands what is going on, who hasn't a clue or is in on the scam:-

Financial Rescue Nears GDP as Pledges Top $12.8 Trillion

The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the longest recession since the 1930s.

New pledges from the Fed, the Treasury Department and the Federal Deposit Insurance Corp. include $1 trillion for the Public-Private Investment Program, designed to help investors buy distressed loans and other assets from U.S. banks. The money works out to $42,105 for every man, woman and child in the U.S. and 14 times the $899.8 billion of currency in circulation. The nation's gross domestic product was $14.2 trillion in 2008.

President Barack Obama and Treasury Secretary Timothy Geithner met with the chief executives of the nation's 12 biggest banks on March 27 at the White House to enlist their support to thaw a 20-month freeze in bank lending.

"The president and Treasury Secretary Geithner have said they will do what it takes," Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein said after the meeting. "If it is enough, that will be great. If it is not enough, they will have to do more."

Commitments include a $500 billion line of credit to the FDIC from the government's coffers that will enable the agency to guarantee as much as $2 trillion worth of debt for participants in the Term Asset-Backed Lending Facility and the Public-Private Investment Program. FDIC Chairman Sheila Bair warned that the insurance fund to protect customer deposits at U.S. banks could dry up because of bank failures.

'Within an Eyelash'

The combined commitment has increased by 73 percent since November, when Bloomberg first estimated the funding, loans and guarantees at $7.4 trillion.

"The comparison to GDP serves the useful purpose of underscoring how extraordinary the efforts have been to stabilize the credit markets," said Dana Johnson, chief economist for Comerica Bank in Dallas.

"Everything the Fed, the FDIC and the Treasury do doesn't always work out right but back in October we came within an eyelash of having a truly horrible collapse of our financial system, said Johnson, a former Fed senior economist. "They used their creativity to help the worst-case scenario from unfolding and I'm awfully glad they did it."

Federal Reserve officials project the economy will keep shrinking until at least mid-year, which would mark the longest U.S. recession since the Great Depression.

The Real Economy

The recession in the UK was worse in the 4th quarter of 2008 than thought due to sharper decreases in consumer spending and construction.

In the United States, home prices fell 20% from January 2008 to January 2009 in the 20-city index published by Case Shiller. The city of Flint, Michigan, made famous by Michael Moore's classic documentary, Roger and Me, is actually considering shutting down parts of the city:-

Look in any direction from Bianca Bates' north Flint home, and you'll see graffiti-covered siding, boarded-up windows and overgrown lots

About half of the homes on her block are burned out or vacant magnets for drug dealers and squatters. It isn't where she thought she'd end up, but it's all she can afford to rent.

"It's a dangerous place to live," said Bates, 21, who lives on East Russell Avenue. "Everywhere you look, these houses are empty around here."

Property abandonment is getting so bad in Flint that some in government are talking about an extreme measure that was once unthinkable -- shutting down portions of the city, officially abandoning them and cutting off police and fire service.

Temporary Mayor Michael Brown made the off-the-cuff suggestion Friday in response to a question at a Rotary Club of Flint luncheon about the thousands of empty houses in Flint.

Brown said that as more people abandon homes, eating away at the city's tax base and creating more blight, the city might need to examine "shutting down quadrants of the city where we (wouldn't) provide services."

He did not define what that could mean -- bulldozing abandoned areas, simply leaving the vacant homes to rot or some other idea entirely.

On Monday, a city spokesman downplayed Brown's comments.

US banking rescue

Just in case there was any doubt who is running the United States it was wiped away as President Obama had a "very pleasant" meeting with the big bankers then, a week later, fired the head of General Motors and condemned GM and Chrysler to bankruptcy. The auto companies actually make something useful and provide salaries, pensions and healthcare to lots of working and retired people while the banks have been shown to be nothing more than immense private casinos.

There is no doubt that the economic system needs to be restructured, banks and auto companies included, but to continue bailing banks out with essentially no conditionality other than a few figs leaves to placate the public while condemning the millions of people associated with the auto industry is reprehensible. Maybe the auto companies should have donated more money to the campaigns of the President and members of Congress.

Although after the meeting with the bankers, there was a show of some dissatisfaction, that was only for public display. Joe Kishore:-

Every aspect of the administration's economic policy caters to the interests of the financial elite, of which the president is merely a mouthpiece. The private meeting at the White House had the air of a conspiracy against the public, a gathering to discuss carving up state resources in order to hand them over to the banks and major investors.

The discussions about the auto industry revolved around how best to deny healthcare and pensions obligations to retired workers. When, after a massive giveaway to the banks, Obama had to appear tough against the corporate elite, he took on the politically easy target of the auto companies. Of course the auto companies are no angels having connived to suppress fuel-efficient and alternative fuel vehicles for decades and building their products on the basis of them being consumables rather than long term assets. But they are one of the few remaining pillars of manufacturing in the US with millions of livelihoods depending upon them. It takes years to retool auto plants so decisions taken now will be hard to reverse; which may be exactly the point of course.

Joe Kishore again:-

As the administration works with Wall Street to make the banks - and the personal portfolios of the bankers - whole, Obama is preparing a massive attack on the working class. During his press conference, the president repeatedly stressed his determination to tackle "high health care costs" and implement "Entitlement reform" - i.e., cuts in Social Security, Medicare and Medicaid.

As the question of restrictions on executive bonuses is dropped, Obama repeated on Thursday his insistence that any aid to the auto industry be conditioned on further job and wage cuts from autoworkers. In an online town hall meeting, the president said that the auto industry will have to "make some pretty drastic changes. And some of those are still going to be painful."

The policy of the administration is to ensure that this "pain" is born entirely by the working class, while the looting of public assets by the financial elite continues.

The Geithner plan to devote $1.2 trillion to take "toxic" assets off bank balance sheets is breathtaking in its criminal simplicity: use taxpayer money to pay banks for their worthless assets, leaving the banks to run their profitable businesses and keep the money they stole for over a decade. The scheme is headlined at $1.2 trillion which according to Douglas Elliot at the Brookings Institute is the sum total of toxic mortgage assets held by US banks. Not only that, but they get to run one more scam.

The Free Market, Financial Style: How the Scam Works

Newspaper reports seem surprised at how high banks are bidding for the junk mortgages that Treasury Secretary Geithner is now bidding for, having mobilized the FDIC and Fed to transfer yet more public funds to the banks. Bank stocks are soaring - thereby bidding up the Dow Jones Industrial Average, as if the "financial industry" really were part of the industrial economy.

Why are the very worst offenders - Bank of America (now owner of the Countrywide crooks) and Citibank the largest buyers? As the worst abusers and packagers of CDOs, shouldn't they be in the best position to see how worthless their junk mortgages are?

That turns out to be the key! Obviously, the government has failed to protect itself - deliberately, intentionally failed to do so - in order to let the banks pull off the following scam.

Suppose a bank is sitting on a $10 million package of collateralized debt obligations (CDOs) that was put together by, say, Countrywide out of junk mortgages. Given the high proportion of fraud (and a recent Fitch study found that every package it examined was rife with financial fraud), this package may be worth at most only $2 million as defaults loom on Alt-A "liars' loan" mortgages and sub-prime mortgages where the mortgage brokers also have lied in filling out the forms for hapless borrowers or witting operators taking out mortgages at far more than properties were worth and pocketing the excess.

The bank now offers $3 million to buy back this mortgage. What the hell, the more they bid, the more they get from the government. So why not bid $5 million. (In practice, friendly banks may bid for each other's junk CDOs.) The government - that is, the hapless FDIC - puts up 85 per cent of $5 million to buy this - namely, $4,250,000. The bank only needs to put up 15 per cent - namely, $750,000.

Here's the rip-off as I see it. For an outlay of $750,000, the bank rids its books of a mortgage worth $2 million, for which it receives $4,250,000. It gets twice as much as the junk is worth.

The more the banks holding junk mortgages pay for this toxic waste, the more the government will pay as part of its 85 per cent. So the strategy is to overpay, overpay, and overpay. Paying 15 per cent is a small price to pay for getting the government to put in 85 per cent to take the most toxic waste off your books.

The free market at work, financial style.

What Michael Hudson, author the article above, has skimmed over is that the scam is even bigger than he describes so succinctly. According to Elliot at the Brookings Institute; the private investors (the banks, hedge funds and private equity funds) will have their losses capped at 10 to 20 percent of what they put up; the Fed will come in 50/50 on the meagre amount the investor puts up and on occasion will lend the entire investment amount. The scheme is astounding in depth and breadth; it is a trillion dollar heist.

AIG and Goldman Sachs

Talking of scams and heists, as we discussed last week, the grandstanding in the US Congress over AIG bonuses was clearly designed for the media spin machine while deftly keeping the real secrets of the AIG bailout out of the public mind. As Megan Slack at Alternet points out, the Merrill Lynch "performance related" bonuses were 22 times the contractual "retention" bonuses at AIG. The Merrill bonuses were also 36.2% of the TARP monies granted to Merrill and Bank of America, it's new parent. We may have missed it of course but we didn't notice the roof of Congress being blown off in uproar and hastily cobbled tax Bills being rushed through at the Merrill pay outs. It is therefore appropriate to take a close look at where some of the AIG bailout money went.

Last week we explored how AIG Financial Products (AIGFP) acted as final insurer for an array of Credit Default Swaps and other unregulated derivatives in a manner that meant that when the value of the insured securities dropped AIGFP was required to provide cash collateral. AIGFP was also heavily involved in the Stock Lending business which included similar arrangements for AIGFP to provide cash collateral in the event of the value of stocks falling. On March 15th AIG disclosed who its counterparties were and how much money they had received under these collateral and other arrangements between September 16th 2008 and December 31st 2008.

Setting aside the sums paid to US States, we find that $22.4 billion was paid out directly as collateral against Credit Default Swaps; $27.1 billion indirectly, via a company set up to manage parts of the AIGFP portfolio called Maiden Lane III, as collateral against Credit Default Swaps; and $43 billion to Securities Lending Counterparties, all to banks.

The individual beneficiaries of note were; Goldman Sachs - $12.9 billion, Bank of America/Merrill Lynch - $ 12.4 billion, Societe Generale $11.9 billion, Deutsche Bank - $11.8 billion, Barclays - $8.5 billion, UBS - $ 5 billion and BNP Paribas - $4.9 billion.

Of course complete silence over where all this money went was impossible. Initial calls for investigation came from those who champion global markets when it suits the US and then suddenly find themselves violently opposed to global markets when it doesn't suit. The initial wave of protectionist rhetoric focused on the fact that foreigners were reaping the benefits of the AIG bailout but this has now had to be broadened to include Goldman Sachs.

AIG Payments to Banks Should Be Probed, Lawmakers Say

Lawmakers called for a federal probe into whether banks including Goldman Sachs Group Inc. received more funds than necessary from the bailout of American International Group Inc.

"We would like to know if the AIG counterparty payments, as made, were in the best interests of the taxpayers," said 27 members of Congress led by Elijah Cummings, a Democrat from Maryland, in a letter dated yesterday to Neil Barofsky, inspector general for the Troubled Asset Relief Program. Banks got about $50 billion in payments tied to credit-default swaps.

The demand reflects widening frustration among lawmakers with the rising cost of AIG's bailout, now valued at $182.5 billion. The U.S. has propped up New York-based AIG four times since September after a cash shortage left the insurer unable to back up protection sold to banks on their fixed-income holdings. The lawmakers asked why banks weren't asked to take some losses to help stabilize AIG and the financial system.

"Was any attempt made to renegotiate and close out these contracts with 'haircuts?'" the letter asked. "If not, why not?"

The query from the lawmakers concerns payments made to unwind some of AIG's credit-default swaps, contracts similar to insurance that pay investors if bonds don't pay as promised. AIG sold swaps to more than 20 U.S. and foreign banks.

Imposing 'Haircuts'

After AIG was rescued by the U.S. from collapse last year, banks that bought credit-default swaps got $22.4 billion in collateral and $27.1 billion in payments to retire the contracts, the insurer said earlier this month. Goldman Sachs, Deutsche Bank AG and Societe Generale SA were among the largest recipients. The letter asked whether holders received 100 cents on the dollar for their securities, a sum they wouldn't be entitled to get unless their bonds actually defaulted...

So in summary we have a group of international banks who have made billions from the trading of securities, often through the deliberate and careful manipulation of prudential and legal regulation, finding that the value of their portfolios was severely reduced due to a mixture of factors including the simple fact that many of the securities were in fact useless junk. Other securities may not be useless junk but nobody can really tell as they depend upon ordinary people paying their mortgages and companies paying their loan commitments over time.

Under the law, the banks would have to sit out the crisis and see what could be recovered over time. Their insurer is bankrupt and cannot be relied upon as it is insolvent and must therefore be wound up. Whether they recover 5 cents on the dollar or more or less will be a matter of time and a great deal of hassle. If this was the insurance on our homes, our assets or our life savings this is what would happen.

But the law does not apply to the financial elite; other rules apply to them.

Before moving on let's cast our minds back to September 2008 when Lehman had collapsed, AIG was rescued and the New York Times ran this story:-

Behind Insurer's Crisis, Blind Eye to a Web of Risk

Although it was not widely known, Goldman, a Wall Street stalwart that had seemed immune to its rivals' woes, was A.I.G.'s largest trading partner, according to six people close to the insurer who requested anonymity because of confidentiality agreements. A collapse of the insurer threatened to leave a hole of as much as $20 billion in Goldman's side, several of these people said.

Days later, federal officials, who had let Lehman die and initially balked at tossing a lifeline to A.I.G., ended up bailing out the insurer for $85 billion.

Their message was simple: Lehman was expendable. But if A.I.G. unspooled, so could some of the mightiest enterprises in the world.

A Goldman spokesman said in an interview that the firm was never imperiled by A.I.G.'s troubles and that Mr. Blankfein participated in the Fed discussions to safeguard the entire financial system, not his firm's own interests.

As FTAlphaville put it:-

... which caused something of a furore.

Goldman strenuously and very publicly denied the gist of the allegation. So aggressive was their rebuttal, in fact, that the wires even wrote up separate stories on it. Here's Reuters:

Goldman Sachs Group Inc rejected as "seriously misleading" a published report on Sunday that said the Wall Street bank had as much as $20 billion of exposure to the troubled insurance giant American International Group Inc.

Lucas van Praag, a Goldman spokesman, on Sunday said the Times article was wrong to suggest that Goldman had reason to be concerned about AIG's problems.

"Although we have said many times on the record that our exposure to AIG was, and is, not material, the reporter chose to pursue a story line which suggests, by innuendo, that is not the case," he said in an e-mailed statement.

"For the avoidance of doubt, our exposure to AIG is offset by collateral and hedges and is not material to Goldman Sachs in any way," he continued. "The conclusions about our interests that readers of the New York Times article are invited to reach are seriously misleading."

Now, being humble souls we at Sott.net may not have a proper understanding of the value of money but doesn't $12.9 billion seem like a material amount of money to you?

At the end of 2008 Goldman Sachs had $42.7 billion of Tangible Common Equity (TCE - the type of core capital that the Obama administration is focused on), should AIG not have paid out that $12.9 billion the hit for Goldman would have been taken against this. Such a significant hit to a bank's capital in the current environment might have been catastrophic. What Goldman has collected between the end of 2008 and now under the ever increasing AIG bailout is anybody's guess.

Not only is $12.9 billion a material amount of money and banking capital but the last time one of us did a stock exchange exam it was a criminal offensive to make false or misleading statements in relation to a public company, especially if the person making those statements was an officer of the company. So it seems to us that members of the US Congress instead of grandstanding for punitive taxes against AIGFP executives should be demanding criminal probes of Goldman Sachs and its current and former employees. This is of course not going to happen because Goldman Sachs former employees run the US government. What an excellent example of the corporate controlled state, otherwise known as Fascism.

To believe that the financial crisis is a result of mistakes or stupidity would be naïve. Larry Summers, Timothy Geithner and their colleagues are not stupid. Nor, more importantly, are the faceless people giving them their orders. The mess the whole world is in is a direct and completely foreseeable result of the legal and regulatory framework put in place with the commencement of the repeal of the Glass-Steagall Act in 1999. Dave Lindorff dug up quotes from the 1999 article about the repeal in the New York Times:

A Financial History Lesson: These Are the People We Expect to Fix Things?

George Santayana once famously said, "Those who cannot learn from history are doomed to repeat it." But what about those who don't just ignore history, but who hire and take counsel from those who committed historic follies in the past?

Back in November 1999, Congress passed legislation pushed by then Sen. Phil Gramm (R-TX), rescinding the Depression-era Glass-Steagall Act. The measure, backed by the Clinton administration, and overwhelmingly passed by the Senate (90-8) and the House (362-57), opened the way for banks to merge with investment banks and insurance companies, and led directly to the current financial cataclysm.

A report on that Congressional action written by reporter Stephen Labaton and published in the New York Times on Nov. 5, 1999 under the headline "Congress Passes Wide-Ranging Bill Easing Bank Laws," includes some remarkable quotes from key players in that sellout to the financial sector.

Here's Larry Summers, a chief architect of the current financial industry multi-trillion-dollar bailout giveaway being orchestrated by the Obama administration, where he serves as director of President Obama's National Economic Council:-

''Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century. This historic legislation will better enable American companies to compete in the new economy.''

And here's what Sen. Charles Schumer (D-NY), awash in Financial industry campaign donations but currently in high dudgeon over the Wall Street's bonus payments to executives, speaking about the '99 measure eliminating Glass-Steagall:-

''If we don't pass this bill, we could find London or Frankfurt or years down the road Shanghai becoming the financial capital of the world. There are many reasons for this bill, but first and foremost is to ensure that U.S. financial firms remain competitive."

The article quotes the Clinton administration and Summers' Treasury Department as predicting that revoking Glass-Steagall and permitting banks to expand into investment banking and insurance would save consumers "$18 billion a year" through economies of scale - a figure that seems rather quaint as taxpayers now pony up trillions of dollars to rescue those same institutions. (The article notes that critics of deregulation argued that even those paltry savings, probably overstated, would flow to financial sector investors, not to consumers.)

The old Times clip (brought to my attention by alert veteran radical writer and activist Bert Schultz of Philadelphia), does highlight a couple of prophetic heroes, too.

Sen. Byron Dorgan (D-ND), one of seven Senate Democrats who voted against revoking Glass-Steagall, said:-

"I think we will look back in 10 years' time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930's is true in 2010. I wasn't around during the 1930's or the debate over Glass-Steagall. But I was here in the early 1980's when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.''

And then there's the late Sen. Paul Wellstone (D-MN), who died in a plane crash during his campaign for re-election in 2002. Congress, he said, seemed:-

"...determined to unlearn the lessons from our past mistakes. Scores of banks failed in the Great Depression as a result of unsound banking practices, and their failure only deepened the crisis. Glass-Steagall was intended to protect our financial system by insulating commercial banking from other forms of risk. It was one of several stabilizers designed to keep a similar tragedy from recurring. Now Congress is about to repeal that economic stabilizer without putting any comparable safeguard in its place.''

For the record, also voting against Glass-Steagall repeal in the Senate were lone Republican Richard Shelby of Alabama, and six other Democrats: Barbara Boxer (CA), Richard Bryan (NV), Russ Feingold (WI), Tom Harkin (IO), and Barbara Mikulski (MD). 51 Democrats, 5 Republicans and 1 independent voted against the measure in the House.

Treasury Secretary Tim Geithner, a key player in the current bailout scheme, isn't mentioned in the Times article about Glass-Steagall, but at the time was a protégé of Summers, working as undersecretary of the treasury for international affairs.

While they are thankfully well out of the loop in the current scramble in Washington to both end the reverse the economic collapse and try and help financial companies and financiers profit from it, it's worth reading too in this 10-year-old clip what Phil Gram and then Sen. Bob Kerry (D-NB and now embattled president of the New School in New York City) had to say about ending Glass-Steagall.

Sen. Gramm:-

'The world changes, and we have to change with it. We have a new century coming, and we have an opportunity to dominate that century the same way we dominated this century. Glass-Steagall, in the midst of the Great Depression, came at a time when the thinking was that the government was the answer. In this era of economic prosperity, we have decided that freedom is the answer.''

And then Sen. [Bob] Kerry, with a line that should probably be etched someday on his tombstone as his most memorable line:-

"The concerns that we will have a meltdown like 1929 are dramatically overblown."

The New York Times article did say that

The decision to repeal the Glass-Steagall Act of 1933 provoked dire warnings from a handful of dissenters that the deregulation of Wall Street would someday wreak havoc on the nation's financial system. The original idea behind Glass-Steagall was that separation between bankers and brokers would reduce the potential conflicts of interest that were thought to have contributed to the speculative stock frenzy before the Depression.

As always, we would all have been served better if the "handful of dissenters" had been listened to. However, we believe that the policymakers quoted in favor of the Act did realize what the consequences would be; they knew that it would open the flood gates of financial speculation known in banking as "proprietary trading"; their subsequent actions in allowing excessive bank leverage, keeping credit derivatives deliberately unregulated and emasculating the SEC and other regulators confirms this. They were lying to the public and they were conducting a scam in favour of the financial elite and themselves.

Under a Guise

With its President, Nicholas Sarkozy threatening to boycott the G20 summit, a threat so ridiculous in its hollowness that it was clearly stage-managed for the media spin machine, France is presented as being at the forefront of the push for tougher regulation and in the battle against 'tax havens'.

As we have commented before, there is nothing in the nature of this manufactured crisis that can be laid at the door of 'tax havens' yet Sarkozy makes it one of his "red line" principles upon which he is prepared to sacrifice the entire G20 summit. For Sarkozy this is a "red line" issue; for us this is a very large red flag for it seems that there are global moves afoot to establish totalitarianism. France and Germany are championing the destruction of financial privacy under the guise of fighting tax evasion; the EU as a whole is championing the replacement of parents with the state in the minds and lives of children; the UK is championing the destruction of privacy in general in its mania for video, email, postal and telephone surveillance under the guise of fighting terrorism; Australia is championing wholesale national censorship of the internet (the last free and open medium of exchange) under the guise of fighting terrorism and pedophilia; the US is championing the violence of the police state and total population control with its heavy use of Tasers, establishment of internment camps, "in-your-face policing" and "papers please" control that would make the Gestapo proud (in fact, if one traces the real origins of the CIA it IS making the Gestapo proud for that is the origin of much of the CIA); while Israel perfects the art of apartheid and genocide while portraying itself as the ultimate victim.

Each of these planks of the totalitarian future is being "perfected" and normalized in one country or region and then slowly introduced elsewhere. So while people, including yourself perhaps, may sit back and nod sagely that it is important to crush tax havens and prevent those dreadful tax evaders from evading their legal obligations remember that they are supporting a key part of the totalitarian future.

Sarkozy got what he wanted on tax havens in text that should be chilling for us all:-

..to take action against non-cooperative jurisdictions, including tax havens. We stand ready to deploy sanctions to protect our public finances and financial systems. The era of banking secrecy is over. We note that the OECD has today published a list of countries assessed by the Global Forum against the international standard for exchange of tax information;

In case it needs repeating, we urge you to truly understand what is meant by "non-cooperation" and the threat of sanctions. Remember that Iraq and Afghanistan are both sovereign nations that did not cooperate. Iraq was subject to sanctions that killed an estimated 500,000 children under 5 over ten years. Iran is a sovereign nation that is deemed by its enemies to not be cooperating and is now under a throttling regime of sanctions that go mostly unreported in the mainstream media.

There is a new world order being implemented both right in front of us and in the shadows; those that resist are termed "non-cooperative" and will have the full weight of propaganda turned against them such that should they continue to resist then sanctions will be imposed. For nations that rely on international finance for their survival, sanctions will no doubt bring them to heel; for other nations more brutal measures may be required, as in Iraq and Afghanistan. Every move will be justified using the mainstream media propaganda machine; the aggressors will be portrayed, as always, as seeking to right the wrongs of the world; all the while the dark suppressive blanket of totalitarianism is drawn further over us all.

The power of the nations of the G20 is essentially absolute so once again we see history marching forward forgetting the lessons of its past and in particular the old adage that "Power Corrupts and Absolute Power Corrupts Absolutely".

Market Data

The markets from March 23rd to March 31st

	Previous close	March 31st close	Change	% change
Gold (USD)	952.90	925.00	27.90	2.93%
Gold (EUR)	701.80	698.06	3.74	0.53%
Oil (USD)	52.10	49.66	2.44	4.68%
Oil (EUR)	38.37	37.48	0.89	2.33%
Gold:Oil	18.29	18.63	0.34	1.84%
USD / EUR	0.7365 / 1.3578	0.7547 / 1.3251	0.0182 / 0.0327	2.47% / 2.41%
USD / GBP	0.6918 / 1.4455	0.6982 / 1.4323	0.0064 / 0.0132	0.93% / 0.91%
USD / JPY	95.857/ 0.0104	98.82/ 0.0101	2.963 / 0.0003	3.09% / 2.88%
DOW	7,278	7,609	331	4.54%
FTSE	3,843	3,926	83	2.17%
DAX	4,069	4,085	16	0.39%
NIKKEI	7,946	8,110	164	2.06%
BOVESPA	40,076	40,926	849	2.12%
HANG SENG	12,834	13,576	743	5.79%
US Fed Funds	0.19%	0.31%	0.12	n/a
$ 3month	0.20%	0.20%	0.00	n/a
$ 10 year	2.64%	2.66%	0.02	n/a

The markets from January 2nd to March 31st

	January 2nd close	March 31st close	Change	% change
Gold (USD)	876.80	925.00	48.20	5.50%
Gold (EUR)	629.	698.06	68.27	10.84%
Oil (USD)	46.35	49.66	3.31	7.14%
Oil (EUR)	33.29	37.48	4.19	12.58%
Gold:Oil	18.92	18.63	0.29	1.55%
USD / EUR	0.7183 / 1.3922	0.7547 / 1.3251	0.0364 / 0.0671	5.07% / 4.82%
USD / GBP	0.6874/ 1.4548	0.6982 / 1.4323	0.0108 / 0.0225	1.57% / 1.55%
USD / JPY	91.830/ 0.0109	98.82/ 0.0101	6.99 / 0.0008	7.61% / 7.34%
DOW	9,035	7,609	1,426	15.78%
FTSE	4,562	3,926	636	13.93%
DAX	4,973	4,085	888	17.86%
NIKKEI	8,860	8,110	750	8.47%
BOVESPA	40,244	40,926	682	1.69%
HANG SENG	15,043	13,576	1,467	9.75%
US Fed Funds	0.06%	0.31%	0.25	n/a
$ 3month	0.08%	0.20%	0.12	n/a
$ 10 year	2.37%	2.66%	0.29	n/a

Inflating Their Way Out of Trouble After All

By Simon Davies and Donald Hunt
SOTT.net

A busy two weeks in the global economy as the taps were opened by governments busy creating new money. Sadly they decided to use it to buy government bonds and worthless "toxic assets" rather than employ and train citizens and build much needed national infrastructure.

Inevitably, with new money flowing into the system inflation will grow further eroding the value of savings and wages, while mobile money will seek a home in commodities thereby adding a double boost to the cost of living for us all. Governments seem to be clinging to the hope that excess supply will dampen the inflationary pressure; a forlorn hope. China and Russia called for a new global reserve currency clearly losing patience with the US pretense at global economic leadership.

The US Congress became "a rat's nest of grandstanding" on the issue of AIG bonuses while remaining silent on the secrecy of the Federal Reserve as to who's been receiving the trillions in bailout money and on Goldman Sachs receipt of over $12 billion in AIG bailout money.

Markets

World stock indexes all rose over the past two weeks, led by financial institutions, on news that the bailouts are having their intended effect of pushing the losses onto the taxpayers and leaving profitable business to the financial institutions.

Over the past two weeks the U.S. dollar fell. The drop in the dollar is not surprising given the $1.5 trillion in extra money to be brought into existence and then thrown into the black hole that is the US financial system. Oil jumped 14% over the past two weeks while gold rose 6% against the dollar but now seems range bound between $930 and $950/oz.

Crude Oil Rises as Dollar's Decline Increases Commodity Demand

Crude oil rose to the highest in almost four months in New York as the dollar extended its losses against the euro, increasing the investment appeal of commodities.

Oil advanced for a third day as the dollar's decline improved the appeal of hard assets as an inflation hedge and made commodities cheaper for non-U.S. buyers. Crude for May delivery jumped 11 percent last week as the U.S. Federal Reserve announced new initiatives to lower interest rates and speculators turned bullish on oil for the first time in three weeks.

"Sentiment has definitely improved on the back of the Fed announcement," said Toby Hassall, a research analyst at Commodity Warrants Australia Pty in Sydney. "We're going to need further weakness in the dollar to really establish a base at $50."
The Euro was the main beneficiary of US dollar weakness again, having strengthened 7.7 against the dollar during March.

With the US, UK, Japan and Switzerland now fully committed to "quantitative easing", the creation of new money by the government, there are few safe havens other than the Euro, as John Normand at J.P. Morgan put it:-

"The dollar is a sell near term versus those currencies where quantitative easing is off the table. The top on euro-dollar will come when the ECB looks likely to join the quantitative easing crowd. For now, it's content to stay on the sidelines."

The markets the last two weeks (from March 8th to March 22nd)

	Previous close	This week's close	Change	% change
Gold (USD)	939.50	952.90	13.40	1.43%
Gold (EUR)	742.57	701.80	40.77	5.49%
Oil (USD)	45.67	52.10	6.43	14.08%
Oil (EUR)	36.10	38.37	2.27	6.30%
Gold:Oil	20.57	18.29	2.28	11.09%
USD / EUR	0.7904 / 1.2652	0.7365 / 1.3578	0.0539 / 0.0926	6.82% / 7.32%
USD / GBP	0.7096 / 1.4092	0..6918 / 1.4455	0.0178 / 0.0363	2.51% / 2.58%
USD / JPY	98.270/ 0.0102	95.857/ 0.0104	2.413 / 0.0002	2.46% / 1.96%
DOW	6,627	7,278	651	9.83%
FTSE	3,531	3,843	312	8.84%
DAX	3,666	4,069	402	10.97%
NIKKEI	7,173	7,946	773	10.77%
BOVESPA	37,105	40,076	2,971	8.01%
HANG SENG	11,922	12,834	912	7.65%
US Fed Funds	0.25%	0.19%	0.06	n/a
$ 3month	0.20%	0.20%	0.00	n/a
$ 10 year	2.87%	2.64%	0.23	n/a

Fiscal Stimulus

Fiscal Stimulus should perhaps better be termed "loads of money" as despite their being hundred of thousands of economists in the world, the best that governments can come up with as they grapple with a crisis that they seem resolute to exacerbate, is to create new money and throw it at financial investors, a process know as "quantitative easing". This would be a good thing if the money were being used to create but instead, as is wholly predictable, it is being pumped into the financial system rather than the real economy. In the UK, ₤75 billion is being created to buy UK government bonds (known as gilts). An incredible sum considering it is 20% of all gilts outstanding.

In the US an equivalent sum would be $900 billion according the UK Financial Times. No such luck for holders of US Treasuries who would be delighted to sell as the amount earmarked by the US Treasury is "just" $300 billion. However, there was great news for US banks that will get to unload over $1.2 trillion of "toxic" mortgage backed securities onto the US government.

So if you had you eye on a new highway, school, hospital, community centre, transport system, affordable housing or pretty much anything else that would pay millions of ordinary people to build things that will last at least another generation or perhaps some newly trained teachers, doctors or nurses you will have to wait for there is a far more pressing need to save the banking system.

The other economic tools available to government are of course interest rates, which they are all busily cutting as fast as possible in a race to zero, and stimulus packages which, if properly directed could make huge differences. The question of course is whether they are being properly directed. If you have received any meaningful indication in your bank account, through your employer or in the price you pay for goods and services that these massive stimulus packages are reaching ordinary citizens please let us know. Before recipients of tax refunds bombard us with the details, those don't count. They don't count because (i) they are not meaningful in terms of total household finance, (ii) you had to pay tax to get a refund, (iii) it was your money already, they just gave a bit back, (iv) the tax system is totally rigged in favour of the rich so getting screwed a bit less is not a good deal and (v) compare tax refunds per capita with bailout dollars per bank shareholder and you'll know why they don't count.

So here's this weeks litany of stimulus:-

South Korea announced a stimulus package worth $3.9 billion to be followed this month by one totaling $33 billion.

Colombia lowered interest rates as did Mexico. Australia signaled its intent to lower interest rates further as did Eastern European countries, abandoning any effort to prop up the value of their currencies. Eastern European currencies did find some relief with the announcement of an increase in the amount of aid forthcoming from the EU. India also signaled lower rates.

It is an interesting freak of economics that when a government decides to create new money there is an immediate inflationary boost which predictably results in the value of the currency falling on world markets, yet when there are massive booms fueled by bank created "credit money" such as that engineered up until 2007, despite the fact that there is often a greater inflationary effect, we are told everything is just fine and the "markets" behave accordingly. In reality, the real rate of credit created inflation and particularly asset price inflation rips the guts out of the average person's economic security while tethering them to a debt burden that will remain with them for the entire lives.

There are infinitely better ways to use newly created money than "buying" worthless paper from insolvent banks. For example governments could follow the example from the 19th century of Guernsey by paying people with newly created money to build nationally important infrastructure or they could train people for jobs which we know there is ready demand for such a teachers, doctors, nurses and a myriad of other professions and trades where skills shortages are extreme.

Sweden and Canada are expected to join the quantitative easing programme soon. This will leave the world in a new and bizarre situation as the major economies outside Asia Pacific will be busily printing money in a series of what are looking increasingly like competitive devaluations of their respective currencies. Essentially a devaluation of all western currencies will occur as Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London said:-

"Quantitative easing across the board will diminish the fiat currencies as a store of value. Investors may then seek refuge in harder currencies such as commodities."

We would remove the "may" and say that speculative money and any mobile money seeking to protect itself from this across the board devaluation will seek refuge in commodities. The commodity of choice would normally be gold followed by silver yet gold, as we mentioned above, remains range bound between about $930/oz and $950/oz. The gold market is one of the most controversial in the world. There is an immense body of evidence, produced by serious and professional participants and observers, which shows that it is highly manipulated. The data that proves the manipulation is of course ignored and the messengers attacked and ridiculed. This last week is a good example of the manipulation and how it works.

While oil jumped 14% against the dollar gold nudged up just 6%. As a haven of value gold is unique so it would seem a little odd that at the time the world's de facto reserve currency is devaluing itself by over $1.5 trillion gold is out performed by oil for which there is currently a very finite demand, peak oil propaganda notwithstanding. The clue to why gold performed the way it did is that two days after the announcement of quantitative easing in the US an additional 1.2 million ounces of gold was sold short on Comex. The effect of short selling is that it gives the impression that supply is exceeding demand such that it creates a downward pressure on the gold price.

Therefore somebody was in the gold futures market driving the gold price down. If the details and history of how gold is manipulated are of interest take a look at the Gold Anti-Trust Action Committee (GATA). There used to be a Wikipedia article on GATA but it was deleted in February 2009. Considering that GATA is ten years old, has some highly respected Board members including Catherine Austin-Fitts and has funded two landmark anti-trust law suits it seems odd that it be removed with the reason given as, "This non-notable organization has no third-party sources for it's notability."

There was an interesting although depressing comment from Neil Mackinnon, a former economist for the U.K. Treasury and now chief economist and partner at ECU Group, a London based hedge fund with about $1 billion in assets:-

"All major central banks will have to follow the Fed and adopt quantitative easing. If the European policy makers are hoping they will get a free ride on the U.S. stimulus, hoping they will look more prudent, they are deluding themselves."

Which means that every major economic nation will be forced to create bundles of new money which will cause currency devaluation, known as inflation, across all western nations thereby wiping out the value of savings and wages; the knock-on effect into emerging markets will be devastating. To exacerbate matters mobile money will seek to find a home in readily tradable commodities, especially in the event that the gold market continues to be manipulated, thereby driving the price of basic essentials even higher. Those of us caught in the middle are already being whipsawed and it's going to get a lot worse the more quantitative easing goes on.

While we sit looking at the stark reality of such a future it is clear that we are not the only ones who'd like to see a different currency system for both Russia and China have called for a new international reserve currency modeled on the IMF's Special Drawing Rights. It seems that Russia and China now see the pitfalls of allowing the world's dominant economic nation and dominant military power to have free rein for so long. Both countries are at the mercy of the US. The devaluation of the US dollar is making Chinese manufactured goods more expensive for US consumers while China's strategic monetary reserves are shrinking in value as the dollar and other currencies devalue. As Zhou Xiaochuan, governor of China's central bank, said the desirable goal of the international monetary system is to:-

"create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies."

In an indication of the bizarre nature of investor "sentiment" Hungarian and Polish Hungary banks shares rose following the fall in the Swiss Franc (due to quantitative easing) as many of the loans made to Hungarian and Polish nationals are denominated in Swiss Francs and Euro so the local currency write downs these banks will have to make is momentarily reduced. Never mind that these banks, like their brethren in Western Europe are essentially bankrupt. It is this short term nature of the financial markets that exemplifies the disconnect between those seeking self interested profit and those seeking the long term benefit of all people on this planet. How can the latter win over the former when the mindset of self interest is the central core of the entire political, economic and social system?

Bailouts

Other G20 nations have joined the United States in signaling a willingness to use tax money to relieve financial institutions of so-called "toxic assets." In other words, paying the gambling addicts gambling debts off so they can keep on gambling.

Troubles in auto manufacturing are not limited to the United States. In Japan both Mazda and Nissan are in trouble with Toyota eating through it's cash reserves at an estimated rate of $10 billion a quarter. Nissan has tapped the US government's trillion dollar aid programme, issuing $1.5 billion in bonds backed by auto loan receivables.

Mazda, Shut Out of Bond Market, May Need Aid as Cash Dwindles

Mazda Motor Corp., burdened with the second-worst credit rating among Japan's carmakers and a 62 percent surge in short-term borrowing this fiscal year, plans to apply for government aid as it consumes cash.

"We can't sell bonds right now," said Nobuyoshi Tochio, general manager of Mazda's financial services division. "The market isn't functioning. Conditions are really bad."

Mazda, Japan's second-largest car exporter, used 174 billion yen ($1.8 billion) in cash last quarter as sales of Mazda6 sedans have plunged in the U.S. and Europe. The Hiroshima-based company may turn to the government for low- interest loans as its junk rating prevents it from following Toyota Motor Corp. in tapping capital markets.

"Mazda needs loans from the government badly, as it's vulnerable," ....."The company is important to the local economy, so it should be able to get them."
[ ]

Surging unemployment and tight credit has driven overall car demand to an almost 30-year low in the U.S. In the first two months of 2009, the company's sales plunged 29 percent in the U.S., 16 percent in Europe and 38 percent in Japan.
Exacerbating the drop in sales is the yen's 17 percent gain against the euro and 7.5 percent rise against the dollar in the past six months.......Every 1 yen drop against the dollar and euro cuts Mazda's annual operating profit by 2.6 billion yen and 1.4 billion yen, respectively.

In response, the carmaker slashed production by at least 221,000 vehicles in the second half of the fiscal year, slowing down the rate it was burning cash.

A little aside here: Mazda say the bond market isn't functioning which is not entirely true. The bond market has been remarkably busy, the problem is that while there is a lot of money looking for a safe haven there is also an almost inexhaustible supply of government guaranteed and other highly rated issues which is crowding out higher risk issuers such as Mazda. Such is the self-fulfilling nature of financial crises.

The saga of the overextended and insolvent German mortgage lender, Hypo Real Estate continued with a war of words regarding its nationalization between its major US based investor, J.C. Flowers & Co., and German regulators.

J.C. Flowers, the head of the firm, which holds 24% of Hypo Real Estate wants to keep his shares while the German government and therefore the German people bailout the bank to the tune of billions and possibly as much as €1 trillion. His argument is essentially that as that is what is being done in the US so the same must be done in Germany - an argument that is reflective of the mindset of the adherents to pure free market capitalism; a singularly self interested and rapacious mindset.

"Of course Hypo Real could not survive without the assistance of the German state and Germany; the government and the people have done the bank a good service," Flowers told the Bundestag, or lower house of parliament, finance committee hearing. "Steps taken were very necessary and appropriate though not unique, being taken by other states around the world."
[ ]

"Hypo's shares have positive value and with restructuring of the bank we believe the shares with state support have the prospect for long-term recovery," said Flowers.
[ ]

"It doesn't surprise me" that Flowers is insisting on keeping his stake in Hypo Real Estate, Merkel told reporters in Berlin. What's decisive is the German parliament's vote on the planned expropriation law, she said.

She reiterated that Hypo cannot be allowed to fail because of the bank's "systemic" importance. "That's why we need that 'last resort,'" she said.

The US announced plans to buy $1.2 trillion of "toxic" bank assets, namely mortgaged backed securities. The details were released late as Timothy Geithner, US Treasury Secretary, was busy trying to save his backside being bitten off by a bunch of hypocritical members of Congress that have recently contracted a severe form of rabies which causes them to foam wildly at the mouth when the topic of banking bonuses is in the air, more on which a little later.

It's a sweet deal for the banks but you'd never know it from the reactions with many complaining of having to sell too cheaply.

Meanwhile, yet another time bomb of toxic assets is about to hit the banks, shipping loans. Just like real estate mortgages which become worthless pieces of paper when the home owner cannot pay the monthly payments and the home is worth a fraction of what was originally paid for it, so too the ship mortgage market. Even with nearly 500 container ships laid up (taken out of circulation) there just isn't the global demand to keep shipping rates up. As a result the value of vessels, just like that of real estate is dropping like a stone; the NYK Procyon, a 4,750 teu (Twenty foot Equivalent Unit or one of the short containers) container ship sold for about $10 million last week whereas it would have been nearer $50 million a year ago.

Confidence

Confidence is viewed as a key economic indicator for the simple reason that it is in effect a measure of how much we all believe the big lie that is the global economic system. The economic system relies on all of us believing in it. We have to believe that the bank note in our pocket is actually worth something when in reality it is just a piece of paper for which a bank promises to give you another piece of paper of the same value. As you can see that is a circular proof of value and therefore valueless, unless of course you keep believing otherwise. This is why the G20 continually pledge to "restore confidence"; and of course along with confidence "growth" but more on "growth" another time.

We are told that the Federal Reserve will not tell us where the bulk of the money it is lavishing on the US banking system is going because otherwise "it would cast a stigma on recipients". Which is to say that people would stop having confidence in those banks and other institutions that can only survive on government money.

So when confidence drops it is a measure that those in power watch closely.

South African Manufacturing Confidence Tumbles

South African manufacturing confidence tumbled in the first quarter as the global economic crisis slashed export demand, the Bureau for Economic Research said.

The manufacturing business confidence index fell to 16 from 31 in the previous three months, the bureau, based at the University of Stellenbosch near Cape Town, said in an e-mailed statement today.

"The impact of the global economic crisis, which exacerbated the domestic economic slowdown already in motion, seems to be bringing the sector to its knees," the bureau said. "Retrenchments of factory workers continued to increase as production plummeted."

Official data shows that manufacturing, which accounts for 16 percent of the economy, plunged a record 11.1 percent in January from a year ago, threatening to push the economy into recession. A collapse in car sales in the U.S. and Europe have forced manufacturers such as ArcelorMittal South Africa Ltd., Africa's biggest steelmaker, and Volkswagen AG, the country's second-largest automaker, to scale back production and fire workers.

South Africa's economy, the biggest on the continent, contracted for the first time in a decade in the fourth quarter, with output dropping an annualized 1.8 percent.

Same situation in Japan:-

Japan Manufacturer Sentiment Tumbles Most on Record

Confidence among Japanese manufacturers slid the most in at least five years as a deepening global recession spurred record declines in exports and factory output, a government survey showed.

Sentiment among manufacturers was minus 66 points this quarter compared with minus 44.5 three months earlier, a joint survey by the Cabinet Office and Finance Ministry showed today. The drop was the biggest since the report began in 2004. A negative number means pessimists outnumber optimists.

Businesses said they will cut spending next fiscal year as the global collapse in demand erodes earnings. Prime Minister Taro Aso is preparing a stimulus package that may be twice as big as the 10 trillion yen ($104 billion) already pledged to revive an economy facing its worst recession since 1945.

"We're far from an environment where companies can be optimistic," said Yoshiki Shinke, a senior economist at Dai- Ichi Life Research Institute in Tokyo. "Companies may cut business investment more next fiscal year and we're going to see job and wage cuts intensify."

There isn't any confidence in Shipping these days either. This is just some of the news from Lloyds List:-

- Norwegian ship owner Siem Offshore has cancelled NKr1.2bn ($190m) of newbuilding anchor handling tug supply vessels at Norwegian shipyard Kleven Maritime albeit leaving it with 8 vessels still on order.

- Another Norwegian ship owner Petroleum Geo-Services has cancelled one of four seismic survey ships it ordered from Spanish yard Factorias Vulcano. PGS subsidiary Arrow Seismic Invest notified the yard and demanded a €39m ($53m) refund after a charter party was cancelled.

- Swedish shipowner Srab has cut its losses and walked away from a three vessel newbuilding order in Turkey.

- Navibulgar, the privatised Bulgarian operator sold last year to German interests, is to scrap around one-third of its elderly fleet, axing over 700 seafaring jobs in the process

- Israeli carrier Zim Integrated Shipping Services has laid up ten 4,000 teu container ships in the Philppines.

- An estimated 400-500 container vessels are now laid up worldwide, of which many belong to leading operators. Market leader Maersk, to cite just one example, is expected to mothball about 25 units totaling 150,000 teu, equivalent to 8% of its fleet.

In the United States, it would be incorrect to speak of lost confidence. Confidence is long gone, we should rather speak of increased fear and anxiety.

Financial fears grow - More consumers are just a paycheck or two away from ruin

Americans are in a collective state of financial depression as many admit they could only cover their bills for two months at most if they found themselves suddenly jobless, a nightmare more and more worry may come true.

The results of a bevy of surveys found a growing number of consumers are only a couple paychecks away from a household collapse even as many scramble to shore up savings. Rainy-day funds appear to be a distant memory as households burn cash to cover food and energy bills as well as mortgage and car payments.

A large number of households say that even one missed paycheck would spell financial ruin. And even in households that remain well off, the surveys show a festering fear that financial problems are lurking.....

A MetLife study released last week found that 50% of Americans said they have only a one-month cushion -- roughly two paychecks -- or less before they would be unable to fully meet their financial obligations if they were to lose their jobs. More disturbing is that 28% said they could not make ends meet for longer than two weeks without their jobs.

And it's not just low-income earners who would find themselves financially challenged. Twenty-nine percent of those making $100,000 or more a year said they would have trouble paying the bills after more than a month of unemployment.

A Discover U.S. Spending Monitor monthly study found that consumers were becoming more despondent as each month passed...

This is a condition that is known as slavery and relates very closely to the condition known as "living in illusion". Now the illusion is being increasingly exposed for what it is we wonder what the reaction of the masses will be; will they resort to violence as the powers that be clearly wish them to or will they seek an alternative path, one that will mean thinking of themselves as part of a community of man rather than as deserving individuals for whom "looking after No. 1" is all they know?

The Mighty Fallen

Babcock and Brown the infamous Australian private equity firm fell into receivership the week before last:-

Babcock & Brown is dying as it lived: beyond its means. Few institutions embodied the "buy now, pay later" ethos quite like the Australian fund manager. For years it bought ports, property and power stations on credit, spun them off into heavily leveraged satellite funds, then booked big advisory and development fees, hoping that the assets would keep rising.

Babcock & Brown collapsed into bankruptcy on Friday, ending the public life of the Australian group that for years cut a swathe on the world stage with its particular brand of infrastructure investing.

The death knell came as New Zealand owners of subordinated debt voted down a restructuring plan that would have seen noteholders receive just A$18,000 for a debt instrument with a face value of A$180m.

However, senior creditors owed close to A$3.9bn are expected to pick over B&B's carcass for years as they attempt to sell off the group's remaining infrastructure, real estate and aircraft leasing operations.

GE, which is suffering from the uncertainty and assumed poisonous nature of its massive financial arm GE Capital, has at last lost its "Blue Chip" status, being downgraded one notch (credit rating levels are called 'notches') by Standard & Poors (S&P) rating agency from AAA to AA+, a move that seems to have brought much relief as it was mooted that a four notch downgrade might be on the cards. This caused the UK Financial Times to comment:-

The downgrade is further confirmation of financial markets' dysfunctional relationship with ratings agencies. After years of accepting repackaged junk as top-shelf goods just because S&P or Moody's said so, the crisis has pushed investors to the opposite extreme of treating any financial firm as guilty until proved innocent. That is how GE's debt has been quite irrationally treated, so Thursday's sigh of relief may be a sign the agencies are regaining their credibility.

The dysfunctional relationship between financial markets and credit rating agencies is simply a reflection of the nefarious and peccant relationship between financial institutions and ratings agencies. Despite their much vaunted claims of independence, rating agencies became extremely compliant when dealing with the largest investment and commercial banks on whose business they depended for a substantial portion of their income.

Similarly, Berkshire Hathaway, the investment vehicle of famed finance guru Warren Buffett was downgraded by the Fitch rating agency from it exalted AAA to AA+. Much of Fitch's concern stems from the fact that Warren Buffet is so central to Berkshire's success and at 78 isn't a spring chicken.

Job Losses - Economic Depression - Austerity

Morgan Stanley projected a 4% contraction in the economy of Latin America this year while the European Central Bank is predicting a contraction of 3.3% for the Eurozone.

The situation in Ireland, once the showpiece of the new global economy, is dire.

Ireland: Government to impose draconian austerity measures with opposition support

Ireland's prime minister (Taoiseach), Brian Cowen, has warned of more savage cuts than expected in the emergency budget scheduled for April 7.

Speaking to the Dail, or parliament, Cowen of Fianna Fail said that there had been a "serious deterioration in the public finances," with the Department of Finance estimating a deficit €4.5 billion. This is a rise in the deficit from a predicted 2 percent to as much as 6 or 6.5 percent.

A bleaker picture still was painted by Central Bank Governor John Hurley, who said that Ireland is experiencing "an unprecedented contraction" in output, which is set to continue for the next two years. The 6 percent decline in Ireland's GDP would lead to unemployment topping 11 percent.

The decline had begun in the property and construction sectors, but had now "broadened out into a marked weakening of domestic demand, which is being significantly amplified by the contraction in export demand as a result of the movement into recession of all our main trading partners," Hurley said.

"No one should be in any doubt about the seriousness of the global situation, which is not easing, and the seriousness of our own difficulties," he added. At the end of the two years, Hurley said that the economy would have declined by 10 percent.

The government's emergency budget will impose devastating cuts in public spending, while raising large additional amounts through taxes on working people. These cuts will be in addition to the €2 billion pay cut already levied on public service workers via the "pension levy," and the €2 billion cuts in spending already announced for the 2009 budget.

Cowan said the cuts were necessary because Ireland had to deal with the crisis "in a way which would be seen to be credible by international markets."

Announcing the proposal, Finance Minister Brian Lenihan made clear that the new taxes will be levied on the lowest-paying workers. Currently, 40 percent of the workforce earns wages below the tax threshold. But in future, according to Lenihan, "Everybody will have to pay something..."

Sales at department stores and discount stores fell in South Korea in February as unemployment rose:-

Consumers are reducing spending as the deepening global recession prompts Asian companies to lower production, close factories and cut jobs. The number of employed people in South Korea dropped by 103,000 last month, the most in five years, as retailers and manufacturers fired workers.

In Eastern Europe, the War on People is taking the form of the old IMF austerity assault. Hungary's premier resigned last week due to the economic crisis and the elite called for his replacement to be an economist trained in "crisis management" (we all know what that means). Hungary's premier, Ferenc Gyurcsany, said he had to quit so that a government could be formed that would have "wider support" for cutting spending. The "wealthy" countries, not subject to IMF dictate, play by slightly different rules. They are urged to increase spending to rescue banks and "key industries" which will in due course bankrupt them so that then austerity for the people becomes necessary.

The End of Neo-liberalism?

There has been a lot of talk lately about the end of the neoliberal era, the end of Anglo-Saxon free market ideology. Many have said that the ideology of free markets has failed. Of course it did fail at the stated goals of making everyone free and prosperous, but were those the real goals? Or was the real goal of the free-market ideology the funneling and concentration of wealth and power in the hands of a few? If so, it was a resounding success:

Is This Really the End of Neoliberalism? - The Crisis and the Consolidation of Class Power

Does this crisis signal the end of neo-liberalism? My answer is that it depends what you mean by neo-liberalism. My interpretation is that it's a class project, masked by a lot of neo-liberal rhetoric about individual freedom, liberty, personal responsibility, privatisation and the free market. These were means, however, towards the restoration and consolidation of class power, and that neo-liberal project has been fairly successful.

One of the basic principles that was set up in the 1970s was that state power should protect financial institutions at all costs. This is the principle that was worked out in New York City crisis in the mid-1970s, and was first defined internationally when Mexico threatened to go bankrupt in 1982. This would have destroyed the New York investment banks, so the US Treasury and the IMF combined to bail Mexico out. But in so doing they mandated austerity for the Mexican population. In other words they protected the banks and destroyed the people, and this has been the standard practice in the IMF ever since. The current bailout is the same old story, one more time, except bigger.

What happened in the US was that 8 men gave us a 3 page document which pointed a gun at everybody and said 'give us $700 billion or else'. This to me was like a financial coup, against the government and the population of the US. Which means you're not going to come out of this crisis with a crisis of the capitalist class; you're going to come out of this with a far greater consolidation of the capitalist class than there has been in the past. We're going to end up with four or five major banking institutions in the United States and nothing else...

Moves on the Grand Chessboard

China, the country with money and industrial capacity, is slowly advancing as an imperial power at the expense of the U.S. and Western Europe:

China to Add $2 Billion to African Investment Fund, FT Reports

China will add $2 billion to an African investment fund to take advantage of opportunities in agriculture, power generation and mining left behind by western investors caught in the global credit freeze, the Financial Times reported, citing Chi Jianxin, chief executive of the fund.

The China-African Development Fund has invested $400 million since starting in 2006 and will probably have spent most of its initial capital of $1 billion this year, as much as two years ahead of schedule, the report said.

Meanwhile, as we discussed above, China has been increasingly vocal about its desire to consider alternatives to the U.S. dollar as the world's reserve currency. Last week, Premier Wen Jiabao went so far as to say China "was concerned about the security of our assets," an unusually blunt statement for the diplomatic Chinese.

"We're concerned about the security of our assets" - China premier warns of potential dollar collapse

In a public statement raising questions about the solvency of the US government, Chinese Premier Wen Jiabao said Friday that China, the largest holder of US treasury debt, was "concerned about the security of our assets."

Wen's remarks came at a news conference following the annual session of China's parliament, where he commented on the economic policies of the new US administration. "President Obama and his new government have adopted a series of measures to deal with the financial crisis," Wen said. "We have expectations as to the effects of these measures. We have lent a huge amount of money to the US. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried."

He called on the United States to "maintain its good credit, to honor its promises and to guarantee the safety of China's assets."

Chinese officials fear that the huge borrowing in world credit markets required to finance the US government's budget deficits - a projected $5 trillion over the next four years according to an estimate released by the Obama administration last month - will lead to a decline in the value of the dollar.

Since Beijing now holds about $1 trillion in dollar-denominated assets, including nearly $700 billion in US Treasury debt, a decline in the value of the US currency would hit China hard.

Wen added that while concerned about the safety of its dollar holdings, Beijing would "at the same time also take international financial stability into consideration, because the two are inter-related." This underscores the conservative role of the Chinese regime, which places the defense of world capitalism at the center of its policy.

US officials reacted with repeated reassurances about the value of the dollar and the safety of the dollar-denominated assets held by Chinese and other overseas investors.

White House economic adviser Lawrence Summers defended the record of US Treasury borrowing, saying Friday that dollar holders would suffer much more if full-scale deflation sets in and US gross domestic product collapses.

A Treasury spokeswoman declared, "The US Treasury market remains the deepest and most liquid market in the world." White House Press Secretary Robert Gibbs added, "There's no safer investment in the world than in the United States."

President Obama followed up Saturday, during a joint media appearance with visiting Brazilian President Luiz Inacio Lula da Silva at the White House, declaring that, "Not just the Chinese government, but every investor can have absolute confidence in the soundness of investments in the United States."

Obama depicted the influx of dollars into the United States as an endorsement of the future prospects of American capitalism. "There is a reason why even in the midst of this economic crisis you have seen actual increases in investment flows here in the US," he said. "I think it is a recognition that the stability not only of our economic system but also our political system is extraordinary."

The driving force of this influx of capital is fear rather than confidence, however. Investors are pulling out of weaker regions like eastern Europe and southeast Asia, as well as Africa and Latin America. They are also shifting from the purchase of stocks and bonds issued by American banks and corporations, now regarded with great distrust, in favor of government-issued debt instruments.

The US fiscal deficit has mushroomed. During the first five months of fiscal 2009 (October 2008 through February 2009), the federal budget deficit tripled compared to the same period the previous fiscal year, growing from $265 billion to $764.5 billion, the largest ever. The five-month deficit is already nearly 70 percent larger than the full-year deficit of $459 billion for fiscal 2008.

Writing in the Financial Times on March 12, Paul Kennedy, Yale University professor and author of The Rise and Fall of the Great Powers, argued that the Obama stimulus program would have a destabilizing effect on world financial markets: "no one is asking who will purchase the $1,750bn of US Treasuries to be offered to the market this year - will it be the east Asian quartet, China, Japan, Taiwan and South Korea (all with their own catastrophic collapses in production), the uneasy Arab states (yes, but to perhaps one-tenth of what is needed), or the near bankrupt European and South American states? Good luck! If that colossal amount of paper is bought this year, who will have ready funds to purchase the Treasury flotations of 2010, then 2011, as the US plunges into levels of indebtedness that could make Philip II of Spain's record seem austere by comparison?"

According to an estimate by Merrill Lynch, US Treasury notes have produced Chinese investors a 2.7 percent loss this year in terms of the Chinese currency, the yuan. Beijing is in a bind, however, since any effort to unload a significant part of its massive dollar holdings could flood the market and trigger a financial panic, with devastating effects on the value of all dollar-denominated securities, including its own investments.

Objective processes are undermining the longstanding symbiotic relationship between Beijing and Washington, however. The US slump has produced a massive drop in purchases of Chinese goods. Chinese exports plunged 25.7 percent in February, slashing the country's trade surplus from $39.1 billion to $4.8 billion. Continuation of this trend means China will earn correspondingly fewer dollars to invest in US government bonds.

The mounting conflicts between the two major powers find expression not only on the financial plane, but in diplomatic and security issues. Wen's statement of concern over the dollar was issued only days after the highly publicized clash between US and Chinese naval vessels off the coast of Hainan Island. Chinese vessels sought to force the USNS Impeccable out of an area, about 75 miles offshore, where it was conducting surveillance of traffic in and out of China's biggest submarine base.

President Obama dispatched a guided-missile destroyer to the South China Sea on Thursday, armed with torpedoes and missiles, to escort the Impeccable as it continues its surveillance mission. Obama later met with Chinese Foreign Minister Yang Jiechi at the White House.

The next day came Wen's declaration about the dollar, and then a day later a Chinese consortium signed a $3.2 billion natural gas deal with Iran. Beijing effectively thumbed its nose at the US policy - escalated by Bush and continued by Obama - of seeking to undermine the Iranian regime economically. The three-year deal involves extensive Chinese engineering assistance to the development of the South Pars gas field under the Persian Gulf seabed, in return for gas deliveries to Chinese customers.

China offered support to Russia's call for an alternative to the dollar as the world's reserve currency. Meanwhile, offshore banking entities dumped U.S. Treasury debt last month.

The EU is reluctantly considering increasing its aid to struggling Eastern European countries. This is their "backyard" in imperial parlance, Western Europe's source of cheap skilled labor, so one would think that offering "aid" (which always comes with strings attached) might be natural. The reluctance comes from Germany which is clearly still resisting the global wave of "spend now, pay later" bailout capitalism. Whether this stems from a general fiscal conservatism for which Germany is rightly renowned, a simple protectionist stance or a deeper understanding of the trap that world leaders have fallen into, we can only speculate. In the US of course there are those that believe that any nation that doesn't follow the US and UK lead to the letter and mortgage the future of its children on saving the economic system as we know it is "seeking a free ride" or "waiting to pick up the pieces when it's all over". These voices are clearly those of Puppets working for an agenda set by hidden masters:-

Merkel Keeps Cashbox Closed as She Spurns Obama Plea

Forget Nicolas Sarkozy. Ignore Gordon Brown. Angela Merkel, taking advantage of Germany's economic heft, is now the European Union's dominant figure. And leaders from Warsaw to Washington had best not forget it.

Just as the German chancellor vetoed a bailout for eastern Europe on March 1, she is now leading European opposition to U.S. President Barack Obama's call for a global pump-priming package. She'll determine the fate of a 5 billion-euro ($6.4 billion) infrastructure proposal at an EU summit in Brussels later this week.

"It's Merkel who holds the key to the cashbox, and she doesn't want to give it up," says Jean-Dominique Giuliani, chairman of the Robert Schuman Foundation, a research center in Paris.

Merkel's rejection of more stimulus touched off the first trans-Atlantic clash of the Obama administration and led critics to say she risks deepening the global recession. Even as finance ministers from the Group of 20 nations were meeting in southern England March 14, seeking to paper over differences with a pledge to deliver a "sustained effort" to boost growth, Merkel was 42 miles (67 kilometers) away in London, defending her opposition to further spending.

"Germany really has contributed its share," said Merkel, 54, as she stood alongside Brown, the U.K. prime minister.

Third Rebuff

The remarks were her third rebuff in three days to Obama's March 11 call for "concerted action around the globe to jump- start the economy," comments echoed by Lawrence Summers, his top economic adviser, and Treasury Secretary Timothy Geithner.

It is a reversion to type for Germany, which built its postwar society on the principle of monetary stability after the economic havoc of two world wars. Germany authored the limits on budget deficits for countries using the euro currency -- only to flout them during the reign of Merkel's Social Democratic predecessor, Gerhard Schroeder.

With the world economy set to shrink for the first time since World War II, Merkel has forged a European position not to go beyond tax cuts and emergency spending that the EU says amounts to 3.3 percent of gross domestic product.

Nobel laureate economist Paul Krugman says Merkel is underestimating the scope of the crisis. Germany is a "giant stumbling block" to global efforts to fight the recession, he told Der Stern magazine last week.

Obama on March 14 said there isn't a fundamental "conflict or contradiction between the positions of the G-20 countries" on how to deal with the crisis, only "a difference in details." Merkel spokesman Thomas Steg today also denied any "conflict," calling it an "artificial debate..."

While the EU forecasts that the German economy will shrink 2.3 percent in 2009 -- the second-worst in the 16-nation euro region, after Ireland -- economists say its relative strength will likely re-emerge whenever the recession ebbs. Europe's largest economy has used the 10-year-old euro to rebuild its competitiveness, and the EU's eastward expansion in 2004 moved Germany from the edge of the European market to the center.

Manufacturing Anger

Last week the United States was in an uproar over a $165 million dollars of bonuses and incentive pay paid to executives of the AIG insurance group subsidiary AIG Financial Products while the parent group has received $180 billion in bailout money. The US Congress took advantage of a golden opportunity to grandstand; the House of Representatives passed a bill to tax the bonuses by 90%; a move fraught with serious constitutional issues relating to retrospective law and a precedent that many of us will come to rue.

Interestingly, the Obama administration has attempted to tamp down public anger about this and to allow the bonus payments while also expressing "outrage". It is a tricky situation for the Obama administration as bonuses lie at the heart of the "wheeler-dealer" culture that fueled the credit boom and also contributed handsomely to the funds of many members of Congress and to the President himself.

The focus on bonuses is also a wonderful distraction. The entire US media, and therefore the bulk of the US populace, are focused on $165 million already paid and the prospect of further bonuses to "retain key AIG staff" that may total $600 million all in while the real issue is where the now $180 billion of government money pumped into AIG has gone. As usual Bill Van Auken had some pithy words on the subject:-

The AIG bonuses furor: the class issues

The bankrupt insurance giant American International Group (AIG), which has received the most massive public bailout of any US financial institution, is paying out hundreds of millions of dollars in bonuses to the very executives who oversaw the transactions that bankrupted the firm and threatened to drag down much of the US and world economy with it.

This revelation has sparked genuine popular anger, while providing a graphic exposure of the real class character of the economic policies being pursued by the Obama administration in the face of the deepest economic crisis since the Great Depression of the 1930s.

According to the Wall Street Journal, AIG International is paying out $450 million in bonuses to executives at its London-based subsidiary AIG Financial Products, which was primarily responsible for the company's staggering $99.3 billion loss in 2008.

The bonuses are on top of $121.5 million in "incentive pay" for 2008 going to 6,400 of AIG's employees and another $600 million in "retention pay" going to another 4,000 of them, for a grand total of over $1 billion.

The New York Times reported that seven AIG executives would receive bonuses worth $3 million or more each, while the Washington Post related that $165 million was being divvied up between 400 employees - an average of $412,500 each, or roughly ten times the annual gross pay of an average worker.

Given the de facto bankruptcy of AIG, these bonuses are being paid directly out of taxpayers' funds, a total of $180 billion of which have already been showered on the company. This amount is roughly equal to all of the discretionary spending contained in the Obama administration's anemic economic stimulus package.

In addition to the deep-felt popular outrage of millions who are faced with the daily threat of losing their jobs and their homes while seeing their income slashed as a result of the crisis, the bonus plan also triggered toothless expressions of disapproval from the Obama administration.

Treasury Secretary Timothy Geithner is reported to have called the government-installed chairman of AIG, Edward Liddy, telling him that the bonuses were "unacceptable" and demanding that they at least be pared down. Given that in its first $85 billion bailout of the company last September the government took over an 80 percent share of the firm, one might have thought that Geithner's request would have carried some weight.

Think again.

Liddy, a former board member of Goldman Sachs - the investment house believed to have received a large portion of the bailout money after it was "laundered" through AIG's insurance contracts - fired back an extraordinary letter telling the government to get lost.

"Quite frankly, AIG's hands are tied," he wrote, claiming that the bonuses were "binding obligations" - part of the executives' employment contracts - and interfering with them could provoke lawsuits. Moreover, he argued that they were fully warranted, despite the massive losses for which those receiving them were responsible. Without doling out a billion in additional compensation, he claimed, AIG would be at risk of losing "the best and the brightest to lead and staff the AIG businesses." Employees would leave if "their compensation is subject to continued and arbitrary adjustment by the US Treasury," he said.

"The best and the brightest?" The executives in AIG's financial division ran an unregulated credit-default swap operation that was just as much a scam as Bernie Madoff's fund, and far more destructive.

The obvious question is: where precisely are these "best and brightest" going to go if they fail to get their hundreds of millions in bonuses? The market for this type of financial parasitism has collapsed, dragging down with it the livelihoods of millions upon millions of working people. Rather than getting bonuses, those in charge of the financial manipulations carried out by AIG and its partners should be on the receiving end of criminal investigations.

In the end, the Obama administration came around to Liddy's position that the bonuses must be paid. This was made clear Sunday by Lawrence Summers, the chairman of the White House National Economic Council, in a televised interview on ABC's "This Week."

"There are a lot of terrible things that have happened in the last 18 months," declared Summers, "but what's happened at AIG is the most outrageous."

Despite his supposed outrage, Summers insisted that the government, its 80 percent ownership of AIG notwithstanding, could do nothing about the bonuses. "We are a country of law," he proclaimed. "These are contracts. The government cannot just abrogate contracts."

The government cannot abrogate contracts? Try telling that to American autoworkers who have seen not only bonus payments, but pay, holidays, pensions, health benefits and working conditions - all part of their contracts - slashed as a condition imposed by the White House for government financing to stave off bankruptcy.

There were no pious statements from Washington about a "nation of law" and the sanctity of the contract as the government backed a vicious assault aimed at driving autoworkers back to the conditions of the 1930s. Rather, these workers were vilified amid the universal demand - seconded by the United Auto Workers union - that they agree to rip up their contracts and be quick about it.

This is the real content of the Obama administration's economic policy. What is sacred is not law or contracts, but rather the principle that the wealth, power and privileges of the top one percent of American society cannot be touched, no matter how deep the economic crisis.

The real concern of Summers and others in the administration is that the AIG bonuses are so provocative that they will interfere with the attempts to carry through policies aimed at placing the full burden of the crisis onto the backs of working people in the name of "shared sacrifice."

This was expressed most clearly by Obama's economic advisor, Austan Goolsbee, who warned that AIG's action would "ignite the ire of millions of people." He added, "You worry about backlash."

It is precisely this development, which the administration and the ruling elite so fear, that points the only way to resolving the deepening economic catastrophe in the interests in the majority of the population. The "ire" and "backlash" of millions upon millions of working people must be mobilized to settle accounts with the financial oligarchy that is responsible for the present crisis and to break its economic and political stranglehold over society.

This shouldn't be surprising. The major financial institutions in the United States donated more than $100 million dollars to the presidential campaigns last year. And when Citigroup, J.P. Morgan and Bank of America say, "Jump" whoever gets elected asks, "How high?"

According to Paul Craig Roberts, the bailouts, while clearly scams, have at least taught the US public that "the elites run the government in their own private interests":-

Eliot Spitzer, the former New York Governor who was set-up in a sex scandal to prevent him investigating Wall Street's financial gangsterism, pointed out on March 17 that the real scandal is the billions of taxpayer dollars paid to the counter-parties of AIG's financial deals. These payments, Spitzer writes, are "a way to hide an enormous second round of cash to the same group that had received TARP money already."

Goldman Sachs, for example, had already received a taxpayer cash infusion of $25 billion and was sitting on more than $100 billion in cash when the Wall Street firm received another $13 billion via the AIG bailout.

Moreover, in my opinion, most of the billions of dollars in AIG counter-party payments were unnecessary. They represent gravy paid to firms that had made risk-free bets, the non-payment of which constituted no threat to financial solvency.

Spitzer identifies a conflict of interest that could possibly be criminal self-dealing. According to reports, the AIG bailout decision involved Bush Treasury Secretary Henry Paulson, formerly of Goldman Sachs, Goldman Sachs CEO Lloyd Blankfein, Fed Chairman Ben Bernanke, and Timothy Geithner, former New York Federal Reserve president and currently Secretary of the Treasury. No doubt the incestuous relationships are the reason the original bailout deal had no oversight or transparency.

The Bush/Obama bailouts require serious investigation. Were these bailouts necessary, or were they a scam, like "weapons of mass destruction," used to advance a private agenda behind a wall of fear? Recently I heard Harvard Law professor Elizabeth Warren, a member of a congressional bailout oversight panel, say on NPR that the US has far too many banks. Out of the financial crisis, she said, should come consolidation with the financial sector consisting of a few mega-banks. Was the whole point of the bailout to supply taxpayer money for a program of financial concentration?

"The Money Has Gotten Scarce ... but the Truth Is Getting Fierce"

The 1975 lyrics of Murray Head from Say it ain't so Joe seem appropriate for this stage in the Obama presidency:-

they told us that our hero has played his trump card
he doesn't know how to go on
we're clinging to his charms and determined smile
but the good old days have gone
the image and the empire may be falling apart
the money has gotten scarce
one man's word held the country together
but the truth is getting fierce

The question in our minds is just how fierce does the truth have to get before people wake up and really start questioning how the world works.

Surveying the world economy, the past two weeks saw most non-reserve currencies fall in value, as emerging economies and export-oriented countries are suffering capital flight. In past downturns some regions would experience this and not others, some countries and not others, but now capital flight and, it seems, both real and induced social unrest are widespread.

The beneficiary has been the U.S. dollar, which is surprising given the fact that the Federal Reserve has been "printing" money like crazy and the US government has been borrowing like crazy. "There is nowhere else to go" is the justifying mantra of the times. But what seems to be happening is that those making the bets remain convinced of US global military and economic hegemony. As we have been pointing out, the signs are that military force will be used and the era of "free trade" may be coming to an end. Some are pointing to "currency protectionism."

While politicians rail against protectionism they seem more than happy to see their respective currencies depreciate relative to the US dollar. The British Pound, hammered by the collapse of the UK banking sector is further weakened each time the Bank of England reduces interest rates, now at 0.5%. The Euro suffers similarly with the credibility of the European Central Bank an issue for many commentators including the UK's Financial Times.

What is readily apparent is that while the United States is morally and financially bankrupt it remains unchallenged militarily and economically. It's banking system is insolvent and bankrupt but it seems that everybody has agreed to look the other way and "say it ain't so".

This last week began with a near miss of an asteroid that, had it hit, would have had the power of the Tunguska blast. The bad news continued with falling stock indexes world-wide and soaring unemployment. The official unemployment rate in the United States rose above 8%. The Bureau of Labor Statistics released some numbers of actual unemployed by including those who have stopped looking, who no longer collect unemployment, who are underemployed, or who aren't looking but would accept work if they could find it. This number, called U6, reached a stunning 16% in February 2009. The estimate of job losses in February in the United States is 651,000, the third straight month of losses over 600,000. 8% of all mortgages in the U.S. are delinquent and more than 3% are in foreclosure. The mainstream media increasingly uses the 'D' word, 'depression', to describe what's happening.

The global situation looks no better as the World Bank issued a report saying the "global economy is likely to shrink for the first time since World War II, and trade will decline by the most in 80 years". This contrasts with the IMF which has been predicting global growth of 0.5%. Sott.net believes both these estimates to be optimistic and expects the global economy, should it even survive the year, to shrink at least 5% and possibly by many times that amount.

Robert Zoellick, the Bush placeman that took over the Presidency of the World Bank after another neocon, Paul Wolfowitz, was forced to step down said, "We need to react in real time to a growing crisis that is hurting people in developing countries. Action is needed by governments and multilateral lenders 'to avoid social and political unrest.'" Such concern is uncharacteristic of Zoellick, another Goldman Sachs man and previously the notorious US Trade Representative whose work in that role contributed to an increase in global suffering due to his promotion of numerous "Free Trade" agreements. He was also deeply involved in the formulation of the Doha Round of trade negotiations at the WTO which were so detrimental to developing nations that they simply couldn't swallow the poison pill. The completion of the stalled Doha Round has become a G20 target in its deliberations to address the financial crisis despite being wholly unrelated to the cause of the crisis.

Zoellick's new found concern is clearly not for the people of the world, as his career amply demonstrates. Rather he is adding to the promotion of social and political unrest which in reality will be a dangerous cocktail of the clamouring of the peoples of the world for change mixed with the brutal jackboot of totalitarian repression.

The World Bank report continued:-

Developing nations will bear the brunt of the contraction. They will face a shortfall of between $270 billion and $700 billion to pay for imports and service debts.....East Asia will be hit the hardest by the decline in global commerce, .... Global industrial production is expected to be as much as 15 percent lower than in 2008.

..... a surge of debt issuance by rich nations risks "crowding out many developing country borrowers, both private and public." Emerging nations that can access capital markets will be forced to pay higher rates of interest.

..... 94 out of 116 developing countries had experienced a slowdown in economic growth, with poverty increasing in 43. The economic crisis will swell the ranks of the poor by 46 million this year....... The result would be growing dependence on foreign aid...

We commented a couple of weeks ago about the immense expense (we conservatively estimated €20,000 per annum) of access to the details of much of what is happening in the financial markets and how this simple economic barrier is such an impediment to the ability to see the true picture. These last two weeks there have been numerous examples of the value of this expensive information which we have only temporary access to.

We have all heard just how difficult it is to get any type of credit these days and how the numerous businesses, particularly small businesses and sole-proprietorships, are disappearing as a result. Here are just a few examples of a rather different story:-

- The total amount of "syndicated loans" issues globally to 5th March this year is $217 billion.

- Sovereign and Supra Sovereign issuers have been busy with Portugal and Ireland raising €4 billion each, the World Bank raising $3 billion and KfW Bankengruppe, the German government owned development bank, raising $4 billion.

- Numerous large corporate borrowers have been signing what are termed "forward start" loan facilities. These facilities typically extend the maturity date of existing loans. Many of these borrowers had loans maturing in 2010 and 2011 and have typically extended the maturity by between 1 and 3 years. The pricing for these extensions has not been cheap which reflects a certain amount of realism among those responsible for corporate financing.

- Vattenfall, the Swedish state owned utility secured €5 billion to back part of its acquisition of Dutch utility Nuon. The sale of 49% of Nuon to Vattenfall is part of the break up and effective privatization of the four largest utility companies in the Netherlands; a process that has, by law, to be completed by the end of 2010.

- Enel, the Italian utility, raised €8 billion to finance the acquisition of a further 25% stake in Spanish utility Endesa in which it already has a 69% controlling stake.

- Roche, the pharmaceuticals group, raised $16.5 billion in the US dollar bond market as part of its funding for a $42 billion takeover of rival pharmaceutical company Geneentech. This is the biggest US dollar corporate bond deal ever.

- Roche then went to the European bond market where they raised a further €12.7 billion.

- JP Morgan have announced that they alone will lend $8.5 billion to Merck to back its $41.1 billion takeover of Schering Plough.

This little list, which doesn't even include any of the share issues that have been going on, is very telling isn't it? There is clearly plenty of money around for takeovers - that much lauded but highly destructive means of consolidating economic and market power in fewer and fewer hands. What the list doesn't show is the huge amount of money coming from the US into these financings; so much that bankers are talking about the US credit market being the focus for issuers in 2009. A quite different story from the one being told on TV screens across the US and being experienced by many millions of people across the world.

Is it notable that the two sectors that stand out are Utilities, upon which we all rely, and Pharmaceuticals whose brazen peddling of disease and quackery is one of the great corporate evils of the modern era. What is in store for us all with this ongoing consolidation in the crucial sectors that supply our power and are meant to address our health needs?

The consolidation in Pharmaceuticals is very worrying; Pfizer unveiled a $68 billion takeover of Wyeth in January and now we have two more takeovers each valued at over $40 billion. The power of "Big Pharma" has been amply demonstrated over the years including the ongoing global lobbying to outlaw those products that really do provide healing and preventative benefits, natural supplements, extracts and herbs; and the burying of evidence that Big Pharma is one of the major killers in western society. In the US, about one million people die each year due to harmful drugs manufactured and sold by these already extremely powerful companies. The further consolidation of economic power in fewer and fewer hands should be setting off alarm bells and anti-trust laws all over the world but no such alarm is being raised and the laws designed to protect against just this activity have been neutralised.

With this in mind the recent distribution of live hybrid flu virus, with the potential to cause a global pandemic, in flu vaccines by a US manufacturer has a whole new context; a context that is very troubling indeed when considering that a contamination of this nature could not be accidental.

What is also highly noteworthy is the presence, as lenders and underwriters, in these transactions of such well known banks as Citigroup, Bank of America and The Royal Bank of Scotland all of which have received huge sums from their respective governments. No doubt the citizens of the US, the UK and other countries whose banks have been bailed out will be delighted to see that these banks are in fact still lending very large sums and for such worth purposes as takeovers in the utility and pharmaceutical sectors.

Markets

The markets the last two week (from Feb 23rd to March 8th)

	Previous week's close	This week's close	Change	% change
Gold (USD)	994.90	939.50	55.40	5.57%
Gold (EUR)	775.57	742.57	33.00	4.25%
Oil (USD)	39.80	45.67	5.87	14.75%
Oil (EUR)	31.03	36.10	5.07	16.34%
Gold:Oil	25.00	20.57	4.43	17.71%
USD / EUR	0.7796 / 1.2828	0.7904 / 1.2652	0.0108 / 0.0176	1.39% / 1.37%
USD / GBP	0.6929 / 1.4432	0.7096 / 1.4092	0.0167 / 0.0340	2.41% / 2.36%
USD / JPY	93.345/ 0.0107	98.270/ 0.0102	4.925 / 0.0005	5.28% / 4.67%
DOW	7,366	6,627	739	10.03%
FTSE	3,889	3,531	358	9.21%
DAX	4,015	3,666	348	8.67%
NIKKEI	7,416	7,173	243	3.28%
BOVESPA	38,715	37,105	1,610	4.16%
HANG SENG	12,699	11,922	778	6.12%
US Fed Funds	0.15%	0.25%	0.10	n/a
$ 3month	0.27%	0.20%	0.07	n/a
$ 10 year	2.79%	2.87%	0.08	n/a

Africa

South Africa is the biggest economy in Africa, and thus finds itself exhibiting the problems of the developed economies as well as the problems of the emerging market economies. Unsurprisingly, its unemployment rate is increasing. The problem is, it is increasing from 23% making it the highest of 61 countries tracked by Bloomberg which had this to say:-

South Africa's economy, the biggest on the continent, contracted for the first time in a decade in the fourth quarter as a global economic recession slashed demand for platinum and steel. This is heavily affecting the very largest corporations. ArcelorMittal South Africa Ltd., Africa's largest steelmaker, cut 1,000 contractor jobs in December, while car manufacturer General Motors Corp. shut its South African plant for most of December.

"The outlook is bleak," said Arthur Kamp, an economist at Cape Town-based Sanlam. "Private sector fixed investment growth has slowed and will probably decline this year. That is going to be a drag on employment. We are seeing job losses in the mining and manufacturing industries now, but that will likely spread to the retail and financial services sectors..."

South Africa's currency, the rand, fell 4.3% against the U.S. dollar last week as Bank of America Merrill Lynch predict the economy will shrink 0.6%

Weaker prices for commodities, which account for 30 percent of South Africa's export earnings, will make it difficult for South Africa to finance the deficit on its current account, a measure of trade in goods and services, according to Natheem Alexander, a bond and currency trader in Cape Town at Peregrine Quant. The shortfall may reach 8.1 percent of gross domestic product in 2008, according to government estimates.

"The scale of this global recession is a lot worse than anyone anticipated," said Alexander. "A slowing global economy does not bode well for emerging markets like South Africa, particularly those with large external deficits."

Asia

China continued to signal its willingness to lend and spend. Last week China said it would continue to buy U.S. debt and this week it announced a stimulus package worth a half a trillion dollars.

In South Asia, the Indian currency, the rupee is falling, as are the currencies of most "emerging" economies as people flee to the relative safety of so called "safe haven" currencies like the U.S. dollar.

India's Rupee Slides to Record Low as Funds May Pull Money Out

India's rupee slid to a record low as mounting global stock losses added to concern investors will pull money out of riskier emerging-market assets.

The currency extended a two-week slump on speculation Standard & Poor's will soon cut the nation's debt rating to junk. The rupee also fell on concern the current-account deficit will widen from a record as exports decline amid a deepening global economic slump. ......

The rupee slid 1.3 percent to an all-time low of 51.81 per dollar as of 9:55 a.m. in Mumbai, according to data compiled by Bloomberg.

[ ]

Funds based abroad sold $1.65 billion more Indian equities than they bought this year, adding to 2008's record $13.3 billion in net sales, according to data released by the Securities and Exchange Board of India. The Bombay Stock Exchange's Sensitive Index has dropped 7.8 percent this year, following a record 52 percent slide in 2008.

S&P last week lowered its outlook on India's credit rating to negative from stable, saying government spending plans to shield the economy from the global recession and win voter support in elections were "not sustainable." The company rates India's debt BBB-, the lowest investment grade.

Asian exporting nations have been especially hard hit lately. Japan announced the first current account deficit in 13 years last week due to slumping exports:

Japan Posts First Current-Account Deficit Since 1996

Japan posted its first current account deficit in 13 years in January after exports collapsed amid the global recession.

The deficit stood at 172.8 billion yen ($1.8 billion), the Ministry of Finance said in Tokyo today. The median estimate of 22 economists surveyed by Bloomberg News was for a shortfall of 15.3 billion yen.

Companies from Toyota Motor Corp. to Sharp Corp. are cutting output and firing workers as overseas shipments slump at an unprecedented pace, pushing Japan toward its worst postwar recession...

"Other countries are in recession while Japan is in a depression," said Chua Soon Hock, managing director of Asia Genesis Asset Management Pte, a Singapore-based hedge fund. "Japan is like an old man who developed pneumonia while other younger countries caught the flu."

The Nikkei 225 Stock Average fell 0.8 percent in morning trading in Tokyo, bringing the year's losses to 20 percent. The yen traded at 98.37 per dollar from 97.96 before the report was published. The currency's 23 percent gain against the dollar in 2008 eroded the value of exporters' overseas sales, exacerbating losses at companies including Toyota and Sharp...

Exports tumbled 46.3 percent in January from a year earlier, today's report showed, after declining 35.1 percent in December. Imports slid 31.7 percent, more than a 21.2 percent decline the previous month.

Shipments to the U.S. tumbled an unprecedented 52.9 percent in January from a year earlier, and exports to Asia and Europe also posted the largest-ever declines, according to a separate trade report released last month...

Toyota is expecting its first annual loss in 59 years as vehicle sales plunge in the U.S., Japan and Europe, its biggest markets. Every 1 yen gain against the dollar cuts Toyota's annual operating profit by 40 billion yen.

Sharp, the country's largest maker of liquid-crystal- display televisions, will post its first loss in more than five decades and cut 1,500 temporary jobs because of falling sales.

The current account tracks the flow of goods, services and investment income between Japan and its trading partners. It includes trade not shown in the customs-cleared balance.

Inevitably, despite the oft repeated calls from politicians and the unelected heads of supra-national organizations like the IMF, Asian countries are letting their currencies drop to cheapen their exports.

Currency Defense Drops on Ringgit, Won on Exports

Asian central banks are abandoning a six-month campaign of defending their currencies, reversing course to cheapen exports that are falling the most in a decade.

Policy makers from India to Malaysia to Taiwan are letting their currencies depreciate after South Korea gave companies an edge by allowing the won to weaken 19 percent against the dollar this year. Shipments from South Korea, Indonesia, Taiwan and Malaysia fell 17 percent in January to $79 billion, twice the drop of April 1998, when the Asian financial crisis was wiping out a third of the region's economy, according to data compiled by Bloomberg.

"Export markets have been forced to let their currencies weaken to try and keep up with the competitive depreciation in the won," said Dwyfor Evans, a strategist in Hong Kong at State Street Global Markets LLC, which has $12 trillion under custody.

The won, India's rupee and Taiwan's dollar will decline against the U.S. dollar by 12, 13 and 6 percent, respectively, by the end of June, according to Stephen Jen, a Morgan Stanley currency strategist....

"There will no longer be meaningful interventions to prevent Asia-outside-Japan currencies from falling," Jen said in a March 2 report from London. "There's a genuine change in the currency policies of many Asian economies. A severe contraction in the trade surpluses clearly affects the relative supply and demand for dollars in these countries..."

Weaker currencies alone won't spur recoveries as the global recession deepens, said Mark Dow, a money manager at Pharo Management LLC...

"If you lose your job and buy a flat-screen TV just because it's 70 percent off, I bet your wife won't be happy," said Dow, who is selling currencies of Malaysia, Philippines, Taiwan and South Korea. "Price doesn't matter. It's a mistake for Asia to devalue their currencies. The thinking is wrong, but it's happening."

Australia & New Zealand

Both the Australian and the New Zealand dollars have dropped as investors flee to the "safety" of the U.S. dollar. As we said above, in the bizarre world of economic collapse, the US is seen as the safest haven outside gold. Even gold, having run up to $1,000 is now headed back to $900, despite news that hedge funds regard it as hedge against central banks. The New Zealand dollar hit a 6.5 year low and the Australian dollar fell for the third week in a row.

The Australian dollar has slumped 8.5 percent against the greenback this year, while New Zealand's dollar dropped 15 percent. A weakening outlook for global growth put pressure on commodity prices and prompted the central banks of both countries to lower interest rates.

Latin America

As more and more emerging market nations find themselves cut off from the debt markets they know the lender of last resort is the IMF. However, they also know the true cost to their nations of borrowing from the IMF which will impose the Washington Consensus on them with the resulting further impoverishment of their people. Of course, as history and the present show, the ruling elites of most emerging market nations have no care for their citizens, rather they fear the social and political ramifications of an increasingly impoverished majority; a majority that in Latin America look to Venezuela and ask why they too do not have leaders that at least take real actions to alleviate their poverty.

Argentine President, Cristina Fernandez de Kirchner, is well aware of the ramifications of the financial crisis on her country and that she will in due course need to borrow from the IMF. Argentina's economy was devastated between 1999 and 2002 by the IMF's Washington Consensus policies and the government of the time's attempts to circumvent certain aspects of the policy medicine. This was no doubt in her mind when she called for the IMF and World Bank to issue aid loans with no conditions attached.

Argentina's Fernandez Says Crisis Demands Aid Changes

Argentine President Cristina Fernandez de Kirchner said the global financial crisis should provide momentum to change how international organizations provide aid to emerging market economies.

Fernandez called on the International Monetary Fund and World Bank to extend aid to countries without conditions, a position she said she'll push at the annual meeting of the world's 20 biggest economies in London on April 2. She said developing countries have been punished by a financial system in which regulations "only apply to weak and emerging economies."

"There needs to be reform of the multilateral lending agencies, which have until today operated by forcing restrictions on emerging markets," Fernandez said in Buenos Aires during a 70-minute speech to Congress to kickoff Argentina's legislative session. "The IMF and World Bank need to be changed into instruments of financing without conditionality."

Additional financing for emerging markets could help South America's second-biggest economy overcome slowing growth as auto factories and metal producers slash output and tensions rise with farmers over exports and taxes. Industrial production declined 6.1 percent in January from the previous month and auto sales fell 39 percent from a year earlier.

New tools are needed to help the government "intervene" in the economy to protect jobs and maintain economic growth, Fernandez said, without elaborating. Reports last week that the government may take over the country's grains trade could spark social unrest, farmers said, a year after farm protests paralyzed the country and prompted food shortages.

Such speeches make for fine political fare but will of course have no effect upon the policies or behaviour of the IMF or the World Bank.

One of the few currencies gaining ground against the dollar recently is the Brazilian real which has risen nearly 6% against the dollar in the past three months despite interest rate cuts, a sign of the relative health of the Brazilian economy.

Eastern Europe

The situation in Eastern Europe continues to be dire with nobody realistically expecting any improvements. It is only a matter of time before the banking system in at least one Eastern European country collapses resulting in a domino effect across the regions and into Western Europe which remains heavily exposed to the region. With Bloomberg reporting:-

East Europe is buckling under the weight of the crisis, which slowed demand in key export markets while shutting off investment and credit. Hungary's central bank expects the economy will shrink as much as 3.5 percent this year and the government sought international aid last year.

It is little wonder that consumer sentiment fell to record lows in Hungary.

The consumer confidence index has been plummeting since October, when Hungary secured 20 billion euros ($25.7 billion) in International Monetary Fund-led loans to avert a default. Investors had dumped assets deemed riskier during the global credit crunch.

Sentiment in Hungary has been near all-time lows since 2006 when Gyurcsany raised taxes and lowered subsidies to narrow the budget deficit, the widest in the European Union.

Hungary plunged into its second recession in two years in the fourth quarter. In the three months to December, the economy contracted 1 percent from the previous quarter and shrank 2 percent from a year earlier.

Last week the EU refused to extend an aid plan to Eastern Europe, leaving the region in the clutches of the IMF:-

Euro Slides to One-Week Low as EU Rejects East Europe Aid Call

The euro fell to a one-week low against the dollar after European Union leaders rejected calls to back an aid package for eastern Europe, fueling concern the financial crisis will deepen the region's recession.

Europe's single currency dropped for a second day versus the greenback as EU leaders vetoed Hungary's proposals for 180 billion euros ($227 billion) of loans to ex-communist economies in eastern Europe....

The EU, led by Germany with its concern for fiscal responsibility, rejected loans to Eastern Europe and an auto bailout. Resentment is growing in Eastern Europe but German Chancellor Angela Merkel does not seem to acknowledge the seriousness of the problem. Or, as is more likely for a leader with a personality profile like hers, she does realize the seriousness of the problem but can benefit from the suffering of the Eastern countries which is serving a broader agenda. In an example of the cynicism of the ruling elite of Europe, rather than provide further support to struggling Hungary and Latvia, the EU has called for them to reduce their budget deficits to within the EU ceiling.

EU Spurns Calls for Eastern Aid, Carmaker Bailout

European Union leaders spurned pleas for special aid for eastern Europe and a rescue package for automakers, bowing to German concerns over budget deficits as the economic crisis escalates.

EU leaders vetoed an appeal by Hungary for loans of 180 billion euros ($228 billion) for ex-communist economies in eastern Europe, and told car makers such as General Motors Corp.'s European arm to look to national capitals for help....

The worst economic slump since World War II is devastating eastern Europe, putting at risk EU goals of stitching together a continent-wide free market.

The EU's $17 trillion economy will shrink 1.8 percent in 2009, the European Commission predicts. Latvia, a former Soviet republic that was the bloc's star performer only three years ago, will contract 6.9 percent. Growth in Poland, the biggest eastern economy, will tumble to 2 percent, the slackest pace since 2002.....

Nine eastern leaders met before the summit to warn the West against putting up new walls in Europe, five years after the EU overcame historic divisions by admitting its first eastern members.

European Commission President Jose Barroso said the east doesn't need special treatment, noting that it can draw on 15.4 billion euros in the EU's balance-of-payments assistance fund and will get 7 billion euros from a separate the 11 billion euros in accelerated infrastructure subsidies. "We are one union, not two unions or three unions," Barroso said.

Current EU measures are "like throwing a snowball into the fires of hell," said Fredrik Erixon, director of the European Centre for International Political Economy in Brussels....

Merkel, representing the biggest contributor to the EU budget, said aid for eastern Europe needs to be channeled through institutions like the International Monetary Fund....

As budget deficits mushroom beyond the EU's limit of 3 percent of gross domestic product, Merkel's plea for "a return to solid fiscal management" met with a mixed response....

So far, national stimulus packages, welfare spending and cash from the EU's central budgets have pumped 3.3 percent of EU-wide GDP into the economy, the Brussels-based commission estimates. As a result, it forecasts that the 27-nation EU's overall budget gap will rise to 4.4 percent of GDP in 2009 from 2 percent last year......

French President Nicolas Sarkozy triggered the east-west clash by saying on Feb. 5 that it "isn't justified" for recession-hit French carmakers to operate plants in places like the Czech Republic instead of creating jobs at home. That broadside led Czech Prime Minister Mirek Topolanek, the first head of an ex-Soviet bloc state to hold the EU presidency, to convene the summit to demonstrate European unity against protectionism...

Western Europe

The fascist drift in Europe has reached private banking with France and Germany, backed of course by the US, seeking to blame the financial crisis on the small low tax or no-tax states whose banking system still provides for absolute privacy for their clients. There is no doubt that this privacy has been abused by many but, as with the removal of our other freedoms in the name of illusions, the idea that somehow banking privacy caused the financial crisis is contemptible propaganda.

It has been a busy time as the Bank of England cut UK interest rates to just 0.5% and the European Central Bank cut to 1.5% for the Eurozone amid reports that it is "mulling radical action" akin to the "quantitative easing" under way in the US, UK and Japan.

The Bank of England opted this week for an historic "quantitative easing", announcing that it will pump ₤75 billion into the UK economy. Unfortunately, rather than achieve this through paying for anything real such as wages and infrastructure development the UK government is in essence wasting this money by buying up UK government debt. This serves the interests of the holders of such debt as they can now go shopping for bargain basement acquisitions and other discounted assets. It won't however have any meaningful effect on the real economy and the real people that need work.

In an example of where the UK government's interests lie, it achieved an extraordinary about-turn in relation to the status of subordinated debt issued by Bradford & Bingley, one of the nationalized mortgage lenders. Subordinated debt is intended as a form of capital which will absorb losses, it is treated as capital by regulators for exactly this reason. So when Bradford & Bingley essentially went bust and had to be rescued by the government the subordinated debt investors should have lost their money. The government however, no doubt due to some seriously dubious lobbying, decided that this won't be the case and has even guaranteed the interest payments of the debt. Yet again, citizens' money is being used to bailout financial investors from the risks they knowingly took. It is a shame Monty Python isn't still around as the behaviour of governments moves form the ridiculous to the absurd. Amazingly, the Bradford & Bingley subordinated debt holders still complained about being badly treated!

As if in answer to our cynicism as regards just whose interests the UK government is protecting, the UK police revealed that they are investigating a "spate" of fraudulent investment schemes. The following comments by Richard Alderman the Director of the Serious Fraud Office are interesting:-

"Clearly, in view of our interest in Bernie Madoff and Sir Allen Stanford, people are talking to us about red flags for hedge funds, because as the stories unravel it is very interesting to understand the structure of what happened and what could have been picked up by people through due diligence."

"We are finding that people are talking to us about that and we are learning from them. We are not sharing operational detail but sometimes it is right that we feed back what we learn when we can. There is a lot more we can do on that; what kind of things due diligence could pick up."

So we have the police providing private feedback to the investment industry on these schemes. The police work for the state which is meant to serve the people so if the police are providing feedback on how to spot fraudulent investment schemes shouldn't it be to their ultimate employer, the British public and not on a private basis to those with vested interests?

Meanwhile the British Pound continued its fall against the euro, and every other major currency, in what cynics might suggest looks like competitive devaluation or perhaps the actions of powerful interests with a more nefarious agenda. Whether there is an agenda or not the effect of the collapse in the value of the British Pound is not lost on EU officials:-

European Union officials are concerned that the pound's slide to a record low against the euro could destabilize the British economy, according to a document prepared last month by European Commission and EU finance ministry officials.

The pound's "very rapid" drop "raises questions about the financial stability of the British economy," .... The currency's weakness "is a source of concern for the euro area."

The report contradicts Prime Minister Gordon Brown's argument on Feb. 13 that a weaker currency helps rather than hinders the economy. With the pound down 18 percent against the euro in the past year, it also underscores investors' concern about Britain's fiscal health as the government racks up debt to fund bank bailouts.....

The document signals concern among euro-area policy makers that the pound's slump could push their 16-nation economy deeper into a recession by undermining exports to its biggest trading partner...

Germany has earned a reputation for fiscal prudence and avoidance of excessive debt and risk. But lest one think that the real estate debt excesses of the past decade are limited to the United States and and could not happen in Germany, consider the case of Hypo Real Estate, the country's second largest mortgage lender. Bailouts of the German mortgage firm have by now totaled €100 billion. But the liabilities of the bank may total as much as a trillion euros.

Hypo Real Estate is typical of the position of many banks globally as is the trap into which the German government has fallen. The following article is long but provides an excellent exposé of what is happening inside many banks, including Citigroup, Bank of America, Royal Bank of Scotland and Lloyds to name just four; and what is occurring between those banks and the governments bailing them out:

Bailout of Germany's Hypo Real Estate: A bottomless pit

Hypo Real Estate (HRE) is an international property lender and the second largest mortgage lender in Germany. The firm has repeatedly applied for and received state support and guaranties, which have now reached over 100 billion euros.

An initial bailout-package of over 35 billion euros was authorised at the end of September last year, and this was then topped with a further 50 billion at the beginning of October. Since then, HRE has reported new "holes" in its balance sheet every month, and the German government has repeatedly propped the bank up.

Despite all these measures, the HRE continues to report an urgent need for financial help. According to a report in the Frankfurter Allgemeine Zeitung, further state guaranties in the sum of 20 billion euros will be necessary in the coming week. When the HRE presents its annual statement of accounts on 31st March, it is expected to show the need for a further 10 billion euros just to fulfill the statutory minimum equity capital requirements.

No one seems to be able to say exactly how high HRE's mountain of debt actually is at the moment. While up to now speculation pegged the sum at about 400 billion euros, on Wednesday, the Hannoversche Allgemeine reported insiders and experts from the Federal Parliament's Lower House as saying that the Munich-based concern in reality has credit and derivatives debt amounting to a trillion euros, of which a large part derives from businesses that do not appear in the official balance sheet.

German Finance Minister Peer Steinbrück (Social Democratic Party--SPD) and Chancellor Angela Merkel (Christian Democratic Union--CDU) have justified state help for the HRE by saying that the property lender is a "systemically relevant" institution that cannot be allowed to fail, because its demise would undermine the entire German economy. Any collapse of the HRE would have the equivalent international impact of the bankruptcy last September of Lehman Brothers.

For years securities have been seen as safe investments. For that reason, they often have been used to underpin life insurance and pension funds. With a market share of about 20 percent―an estimated total of 900 billion euros―HRE is one of the leading players in the German securities market. The German government fears that the collapse of HRE could bring the entire securities market crashing down with it, with unforeseeable consequences. However, the Consortium of Securities Bankers deny that such a danger exists.

Steinbrück and Merkel have also emphasised that state assistance for HRE consists solely of securities that would only be used in the case of actual insolvency, and of capital investment, that could perhaps later be sold again at a profit. However, it is becoming more and more obvious that the federal treasury is actually taking on full liability.

To understand the extent of the sums involved one can compare them to Germany's domestic budget. The guaranties that have already been given to HRE represent one third of the annual state expenditure of 290 billion euros. These subsidies are nearly as big as the largest single item of state expenditure - unemployment and social welfare, which amounts to 124 billion euros.

If HRE goes bankrupt, the federal government will be liable for its cash infusions and guarantees. In order to pay off the liability of more than 100 billion euros, it would have to drastically increase government borrowing and at the same time make further cuts in public spending on social support and welfare.

On the other hand, if the government continues to feed HRE with ever-greater sums of money, in order to stop it from going insolvent, it will end up being hostage to the bank. "Unfortunately, no-one knows what is more dangerous: letting the HRE go bust, or keeping it half-alive with constant money transfusions," commented the Süddeutsche Zeitung.

The government is proceeding along the latter path. The Cabinet has put forward an "emergency takeover bill" which will facilitate further cash infusions into HRE. This bill is expected to be approved by the Bundestag (Federal Parliament) and Bundesrat (Federal Assembly) no later than April 3 this year.

Finance Minister Steinbrück justified these measures by saying that the expropriation of the shareholders had nothing to do with nationalisation as such, but with the safeguarding of public funds. "We are guaranteeing a huge sum of money, but we are not taking over a single share. If the government becomes the owner, the bank's refinancing and capital options will considerably improve. They will then profit from the high creditworthiness of the federal government," he said. The aim was to promote a "viable business model", so that the HRE bank could quickly be sold into private hands again. Chancellor Merkel justified the need for such an expropriation by declaring "it is internationally agreed that a bank cannot be allowed to fail if it will bring others down with it."

[...]

While every German citizen is now liable for HRE to the tune of 1,200 euros per head, not a single one of the financial speculators, main shareholders or board members of HRE has been held accountable for their corrupt and irresponsible practices.

The HRE business model was based on securing long-term loans with short-term loans. In order to avoid the supervisory control of the financial and treasury inspectors, HRE devolved part of its activities to its daughter firm Depfa in Ireland. The outbreak of the financial crisis shattered these practices. Because of the credit crunch, in which banks have largely ceased lending to each other, HRE can now only survive in the short term and have a chance to refinance itself with the help of billions of euros in guarantees from the German government.

Despite all this, the German government still considers itself obliged to do what the banks and the financial elite command them. Their "emergency takeover" bill proposes to legalise enforced nationalisation by the end of June, if the shareholders do not voluntarily accept the current state takeover deal. The expropriated shareholders would then receive as compensation the average stock market price for their shares from the two weeks prior to the expropriation. Should the bank later be re-privatised, which they expect to happen soon, the deal offers the former shareholders first option to re-purchase the same shares.

The American investor group J.C. Flowers, which is HRE's majority shareholder with 24 percent of all shares, has offered no serious objection to the planned expropriation. In a letter to the federal government, the board of the group declared that they also agree with the government's aim of taking on a majority share in HRE of 75 percent plus one share. Only the amount of compensation for the concerned shareholders was "in our view not acceptable".

In June 2008, J.C. Flowers became majority shareholder when it bought a billion euros' worth of stakes in HRE at the price of 22.50 euros per share. The current value of these shares - €1.60 each - has melted 60 billion euros away from their portfolio's value. Should the bank go bust, the shares would be worth absolutely nothing. So now J.C. Flowers wants the state to make up for their speculative losses.

But investors are trying their luck at pushing the price higher. They are threatening to contest enforced nationalisation with long-drawn-out legal processes and are demanding compensation for the voluntary surrender of their shares―compensation that, at three Euros per share, is double their current stock market value.

The nationalisation envisaged by the German government is nothing more than an effort to rescue the bank at a cost to the German people of billions of euros. But these government actions will neither halt nor solve the financial and economic crisis. They will leave untouched the basic interests of the ruling class, which are rooted in the private ownership of capital and control over the financial system as a whole.

Make no mistake, these so called bank "nationalisations" are not some kind of socialistic takeover of banks by "governments". Rather, they represent the opposite: the final takeover of national governments by banks. They are just one plank of the massive theft being perpetrated on the citizens of the world.

Imagine a casino in which there are numerous high rolling gamblers. These gamblers have day jobs which are useful to society but represent a very small part of what they do as the bulk of their time and all their resources are focused on gambling. It's late in the night and the gamblers have been cleaned out and are massively in debt to the casino. They are terrified because they know the end is near, the casino owners are not known for their gentle ways, and these gamblers are deeply in their debt with no way out. But, just like in the movies, as the final denouement nears, the doors bust open, help has arrived. In strides the government with bags and bags of cash. It settles all the gamblers debts because the gamblers have that tiny little role they play which is crucial to the functioning of society. Some think that at this point the government should chastise the gamblers and tell them to get back to performing that useful function and that useful function alone, but sadly no, as the government leaves the casino the gamblers demand that the government given them back all their original chips. Incredibly, the government agrees and hands over the cash. The gamblers stay in the casino, toast themselves and get back to the tables. In due course it will be the government that is left standing alone in the street in the cold light of dawn wondering just how it got so badly mugged. But like all governments it will shrug its shoulders and wander off, it wasn't its money anyway.

Here is Michael Hudson in a lengthy article that we've excerpted here but is worth reading in full:

What "Nationalize the Banks" and the "Free Market" Really Mean in Today's Looking-Glass World

The Language of Looting

"Banking shares began to plunge Friday morning after Senator Dodd, the Connecticut Democrat who is chairman of the banking committee, said in an interview with Bloomberg Television that he was concerned the government might end up nationalizing some lenders "at least for a short time." Several other prominent policy makers - including Alan Greenspan, the former chairman of the Federal Reserve, and Senator Lindsey Graham of South Carolina - have echoed that view recently."

--Eric Dash, "Growing Worry on Rescue Takes a Toll on Banks," The New York Times, February 20, 2009

How is it that Alan Greenspan, free-market lobbyist for Wall Street, recently announced that he favored nationalization of America's banks - and indeed, mainly the biggest and most powerful? Has the old disciple of Ayn Rand gone Red in the night? Surely not.

The answer is that the rhetoric of "free markets," "nationalization" and even "socialism" (as in "socializing the losses") has been turned into the language of deception to help the financial sector mobilize government power to support its own special privileges. Having undermined the economy at large, Wall Street's public relations think tanks are now dismantling the language itself.

Exactly what does "a free market" mean? Is it what the classical economists advocated - a market free from monopoly power, business fraud, political insider dealing and special privileges for vested interests - a market protected by the rise in public regulation from the Sherman Anti-Trust law of 1890 to the Glass-Steagall Act and other New Deal legislation? Or is it a market free for predators to exploit victims without public regulation or economic policemen - the kind of free-for-all market that the Federal Reserve and Security and Exchange Commission (SEC) have created over the past decade or so? It seems incredible that people should accept today's neoliberal idea of "market freedom" in the sense of neutering government watchdogs, Alan Greenspan-style, letting Angelo Mozilo at Countrywide, Hank Greenberg at AIG, Bernie Madoff, Citibank, Bear Stearns and Lehman Brothers loot without hindrance or sanction, plunge the economy into crisis and then use Treasury bailout money to pay the highest salaries and bonuses in U.S. history.

Terms that are the antithesis of "free market" also are being turned into the opposite of what they historically have meant. Take today's discussions about nationalizing the banks. For over a century nationalization has meant public takeover of monopolies or other sectors to operate them in the public interest rather than leaving them to special interests. But when neoliberals use the word "nationalization" they mean a bailout, a government giveaway to the financial interests.

Doublethink and doubletalk with regard to "nationalizing" or "socializing" the banks and other sectors is a travesty of political and economic discussion from the 17th through mid-20th centuries. Society's basic grammar of thought, the vocabulary to discuss political and economic topics, is being turned inside-out in an effort to ward off discussion of the policy solutions posed by the classical economists and political philosophers that made Western civilization "Western."

Today's clash of civilization is not really with the Orient; it is with our own past, with the Enlightenment itself and its evolution into classical political economy and Progressive Era social reforms aimed at freeing society from the surviving trammels of European feudalism. What we are seeing is propaganda designed to deceive, to distract attention from economic reality so as to promote the property and financial interests from whose predatory grasp classical economists set out to free the world. What is being attempted is nothing less than an attempt to destroy the intellectual and moral edifice of what took Western civilization eight centuries to develop, from the 12th century Schoolmen discussing Just Price through 19th and 20th century classical economic value theory.

Any idea of "socialism from above," in the sense of "socializing the risk," is old-fashioned oligarchy - kleptocratic statism from above. Real nationalization occurs when governments act in the public interest to take over private property. The 19th-century program to nationalize the land (it was the first plank of the Communist Manifesto) did not mean anything remotely like the government taking over estates, paying off their mortgages at public expense and then giving it back to the former landlords free and clear of encumbrances and taxes. It meant taking the land and its rental income into the public domain, and leasing it out at a user fee ranging from actual operating cost to a subsidized rate or even freely as in the case of streets and roads.

Nationalizing the banks along these lines would mean that the government would supply the nation's credit needs. The Treasury would become the source of new money, replacing commercial bank credit. Presumably this credit would be lent out for economically and socially productive purposes, not merely to inflate asset prices while loading down households and business with debt, as has occurred under today's commercial bank lending policies...

The Chicago Boys in Chile realized that markets free for predatory finance and insider privatization could only be imposed at gunpoint. These free-marketers closed down every economics department in Chile, every social science department outside of the Catholic University where the Chicago Boys held sway. Operation Condor arrested, exiled or murdered tens of thousands of academics, intellectuals, labor leaders and artists. Only by totalitarian control over the academic curriculum and public media backed by an active secret police and army could "free markets" neoliberal style be imposed. The resulting privatization at gunpoint became an exercise in what Marx called "primitive accumulation" - seizure of the public domain by political elites backed by force. It is a free market William-the-Conqueror or Yeltsin-kleptocrat style, with property parceled out to the companions of the political or military leader.

All this was just the opposite of the kind of free markets that Adam Smith had in mind when he warned that businessmen rarely get together but to plot ways to fix markets to their advantage. This is not a problem that troubled Mr. Greenspan or the editorial writers of the New York Times and Washington Post. There really is no kinship between their neoliberal ideals and those of the Enlightenment political philosophers. For them to promote an idea of free markets as ones "free" for political insiders to pry away the public domain for themselves is to lower an intellectual Iron Curtain on the history of economic thought

[...]

Neoliberal denunciations of public regulation and taxation as "socialism" is really an attack on classical political economy - the "original" liberalism whose ideal was to free society from the parasitic legacy of feudalism. A truly socialized Treasury policy would be for banks to lend for productive purposes that contribute to real economic growth, not merely to increase overhead and inflate asset prices by enough to extract interest charges. Fiscal policy would aim to minimize rather than maximizing the price of home ownership and doing business, by basing the tax system on collecting the rent that is now being paid out as interest. Shifting the tax burden off wages and profits onto rent and interest was the core of classical political economy in the 18th and 19th centuries, as well as the Progressive Era and Social Democratic reform movements in the United States and Europe prior to World War I. But this doctrine and its reform program has been buried by the rhetorical smokescreen organized by financial lobbyists seeking to muddy the ideological waters sufficiently to mute popular opposition to today's power grab by finance capital and monopoly capital. Their alternative to true nationalization and socialization of finance is debt peonage, oligarchy and neo-feudalism. They have called this program "free markets."

United States and Canada

The bad economic news continued in North America last week, as the United States announced a sharp drop in existing home sales and in housing prices for January:-

Purchases fell 5.3 percent to an annual rate of 4.49 million, the fewest since 1997, the National Association of Realtors said today in Washington. The median price dropped 15 percent from a year ago to a six-year low of $170,300. Distressed properties accounted for 45 percent of all sales....

Sales were down 8.6 percent compared with a year earlier.

The number of unsold homes on the market at the end of January represented 9.6 months' worth at the current sales pace, up from 9.4 months at the end of December.

Resales of single-family homes decreased 4.7 percent .....sales of condos and co-ops dropped 10 ......Purchases declined in three of four regions, led by a 15 percent decline in the Northeast. Sales were unchanged in the West.

Venezuelan president Hugo Chavez last week had some advice for US President Obama:-

"It's regrettable the crisis that the U.S. is living through. Millions of workers are being left in the street, thousands of companies are closing, in the U.S. there isn't a single new infrastructure project. Go look for a highway there, the country has gone bust."

"Now President Obama arrived with some announcements, hopefully, but the capitalist model and its perverse values have failed."

"I recommend to Obama -- they're criticizing him because they say he's moving towards socialism -- come Obama, ally with us on the path to socialism, it's the only road."

"Imagine a socialist revolution in the U.S. Nothing is impossible."

The U.S. elite is increasingly worried about any action that is seen to deviate from the extreme free market capitalist dogma that has caused so much suffering and destruction around the world. In rhetoric reminiscent of a worryingly McCarthy-esque creed politicians from all parties including the President are desperate to distance themselves from any action or even statement that is not hardcore neo-liberal. It seems that even the suggestion of an association with "socialism" is wholly unacceptable. Never mind that what the US could do with is a few years of real socialism, not the "reds under your bed" type that most US citizens think of as socialism, but socialism that provides for the weaker and less fortunate, that champions human values over monetary and has a higher creed than naked greed and extreme wealth.

A specter haunts the ruling elite

The specter of socialism is haunting the American ruling elite.

One finds in the media increasing references to the prospect of socialism. The different factions of the bourgeoisie accuse each other of socialistic tendencies, while insisting on their own absolute commitment to the principles of free enterprise.

One of the central topics for discussion on the Sunday talk shows yesterday was Republican charges that Obama's policy is somehow socialistic. On ABC News' "This Week with George Stephanopoulos," the assembled panel of regular columnists - E.J. Dionne, David Brooks, George Will and Cokie Roberts - debated the issue.

On NBC's "Meet the Press," Democratic Senator Charles Schumer and Republican Senator Lindsey Graham discussed the possibility of government ownership of the banks. Schumer and Graham both supported some form of nationalization. However, they both hastened to distinguish between "bad nationalization," where the government actually takes the banks out of the hands of private individuals, and "good nationalization" - which they said would be better called "receivership" - in which the government would clean up the balance sheets of the banks and quickly resell them to private investors.

Of the various references to socialism, perhaps the most extraordinary came from President Barack Obama himself. In an interview with the New York Times on Friday, Obama was asked to respond to charges from sections of the Republican Party that he is a socialist. Obama was taken aback by the question, but laughed it off and responded with a simple, "The answer is no."

Following the interview, Obama and his advisers apparently discussed the issue, and 90 minutes later the president took the unusual measure of calling back Times reporter Jeff Zeleney. Evidently nervous about the implications of the question, Obama elaborated on his opposition to socialism and attempted to reverse the charge. "I think that it's important just to note when you start hearing folks throw these words around that we've actually been operating in a way that is entirely consistent with free market principles and that some of the same folks who are throwing the word socialist around can't say the same," he said.

The prospect of social unrest has become a frequent topic of discussion in the media as well. In the New York Times on Sunday, an opinion piece by Liaquat Ahamed entitled "Subprime Europe" cited the economic collapse of the region, which he compared to the collapse of the Austrian bank Creditanstalt in 1931. That event sparked a financial panic in Europe, setting into motion the Great Depression.

Ahmed wrote that the economic meltdown of Eastern Europe is "provoking social unrest." Warning of the implications for the United States, he noted, "American subprime borrowers who have had their houses foreclosed on are not - at least not yet - rioting in the streets. Workers in Eastern Europe are."

In another comment on the same page in the Times, Frederic Morton drew a comparison with Austria in 1913. He concluded his comment with a quote from Karl Kraus, who called Austria "the laboratory of the apocalypse." Morton asked, "What would he say about America today?"

In a recent appearance on MSNBC, former national security advisor for Jimmy Carter, Zbigniew Brezezinski, worried about the reemergence of "class conflict."

It is ironic that this discussion of socialism is engaging a political and media elite that for decades has promoted anti-communism and anti-socialism as a virtual state religion. No faction of the political establishment is advancing a policy that in any way challenges capitalism or the interests of the financial elite. Nor is there yet a mass socialist movement of the working class.

However, there is growing nervousness within this layer over the implications of the capitalist crisis and the potential for mass social opposition to the policies of the ruling class. Thus far, political discussion in the US has been contained within an extremely narrow framework. The diversity of views in the media and on the talk shows encompasses various shades of opinion within the wealthiest one tenth of one percent of the population.

Yet there is an objective logic to developments. At a certain point - sooner rather than later - discussion of policy will escape their tight grasp. The masses of people who are directly affected by the global depression will become involved.

There is a sense within the ruling class itself of an enormous anger building up, which, if unleashed, will assume the form of mass opposition to capitalism directed against the wealth and privileges of the financial elite. They are worried that socialism will then develop not merely as a specter, but as a living political movement embedded in the consciousness of millions of people. And they are right to be worried.

It is interesting that all countries besides the United States have viable socialist political parties. Why, in the supposed home of political freedom would there be no such option?

Writing of the alarming collapse of General Motors, socialist commentator Jerry White points out what should be obvious:-

The collapse of General Motors is a concentrated expression of the crisis of the profit system as a whole. The global slump has slashed auto sales far more drastically than GM management anticipated in the restructuring plans it submitted to the government. Rejecting any suggestion of a quick economic recovery, the auditors wrote, "There is no assurance that the global automobile market will recover or that it will not suffer a significant further downturn."

In the US - the world's largest auto market - sales have fallen to the lowest level in 30 years. After averaging between 16 and 17 million vehicle sales a year for most of the decade, US auto sales fell to 13 million in 2008 and are expected to plunge to only 9 million this year. Last month, auto sales in China surpassed those in the US for the first time ever.

Throughout the world there is an unprecedented contraction in auto sales affecting Japan, Europe, Latin America and the previously fast-growing Chinese and Indian markets. Global auto giants like Toyota, Nissan and Volkswagen are announcing production cuts, mass layoffs and demands for concessions from their workers. Meanwhile, industry analysts predict a wave of bankruptcies and mergers by auto and auto-related companies to eliminate the so-called "glut" in production capacity - a process that will destroy millions of jobs.

The crisis of GM and the auto industry as a whole underscores the anarchy and irrationality of capitalism. There is no less need for cars and trucks today than there was last year. Nor is there a lack of technology, scientific understanding or available labor to produce safe, environmentally sustainable and affordable cars.

But under capitalism, production is carried out for private profit, not human need. Moreover, the network of production and distribution - global in scope and dominated by transnational corporations - remains trapped within the constricting and economically destructive framework of rival nation states. As a result, millions of workers face the prospect of pauperization as the unsold products of their labor pile up in factory lots, rail yards and shipping ports around the world.

The collapse of GM - the 101-year-old industrial giant which long defined the modern mass-production corporation - is symbolic of the historic decline of American capitalism. It highlights the decades-long transformation of the US economy, which saw the manufacturing base of the country systematically starved of resources and largely dismantled while vast sums of wealth were accumulated in the hands of a financial aristocracy through debt-driven speculation separated from the production of real value.

One set of figures demonstrates this process. In 1950, when GM was producing some 40 percent of the world's cars, manufacturing accounted for 60 percent of all corporate profits in the US and financial operations accounted for 10 percent. By 2004, the ratio had reversed, with the financial sector accounting for 45 percent of corporate profits and manufacturing only 6 percent.

The decline of American capitalism is, in turn, a concentrated expression of the crisis of the global capitalist system, which has reached the point where markets are breaking down, consumer demand is plummeting and huge sections of the world's productive forces are being destroyed.

Many will object that there is no alternative to capitalism, that the best we can hope for is a slightly more humane capitalism. Is that really true?

Many object that socialism is "utopian," that it overestimates human nature. Certainly capitalism generates massive economic growth while allowing, in fact expecting and encouraging, people to be selfish, greedy, egocentric and ultimately immoral. However, if we consider that there are not one but two "human natures," that of psychopaths, people with absolutely no conscience, and that of normal humanity, the vast majority, then the picture becomes different. If psychopaths were identified and their tricks exposed, if children were brought up in healthy environments to be resistant to ponerization, then one could easily imagine a humane socialist alternative, one based on a truer understanding of human nature than that proposed by free market capitalist theory.

The Unravelling Continues As More People Suffer

By Donald Hunt and Simon Davies
SOTT.net

World stock indexes fell sharply again the week ending 23rd February, down 6-7% on average.

Gold bumped up against the $1000 barrier on Friday as it became clear that all countries are prepared to go deeply in debt to stimulate their economies and to bail out their banks.

In the background of the economic news there have been some significant moves on the world chessboard. The United States is moving closer to Russia and Iran while escalating the war in Pakistan and Afghanistan. Russia will now formally allow the United States to resupply their forces in Afghanistan through Russian controlled territory. US diplomatic overtures to Iran continue although the UK Financial Times and other mainstream sources continued to bang the Zionist inspired nuclear weapons drum.

China and the United States are as close as can be economically and neither side seem to need to deny it. China has the productive capacity and the money and the United States has the borrowers, the consumers, and the international police force. The United States, with Secretary of State Hillary Clinton's visit to China, has stopped the hypocritical ritual of "denouncing" Chinese human rights violations. It look like the world powers are joining forces to institute the next step of the plan. Meanwhile a new overtly fascist government has been formed in Israel by the right-wing schemer, Netanyahu; an event that does not bode well for humanity.

Africa

The South African economy shrank by 1.4% in the fourth quarter of 2008. It's currency, the rand, fell last week. South Africa has been hit hard by falling commodity prices. Platinum, for example, South Africa's biggest export, is worth less than half what it was a year ago. This has led to the announcement of job cuts and dividend suspensions at the largest platinum producer, Anglo American, Plc.

Asia

U.S. Secretary of State Hillary Clinton was in China this past weekend urging China to keep buying U.S. Treasury bonds.

Clinton Urges China to Keep Buying U.S. Treasury Securities

Secretary of State Hillary Clinton urged China to continue buying U.S. Treasury bonds to help finance President Barack Obama's stimulus plan, saying "we are truly going to rise or fall together."

"Our economies are so intertwined," Clinton said in an interview today in Beijing with Shanghai-based Dragon Television. "It would not be in China's interest" if the U.S. were unable to finance deficit spending to stimulate its stalled economy.

The U.S. is the single largest buyer of the exports that drive growth in China, the world's third-largest economy. China in turn invests surplus earnings from shipments of goods such as toys, clothing and steel primarily in Treasury securities, making it the world's largest holder of U.S. government debt at the end of last year with $696.2 billion.

China's leaders understand that "the United States has to take some very drastic measures with the stimulus package, which means we have to incur debt," Clinton said. The Chinese are "making a very smart decision by continuing to invest in Treasury bonds," which she called a "safe investment," because a speedy U.S. recovery will fuel China's growth as well.

China boosted purchases of U.S. debt by 46 percent last year to a record. The Chinese government said last week it plans to keep buying Treasuries, adding that future purchases will depend on the preservation of their value and the safety of the investment. China's currency reserves of $1.95 trillion are about 29 percent of the world total.

'No Viable Alternative'

JPMorgan Chase & Co. predicted in a Feb. 6 report that China will keep buying Treasuries "not only for the near-term stability of the global financial system, but also because there is no viable and liquid alternative market in which to invest China's massive and still growing reserves."

Chinese attempts to diversify from [US] Treasuries into more risk-oriented assets have not fared well. It has lost at least half of the $10.5 billion it invested in New York-based Blackstone, Morgan Stanley and TPG Inc. since mid-2007.

Asian nations also announced broader agreement on a currency pool to defend their currencies.

The fund is aimed at ensuring central banks have enough to shield their currencies from speculative attacks such as those that depleted the reserves of Indonesia, Thailand and South Korea during financial crisis a decade ago. Many Asian currencies have tumbled in the past year, threatening regional stability, as the global downturn spreads through their export- dependent economies...

Large reversals "of capital flows, which have affected the financial markets, could undermine growth prospects," they said. "This can be a significant downside risk to regional growth, which has already been dragged down by the global economic downturn."

A decade ago, Indonesia, Thailand and South Korea spent much of their foreign reserves attempting to prop up their exchange rates. The three nations were forced to turn to the International Monetary Fund for more than $100 billion of loans. In return, the governments had to cut spending, raise interest rates and sell state-owned companies.

In the years since, Japan, China and South Korea together with the Asean economies have amassed more than $3.6 trillion of foreign-exchange reserves, about half of the global total.

South Korea's finance minister stated they will act to prop up its banks and currency, if necessary.

No doubt the Asian countries learned their lessons from the 1997/98 crisis which was engineered and was designed to pry open their financial markets to Anglo-American firms. The western bankers' agent, the IMF, forced the east Asian countries to "reform" their economies and financial systems, changing what had been a nationalistic, state-led capitalism, to the so-called "Washington consensus" of privatized, free-market capitalism. The accumulation of foreign exchange reserves since then has resulted from their experiences during that crisis and has therefore prevented money from being re-injected into their economies and particularly into their social infrastructure. No doubt these hard earned funds will in due course be wasted in a meaningless defense of their currencies against forces which are far stronger than they seem to anticipate.

Eastern Europe

The Baltic nations of Latvia, Lithuania and Estonia are also banding together to defend their currencies' euro peg. This is causing a lot of economic pain but is needed if they wish to adopt the Euro. It is another sign of the fragility of the whole concept of the Euro in a time of worldwide economic collapse and also the price paid by ordinary people when monetary sovereignty is sacrificed for the benefit of corporate and banking interests. In order to 'balance budgets' and maintain their currency pegs to the Euro all three nations, with Latvia in the lead, will have to take the standard IMF 'medicine' which always pushes austerity onto the middle and working classes, slashes social spending and results in social unrest, the classic "IMF riot."

Baltic Currency-Peg Defense Cuts Reserves Amid Regional Slump

Latvia, Estonia and Lithuania, facing a prolonged recession, say they will protect their currency pegs whatever the cost. That strategy may be as crippling as the alternative, economists say.

The three-nation Baltic region is in its deepest crisis since breaking from the Soviet Union in 1991. Latvia, which spent $1.26 billion in 11 weeks defending the Lats last year, was forced to turn to an International Monetary Fund-led group for a $9.6 billion bailout. Its economy may contract 12 percent this year, while Estonian gross domestic product may shrink by as much as 9 percent and Lithuania's GDP by 4.9 percent.

Latvian Premier Ivars Godmanis resigned on Feb. 20 and Lithuania's two-month-old cabinet is struggling to win over a skeptical electorate after the two nations suffered the largest street riots since independence last month.

Keeping the peg "will likely mean a number of years of very low economic growth," said Lars Christensen, chief economist at Danske Bank AS in Copenhagen. "Wages and prices will have to fall to reestablish competitiveness."

Central bankers and government officials in the three countries, across the Baltic Sea from Sweden and Finland, say they will stick to their course toward adoption of the euro. The exchange rates of the Lithuanian Litas and the Estonian Kroon were pegged to the euro in 2004, just after the nations joined the European Union. The Latvian Lats was linked a year later...

Retaining Euro Peg

Latvia, the only of the three countries to have gotten a bailout, got a bad deal from the IMF, said New York University's Nouriel Roubini. The terms retained the euro peg as long as the government reduced wages, raised taxes and slashed spending.

"The IMF made a mistake with the Latvia program of allowing them to keep the peg," Roubini said in an interview on Feb. 4. "It doesn't make any sense because the currency is overvalued."

That view is shared by Paul Krugman, a Nobel prize-winning economist who in a Dec. 15 commentary in the New York Times warned that Latvia may become "the new Argentina." That country had a currency board and saw its peso plunge even after receiving an IMF loan.

The Latvian government fell on Feb. 20 after members of Godmanis's party said they lost confidence in his leadership, which was shaken after riots broke out on Jan. 13 in the capital Riga. Police arrested 106 people. Two days later in Lithuania, another 86 arrests were made after violence erupted in the capital, Vilnius.

Declining Polls

Two months after the government assumed power and introduced austerity measures, support for the Prime Minister Andrius Kubilius's Homeland Union fell to 11.6 percent in January from 21 percent the previous month, a survey by Vilmorus for Lietuvos Rytas showed. The margin of error was 1.9 percent.

"Although the implementation of these tough measures could lead to a significant erosion in popular support, we think that their political cost will still be much smaller than the cost of a currency devaluation," said Yarkin Cebeci, an economist at JPMorgan Chase & Co. in Istanbul.

Devaluation also may push corporations and mortgages into default: About 80 percent of total loans in Latvia and 84 percent in Estonia are in euros.

Latvia's "banks and legal system are at this point not prepared for such a shock," said Christoph Rosenberg, head of the IMF's mission to the Baltic state, in a Jan. 6 opinion on the RGE Monitor, defending the agreement. "It's questionable whether devaluation would quickly boost exports, given the global environment and the structure of its exports."

Estonia is now considering wage cuts of 10 percent for state employees, excluding police and teachers. Latvia and Lithuania have already cut state public wages by 15 percent and 12 percent respectively.

"Essentially, it'll be a political decision that the pain of holding these regimes is just too heavy a cross to bear," said Timothy Ash, head of emerging-market economics at Royal Bank of Scotland Plc in London. "Their positions are just becoming more unsustainable because everyone around them is just letting their currencies adjust."

Western Europe

Problems in Central and Eastern Europe continued to threaten the financial stability of Western Europe last week. The euro fell to its lowest level in three months against the dollar last week on concerns about Central and Eastern Europe. It is estimated that Western European banks have loan exposures to Central and Eastern Europe of between €1.4 trillion and €1.6 trillion. The trouble is that this magnitude of loan exposure is the tip of the iceberg. A secret EU analysis that up to €16 trillion of EU bank assets may be 'impaired' (i.e., they may be less than their face value); chief among these are the 'family' of structured securities including Mortgage Backed Securities (MBS), Collateralised Debt Obligations (CDO) and Synthetic Collateralised Debt Obligations and the derivatives whose value is determined on their market price. How many of these are based on Eastern European risk is anybody's guess.

What we are seeing is akin to musical chairs; everybody knows that there are very few or possible no chairs but as long as the music can be kept going then nobody has to acknowledge this. Nouriel Roubini has suggested that a region-wide rescue will be required.

"The banking problem in Europe is becoming more severe," Roubini said in a Bloomberg Television interview. "You have a series of countries that are really in trouble," Roubini said, citing Latvia, Estonia, Lithuania, Hungary, Belarus and Ukraine.

German and French officials this week expressed concern about a slide in investor confidence in smaller European economies. The cost of insuring Irish, Greek and Spanish debt against default has climbed to records, and mounting losses in eastern Europe among Austrian banks sent that nation's bond-yield premiums to an unprecedented level.

European lenders are taking steps that could increase state control of banks as the recession deepens. German Chancellor Angela Merkel's cabinet approved draft legislation this week that allows for the takeover of Hypo Real Estate Holding AG, which would be the first German bank nationalization since the 1930s.

The continent's largest financial companies have reported $316 billion in writedowns and credit-related losses since the collapse of the U.S. subprime mortgage market in 2007 spread to other asset classes and continents. The market turmoil has forced European lenders to raise $370 billion in fresh capital and government-led bailouts from London to Zurich to Berlin, according to Bloomberg data.

EU Aid

Roubini said European nations may go further and assist member states that are unable to rescue their own banks. "Even the European Union now is thinking of helping those sovereigns and their banking systems," he said.

"There are significant problems in terms of debt and also banking problems in places like Ireland, for example," Roubini said. "But also a country like Greece has a huge amount of stock of public debt."

Moody's Investors Service Inc. on Feb. 17 said some of Europe's largest banks may be downgraded because of loans to eastern Europe, sending Italy's UniCredit SpA, which has aggressively expanded in the region, to its lowest in 12 years.

'Pressure' on Ratings

Moody's sees "continuous downward rating pressure" in the region as a result of worsening asset quality and western banks' reliance on short-term funding, the ratings company said in a report.

The International Monetary Fund has offered aid worth about $52 billion to Latvia, Hungary, Serbia and Ukraine.

Roubini, who predicted the global credit crisis, also discussed the need for plans to revive growth. The best approach in the euro zone is "fiscal stimulus in the short term but fiscal consolidation over the medium term," he said.

He noted that while the $787 billion U.S. fiscal stimulus package, signed into law this week by President Barack Obama, is necessary, it may not be sufficient and will put the country deeper into debt.

"We're going to add $4 trillion to $5 trillion to the public debt over the next few years," he said. "Down the line, maybe two or four years, there may be a downgrade of even the United States."

Still, he said, the U.S. is taking appropriate steps compared with other economies. He said the European Central Bank and Japan are "behind the curve."

Ireland, which some commentators are comparing with Iceland, saw large protests in Dublin against austerity measures. Like Iceland, much of Ireland's resurgent economy was built on the back of a banking and financial services boom. Now that bubble has turned to bust the Irish economy is looking decidedly vulnerable and hollow. The Irish government have responded in much the same way as the Eastern Europeans with the resulting discontent being peacefully, although understandably angrily, demonstrated on the streets of Dublin:-

Thousands March in Dublin Against Tax Increases, Spending Cuts

Tens of thousands of people marched in Dublin today in what labor unions say is the first of a series of demonstrations by workers to protest against government spending cuts and tax increases.

The Irish Congress of Trade Unions described the march as the "first step in a rolling campaign of action." The Impact labor union, which represents public workers, estimated the number of protesters at 100,000 in an e-mailed statement.

Ireland's government this month announced it will introduce a pension levy for public workers and cut spending to plug a deepening hole in public finances and stave off a downgrade of the nation's debt rating. Unions say lower-paid workers are taking the brunt of the cutbacks.

"The government recognizes that the measures which it is taking are difficult and, in some cases, painful," the office of Prime Minister Brian Cowen said in a statement today. "It is also convinced, however, that they are both necessary and fair."

Ireland's economy may shrink by 10 percent between 2008 and 2010, Cowen has said, while European Commission forecasts that the country's budget deficit will reach 11 percent of gross domestic product this year, almost three times the EU limit.

Markets

The markets this week (to Feb 23rd)

	Previous week's close	This week's close	Change	% change
Gold (USD)	942.70	994.90	52.20	5.54%
Gold (EUR)	732.59	775.57	42.98	5.87%
Oil (USD)	37.95	39.80	1.85	4.87%
Oil (EUR)	29.49	31.03	1.53	5.20%
Gold:Oil	24.84	25.00	0.16	0.63%
USD / EUR	0.7771 / 1.2868	0.7796 / 1.2828	0.0025 / 0.0040	0.32% / 0.31%
USD / GBP	0.7008 / 1.4270	0.6929 / 1.4432	0.0079 / 0.0162	1.13% / 1.14%
USD / JPY	90.750/ 0.0110	93.345/ 0.0107	2.595 / 0.0003	2.86% / 2.73%
DOW	7,850	7,366	485	6.17%
FTSE	4,190	3,889	301	7.17%
DAX	4,413	4,015	399	9.03%
NIKKEI	7,779	7,416	363	4.67%
BOVESPA	41,674	38,715	2,959	7.10%
HANG SENG	13,555	12,699	856	6.31%
US Fed Funds	0.25%	0.15%	0.10	n/a
$ 3month	0.29%	0.27%	0.02	n/a
$ 10 year	2.89%	2.79%	0.10	n/a

Middle East

After a massive building spree, Dubai is having trouble paying its debts as foreigners flee the country simply dumping luxury cars at the airport.

U.A.E. Central Bank Steps In to Support Dubai Debt, Spending

The United Arab Emirates' central bank stepped in to support Dubai after concern increased the emirate will struggle to repay its debt as global financial turmoil pushed up credit costs and burst a real-estate bubble.

The central bank bought half of an unsecured, $20 billion, 5-year notes issue at an annual interest rate of 4 percent, Dubai's Department of Finance said in an e-mailed statement yesterday.

Home to the world's tallest building, most expensive hotel suite and largest manmade islands, Dubai borrowed $80 billion to turn itself into a regional financial and tourism hub. Moody's Investors Service said in October that Dubai may need help from Abu Dhabi to pay for its debt. The emirate may have to refinance $15 billion this year in maturing loans and bonds, Moody's said...

Latin America

Brazil's unemployment rate rose to the highest levels in seven years. President Lula has accused companies of overreacting by laying off too many people before it is necessary.

United States and Canada

We had to chuckle this week as both sides of Congress danced around the concept of 'nationalization' of major US banks as if such an admission would open the gates of hell and the US would be consumed in the fire of communism as a result. It is pretty obvious that if Congress wishes to go about saving the US banking system in its current form, itself a highly dubious proposition, it will have to take sizeable and probably controlling stakes in the banks in the form of ordinary/common shares. It seems bound to happen yet to see the ideological squirming you'd be forgiven for thinking that it's not a forgone conclusion. In fact it makes us wonder if the ideological squirming is just for show so that Congress can uphold the 'free market' mantra while not allowing the free market to exact its inevitable price upon the system of greed to which they owe their very existence.

In a sign that Asian investors understand just how dire the predicament of the US is, the rescue of Freddie Mac and Fannie Mae, the US government linked mortgage lenders, looks unlikely to succeed without explicit US government guarantees of their mortgage backed securities as Asian investors simply won't buy them otherwise.

In case anyone doubted that 'self-regulation' really means NO-regulation or, even worse, criminal collusion, it emerged that:-

Two employees of Allen Stanford's financial business, which U.S. regulators have accused of massive fraud, held advisory roles at a watchdog group overseeing U.S. broker-dealers aimed at preventing abuses.

Lena Stinson, director of global compliance at Stanford Financial Group, served on the membership committee of the Financial Industry Regulatory Authority, or FINRA, which describes itself as the largest independent regulator of U.S. securities firms.

Frederick Fram, the chief operating officer of Stanford Group Holdings, served on the FINRA continuing education content committee, "where he participates in creating material for the Regulatory Element continuing education program," according to a biography on Stanford's website.

It seems that the self-regulatory body FINRA is heavily implicated as being a fraud as regards regulation as well as permitting fraud among the organizations that it purports to regulate. Harry Markopolos who repeatedly sounded the alarm on Bernard Madoff to the SEC has said that he doesn't think the SEC was corrupt but that FINRA definitely was. Whether he'd be able to say the same about the SEC (US Securities and Exchange Commission) in future seems doubtful as Mary Schapiro, the newly confirmed chairman of the SEC, used to be the chief executive of FINRA.

In the United States, as in Brazil, corporations are taking advantage of public fear of layoffs and economic collapse to use their increased power over workers. Many companies and public institutions that are not experiencing drops in business are cutting jobs, pay and benefits just to get ahead of the curve and improve the bottom line. It is a self-fulfilling prophecy, since it is now job losses that are driving downturn in general and in corporate profits.

Using the Crash to Hit Workers

Whatever the truth is about where this economy is heading, one thing is clear: employers are taking every opportunity to slash employment and, if they are unionized, to hammer unions for pay cuts, even when there is no justification for these actions.

Take Safeway Inc., a large national supermarket chain. The company, which had $44 billion in sales in 2007, and which, based upon third quarter figures for 2008 was well on the way to show record sales for 2008, appears to be using the economic downturn as a justification for laying off employees and making remaining employees work harder.

I can only give anecdotal information on this, but the Genuardi's Family Market store (a Safeway subsidiary) where I live, in Upper Dublin, PA, an upper middle-class suburb north of Philadelphia, according to its employees, has been laying off cashiers, and slashing its night work force - the people who restock the shelves and unload the delivery trucks when the store is closed. The management is doing this not because sales have slumped. They haven't. People may not be buying new cars, but they are still buying food, and in fact, if they are cutting back on eating out, as restaurant chains are reporting, they are probably actually buying more groceries, not less. Management is making these cuts simply because they can get away with it.

The layoffs, in the face of continued heavy business, means that cashiers are working harder. It means that the night staff, cut by half, is working twice as hard. But with jobs getting scarce, what is their option? If they don't like the speed-up, where are they going to go in the current environment? Meanwhile, if service gets worse, customers will accept the decline because they'll blame it on the economy, not noticing that there is really no justification for employee cutbacks at the supermarket.

Temple University, which is a major public higher education institution in Philadelphia, is reportedly telling all departments to make substantial cuts in their budgets . This will inevitably lead to layoffs of faculty and support staff critical to the education mission. And yet, what is the justification for such draconian measures? The governor initially announced plans to cut the state's contribution to the university's annual budget for next year by a few million dollars, but the new Economic Recovery Act stimulus package includes huge grants to the states, including Pennsylvania, more than compensating for those cuts. Furthermore, state-funded universities across the country, including Temple, are reporting increased applications and enrollments, as students whose parents cannot afford to send them to private colleges, send them instead to public institutions, and as workers who lose their jobs decide that the economic downturn is a good time to go to college and get an education. That means more tuition revenues coming in. Moreover, student aid, including Pell Grants for lower-income students, have been substantially increased in the stimulus package, meaning more money for public colleges. Money might be marginally tighter at places like Temple (while, as with most public institutions, the university's endowment is not a significant contributor to the operating budget, small as it is it is certainly significantly reduced because of the market collapse), but it's certainly not down by enough to put universities in crisis. It may not even be down at all.

It might be understandable that state and local governments would be considering layoffs, or reduced pay and hours for public employees, given the slump in tax revenues from property taxes, sales taxes and income taxes. It is certainly necessary for the auto industry, which has seen sales plummet, to lay off workers. Luxury stores like Circuit City are going bust. But not all employers are hurting alike. Health care industries are still booming. Public colleges are doing fine. Supermarkets are doing well. Energy companies are okay.

Criticism of the nationwide wave of layoffs by companies and employers that really don't need to beggar their workers or push them out onto the street came from an unusual quarter recently, when Steve Korman, chief executive of a privately held Philadelphia-area company called Korman Communities, blasted corporate executives for laying off workers when they don't really need to. Korman had gotten upset when he saw Pfizer Inc.'s CEO Jeff Kinder say, on a television business program, that he planned to lay off 8000 workers in anticipation of a merger with Wyeth, another drug company. The layoffs were not being made because Pfizer was losing money or in trouble financially, but rather to improve profits. Korman, who owns stock in Pfizer, got angry and spent $16,000 to run ads in the Philadelphia Inquirer and the New York Times, saying:

"I have listened to the executives of many companies say that they are eliminating thousands of jobs to 'improve the bottom line,' I own stock in many of these companies and would prefer that the company make a smaller profit and [that] the stock fall, in the short term, rather than affect the lives of our neighbors and their families as jobs are lost.

"Please join me in reminding all CEOs that we are not just dealing with numbers and profit, but with real people and real families who need to keep their jobs."

Korman sent individual letters saying much the same thing to 16 companies in which he is an investor, including Federal Express, Google, Cisco Systems, Caterpillar, General Electric, ExxonMobil, Kraft, Nokia, Intel, Johnson&Johnson, Apple, EMC, Chevron, DuPont, Coca-Cola, Oracle and Dow.

If this phenomenon is bad enough that it has upset a prominent capitalist like Korman, it is clearly a major problem.

The irony is that as all these companies slash their workforces, and force remaining workers to work harder, and as public institutions like Temple University and other colleges cut their faculties and increase class sizes for remaining teaching staff, they are undermining any stimulus that taxpayers are subsidizing in the massive stimulus bill, and thus making the recession worse, not to mention wasting the huge deficit-spending measure itself.

Nobody would argue with a company's laying off of workers when sales collapse and there is no money coming in, but in many cases this is not what has been happening.

One reason there is a tidal wave of layoffs even at viable businesses and institutions across the country is simply the lack of or weakness of labor unions. With workers at most employers unorganized (unions represent only some 8 percent of private employees), it is easy for managers to engender an attitude of fear and passivity among employees, which makes it easier to pick them off, and to make those on the job work ever harder. Furthermore, without labor contracts, there is little workers can do to resist speedups that can seriously threaten their health, safety and well-being.

Only a new militancy and sense of solidarity among American workers, and a revitalization of the nearly moribund labor movement, can rescue this situation, which will only get worse as the economy continues to sink.

----------

1. Iran is reported to have one tonne of low enriched uranium hexafluoride, the fuel needed for a nuclear reactor. However, in a typical twisting of facts this is being promoted as "enough material to build a bomb" when it is impossible to build a bomb from such material. If the one tonne of low enriched uranium hexafluoride were further enriched it would produce about 20 kilos of weapons grade uranium. Iran does not have the facilities to achieve such further enrichment but these details are of course careful glossed over in the unending lies that spew from the mainstream media.

Rescuing Capitalism or Grand Theft & Military Dictatorship?

By Simon Davies and Donald Hunt
SOTT.net

World stock indexes fell the week ending 16th February led by the Dow losing more than 5% while gold continued to inch its way towards the psychologically important $1,000/oz level, driven by the approach of what looks like another emerging market crisis in Eastern Europe which is driving the Euro and Sterling lower, sending - it would seem - mobile money towards gold. The big US news, however, was the passage of the almost $800 billion stimulus package in the United States and the decidedly lukewarm reception to US Treasury Secretary Timothy Geithner's much heralded $2 trillion bank rescue plan.

The G7 finance ministers met in Rome in an exercise in hot air generation, stating, as if we needed reminding, that the "downturn" will persist through 2009 and that the various "stimulus measures" won't have any noticeable effect for a while as they "build over time". The ministers did pledge to restore confidence to financial markets and growth to the world economy but didn't happen to mention how they plan to do it. Timothy Geithner demanded "exceptional measures" from his counterparts which we can only assume means "exceptionally large amounts of money" to prop up the international banking system so that it can continue to concentrate even greater wealth in even fewer hands.

The vagueness of Mr Geithner's plan for rescuing US banks is rather strange considering his technocrat status and that his boss promised "change" which one might have hoped meant something different. Yet all we have seen so far from both Mr Geithner and Barack Obama is more of the same. They haven't the simple courage nor the desire to tell us straight that they need to recapitalise the US banking system to the tune of some $6 trillion - that's $6,000,000,000,000 - that they plan to have the US taxpayer bear the burden of almost incalculable losses from worthless assets all the while urging austerity and sacrifice for all but the elite including the further decimation of the last threads of America's social fabric. Instead they brandish rescue plans, stimulus packages and a myriad of programme acronyms in the hope that we might not notice.

Across the Atlantic the same games are being played. The distraction of the week being a ritualized bashing of banker's bonuses. In the UK, the Chancellor of the Exchequer, Alastair Darling, was decidedly ill at ease in a Channel 4 TV interview when pressed on the bonuses to be paid to bankers at the Royal Bank of Scotland which is now 69% government owned and whose excess liabilities over the every diminishing value of its assets are now on the balance sheet of the UK Treasury. He really is caught between a rock and a hard place - in one ear he can hear the clamour of the street, the people whose money he has liberally dished out to the Royal Bank of Scotland while in the other he has the whispering bankers who tell him that all will be lost if he can't retain the best staff, the ones who can make the bank profitable again. No doubt Barack Obama finds himself in much the same position.

Both of those voices are right; it is ridiculous to have a business that has been rescued with public money pay out vast wads of it to the already well remunerated employees when in any other business they'd have been sent home as the shutters were pulled down for the last time. That is what happened to the coal miners, steel workers and printer workers under Margaret Thatcher, that is what happened in every other industry and business that "couldn't cut it" in the world of the free market, that is what is happening to millions around the globe now. That bankers even have jobs should be sufficient; that they need bonuses to retain them is beyond ridiculous. Yet, those that earn the bank the most money are indeed highly mobile and until the wheeler-dealing banking industry is brought crashing to its final demise there will be those who are more than happy to employ bankers who can generate millions in income, and pay them accordingly. This will not change until there is a fundamental change in the way banks are run and in the activities in which they engage.

The brand of free market capitalism whose inevitable conclusion is exactly the crisis we see today is a pathological system that sucks all economic activity into its gapping maw; it is a system where the lowest denominator rules. Whoever sinks the lowest wins. It is a world driven by quarterly financial results, by illusory "shareholder value", by pure monetary valuation of all things and by insatiable greed, until there is fundamental change there will be no change at all.

What is needed is somebody with the power to deliver, to stand up and announce a truly radical reform of the financial system, one in which banks go back to being boring money lenders, one in which the derivatives they deal in are for the benefit of their clients to manage risk and not for themselves and their gambling cohorts in the hedge fund and "wealth management" industries, one where capital is allocated not to where it can make the hottest buck to where it can generate the greatest social benefit and one in which no bank is too big to fail so that should it fail it can be allowed to fall without the need for government life support. When that happens we will be seeing the "exceptional measures" that the US Treasury Secretary demanded of the G7 this weekend.

However, as a hollow parody of what might be, Mr Geithner and his fellow finance ministers final summit statement was a collective affirmation of what they have all already done in handing out citizens dollars to the banks and other favoured sectors and the by now familiar statement championing free trade and decrying protectionism.

The shallowness of these statements being illustrated by the fact that the US stimulus package that had just been passed by Congress as Timothy Geithner headed for Rome had "buy American" provisions in, albeit significantly more limited than originally proposed. Protectionism is on the rise in Europe, with the catchy slogan in the UK of "British jobs for British workers". Not to mention the recent bailout by the Dutch government of ING Bank, the terms of which require the bank to expand lending domestically within the Netherlands; an understandable provision given the Dutch taxpayer had just handed ING another €25 billion to ING - but protectionist, in the literal sense of favouring the domestic market, nonetheless.

We were left with the impression from the G7 summit that there is much more going on behind the scenes than we are being told. There is a G20 summit in April and a G8 one in July as which we are vaguely told that new "common principles" on transparency and regulation are expected, no doubt these new regulations will be trumpeted as being designed to prevent "failures" in the future while in fact completely failing to address the root causes of this crisis while in actuality creating the walls of the new economic world order. We wonder if the details of this new order are so staggeringly awful that they will only be revealed once full dictatorship is in place; if so it's going to be an interesting spring and summer.

We are also highly skeptical at the wave of government and media attention being focused on banker's bonuses. It is not that we do not think the matter a valid one it is just the amount of energy and focus on it makes us wonder what it is that we are not seeing. We know that governments do not and will not address the real issues of the collapsing economic order nor seize the real culprits, so our radar tells us that something is afoot when so much media space and government energy is focused on this one topic. Perhaps it just a diversion from the details of the deals being done behind the scenes; details that would cause uproar if widely circulated.

One such deal is the aforementioned state support for ING Bank. The deal is extraordinarily sweet for ING and, by definition, the converse for the Dutch citizen. The deal has been structured so that the Dutch state will buy a €27.7 billion portfolio of US Alt-A mortgaged backed securities (one level better than sub-prime) for 90% of the face value at a time when the market value is about 60% to 65% of face value. The other details of the deal are such that the negative effects to ING will be covered by the state, one example being the payment of a management fee of €700 million to the bank. In return ING has promised to provide new lending of €25 billion inside the Netherlands during 2009. However, that will be using "at least €10 billion of the government's credit guarantee scheme." Even financial analysts had to admit that, "this deal sounds almost too good to be true".

We came across the details of this deal in one of the professional banking magazines for which we have a limited free trial. To be a subscriber costs over €5,000 per annum and that is for just one magazine. We worked out that to have access to a reasonable level of information regarding what is happening in the banking world would cost us €20,000 or more per annum and even then that would be a less than complete picture. With these sorts of barriers to market information it is no wonder that we are kept in the dark. We certainly cannot afford such expenses and the mainstream media that can has no interest in informing us of the details.

If this deal is even partly indicative of what is happening behind the scenes, and the complete lack of transparency in the US and the UK suggests it is, then it is little wonder that we are being directed to the topic of banker's bonuses rather than the shenanigans of state handouts to the banks themselves.

While on the topic of banker's bonuses here are the details of the pay out to Merrill Lynch banker's just prior to the bank announcing $15 billion quarterly loss and $27 billion full year loss, losses that have been absorbed by the US citizen through the US government's support of Bank of America:-

- the top four bonus recipients received $121 million in aggregate,
- the next four, $62 million in aggregate,
- the next six, $66 million in aggregate,
- ie. the top fourteen people received $10 million or more and combined more than $250 million,
- Twenty received more than $8 million but less then $10 million,
- Fifty three received between $5 million and $8 million,
- One hundred and forty nine received between $3 million and $5 million,
- The top one hundred and forty nine bonus recipients received a combined $858 million, and
- Six hundred and ninety six individuals received $1 million or more.

You will notice that we have referred to "citizen's" money being used rather than the more familiar "taxpayer's" money as it is all the citizens of a nation that are paying for these bailouts not just the ones that pay taxes for it is the unemployed, the underemployed and the children who also suffer due to the raping of their nations treasury.

So just where is all this headed?

United States and Canada

The three-quarters of a trillion dollar economic stimulus package was passed by the U.S. Congress with the usual partisan pork barrel politics from both "sides" of the corrupt elite. Seeing as it's the Democrats whose president is in power its the turn of the Republicans to play the role of the opposition and seek personal favours to allow the passing of the Bill. For a president whose mandate is to provide change for the American people, Obama has been singularly unimpressive in his handling of the stimulus package, not only is not nearly radical enough to truly make a difference to ordinary Americans but it relies on the idea that tax cuts will result in more spending rather than saving and therefore falls back on the hackneyed and desperately out of place notion that Americans must consume their way out of this crisis. It is frustrating to see so much money being thrown around in an attempt to keep an economy based on excessive consumption going when what is needed is a fundamental re-balancing and restructuring.

The lack of clear direction in the stimulus package is of course a reflection of the political elite's loyalty to their corporate and banking paymasters and to political dogma. Patrick Martin, in noting that the Republicans had fewer qualms voting for the same spending last year in a giveaway to banks to hide their insolvency, puts their recent reticence down to ideology:-

A large section of the congressional Republican caucus adheres to an ultra-right ideological opposition to any government spending except on the military and direct handouts to the wealthy...

The editorial page of the Wall Street Journal denounced the stimulus bill in revealing terms, declaring, "Combine this new spending, and the borrowing it will require, with the trillions of dollars still needed for the banking system, and we are about to test the outer limits of our national balance sheet." The newspaper howls about the evils of deficit spending to meet the needs of the unemployed, while passing over the "trillions of dollars" for the banks as though it was a given.

While the entire political establishment fails to admit that there are infinitely better alternatives to pumping more and more money in the organs and institutions of a corrupt and diseased system they do acknowledge the likely effects of their bailouts and stimulus failing to rejuvenate that system. It is infuriating to see them sleep walking us towards economic Armageddon while being seemingly aware that that is exactly where they are taking us.

Here it is from the horse's mouth, the New York Times:-

Rise in Jobless Poses Threat to Stability Worldwide

From lawyers in Paris to factory workers in China and bodyguards in Colombia, the ranks of the jobless are swelling rapidly across the globe.

Worldwide job losses from the recession that started in the United States in December 2007 could hit a staggering 50 million by the end of 2009, according to the International Labor Organization, a United Nations agency. The slowdown has already claimed 3.6 million American jobs.

High unemployment rates, especially among young workers, have led to protests in countries as varied as Latvia, Chile, Greece, Bulgaria and Iceland and contributed to strikes in Britain and France.

Last month, the government of Iceland, whose economy is expected to contract 10 percent this year, collapsed and the prime minister moved up national elections after weeks of protests by Icelanders angered by soaring unemployment and rising prices.

Just last week, the new United States director of national intelligence, Dennis C. Blair, told Congress that instability caused by the global economic crisis had become the biggest security threat facing the United States, outpacing terrorism.

"Nearly everybody has been caught by surprise at the speed in which unemployment is increasing, and are groping for a response," said Nicolas Véron, a fellow at Bruegel, a research center in Brussels that focuses on Europe's role in the global economy.

In emerging economies like those in Eastern Europe, there are fears that growing joblessness might encourage a move away from free-market, pro-Western policies, while in developed countries unemployment could bolster efforts to protect local industries at the expense of global trade.

So, if the U.S. DNI (Director of National Intelligence), the spy chief, says that unemployment is the biggest threat to national security and we are told that they are "groping for a response" we wonder whether they honestly believe that bailing out the banking system and economic stimulus will work or whether they are preparing for a war against their own citizenry, a war that will be fought with the Taser, the prison camp and all the powers garnered under the guise of the "war-on-terror'. It would certainly put the last eight years into perspective.

According to Ed Hightower, the biggest problem with the U.S. stimulus package is that it is not big enough, the infrastructure investments in the stimulus bill only providing 5% of infrastructure needed according to a January report by the American Society of Civil Engineers. When we combine this with the assessment that the US banking system, as we said earlier is estimated to need at least $6 trillion, a number well in excess of what has been admitted to date, we are inclined to agree with Bill Van Auken that military dictatorship may not be far off:-

US intelligence chief: World capitalist crisis poses greatest threat

In testimony before the Senate Committee on Intelligence Thursday, Washington's new director of national intelligence, Dennis Blair, warned that the deepening world capitalist crisis posed the paramount threat to US national security and warned that its continuation could trigger a return to the "violent extremism" of the 1920s and 1930s.

This frank assessment, contained in the unclassified version of the "annual threat assessment" presented by Blair on behalf of 16 separate US intelligence agencies, represented a striking departure from earlier years, in which a supposedly ubiquitous threat from Al Qaeda terrorism and the two wars launched under the Bush administration topped the list of concerns.

Clearly underlying his remarks are fears within the massive US intelligence apparatus as well as among more conscious layers of the American ruling elite that a protracted economic crisis accompanied by rising unemployment and reduced social spending will trigger a global eruption of the class struggle and the threat of social revolution.

The presentation was not only the first for Blair, a former Navy admiral who took over as director of national intelligence only two weeks ago, but also marked the first detailed elaboration of the perspective of the US intelligence apparatus since the inauguration of President Barack Obama.

"The primary near-term security concern of the United States is the global economic crisis and its geopolitical implications," Blair declared in his opening remarks. He continued: "The crisis has been ongoing for over a year, and economists are divided over whether and when we could hit bottom. Some even fear that the recession could further deepen and reach the level of the Great Depression. Of course, all of us recall the dramatic political consequences wrought by the economic turmoil of the 1920s and 1930s in Europe, the instability, and high levels of violent extremism."

Blair described the ongoing financial and economic meltdown as "the most serious one in decades, if not in centuries."

"Time is probably our greatest threat," he said. "The longer it takes for the recovery to begin, the greater the likelihood of serious damage to US strategic interests."

The intelligence chief noted that "roughly a quarter of the countries in the world have already experienced low-level instability such as government changes because of the current slowdown." He added that the "bulk of anti-state demonstrations" internationally have been seen in Europe and the former Soviet Union.

But Blair stressed that the threat that the crisis will produce revolutionary upheavals is global. The financial meltdown, he said, is "likely to produce a wave of economic crises in emerging market nations over the next year." He added that "much of Latin America, former Soviet Union states and sub-Saharan Africa lack sufficient cash reserves, access to international aid or credit, or other coping mechanism."

Noting that economic growth in these regions of the globe had fallen dramatically in recent months, Blair stated, "When those growth rates go down, my gut tells me that there are going to be problems coming out of that, and we're looking for that." He cited "statistical modeling" showing that "economic crises increase the risk of regime-threatening instability if they persist over a one to two year period."

In another parallel to the 1930s, the US intelligence director pointed to the implications of the crisis for world trade and relations between national capitalist economies. "The globally synchronized nature of this slowdown means that countries will not be able to export their way out of this recession," he said. "Indeed, policies designed to promote domestic export industries - so-called beggar-thy-neighbor policies such as competitive currency devaluations, import tariffs, and/or export subsidies - risk unleashing a wave of destructive protectionism."

It was precisely such policies pursued in the 1930s that set the stage for the eruption of the Second World War.

Blair also raised the damage that the crisis has done to the global credibility of American capitalism, declaring that the "widely held perception that excesses in US financial markets and inadequate regulation were responsible has increased criticism about free market policies, which may make it difficult to achieve long-time US objectives." The collapse of Wall Street, he added, "has increased questioning of US stewardship of the global economy and the international financial structure."

The threat assessment also included evaluations of potential terrorist threats, the "arc of instability" stretching from the Middle East to South Asia, conditions in Latin America and Africa and strategic challenges from both China and Russia, centering in Eurasia. It likewise dealt with the war in Afghanistan, which the Obama administration is preparing to escalate, providing a scathing assessment of the Karzai regime in Kabul and the familiar demand for an escalation of the intervention in Pakistan. Nonetheless, the report's undeniable focus was on the danger that economic turmoil will ignite revolutionary challenges on a world scale.

Blair's emphasis on the global capitalist crisis as the overriding national security concern for American imperialism seemed to leave some of the Senate intelligence panel's members taken aback. They have been accustomed over the last seven years to having all US national security issues subsumed in the "global war on terrorism," a propaganda catch-all used to justify US aggression abroad while papering over the immense contradictions underlying Washington's global position.

The committee's Republican vice chairman, Senator Christopher Bond of Missouri, expressed his concern that Blair was making the "conditions in the country" and the global economic crisis "the primary focus of the intelligence community."

Blair responded that he was "trying to act as your intelligence officer today, telling you what I thought the Senate ought to be caring about." It sounded like a rebuke and a warning to the senators that it is high time to ditch the ideological baggage of the past several years and confront the real and growing threat to capitalist rule posed by the crisis and the resulting radicalization of the masses in country after country.

It may have been lost on some of those sitting at the dais in the Senate hearing room, but when Blair referred to a return to the conditions of "violent extremism" of the 1920s and 1930s, he was warning that American and world capitalism once again faces the specter of a revolutionary challenge by the working class.

There is no doubt that behind the façade of Obama, the US national security apparatus is making its counter-revolutionary preparations accordingly.

Including Blair, Obama has named three recently retired four-star military officers to serve in his cabinet. The other two are former Marine Gen. James Jones, his national security adviser, and former Army chief of staff Gen. Erik Shinseki, his secretary of veterans affairs. This unprecedented representation of the senior officer corps within the new Democratic administration is indicative of a growth in the political power of the US military that poses a serious threat to basic democratic rights.

A report that appeared in a magazine published by the US Army War College last November, just weeks after the election, indicates that the Pentagon and the US intelligence establishment are preparing for what they see as a historic crisis of the existing order that could require the use of armed force to quell social struggles at home.

Entitled "Known Unknowns: Unconventional 'Strategic Shocks' in Defense Strategy Development," the monograph insists that one of the key contingencies for which the US military must prepare is a "violent, strategic dislocation inside the United States," which could be provoked by "unforeseen economic collapse" or "loss of functioning political and legal order."

The report states: "Widespread civil violence inside the United States would force the defense establishment to reorient priorities in extremis to defend basic domestic order... An American government and defense establishment lulled into complacency by a long-secure domestic order would be forced to rapidly divest some or most external security commitments in order to address rapidly expanding human insecurity at home."

In other words, a sharp intensification of the unfolding capitalist crisis accompanied by an eruption of class struggle and the threat of social revolution in the US itself could force the Pentagon to call back its expeditionary armies from Iraq and Afghanistan for use against American workers.

The document continues: "Under the most extreme circumstances, this might include use of military force against hostile groups inside the United States. Further, DoD [the Department of Defense] would be, by necessity, an essential enabling hub for the continuity of political authority in a multi-state or nationwide civil conflict or disturbance." The phrase - "an essential enabling hub for continuity of authority" - is a euphemism for military dictatorship...

Markets

The markets this week (to Feb 16th)

	Previous week's close	This week's close	Change	% change
Gold (USD)	914.30	942.70	28.40	3.11%
Gold (EUR)	706.51	732.59	26.08	3.69%
Oil (USD)	40.17	37.95	2.22	5.53%
Oil (EUR)	31.04	29.49	1.55	4.99%
Gold:Oil	22.76	24.84	2.08	9.14%
USD / EUR	0.7727 / 1.2941	0.7771 / 1.2868	0.0044 / 0.0073	0.57% / 0.56%
USD / GBP	0.6763 / 1.4786	0.7008 / 1.4270	0.0245 / 0.0516	3.62% / 3.49%
USD / JPY	91.893 / 0.0109	90.750/ 0.0110	1.143 / 0.0001	1.24% / 0.92%
DOW	8,281	7,850	430	5.20%
FTSE	4,292	4,190	102	2.38%
DAX	4,645	4,413	231	4.98%
NIKKEI	8,077	7,779	297	3.68%
BOVESPA	42,756	41,674	1,082	2.53%
HANG SENG	13,655	13,555	100	0.74%
US Fed Funds	0.25%	0.25%	0.00	n/a
$ 3month	0.27%	0.29%	0.02	n/a
$ 10 year	2.99%	2.89%	0.10	n/a

Africa

Nigeria is cutting spending due to sharp drops in oil revenues.

Asia

Asian stocks fell last week amid a deteriorating outlook for corporate profits and doubts over whether U.S. stimulus measures will succeed in alleviating the financial crisis.

"Investors are disappointed with the lack of clarity on the U.S. bank-rescue plan," said Daphne Roth, Singapore-based head of Asia equity research at ABN Amro Private Bank, which manages about $27 billion of Asian assets. "We will see more earnings downgrades going into the next few months and that's going to drag down Asian stocks at least till the end of the first half."

India's currency strengthened on news that it will continue offering stimulus programs.

Rupee Strengthens as India May Step Up Efforts to Boost Growth

India's rupee strengthened the most in more than two weeks on speculation the government and the central bank will announce more measures next week to revive economic growth.

[ ] The government unveiled two stimulus packages and the central bank cut its key rate four times since Oct. 20.

"The rupee is stronger as the market expects additional measures to boost growth to be announced next week," said Sudarshan Bhatt, chief currency trader at state-owned Corporation Bank in Mumbai. "Such measures look inevitable after yesterday's industrial output report. The central bank may cut rates and help restructure loans of companies."

[ ]

Industrial production fell 2 percent in December, the most since 1993, after a revised 1.7 percent gain in November, the government said yesterday. India expects the $1.2 trillion economy will expand 7.1 percent in the fiscal year to March, the slowest pace in six years.

Record Low

The rupee will weaken almost 10 percent to a record low of 54 to the dollar by the end of the year as the worldwide credit crisis curbs foreign direct investment, HSBC Holdings Plc said.

The rupee may also extend last year's 19 percent slide as employers cut jobs overseas amid a global recession, reducing remittances from Indian workers abroad, Richard Yetsenga, HSBC's Hong Kong-based strategist, wrote in a research report today. The U.K. bank revised its rupee forecast from 45, HSBC's Singapore-based economist Robert Prior-Wandesforde, who co-wrote the report, confirmed in a phone call.

"We expect the slower moving remittance and FDI [Foreign Direct Investment] flows to now start to show the strain," wrote Yetsenga. "Our estimates suggest FDI into Asia could fall to roughly zero this year. While that may be overly pessimistic, the fall in FDI should certainly be spectacular for global reasons."

Overseas direct investment in India averaged $3.1 billion a month in 2008, compared with $1.3 billion in the previous year, government data show.

"The boom in FDI is long overdue, but cannot last, given the state of corporate finances globally," Yetsenga wrote.

Renault SA, France's second-largest carmaker, may abandon a factory project in the southern Indian city of Chennai, Chief Financial Officer Thierry Moulonguet said yesterday. The French company said it is reducing capital investment by 20 percent.

John Chan puts the vulnerabilities of export dependent Asian economies in perspective:-

Asia's export economies in free fall

Staggering falls in exports across Asia have shocked economic analysts and ended all claims that the global slump may be nearing its bottom. The IMF's growth forecast for Asia this year is just 2.7 percent - less than a third of the 9 percent growth rate of 2007. The prediction is a full percentage point less than during the 1997-98 Asian financial crisis.

IMA Asia analyst Richard Martin commented in the Australian: "It's a bit like watching a train wreck in slow motion. North Asia is suffering the biggest collapse in demand since World War II." Westpac bank's Richard Franulovich said that the "speed of the decline embedded in the latest Asia data is on par with the collapse in the US during the 1930s Depression."

Japan, the world's second largest economy, is already in recession and still declining. Japanese exports fell 35 percent in December from a year earlier, as the global demand for its cars, electronics and capital goods dried up. Industrial production plunged a record 9.6 percent, month on month, in December.

Bank of Japan chief economist Kazuo Momma warned this week that the economy was facing an "unimaginable" contraction, as analysts estimated that there was an annualised rate of contraction of 10 percent in the last quarter of 2008, even worse than the US. The government warned that 125,000 irregular workers, mainly in manufacturing, will lose their jobs in the six months to March, but an industry estimate put the figure far higher at 400,000.

China, the so-called "workshop of the world," is being hit particularly hard. Exports declined for the third consecutive month in January, falling 17.5 percent from a year earlier, after a 2.8 percent decline in December. Imports plunged even further - 43.1 percent, twice as much as December's 21.3 percent year-on-year drop, the General Administration of Customs said on Wednesday.

Because many of China's imports are inputs into the country's manufacturing exports, the sharp decline in imports indicates further falls in industrial activity. Imports of machinery and high-tech goods fell by roughly 40 percent, also spelling disaster for the countries that sell such components for Chinese factories to assemble. Shipments from Japan fell by 43.5 percent from a year earlier; those from South Korea were down 46.4 percent and from Taiwan, 58 percent.

Although many economists are predicting that China will still grow at 5-6 percent this year, these figures are no more reliable than the previous claims that China would continue to expand at a near-record pace. More than 20 million migrant workers have lost their jobs so far, with some analysts warning of 50 million more job losses if the economy deteriorates further.

India, the other economy previously touted as a possible bulwark against world depression, is suffering as well. Exports fell 24 percent in January. According to official data, one million Indian workers in the export sector have lost their jobs since September, when the global financial crisis erupted in the US. Textile, gem and jewelery workers have been worst affected. Another half a million workers are expected to lose their jobs by March.

Although better known for its IT outsourcing services, India has become a major Asian exporter in recent years. Its exports increased from 16.9 percent of India's GDP in 2002-03 to 24.8 percent in 2007-08. Export industries employ 150 million workers, the second largest sector after farming. India's economic growth for the fiscal year ending in March is officially projected to be 7.1 percent - down from 9.1 percent last year.

For the next fiscal year, economists believe the Indian growth rates will be near 6 percent at best. Citigroup estimated a growth rate of just 5.5 percent. Although India is less dependent on exports than most East Asian countries, its financial position is much weaker. New Delhi's public debt stands at 75 percent of its GDP, compared to just 18.5 percent in China, leaving less room for large stimulus packages.

South Korea's plight is equally stark. Exports, the main driving force of the economy, plunged 32.8 percent in January. Finance minister Yoon Jeung-hyun warned on Tuesday that the fourth largest economy in Asia would shrink by about 2 percent this year - a sharp revision from the previous official forecast of 3 percent growth. According to Yoon, this would mean the loss of 200,000 jobs in 2009. Even this figure is too optimistic compared to the IMF's forecast of 4 percent negative growth. Credit Suisse has projected as much as a 7 percent contraction.

Taiwan, the sixth largest Asian economy, saw its exports fall 44.1 percent in January from a year earlier - the biggest fall since records began in 1972. Imports plunged 56.5 percent in the same month. For an economy where exports account for 70 percent of GDP, the impact is devastating. Morgan Stanley has sharply revised down Taiwan's growth rate this year to minus 6 percent - down from the previous positive 0.5 percent. CLSA, a Hong Kong-based brokerage house, last week predicted an even greater contraction - 11 percent.

The export-dependent economies of South East Asia are also suffering. The IMF's projection for Philippines is just 2.25 percent this year, down from 4.6 percent last year and 7.1 percent in 2007. The official predication for Singapore, the region's trade and financial hub, in 2009 is a contraction of 5 percent - the deepest recession since the city-state was founded in 1965. Malaysia's exports in December plunged 14.9 percent from a year earlier, with exports to the US falling by 30 percent. Analysts expected the Malaysian economy to grow by just 1-1.5 percent in 2009, far lower than the government's target of 3.5 percent. Indonesia's central bank predicts the country's economy will slow to 4-5 percent in 2009 compared to 6.2 percent for 2008.

High saving rates and relatively secure financial institutions have not prevented the Asian economies from suffering massive losses. After the financial crisis of 1997-98, Asian countries strove to increase their exports in order to build large foreign currency reserves as a shield against further financial shocks. As a result, however, they have merely swapped dependence on global finance for reliance on global demand.

Credit Suisse analyst Cem Karacadag has estimated that net exports account for two-thirds of GDP in Hong Kong and Singapore, almost half in Malaysia and Thailand and one-third in Taiwan and South Korea. He calculated that, even without taking into account secondary impacts, every 10 percent fall in exports would cut 2 percentage points of growth in South Korea and Taiwan, and up to 7 percentage points in Hong Kong and Singapore.

Over the past decade, the export share of Chinese GDP doubled to 40 percent. With a vast supply of heavily-policed cheap labour, combined with infrastructure developed by the state, it became a final assembly point for transnational corporations. They supplied factories in China with components, raw materials and capital goods made elsewhere in Asia, transforming the region into a giant export machine. It appeared that China had replaced the US as the growth engine for many Asian countries.

In fact, as Jong Wha-Lee of the Asian Development Bank pointed out, the intra-regional trade disguised the fact that 60 percent of the final demand for Asian goods still came from advanced capitalist countries in North America, Europe and Japan. China's exports to the United States and European Union fell by 9.8 percent and 17.4 percent, respectively, in January. As the demand in the West has collapsed, the booming intra-trade, which involved mainly components, inputs and capital goods, has quickly evaporated.

The Korea Times complained last week: "China has been emerging as the biggest threat to the Korean economy" because the "high dependence on China has made the country particularly vulnerable to the emerging China risk". Korea's exports to China, much of them for re-export, fell 33 percent in December, and 46.4 percent in January, compared to a year earlier, due to the accelerating drop in global demand for "Chinese" goods.

Chinese officials have been loudly talking up the prospect of sparking a "rebound" by stimulating infrastructure spending and ordering state banks to increase lending. But analysts are skeptical that the state spending will boost private investment. The Morgan Stanley China economist Wang Qing told the Wall Street Journal: "Profits and profitability in 2009 will be very poor, and this is the key reason why I do not expect much private investment - especially in the manufacturing sector where China suffers from an overcapacity problem." He estimated that manufacturing investment would be zero this year, with a 12 percent drop in property investment.

The Financial Times on February 10 explained: "Most of all, China cannot escape the broader global economic environment. The government's fiscal stimulus was designed to keep the economy going until Western consumers recover. Yet the recent indications are that the global economy could be in for a more prolonged slump than first thought."

The same conclusion can be applied to all the stimulus packages across Asia. Most Asian countries are largely cheap labour platforms whose exports outweigh their relatively small domestic markets. Confronted by the global slump, each is trying to export more, which means taking market share at their neighbours' expense. This is causing rising trade tensions. India has started 17 investigations into Chinese imports since October, and imposed restrictions on Chinese steel, textiles and petrochemicals. In January, India banned Chinese toys imports for six months to protect its own toy industry.

Apart from pitting their "own" workers against other workers in neighbouring countries, the Asian elites have no understanding of, let along solution for, the economic crisis. Some have turned to the gods for answers. During the Chinese New Year a senior Hong Kong official selected a fortune stick on the city's behalf. It was the unluckiest, 27. "A fortune teller at Che Kung temple, shrouded in incense and consulting the heavens for inspiration, declared it meant Hong Kong could not isolate itself from global financial turmoil," the Financial Times reported.

The world's economies are like a group of people chained together and sliding down a mountain. No one economy can de-link and save itself, the inevitable result from decades of globalisation. The Chinese are stuck holding U.S. government bonds while they watch the deficit spending of the U.S. skyrocket. And there is nowhere else for them to put their money. As the director-general of China's Banking Regulatory Commissions said to the Americans last week, "We hate you guys."

China to stick with US bonds

China will continue to buy US Treasury bonds even though it knows the dollar will depreciate because such investments remain its "only option" in a perilous world, a senior Chinese banking regulator said on Wednesday.

China has used the dollars it accumulates selling manufactured goods to US consumers to accumulate the world's largest holding of Treasuries.

However, the increasing US budget deficit and its potential impact on the dollar have raised questions about the future Chinese appetite for US debt.

Luo Ping, a director-general at the China Banking Regulatory Commission, said after a speech in New York on Wednesday that China would continue to buy Treasuries in spite of its misgivings about US finances.

"Except for US Treasuries, what can you hold?" he asked. "Gold? You don't hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option."

Mr Luo, whose English tends toward the colloquial, added: "We hate you guys. Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn] . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do."

However, Mr Luo said Chinese officials would encourage its banks to finance domestic mergers and acquisitions rather than provide rescue finance to distressed financial companies in other countries: "There will be no bottom-fishing of financial institutions, particularly in the US, because there is a lot of uncertainty about the quality of the books."

Mr Luo said China intends to maintain its separation of investment and commercial banking based on its observations of the US after repeal of the Glass-Steagall Act that enforced a similar division of banking activities.

"To some extent, Glass-Steagall has fuelled the crisis," Mr Luo said. "The separation of commercial and investment banking is likely to stay longer [in China] than before." Like senior financial officials in other developing nations - such as Mohammad Al Jasser, vice-governor of the Saudi Arabian Monetary Agency - Mr Luo also spoke out against what he called America's laissez-faire capitalism.

"Government ownership was viewed as something negative but the pendulum is swinging the other way. Perhaps banking is [no different from] public utilities where government participation is necessary," he said.

"Deregulation in the US has gone a little bit too far. The market can't be omnipotent."

Eastern Europe

In Russia, the ruble rose as the governments attempts to defend it bore fruit. Eastern European economies continued to show signs of serious trouble as Estonia and Hungary announced that their economies contracted in the 4th quarter of 2008, and growth slowed sharply in the Czech Republic and Slovakia.

"The data was all pretty grim," said Neil Shearing, an emerging Europe analyst at Capital Economics in London. "The big point is it will become worse before it gets better. The region's economy may contract 3 percent this year, while the consensus in the market still seems to be for a 1 percent growth."

In fact, it looks like Eastern Europe is shaping up to be a key determinant in the next phase of the global financial crisis:-

European governments, the European Union and international financial organizations need to act fast on risks stemming form banks' exposure in the eastern part of the continent to avert an escalation of the credit crisis, Nomura Holdings Inc. said.

East European countries are struggling to refinance foreign currency loans taken out by borrowers during years of prosperity through 2007, when economic growth averaged at more than 5 percent. The International Monetary Fund, which has bailed out Latvia, Hungary, Serbia, Ukraine and Belarus, warned on Jan. 28 that bank losses may widen as "shocks are transmitted between mature and emerging market banking systems."

[ ]

As companies and consumers [ ]sought cheap loans, denominated mainly in euros and Swiss francs, external liabilities reached about 100 percent of gross domestic product in Poland and the Czech Republic and almost twice the national output in Hungary, according to figures compiled by Nomura.

Banks' Exposure

Euro region banks' exposure totals $1.25 trillion in the region, and including U.K., Swedish and Swiss banks' liabilities it pushes the figure to $1.45 trillion, Nomura said, citing figures from the Basel, Switzerland-based Bank of International Settlements.

"We find the absolute levels and some of the risks worrying," wrote Montalto. There's "a serious risk that these exposures will have grave consequences for the central and east European economies themselves as well as for the European banks that hold the ultimate risk."

Non-performing loans in the region rose to 8 percent, from 5 percent through last year, and Standard & Poor's has forecast they may top 25 percent on average.
The risks stemming from the level of exposure are aggravated by the slump in currencies in the region and the increasing default risks on repayments as more workers lose their jobs and companies scale back production and pay, Montalto wrote. The region will have a recession this year as exports collapse, the IMF has said.

'Upside Risks'

The "upside risks" to bad loans are "very large" as wages are falling and unemployment rising, Montalto said.

A group of six banks, including Italy's UniCredit SpA and Austria's Raiffeisen International Bank Holding AG, have pressed the European Union to organize financial aid for countries on its eastern fringes like Romania and Ukraine.

Austrian banks alone have lent 230 billion euros ($294 billion) in the region, equal to about 80 percent of the country's GDP, according to data compiled by the Bank for International Settlements.

The banks, which also include Italy's Intesa SanPaolo SpA, Austria's Erste Group Bank AG, Societe Generale SA of France and KBC Groep NV in Belgium, requested a 12-point assistance program for the region ranging from foreign-exchange loans for banks to guarantees for customer deposits from organizations such as the European Bank for Reconstruction and Development, according to a Dec. 1 letter sent to the European Commission.

"There does not currently seem to be a consensus about a solution, with opinion split on whether any bailout should be at the EU or member-state level and where funding could come from," Montalto said. "With continued weakness in currencies in the region and a worsening economic picture, this issue is not going to go away on its own."

The EBRD, the World bank and euro-area governments should provide capital to banks, Montalto wrote. The EBRD is in talks about providing financial support to OTP Bank Nyrt., Hungary's largest bank.

The Ukrainian finance minister resigned as that country's credit rating and currency fell.

Hryvnia Drops After Ukraine Rating Downgraded, Minister Resigns

Ukraine's hryvnia weakened against the dollar after Fitch Ratings downgraded the country yesterday and the finance minister resigned, deepening concern the former Soviet republic won't be able to shore up the economy.

The currency, which has slumped 52 percent versus the dollar over the past six months, dropped 0.6 percent to 8.0550 per dollar by 1:46 p.m. in Kiev, paring a 0.9 percent advance this week. It lost 0.9 percent to 10.3549 per euro.

Fitch yesterday reduced Ukraine's credit rating to B, five levels below investment grade, the same day Finance Minister Viktor Pynzenyk submitted his resignation after saying the post had become "hostage" to politics. Pynzenyk objected to the parliament-endorsed budget for 2009, which plans for a budget deficit of 2.97 percent of gross domestic product in violation of the country's $16.4 billion loan agreement with the International Monetary Fund.

"It's negative news, it's unwelcome news as the situation in Ukraine is deteriorating," said Ali Al-Eyd, an emerging markets fixed-income analyst in London at Citigroup Inc. "Ukraine is going to be hit with a vicious slowdown."

The political instability in Ukraine during the worst global financial crisis since the Great Depression puts the country at risk of a banking and currency crisis, Fitch said yesterday. The outlook for the nation's ratings was kept at "negative," indicating that it may be reduced further.

Fitch predicts the economy will shrink 4.5 percent this year, and Citigroup may revise its current forecast of a 3 percent contraction "much lower," Al-Eyd said. Ukraine, dependent on exports of steel and other products as the global economic slowdown depresses demand, is struggling to fund a $12.3 billion current-account deficit amid the seizure in credit markets.

In what many might consider an upside to all this bad economic news out of Eastern Europe, the number of Russian billionaires fell by half.

Western Europe and UK

Meanwhile, at least publicly, European Central Bank officials continue to downplay the crisis.

ECB Policy Makers Signal no Rush to Start Unconventional Tools

European Central Bank policy makers signaled they are in no rush to step up their response to the credit crisis by purchasing securities and downplayed concerns about the fiscal health of some euro-region nations.

"We have already introduced a number of unconventional measures," ECB governing council member Axel Weber said in Rome today, echoing comments by President Jean-Claude Trichet, Italy's Mario Draghi and France's Christian Noyer. Trichet said "no decision has been taken yet on top of the non-standard action" announced so far.

The ECB is coming under pressure to follow the Federal Reserve and the Bank of England's policy to buy government or corporate debt as Europe faces its worst recession in decades. Investors are also increasing bets that the price of banking bailouts and stimulus packages will strain public finances and hobble governments' ability to meet bond payments.

Ireland yesterday led a surge in the perceived risk of holding European government bonds, with credit-default swaps on Irish debt rising 7.5 points to a record 355. Trichet indicated that investors' concerns may be overdone, saying that market expectations go "up and down."

"I would say that the euro area is not in question in any respect," Trichet said after meeting officials from the Group of Seven nations. "I have absolutely full confidence that the governments at stake will continue to take the appropriate decisions to have sustainable policy, particularly on the fiscal side."

ECB officials have so far resisted pledging to buy securities to increase the supply of money in the economy and grease credit markets. Unlike the U.S. and U.K., which have indemnified their central banks against any default risk, it is also unclear how the ECB could be covered.

[ ]

German Finance Minister Peer Steinbrueck said that unprecedented liquidity injections may stoke inflation pressures in the future. Earlier, ECB colleague Juergen Stark said in Tutzing, Germany that the central bank is prepared to act "but always with appropriate caution."

Less Aggressive

The ECB has also been less aggressive than the Fed and the Bank of England in reducing rates. The Fed has cut the benchmark rate to close to zero, while the Bank of England has lobbed off 400 basis points since October, bringing the key rate to 1 percent.

While the ECB lowered its benchmark down to 2 percent from 4.25 percent in the past five months, it's still the highest among the G-7 group of nations.

The ECB last year more than doubled the amount of funds offered in its longer-term refinancing operations and increased the provision of dollars and Swiss francs. In addition, it loosened its rules on the collateral it accepts when making loans.

The U.K. is projecting a 3.3% shrinkage in its economy this year, the worst since 1980.

Inevitably politicians, seeking to retain their power, are increasingly playing to their domestic audiences desire for their governments to focus their economic policies at home. Nations now find themselves in the carefully laid traps that make up the web known as the global economy. In Europe, without the ability to have any influence on their currency, politicians are reverting to old fashioned protectionism. Such measures threaten both other countries' exports and, possibly, the survival of the European Union itself.

Europe turns to protectionism as industry plummets

For some time, leading European politicians have attempted to put a positive gloss on declining figures for European production, but the results released Thursday ushered in a new tone. European Union Industry Commissioner Günter Verheugen told the Financial Times Deutschland, "The extent and speed of the crisis is completely new."

One day previously, an Ifo Institute for Economic Research survey revealed that business sentiment within the 16-country common-currency eurozone declined for the sixth consecutive quarter, plunging to its lowest point since the survey began 16 years ago. The European Central Bank (ECB) also issued a warning that the recession gripping Europe will not be short-lived. Rather, it will be a "long-lasting and clear downturn," the ECB said.

The response of the individual European nations to the growing crisis has been to embrace a raft of protectionist measures. Italian Premier Silvio Berlusconi recently warned appliance maker Indesit SpA not to transfer production and jobs to Poland, and in Britain, trade unions and politicians are demanding "British jobs for British workers."

On Wednesday, the acting EU Council president, Czech Prime Minister Mirek Topolanek, appeared before the press in Brussels and warned of a "protectionist race" in Europe, while acknowledging that national economies in the European Union were being hit hard by the international crisis and losing ground with unanticipated speed.

[ ]

After a meeting with EU Commission President José Manuel Barroso, Topolanek described the situation in Europe "as worse than it has ever been." The confidence of citizens in the economic and political system had been shaken, he said, and warned that the battening down of national markets endangered the European domestic market and the world economy.

The Süddeutsche Zeitung echoed the statements of the EU Council president, writing, "Any politician seeking to solve the economic crisis by protectionist measures only worsens the situation."

Barroso also warned against states going it alone. European heads of state and government should put an end to any "nationalist navel gazing," he said. Otherwise, there was a danger of "intensifying the powerful downward trend."

[ ]

Last Wednesday, the French automaker Peugeot announced it was shedding at least 11,000 jobs, and one day later, Renault announced its own plans to cut its workforce by 9,000. These job cuts have been agreed to by the French government and trade unions and are bound up with the announcement by French President Nicolas Sarkozy that he plans to subsidise domestic automakers with the sum of €6 billion.

Sarkozy declared that, in his opinion, it was irresponsible "to continue to manufacture French cars in the Czech Republic." He demanded a halt to the transfer of production to other countries. "If we give financial aid to the automotive industry," he said, "we do not want them to set up a factory in the Czech Republic again." He also urged the carmakers to support French industries involved in supplying parts and services to French auto companies.

Czech Prime Minister Topolanek reacted sharply to this openly protectionist policy and called for a special European summit to block it and similar policies.

German Chancellor Angela Merkel (Christian Democratic Union - CDU) also criticised the French action. The defence of free trade and the European domestic market is of crucial importance, Merkel said.

The German economy, which is heavily dependent on its export industries, would be especially vulnerable to any growth of protectionist measures in Europe.

Sarkozy defended his decision and drew attention to the fact that the German chancellor had rejected a joint European stimulus programme just a few weeks before. Now, every government was forced to take its own measures to deal with the crisis, he said. He added that the latest German stimulus programme includes many measures aimed at subsidising German enterprises.

The conflict between Berlin and Paris runs deep. In his role as EU Council president last year, Sarkozy repeatedly raised the demand for an "economic administration" for the eurozone. He made it quite clear that he regarded himself as best suited to head such an administration.

Supported by a majority of the 16 eurozone countries, Sarkozy is seeking to compel the German government to take more responsibility for financial policy. According to the Élysée Palace, Germany, as the continent's biggest national economy, must contribute much more to managing the crisis.

The German government wants precisely to prevent such a development. It regards itself better prepared for the crisis than other euro countries due to the labour market reforms introduced by the previous Social Democratic-Green government, which slashed welfare payments and opened the way for the creation of a huge low-wage sector in Germany.

Backed by the country's business federations, the Merkel government is seeking to exploit the crisis to strengthen Germany's dominant role in Europe. Berlin is vehemently opposed to taking any responsibility for Europe's "weak states" - i.e., those countries that have thus far failed to implement drastic social and welfare cuts.

Behind the German chancellor's appeals for adherence to "free trade" and rejection of protectionism lie the egoistic interests of the German business elite, which profits most from the European domestic market.

The varying economic performances of individual euro countries and the absence of a uniform financial and economic policy have led to increasing discrepancies ("spreads") between the government loans of the euro countries. In mid-January, Greece had to take out a new government loan at an interest rate well above the 3 percent levied on German government securities. Financial experts have said that the trend of rising spreads has "definitely not stopped" and warn that it could have explosive consequences for the fate of the euro as a common currency.

When the chairman of the euro group, Luxembourg Finance Minister and Prime Minister Jean-Claude Juncker, suggested introducing eurobonds to allow weaker member states access to credit on the basis of a pan-European solution, his proposal was immediately rejected by German Finance Minister Peer Steinbrück (Social Democratic Party - SPD). Instead, the German government is seeking to use its EU industry commissioner, Günter Verheugen, to force member states to implement budget cuts and strict austerity policies.

In view of increasing tensions, the EU presidency and the European Commission have announced plans for no fewer than three separate summits in the coming three months. On March 1, the heads of state and government will meet in Brussels to "coordinate national stimulus packages." The agenda is to include the struggle against protectionist tendencies, measures to revive the circulation of credit, the handling of "toxic" securities, and policies directed against the rise of unemployment. Three weeks later, the regular spring summit of the EU takes place in Brussels, which is also likely to concentrate on the economic and financial crisis. In May, the Czech council president has invited member countries to Prague for an employment summit.

Behind this summit frenzy are fears of a possible break-up of the European Union and an escalation of working class resistance to mass unemployment and growing poverty.

Latin America

Argentina Unlikely to Pay Back Paris Club During Global Slump

Argentina is unlikely to pay back $6.7 billion of defaulted debt owed to Paris Club creditors until the global recession shows signs of easing, a government official said.

It would be a mistake to drain the country's foreign reserves to pay back the debt amid the global credit crisis, said the official, who declined to be identified in accordance with government policy. He said the government is comfortable with its current foreign reserve level of $47.1 billion.

Argentina continues to negotiate with the Paris Club, an informal association of creditors that includes the U.S., Germany, Italy and Japan, the official said.

President Cristina Fernandez de Kirchner had said on Sept. 2 that the government would tap central bank reserves to pay off the Paris Club, a move that would help companies obtain financing as growth falters in South America's second-biggest economy.

Republicans and Free Marketeers Fiddle while the World Burns

By Donald Hunt and Simon Davies
SOTT.net

In Nigeria oil workers are protesting the ongoing wave of violence against their industry which operates with legal impunity among the poorest people on earth.

Unemployment soared in the US and Canada; while Obama's dreams of bipartisan support for the rescue of the US economy took a beating as the pathological Republicans in the Senate played their usual games of economic dogma and political mendacity seemingly oblivious to the risk that when the whole house of cards comes down they might not have that cozy seat in an underground bunker they think is reserved in their name. But at least one US politician has had the courage to tell defaulting homeowners to resist eviction for as long as possible.

Unemployment is rising the world over while the social infrastructure in many countries, weakened by years of deliberate destruction from pernicious application of Friedmanite free market ideology, is already struggling under the strain. We are living the Shock Doctrine in real time.

Economic Overview

World stock indexes rose last week as job losses mounted. Agreement in the United States Senate on a bailout package helped stocks rise, despite signs of economic depression nearly everywhere.

Africa

In South Africa, concerns that drops in exports are happening now and will be announced later this month led to the head of the central bank hinting at an emergency meeting of the Monetary Policy Committee.

In Nigeria there was more trouble in the oil regions, as there usually is whenever oil prices get too low. Funny how that works.

Nigerian Union to Strike Over Attacks, Abductions in Oil Region

Nigeria's white-collar oil workers' union will begin an "indefinite" strike on Feb. 9 in protest at attacks and abductions by armed groups in the country's southern oil region.

[ ] Members will also shut premises of foreign oil companies operating in Nigeria, it added. Royal Dutch Shell Plc, Exxon Mobil Corp., Chevron Corp., Total SA and Eni SpA run joint ventures with the Nigerian government producing more than 90 percent of the country's oil.

President Umaru Yar'Adua's government has shown "ineptitude" in dealing with violent unrest in the Niger Delta, Pengassan [an oil workers union] said. [ ]

Armed attacks, including kidnapping and hijacking of vessels in the Niger Delta, which is home to Nigeria's oil industry, have cut its exports by more than 20 percent since 2006. Nigeria is Africa's leading oil producer and the fifth- biggest source of U.S. oil imports.

The Movement for the Emancipation of the Niger Delta, the main armed group in the region, says it's fighting for the region's poor. [ ]

Shot Dead

The union decided to take action after gunmen shot dead an 11-year-old girl in the oil hub of Port Harcourt and abducted her 9-year-old brother last week. They were the children of an employee of Royal Dutch Shell Plc's local subsidiary.

Pengassan issued an ultimatum to the government to ensure the release of the boy and other kidnap victims or the unions will pull members out of oil locations in the region. Though the boy was released yesterday, the union said many oil workers abducted by armed groups are still being held.

Pengassan and its blue-collar counterpart, the National Union of Petroleum and Natural Gas Workers of Nigeria, or Nupeng, in the past warned they may suspend work over insecurity in the Niger Delta. This is the first time either union has called a strike over the issue.

Asia

Concern about Japan's economy spread last week, as exports plunged. The big problem is that Japan has recently moved away from the traditional concern with the long-term welfare of employees to a more U.S. style employment insecurity, a change that's taking place in France and in many other previously socially progressive countries.

Japan on the brink of the abyss?

The economic outlook in Japan is very grim, as brief overviews below indicate. Right now, Japan has the worst growth outlook in Asia. That is a surprising fact, if one recalls that this is a country presumably dusting itself off from the collapse of its own bubble nearly two decades ago.

After such a long period of economic crisis, Japan should be renovated and ready to thrive. Instead, it may be in worse shape than even the United States (though clearly not Iceland and much of Eastern Europe). Exports plunged a record 35% annually in December, while the industrial production figures for November revealed a record 8.9% month-over-month drop.

Japanese financial institutions were not big players in the markets for collateralized debt obligations, credit default swaps and the other toxic assets that have ravaged the capital bases of banks in the US and much of Europe.

Rather, Japan's key policy failure would appear to be over-reliance on exports as the engine of growth, while hoping that the fruits of this growth would trickle down into the rest of the economy and bolster demand.

But in the rest of the economy, deregulation of labor and other markets had seen firms shifting to insecure employment (especially part-time and contractual staff) and rolling back pay, thus crimping the level of demand. And that weak domestic demand was of course blunting domestic-oriented businesses' incentives to invest (compared with incentives for export-oriented businesses).

With the startling 35% drop in exports in December 2008, it's as if someone kicked the chair away from a man who was standing on it to test out what it felt like to have a noose around his neck.

The ruling Liberal Democratic Party and Prime Minister Aso Taro are trying to assert that the problem is global, a once-in-a-century event. But the pattern of fallout varies among low toxic-asset countries (especially Asian), notably in accordance with their degree of reliance on the trade bubble.

Japan seems to be suffering the legacy of the structural reforms of former prime minister Koizumi Junichiro and financial services minister Heizo Takenaka in that the reformists were content to rely on exports (stimulated by ultra-low interest rates) and to use deregulation, privatization and (to some extent) tax cuts to eviscerate the public sector's role and let the market determine the strategic focus of the economy.

They were loath to look at the Scandinavian model as a guide to building safety nets for encouraging labor mobility and laying a strong floor as the basis of the domestic economy (also by investing in education and encouraging higher remuneration and professionalization in elder care and other growth sectors).

They disparaged the role of the public sector in framing markets and in sketching the strategic focus of the overall economy, such as in deciding targets in energy and environmental areas and thus giving incentives for market actors to achieve.

Koizumi's neo-liberal brain, Heizo Takenaka, still recently trumpeted in the Japanese weekly, ekonomisuto (economist), the small state and deregulatory nirvana. Elsewhere he has blamed Japan's current crisis on insufficient deregulation.

But he and Koizumi were champions of low interest rates, even though these rates cost domestic savers some 35 trillion yen per year (nearly 12% of their previous income). This was not only a subsidy to the export industries. Low rates also helped keep zombie firms (about 20% of small and medium enterprises) in business, since low interest allowed them to roll over their loans even though they were effectively broke.

A strategic investment focus from the central government during the Koizumi "structural reform" years would have put momentum into the recovery on the domestic side and allowed the ratcheting up of interest rates while softening the damage from failures of zombie firms that simply couldn't modernize fast enough as their low-interest security blanket was lifted.

The extra income for savers (from normalization of interest rates) would have bolstered the domestic economy enough to provide new employment opportunities to labor and capital shed by many inefficient enterprises and retraining could have been offered to the hard-core unemployed.

That's all hindsight of course, but it beats the hindsight on offer recently: many of the newly anti-market crowd are trumpeting "Edo" (old Tokyo) society and even the Jomon Era (14,000-400 BC) as models for the present, lauding their closeness to nature, stability, and community values. One Jomon booster is a former free-market cheerleader who got his economics PhD from Harvard and has been big in government deliberation councils.

Japan's public debate still hasn't cut through the nonsense of idealizing the "free market" or the "unique Japanese" and come to focus on what the public sector of this advanced, industrialized country needs to be doing in the midst of the worst economic crisis since the 1930s.

Japan's export troubles are causing a drop in the value of the Australian dollar to sixty U.S. cents, since Japan is the largest purchaser of Australian goods and inventories are piling up in Japan.

Eastern Europe

Russia is working to keep the Ruble stable by limiting money available to currency speculators.

Bank Rossii told lenders yesterday it will restrict loans to force banks to convert foreign-currency holdings into rubles, Kommersant newspaper reported, citing unidentified bankers. "Almost all" of the loans secured by bonds or other collateral in so-called repurchase auctions last month were used by banks to bet against the ruble, according to Natalia Orlova, chief economist at Moscow's Alfa Bank.

"This is a signal from the central bank that further speculation can be stopped," said Evgeny Gavrilenkov, chief economist in Moscow at Troika Dialog, Russia's oldest investment bank. "Those who accumulated dollars and euros will now have to start selling and the central bank will be able to maintain their level."

The currency slumped 35 percent against the dollar since August as Bank Rossii drained more than a third of Russia's foreign-exchange reserves, the third-largest worldwide, to stem the drop. A war with neighboring Georgia, sliding oil prices and the worst global financial crisis since the Great Depression spurred investors and locals to withdraw at least $290 billion from the country since Aug. 1, according to BNP Paribas SA.

The Czech Republic announced that it may need to exceed the 3% government deficit rule the European Union rules imposes on countries planning on adopting the Euro if the economy does poorly. These arbitrary EU rules are likely to be points of great contention in the near future as they limit the ability of governments to provide much needed social support in the crisis thereby effectively moving key elements of national sovereignty to the unelected technocrats in Brussels..

Western Europe and the U.K.

Norway announced a $15 billion financial bailout fund "to keep institutions lending" or rather to prevent them imploding.

The Governor of the Bank of France and member of the European Central Bank Governing Council, Christian Noyer lost all credibility last week by saying the recession in Europe will be brief, that French banks are "largely healthy," and by defending French President Nicolas Sarkozy's response to the crisis.

The U.K. further cemented its reputation as the economy most like the U.S. in this crisis when the leaders of its financial institutions paid themselves and their staff huge bonuses while being bailed out with public money.

Latin America

Brazil released some bad economic numbers last week, threatening the hope that its economy had somehow decoupled from the collapsing world economy. While there has been some basis for the decoupling theory, Brazil remains a country of extreme wealth inequality in which the middle class have been all but wiped out (economically) over the last ten to fifteen years.

New economic figures rattle Brazilians

Luciano Coutinho, head of Brazil's national development bank, has strong views on what has become a controversial subject for investors and economists looking at the world's tenth biggest economy.

"There is an idea going around that decoupling is over," he says. "That's a mistake. Decoupling has, yes, taken place and you'll see it in the rate of economic growth."

Brazil was widely said to have decoupled from the rest of the world because its increasingly vibrant economy has become less vulnerable to destabilising forces from overseas. Thrown off course by the Russian and Asian crises of the late 1990s, it had until recently weathered the current global crisis better than many expected.

But decoupling came under severe questioning this week after the release of some alarming economic data. Nevertheless, other contradictory evidence suggests that while Brazilians are suffering a crisis of confidence, they also believe their economic downturn will end soon.

Brazil is the second biggest of the so-called Bric countries - the others are Russia, India and China - which many economists say will deliver most of the world's growth as developed nations slide into recession.

So investors were rattled this week when figures for December showed Brazil's economy apparently hitting a brick wall. Industrial output slumped by 14.5 per cent year on year while, seasonally adjusted, more than 200,000 jobs were lost in the month, mostly in manufacturing. Both figures reversed recent steady gains, and were the worst on record.

However, also this week, a widely respected opinion poll showed approval of the government and of president Luiz Inácio Lula da Silva at all-time highs. Mr Lula da Silva's approval rating, at 84 per cent, is extraordinarily high for a president half way through a second term, suggesting Brazilians believe him when he says the crisis will be shallow and short.

By some measures, Brazilians should indeed have little to fear. The amount of credit in the economy is small by international standards, reducing the potential impact of a cut in lending.

And although Brazil's recent growth has been fueled by exports of commodities, the country has not been hit hard by falling commodity prices. It has a healthy domestic market and exports are equal to only about 14 per cent of GDP - much less than many of its peers.

So why did the economy stumble in December? Many observers say it is because banks, made nervous by the global crisis even though they source little of their funding overseas, simply stopped lending.

Shaun Wallis, head of HSBC in Brazil, rejects this. "Banks are open for business," he says. "The problem is primarily one of demand, not of supply."

He concedes that banks have become more cautious in the crisis but says many companies, themselves worried by the global slowdown, have chosen to fall back on cash reserves. Meanwhile salaried consumers, who by law receive an extra month's pay at the end of each year, used those bonuses instead of debt to fund year-end spending. Many retailers actually had a better December last year than in 2007.

Francisco Valim, head of Serasa, which provides credit risk evaluation services to banks, says the biggest danger to Brazil now is "fear of recession". And he warns that, without decisive action from the government, this fear could become a self-fulfilling prophecy.

The government has acted on several fronts. The central bank began cutting interest rates last month, although at 12.75 per cent a year its base rate is still high and market lending rates are much higher.

Mr Coutinho's development bank has been given an extra 100bn reais ($443m) to lend, especially for much-needed infrastructure projects. And on Thursday the central bank announced it would release $36bn from its international reserves to lend to companies with foreign debts falling due up to the end of the year, providing relief to many who would find it impossible to raise dollars on international markets.

Nevertheless, many economists worry about the government's capacity to promote growth through fiscal stimulus. Heavy commitments to new public sector employment have earmarked much of the available money, while tax revenues are falling as the economy slows. The government is still aiming for 4 per cent growth this year but many market economists expect growth to fall below 1 per cent.

Mr Valim at Serasa says banks should be obliged to make more credit available, although recent initiatives in this direction have had little impact.

With limited scope for action, the government must hope that Brazilian's faith in their president will outweigh their fear of the outside world and make decoupling a reality.

Markets

The markets this week (to Feb 9th)

	Previous week's close	This week's close	Change	% change
Gold (USD)	928.90	914.30	14.60	1.57%
Gold (EUR)	725.02	706.51	18.51	2.55%
Oil (USD)	41.66	40.17	1.49	3.58%
Oil (EUR)	32.52	31.04	1.48	4.54%
Gold:Oil	22.30	22.76	0.46	2.08%
USD / EUR	0.7805 / 1.2812	0.7727 / 1.2941	0.0078 / 0.0129	1.00% / 1.01%
USD / GBP	0.6878 / 1.4539	0.6763 / 1.4786	0.0115 / 0.0247	1.67% / 1.70%
USD / JPY	89.920 / 0.0111	91.893 / 0.0109	1.973 / 0.0002	2.19% / 1.80%
DOW	8,001	8,281	280	3.50%
FTSE	4,150	4,292	142	3.43%
DAX	4,338	4,645	306	7.06%
NIKKEI	7,994	8,077	83	1.03%
BOVESPA	39,301	42,756	3,455	8.79%
HANG SENG	13,278	13,655	377	2.84%
US Fed Funds	0.19%	0.25%	0.06	31.58%
$ 3month	0.23%	0.27%	0.04	17.39%
$ 10 year	2.85%	2.99%	0.14	4.91%

United States and Canada

Shocking job loss numbers for January were released last week in the United States and Canada. Canada lost a stunning 129,000 jobs putting the unemployment rate at 7.2% and the United States lost 598,000 jobs for an official unemployment rate of 7.6%.

Global jobs crisis deepens: US sheds 600,000 jobs in January

In a clear indication the economic crisis is rapidly heading into a severe global depression, US employers purged 598,000 jobs in January, the most job losses in a single month since 1974. January's firings raised the unemployment rate to 7.6 percent, the highest level since 1992.

Job cuts accelerated even more rapidly in Canada, where 129,000 jobs were eliminated, the highest monthly toll ever, with the unemployment rate spiking to 7.2 percent from 6.6 percent. Given a Canadian population of about one tenth that of the United States, the job losses are equivalent to about 1.3 million US cuts. Canadian economists, who had anticipated a figure of 40,000, were left dumbfounded by the data from Statistics Canada.

The new US Labor Department figures, released Friday, also far surpassed the expectations of economists, who had anticipated 524,000 lost jobs. The figure for December (577,000) was also revised upwards. In the coming period, job losses are expected to soar well above 600,000 a month.

Economists used the following terms to describe the Labor Department figures: "horror show," "alarming," "terrible toll," "endless spiral," "no end in sight," "slow motion train wreck," "horrific," "massive hemorrhage," and "stunning."

In the 12 months since January 2008, the American economy has hemorrhaged 3.5 million jobs, the most in one year since 1939, during the Great Depression. About half of those job cuts came in the past three months alone.

According to the Labor Department, there are now 11.6 million unemployed workers in the US. In addition, there are 7.8 million more who are underemployed, workers who seek full-time employment but are unable to find the hours they need.

If underemployed and marginally attached workers are counted, the US unemployment rate stands at 13.9 percent, according to the Wall Street Journal. The industrial sector suffered the most, with 207,000 jobs lost, after losing 162,000 in December. This represented the steepest decline since 1982, when US industrial production was intentionally decimated by the high interest rate "shock therapy" of former Federal Reserve Chief Paul Volker, who is now a key economic advisor to President Barack Obama. There are now only 12.6 million US factory workers, the lowest number since 1946.

In Canada, meanwhile, nearly 80 percent of January's job losses were among factory workers, with Ontario particularly hard-hit. This is an indication that the collapse of the US economy is ravaging Canada's export-oriented industries and their suppliers.

In the US, the job losses extended across economic sectors. White collar and managerial workers were eliminated in large numbers, 121,000 in all. Construction companies cut 111,000 jobs; 76,000 temporary worker were fired; 45,000 retail workers lost their jobs; and 28,000 more workers are now unemployed in the "leisure and hospitality" industry.

The unemployed face increasingly long periods between jobs, if new jobs are to be found, Labor Department statistics reveal. The average job hunt for unemployed workers has increased to 19.8 weeks, up from 17.5 weeks one year ago.

The wave of job cuts is being undertaken in tandem with a broad assault on the conditions of those workers fortunate enough to keep their jobs. In keeping with the spirit of the Obama administration, employed workers are being asked to make new "sacrifices."

Over the previous months, US employers have launched an unprecedented wave of pay and benefit cuts, hours reductions, and other takeaways. The sacrifices of the employed are also registered in an increase in productivity, which the Labor Department recently revealed has shot up by 3.2 percent in the last quarter of 2008.

The flood of job losses in the US is such that the system of unemployment benefits has been overwhelmed, both financially and physically. After decades of free-market orthodoxy, the social safety system in the US is woefully ill equipped to confront an economic crisis.

The National Conference of State Legislatures recently released a report revealing that seven states have depleted their unemployment insurance funds, and eleven others will likely do so within a year. On Thursday, the Washington Post published an article noting that rising unemployment "is overwhelming claims offices" that are short on staff, facilities, and equipment to meet the needs of desperate workers ("Deluge Is Holding Up Benefits to Unemployed").

The prospects for the coming year are grim. Analysts anticipate that 3 million more jobs will be lost, although even these dire estimates are contingent upon passage of Obama's stimulus package and the administration's assertions on job creation.

"We see job losses accelerating for at least the next several months to the point where that 600,000 mark will soon be a dot in the distance behind us," said economist Guy LeBas of Janney Montgomery Scott LLC. Robert MacIntosh, chief economist with Eaton Vance Management in Boston, said, "it is just another confirmation that we're in a deep and long recession, and the bottom is not even in sight."

The flood of job losses in North America is an expression of a world process. In December, Japan experienced the sharpest increase in unemployment in 41 years. More layoffs are to come, as industrial production declines precipitously. The Japan Manufacturing Outsourcing Association has stated that 400,000 temporary workers will be laid off by March. Many of these live in company dormitories, and will be made homeless in the process.

Earlier this month, China announced a massive growth in unemployment. Some 20 million of the country's 130 million migrant workers are unemployed. Manufacturing jobs for export production have been particularly hard-hit.

In Europe, economists anticipate that the overall unemployment rate will climb to 8.7 percent for the 27 EU countries. French employers purged 217,000 jobs last year, and the unemployment rate is expected to rise to 10.6 percent by the end of next year. In Spain, Europe's fifth-largest economy, the unemployment rate is at 14.4 percent and rising. Industrial output in Spain fell by nearly 20 percent in December.

The International Labor Organization recently released a report that forecast global job losses with a range of 18 to 51 million. In the latter scenario, global unemployment would climb past 7.1 percent.

Enough U.S. senators reached agreement this past weekend to pass a weakened and reduced stimulus bill, which helped to buoy world stocks momentarily. The problem was to get even three Republican senators to support the Bill, the Democrats had to agree to decrease the overall size of the package while increasing the tax cutting components and decreasing the infrastructure spending components. Last year's Nobel Prize in economics winner, Paul Krugman explains why this is bad:-

The Destructive Center

What do you call someone who eliminates hundreds of thousands of American jobs, deprives millions of adequate health care and nutrition, undermines schools, but offers a $15,000 bonus to affluent people who flip their houses?

A proud centrist.

Actually, at sott.net we call them by their proper name, psychopaths.

For that is what the senators who ended up calling the tune on the stimulus bill just accomplished.

Even if the original Obama plan - around $800 billion in stimulus, with a substantial fraction of that total given over to ineffective tax cuts - had been enacted, it wouldn't have been enough to fill the looming hole in the U.S. economy, which the Congressional Budget Office estimates will amount to $2.9 trillion over the next three years.

Yet the centrists did their best to make the plan weaker and worse.

One of the best features of the original plan was aid to cash-strapped state governments, which would have provided a quick boost to the economy while preserving essential services. But the centrists insisted on a $40 billion cut in that spending.

The original plan also included badly needed spending on school construction; $16 billion of that spending was cut. It included aid to the unemployed, especially help in maintaining health care - cut. Food stamps - cut. All in all, more than $80 billion was cut from the plan, with the great bulk of those cuts falling on precisely the measures that would do the most to reduce the depth and pain of this slump.

On the other hand, the centrists were apparently just fine with one of the worst provisions in the Senate bill, a tax credit for home buyers. Dean Baker of the Center for Economic Policy Research calls this the "flip your house to your brother" provision: it will cost a lot of money while doing nothing to help the economy.

All in all, the centrists' insistence on comforting the comfortable while afflicting the afflicted will, if reflected in the final bill, lead to substantially lower employment and substantially more suffering.

But how did this happen? I blame President Obama's belief that he can transcend the partisan divide - a belief that warped his economic strategy.

After all, many people expected Mr. Obama to come out with a really strong stimulus plan, reflecting both the economy's dire straits and his own electoral mandate.

Instead, however, he offered a plan that was clearly both too small and too heavily reliant on tax cuts. Why? Because he wanted the plan to have broad bipartisan support, and believed that it would. Not long ago administration strategists were talking about getting 80 or more votes in the Senate.

Mr. Obama's post-partisan yearnings may also explain why he didn't do something crucially important: speak forcefully about how government spending can help support the economy. Instead, he let conservatives define the debate, waiting until late last week before finally saying what needed to be said - that increasing spending is the whole point of the plan.

And Mr. Obama got nothing in return for his bipartisan outreach. Not one Republican voted for the House version of the stimulus plan, which was, by the way, better focused than the original administration proposal.

In the Senate, Republicans inveighed against "pork" - although the wasteful spending they claimed to have identified (much of it was fully justified) was a trivial share of the bill's total. And they decried the bill's cost - even as 36 out of 41 Republican senators voted to replace the Obama plan with $3 trillion, that's right, $3 trillion in tax cuts over 10 years.

So Mr. Obama was reduced to bargaining for the votes of those centrists. And the centrists, predictably, extracted a pound of flesh - not, as far as anyone can tell, based on any coherent economic argument, but simply to demonstrate their centrist mojo. They probably would have demanded that $100 billion or so be cut from anything Mr. Obama proposed; by coming in with such a low initial bid, the president guaranteed that the final deal would be much too small.

Such are the perils of negotiating with yourself.

Now, House and Senate negotiators have to reconcile their versions of the stimulus, and it's possible that the final bill will undo the centrists' worst. And Mr. Obama may be able to come back for a second round. But this was his best chance to get decisive action, and it fell short.

So has Mr. Obama learned from this experience? Early indications aren't good.

For rather than acknowledge the failure of his political strategy and the damage to his economic strategy, the president tried to put a post-partisan happy face on the whole thing. "Democrats and Republicans came together in the Senate and responded appropriately to the urgency this moment demands," he declared on Saturday, and "the scale and scope of this plan is right."

No, they didn't, and no, it isn't.

Of course, massive government deficit spending scares most people in the United States, but what is the alternative when the world is facing a deflationary spiral? According to the blogger Badtux, the alternative is Mexico North, he has a point:-

The paradox of thrift

Now, some folks have wondered why I consider personal savings going up as a problem. The answer is simple: by reducing consumption, this adds deflationary pressure to prices, which in turn makes people unemployed, which in turn causes consumption to decline even further. More importantly, by reducing the number of people that banks can lend money to (since businesses seeing reduced demand will not borrow and people who are increasing their savings will not borrow), it increases the effective reserve ratio and thereby decreases the money supply due to the fractional reserve multiplier effect basically operating in reverse to de-multiply. As I pointed out previously, if the ratio of reserves to loans rises from 10% to 15%, this is effectively a 33% decrease in the money supply -- which adds even more deflationary pressure to the economy.

This is called the Paradox of Thrift. The paradox of thrift can be explained simply: What is beneficial on a personal microeconomic level (keeping your consumption level down and savings level high so that you can more easily cope with changes in economic conditions), can be disasterous on a macroeconomic scale, resulting in a lower standard of living for everybody as consumption, wages and prices decrease yet debts stay the same (thus debt inflation, the primary characteristic of deflationary spirals).

Now, does this mean that you should immediately go out and spend down your savings? No. You have to make personal decisions based upon what is best for you. But it does mean that, if millions of other Americans are making this same personal decision to decrease consumption and increase savings, that there needs to be significant government intervention to a) re-inflate the money supply (by, for example, borrowing these excess reserves in order to build infrastructure projects), and b) increase consumption (by, for example, consuming goods from the economy in order to build infrastructure projects). Otherwise there is a significant risk of entering a deflationary spiral, and said deflationary spiral, sans government intervention, ends up with a typical Latin American solution -- most people chronically un-or-under-employed living in utter squalor and poverty, and a few wealthy people owning all the wealth of the nation. Which is nice if you're one of the few wealthy people, but not particularly good for America, since under-employed or un-employed people living in utter squalor and poverty are not contributing much to the economy.

So any time you see Rethuglicans saying "Obama's recovery plan is extravagant and spendthrift", recall what the end result of following their advice is: Mexico North, with most Americans under-employed or un-employed living in cardboard boxes in utter squalor and poverty. While their advice makes superficial sense because it works on the micro-economic (i.e. personal) level, on a macro-economic level their advice is pure disaster. America is currently in the process of de-leveraging -- reducing debt and increasing savings -- and while that can be a good thing in the long term, in the short term it requires significant government intervention to avoid going into a deflationary spiral, a deflationary spiral which Republican oligarchs have wet dreams about -- but which would be a nightmare for the rest of us.

Speaking of Latin American-style disparities of wealth, tax scandals have derailed several of Barack Obama's high-level appointees. More important than the non-payment of some taxes was the clear indication of the different world these people live in. Coupled with bank CEOs whining about having to live on $500,000 annual salaries, populist anger is justified. As Joe Kishore put it,

The proliferation of scandals - and in particular tax scandals - involving top government picks in the new Obama government reflects the outlook of the layer from which these posts are filled. Those considered "qualified" for the top positions - that is, those with sufficient connections to the political and financial establishment - are drawn mainly from a relatively small and thoroughly corrupt social milieu.

American society is characterized by an enormous social chasm. In the midst of the biggest economic crisis since the Great Depression - which is leading [to]massive job losses, wage cutting, and impoverishment - the American ruling class has moved rapidly to engineer the transfer of hundreds of billions to the financial aristocracy.

These class divisions are reflected in the personnel of the political establishment, increasingly composed of millionaires who move in and out of government and corporate positions. Corruption is pervasive and exudes out of every pore of the political system.

For this layer, laws, including the payment of taxes, are considered optional (Leona Helmsley once encapsulated this sentiment with her famous declaration, "We don't pay taxes. Only the little people pay taxes."). In fact, if an ordinary person were to commit the "mistakes" committed by Daschle and Geithner, he would find himself with massive fines, financial ruin, and potential imprisonment.

Given the context of class struggle bubbling up in the United States, a milestone was crossed last week. A member of the U.S. Congress from Ohio, Marcy Kaptur, advised homeowners facing foreclosure to stay in their homes as squatters if threatened with eviction:

Kaptur advises owners facing eviction to stay

U.S. Rep. Marcy Kaptur (D., Toledo) is advocating home-owners threatened with foreclosure exercise squatter's rights in trying to stave off the loss of their house.

"I'm saying to them possession is 99 percent of the law; you stay in your house," Miss Kaptur said yesterday, continuing a crusade she started several weeks ago in Congress and CNN picked up Thursday night.

She said she believes that many so-called predatory and subprime loans - those made to borrowers who did not qualify for a conventional mortgage - may have been illegal.

She urged homeowners not to panic and leave their home just because they receive a foreclosure notice from their lender, and she said they should demand that the mortgage-holder produce a mortgage audit.

"I say to the American people, you be squatters in your own homes. Don't you leave," she said during a speech in Congress earlier this month.

Miss Kaptur was interviewed Thursday night on CNN by Lou Dobbs, and a CNN report cited a woman who lives on Cass Road in South Toledo as an example of the trend of homeowners ignoring foreclosure notices from their lender.

But Jim Moody, a Realtor who is running for mayor of Toledo as a Republican, said Miss Kaptur may be misleading people into thinking they can stop a legal foreclosure once a judge has issued an order.

"I think those are dangerous statements," Mr. Moody said. "What's she going to say when the sheriff comes and puts all their stuff on the street when they didn't leave because Marcy Kaptur said they could stay and become a squatter?

"I think she's clueless. This is goofy. Of course, the attorneys file the proper paperwork," Mr. Moody said.

Allen Seelenbinder, a Toledo-based mortgage banker with Main Street Financial, said the only audit the borrower is entitled to is an audit of the borrower's payments.

Asked if the mortgage lender is required to prove that its loan was made properly and that the borrower was qualified to sign the loan, he said, "absolutely not - you're under a contract that you both signed.

"The only audit they're required to provide to you is that the payments that you made are made correctly. It's a transaction history," he said.

But Sandusky lawyer Dan McGookle, who is representing a homeowner trying to have a predatory loan rescinded, said mortgage firms may not be able to prove they complied with truth-in-lending laws and other state and federal procedures.

"We have strong reason to believe that a majority of the mortgage loans made in the last 10 years are defective - unenforceable for various reasons," Mr. McGookle said.

Ironically, Mr. Moody agreed that people threatened with foreclosure should try to work out a solution and should stay in the home as long as possible.

Cathleen Tillman, director of the Lucas County Sheriff's Department's civil section, which carries out court-ordered foreclosures and evictions, also said people should remain in the homes until the deed has been transferred, and not to abandon a home that is still listed in their name.

"The foreclosure takes a long time," she said. More than 4,000 foreclosure actions were filed in 2008 in Lucas County, and the sheriff's department carried out 85 foreclosure-related evictions.

Miss Kaptur said she started advocating that homeowners fight foreclosure by staying their home after it became clear that the $700 billion bailout of the financial industry passed last year was not working as intended by Congress.

Free Market Capitalism - Morally and Financially Bankrupt

By Simon Davies and Donald Hunt
SOTT.net

While the world slithers into the black hole of economic collapse, those that head the institutions that sit astride its nations and peoples met in Davos, Switzerland last week for the World Economic Forum. Attendance was, as always, by invitation only and that included the press so we can be sure that whatever came out of Davos 'on-the-record' was intended to. In case you doubt the ability of conference organizers to manage the information flow consider two things; there are numerous "off-the-record" briefings throughout the conference the details of which we never hear, and all those attending, including journalists, want to be invited back for they are members of the Inner Circle and rely on their membership for their place in life.

We were not invited which is somewhat galling given that in October 2005 (The Economic Collapse: An Insider's View) and then again in August 2006 (Signs of the Economic Apocalypse - Update) sott.net (or signs-of-the-times.org as it was then) was hosting podcasts in which the forthcoming collapse of the free market capitalist system was discussed in detail as well as our consistent warnings over the last five years. It is even more galling to find that Nouriel Roubini is being treated as some sort of god for saying exactly the same thing as sott.net after we said it. The upside of not being invited is that you, dear reader, can rest assured of our continued independence of both mind and spirit.

In a conference brimming with talking points the quote of the week award, bestowed for demonstrating a total disconnect from reality so striking that his psycho-pathology shines through, has to go to David Rubenstein co-founder and managing director the Carlyle Group, one of the most powerful and financially aggressive companies on earth who said in an interview:-

"There are six billion people on the face of the earth, and probably about five billion participated in what went on," Rubenstein said in an interview. "Everybody participated in some way or shape or form."

This is the same David Rubenstein whose private equity company grew due to his extraordinary political and financial connections through the use of every aggressive financing tool that Wall Street could invent, tools that relied on the availability of limitless amounts of cheap debt and the financial engineering made possible only by derivatives. He is not a stupid man but he is clearly psychotic and delusional having a complete inability to empathise or see the reality of the lives of billions on this poor planet; the very notion that any more than a very small handful of already wealthy people and perhaps a few who gathered the crumbs from their table benefited from the debt driven private equity bubble is beyond comprehension. Rubenstein was ranked by Forbes magazine as the 165th richest person in America in 2007.

The Carlyle Group has over $90 billion of funds under management (with many times that amount of debt at its disposal), is notorious for being the company with which both Bushes and bin Ladens are affiliated in various ways and boasts current and former employees ranging from Nicholas Sarkozy's brother Olivier to James Baker, former US Secretary of State, and Karl Otto Pohl, former President of the Bundesbank (the German central bank). These are the men who run our world, the men who have created the financial 'crisis' and who plan to profit from it as Rubenstein himself said recently to the Wall Street Journal :-

In a keynote speech at the 15th annual venture capital and private equity conference at Harvard Business School, Rubenstein laid some of the blame for the private equity industry's troubles on investment banks, who competed with each other to see who could offer the cheapest debt with the loosest terms. But he admitted that the buyout industry got carried away, too.

"I analogize it to sex," Rubenstein said. "You realize there were certain things you shouldn't do, but the urge is there and you can't resist."

The top priority now is "to make sure deals from 2004 to 2007 don't go bankrupt," he said. To that end, buyout firms will focus on cutting costs, including through layoffs, buying back the debt on their portfolio companies and holding the companies longer, "So, when the world comes back, you'll have an asset that you can use."

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"Ultimately, the best private-equity deals of all time will be done [during] this time," Rubenstein said.

While the IMF's chief economist declares that, "We now expect the global economy to come to a virtual halt." we have Rubenstein and his ilk licking their lips at the cheap pickings that are soon to be available to those who created this 'crisis'.

The sage words of Warren Buffett are worth remembering when he referred to Rubenstein and private equity firms of his genre as "porn shop operators", "You can sell it to Berkshire [Buffett's fund], and we'll put it in the Metropolitan Museum; it'll have a wing all by itself; it'll be there forever. Or you can sell it to some porn shop operator, and he'll take the painting and he'll make the boobs a little bigger and he'll stick it up in the window, and some other guy will come along in a raincoat, and he'll buy it."

Talking of crisis, the truly global extent of the current collapse is striking:-

IMF expects global economy to come to "virtual halt" in 2009.

The International Monetary Fund (IMF) said yesterday that it expects world economic growth this year to be the lowest since World War II. The Fund's latest update to its 2009 World Economic Outlook forecasts global gross domestic product (GDP) growth of just 0.5 percent - sharply lower than the 2.2 percent annual growth it expected last November.

IMF chief economist Olivier Blanchard declared: "We now expect the global economy to come to a virtual halt."

The global slump is being led by the advanced economies, almost all of which will experience major economic contractions. The US economy is expected to decline by 1.6 percent, the eurozone by 2 percent, Japan by 2.6 percent and Britain by 2.8 percent. On average, output in the advanced economies will fall by 2 percent - the first such collective contraction since the 1930s.

Economies classified as "emerging and developing" will grow by an average of 3.3 percent this year, down from 6.3 percent in 2008. Countries in Eastern Europe, Latin America and Asia are expected to experience the sharpest slowdowns. China and India remain the fastest growing, with expected 2009 growth of 6.7 and 5.1 percent respectively. In neither case, however, is the projected growth rate sufficient to generate enough jobs for the rapidly growing Chinese and Indian urban populations.

The IMF's extraordinary world forecast underscores the inability of world governments to mitigate the economic crisis.

The Fund's revised outlook takes into account the various stimulus packages enacted internationally. It warns: "Given that the current projections are predicated on strong and coordinated policy actions, any delays will likely worsen growth prospects... Downside risks continue to dominate, as the scale and scope of the current financial crisis have taken the global economy into uncharted waters. The main risk is that unless stronger financial strains and uncertainties are forcefully addressed, the pernicious feedback loop between real activity and financial markets will intensify, leading to even more toxic effects on global growth."

While advocating aggressive monetary and fiscal policies to try to stimulate global demand, the IMF warned that stimulus spending threatened to blow out governments' budget deficits. In advanced economies, these deficits are forecast to reach 7 percent of GDP this year, nearly double the 2008 level.

"The sharp increase in the issuance of public debt could prompt an adverse market reaction, unless governments clarify their strategy to ensure long-term sustainability," the IMF report stated. In other words, while stimulus packages are now required to prevent a deflationary spiral of declining economic activity, in the longer term pressure will build for austerity programs involving deep cuts to social programs to cover government debts.

The world crisis is plunging hundreds of millions of working people deeper into poverty.

The International Labor Organization (ILO) released its annual Global Employment Trends report yesterday. It forecast that as many as 51 million workers could be laid off this year, potentially pushing the global unemployment rate to 7.1 percent (up from 5.7 percent in 2007).

...Mass unemployment is but one aspect of the growing social hardship being experienced internationally.

The ILO forecast that the number of "working poor" - or more accurately, the working destitute, given that the category's criteria is earnings of less than $2 a day - may rise to a total of 1.4 billion people, or 45 percent of the world's employed. Up to 20 percent of those now living marginally above the poverty line may fall back into extreme poverty.

"The ILO message is realistic, not alarmist," Director-General Juan Somavia said. "We are now facing a global jobs crisis. Many governments are aware and acting, but more decisive and coordinated international action is needed to avert a global social recession. Progress in poverty reduction is unraveling and middle classes worldwide are weakening. The political and security implications are daunting."

At the risk of actually being invited to Davos next year, we think that the IMF's forecasts are too optimistic. If the statistics are not manipulated we expect the US, Japanese, Eurozone and British economies to all contact by over 5% and possibly significantly more in the next year. That assumes no external event such as cometary impact, Israel's initiation of a nuclear holocaust in the Middle East or the complete collapse of the free market capitalist system all of which are more than possible in which case all bets, including the next World Economic Forum, may well be off.

What is clear is that while the production of "goods" will be down, the escalation and expansion of suffering will be up this year.

The economic system is psychopathic in nature, pushing suffering downwards through society and profits upwards. Two very telling incidents last week in the United States, one of the wealthiest countries in the world, illustrate the problem and the extent to which the capitalist system has degraded human bonds and humanity in general.

In Bay City, Michigan, Marvin Schur froze to death sometime between 13th and 17th January, the local municipal electricity company having installed a device on his house to limit (to nil?) his electricity because of unpaid energy bills. This "limiter" cut power to his house, and Marvin eventually died from hypothermia amidst a bitter cold front that descended on Michigan that week. Nobody made any effort to tell Marvin that the 'limiter' has been installed much less how to restore electrical power to his home. Marvin was 93.

Following his death city officials, the police, the electricity company and the local newspaper seem to have done their best to bury the story; it only being due to the leg work of the a World Socialist Web Site reporter that the story eventually surfaced:-

The director of the local state welfare agency in Bay County, Bernell Wiggins, refused to be interviewed for this article. Wiggins would not answer questions about services the state of Michigan provides to the elderly in Bay County. His employees are prevented by a state gag order from communicating with the press.

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The callousness of the city, which is dominated by the Democratic Party, is indicative of a social system that regards the market principle - defense of the profit system at the expense of social need - as the holiest of the holies. In fact, even in the wake of Schur's death city officials continue to operate dozens of "limiters" across the city, and have shut off power to scores of households this winter, many of which are doubtless inhabited by the elderly and small children.

Similar suspensions are taking place across the country and regularly result in house fires, asphyxiations, and freezing deaths. These deaths result directly from the policies of the US political and economic elite, which regard heat, water and electricity not as basic human rights, but as lucrative sources of profit for the financial aristocracy.

In another tragic incident, by no means isolated, a Southern California man who lost his job killed his wife and five children and then himself. Ervin and Ana Lupoe both worked for a health company, Kaiser Permanente West Los Angeles which had sought to take action against them following representations they made to "an outside agency" regarding their employment in relation to obtaining some benefit related to childcare. Ervin was told by his administrator at Kaiser Permanente on December 23, "You should not even had bothered to come to work today, you should have blown your brains out."

Both Ervin and Ana were eventually fired by Kaiser Permanente in a manner such that they wouldn't be eligible for unemployment benefits and the company withheld their licenses thereby preventing them obtaining other similar employment. With five children under 8 Ervin clearly felt he had no other options; he faxed a suicide note to a local media office then shot his wife and children before turning his gun on himself.

The San Jose Mercury News quotes Carmen Adame, who said, "Their employer led them to this." She said Lupoe and others in their community were being forced to work under unreasonable conditions. "Employers are abusing this economy because people don't want to lose their jobs," she said.

Another Wilmington resident, Xavier Hermosillo, told city officials, "People are frustrated with their government. This is a societal decline."

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Wilmington, a working class neighborhood located between the ports of Los Angeles and Long Beach, has a population of about 55,000. The annual income of more than half of its households is less than $30,000. Home prices are collapsing, and more than 1,000 homes went into foreclosure from January 2007 to September of last year. Foreclosures are expected to increase significantly when the full impact of the crisis begins to be felt.

Many Wilmington residents who previously worked at the nearby docks have lost their jobs as dock traffic has plummeted in recent months. Longshoremen working on a casual basis have not found work since the end of November. The official unemployment rate for Los Angeles as a whole stands at 9.5 percent, a 14-year high.

Following the Lupoe murder-suicide, investigations into Ervin Lupoe's personal finances showed how this economic climate, combined with the loss of his and his wife's job, was plunging him into debt and increasing desperation. He was at least a month behind on his mortgage, owing $2,500 and a late fee, and owed thousands more on a home equity line of credit.

He also owed the Internal Revenue Service at least $15,000 for back taxes, and a check he written to the agency for that amount had recently bounced. On Monday, Lupoe had called his attorney to check on money he was owed in an auto accident settlement.

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Within hours of the shootings, Los Angeles Mayor Antonio Villaraigosa set up a news conference outside the Lupoe home, offering his take on the devastating situation. "A man who recently lost his job allowed the despair to put him over the edge," he said. "Unfortunately this has been an all-too-common story in the last few months. But that does not and should not lead people to resort to desperate measures."

The mayor was alluding to the fact that there have been five cases of murder-suicide in Southern California in the last year. The majority of the shooters in these incidents were facing work-related or financial crises.

The mayor also advised people to reach out for financial advice and mental health counseling. Again, there was no mention of concrete measures to provide jobs, or to counteract the housing crisis.

Ironically, the very agencies that provide such counseling are threatened with drastic cuts due to the California budget crisis. Ken Kondo, press spokesman for the LA Department of Mental Health, said that calls to the department's hotline have more than doubled since last year, with 22,000 calls specifically related to economic stress received in the last six months alone.

"Since the rise of foreclosures and unemployment we have seen a huge increase in calls," Kondo told Deutsche Press-Agentur. He said the cuts "would have a terrible impact, especially with the amount of traumatic incidents we are having."

Some of the most brutal incidents in the region over the last year:

- On Christmas eve, a man dressed as Santa Claus arrived at the home of his former mother and father-in-law in Covina, Calif. He killed his ex-wife and eight of her relatives and later killed himself.

- Last October, an unemployed and financially distraught financial manager shot his wife, three children, his mother in-law and then himself in the Porter Ranch area of the San Fernando Valley.

- In February 2007, an apparent murder-suicide claimed the lives of five family members in Yorba Linda. A 14-year-old son survived.

These truly tragic events which are being repeated the world over even as you read this column contrast with the attitudes reported by Bloomberg in Davos this week.

Davos Delegates in 'Denial' as $25 Trillion of Wealth Vanishes

Regret is cheap for some delegates at the World Economic Forum in Davos, Switzerland. Redemption for their role in the worst economic wreck since the Great Depression comes at a steeper cost.

"Nobody in Davos wants to get near a negative like redemption," said Robert Dilenschneider, chief executive officer of the Dilenschneider Group, a public relations firm in New York. "But the truth is that everyone here is part of the problem, and the public will soon begin demanding a pound of flesh."

"No banker or businessman wants to take responsibility," said Dilenschneider, who counts 40 Davos delegates as clients, their identities shielded by confidentiality agreements. "It's their view that everybody else did something wrong."

Questions about responsibility, blame and contrition hang in the cold mountain air at the glitzy Alpine resort this week like so much exhaled breath. With $1 trillion of bank losses and $25 trillion of market value gone missing since the start of the financial crisis, there's much to account for.

"There's a 'Great Gatsby' quality to Davos," said Niall Ferguson, a professor of history at Harvard University in Cambridge, Massachusetts, referring to the novel by F. Scott Fitzgerald. "When people look back at this gilded age, I'm sure there will be images of the investment bank parties at Davos, just as people looked back at flappers after the 1920s. People are still in denial."

Ferguson, author of "The Ascent of Money: A Financial History of the World," and a first-time Davos delegate, said "There's a sense of 'let's have the party anyway,' and 'let's talk about the post-crisis world,' as though that could be soon."

'Stupid Things'

At a panel on leadership yesterday morning before hosting a reception with champagne and canap s at the Hotel Europe Piano Bar, JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon expressed frustration at those who seek to pin all the blame on bankers.

"I take full blame for all the American banks and all the things they did," said Dimon, 52, the only CEO of a major U.S. financial institution to attend the conference this year, adding that he knows that's what people want to hear. Regulators, he said, should share some of the blame.

"God knows, some really stupid things were done by American banks," Dimon said. "To policy makers, I say where were they? They approved all these banks."

Stephen Green, chairman of London-based HSBC Holdings Plc, also criticized regulators at a panel about capitalism on Wednesday. Green, 60, a Church of England lay minister who has written a book about reconciling a life in banking with his belief in God, called for "an overhaul of the regulatory environment." He also talked about the need for self-regulation, saying that "no amount of rules is going to enforce good behavior."

'Everybody Participated'

At a press conference on Jan. 28, he dodged the question of personal responsibility, saying only that "the banking industry" has "something to apologize for."

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No Innocents

Ruben Vardanian, CEO of Russian investment bank Troika Dialog Group, said just saying sorry is not enough. "Our values became miserable," Vardanian said. "We are all guilty, and the scope of attrition is large."

Suzanne Nora Johnson, a former vice chairman at Goldman Sachs Group Inc. and a director of American International Group Inc., took a similar view: She said there are no innocents walking Davos's icy streets.

"There's no immunity in any sector," says Johnson, who heads the World Economic Forum's Global Agenda Council on Finance and Business. "No one did a good job."
Spreading the blame around is one thing; whether bankers are ready to atone for their actions is another.

Abu Eesa Niamatullah, executive director of the Cheadle Mosque in Manchester, England, who is in Davos to tend the spiritual needs of global business leaders, says Islam calls its cleansing process "expiation" and that he doesn't expect any takers.

Redemption

"Bankers don't want redemption for the moral wrongs they've committed against humanity," said Niamatullah. "Redemption is a heavy word for Davos Man because remorse must come with sincerity and the desire to atone for the transgression. There are no sincere acts of sorrow in Davos."

That may be because Davos has no time for redemption, says Barry Gosin, CEO of Miami-based global real estate firm Newmark Knight Frank. "If a shark bites your leg off while swimming in the ocean, can you condemn the shark? This was not an intentioned plan to destroy the world. Wall Street was designed to make money."

If atonement is difficult, retribution may prove "brutally difficult," Starwood Capital Group CEO Barry Sternlicht said in an interview in Davos. As Sternlicht sees it, "everyone wants a head, and that's not reasonable. To do that, you'd need to take out the top 20 executives at the 300 biggest financial firms."

Humility, Transparency

The forum's chief redemption officer, John DeGioia, hasn't figured out how to make the moral component a useful part of any economic stimulus package. "This moment requires a real humility about the fact that we built these systems and are responsible for them," says DeGioia, president of Georgetown University in Washington and head of the forum's Global Agenda Council on Society and Values. "None of us has demonstrated the leadership required and humility necessary to respond to the depths of this crisis."

John Studzinski, a 52-year-old senior managing director of Blackstone Group Inc., the New York-based private equity firm, says Davos delegates need more than humility. "People can't be transparent until they start being transparent with themselves," Studzinski said.

It takes a certain mindset to be able to talk with such contrition yet avoid the obvious, a mindset that Walter Bromberg, noted psychiatrist and criminologist, summarised in Crime and the Mind (1965):-

In the area of business crimes, ethics are not so neatly applicable: here the zone of gray, lying between the black and white of right and wrong, becomes significant. Sharp business practices, chiefly by large corporations or cartels, once considered ethical in the larger frame of private enterprise began, on scrutiny, to appear suspiciously like criminal actions. Manipulations arising out of cartels, subsidiaries and monopolies, overemphasis or omissions of vital facts in economic competition, short cuts, circumventions and skimpiness in complying with laws and regulations, self-assigned indulgencies in the matter of exploitation, connivance with governmental officials - all touched on criminal categories.

This mindset is underpinned by one of the greatest slights of hand ever perpetrated upon society; corporations have the legal rights and protections of 'natural persons' but are not held to the same responsibilities. The US Supreme Court even ruling that "business practices and callings are above the law", as Walter Bromberg commented, "The notion that a corporation could be immoral seemed an idea foreign to American thinking". This was summarise by E.A. Ross in Sin & Society (1907), a corporation is "an entity that transmits the greed of investors, but not their conscience".

With the viral spread of just this "American thinking", we see today the results upon the outlook of those at the pinnacle of world power; a thinking that can only be described as "without conscience" and therefore by definition, psychopathic.

All those in attendance at Davos and all the commentators in the mainstream media are imprisoned in their self interest such that they cannot venture to conceive the obvious; that what is at fault is the entire system not the actions or inactions of any one group or groups of players. Whichever stone one turns in examining this 'crisis' one ultimately has to face the fact that the capitalist system as practiced today is morally, ethically, socially and financially bankrupt. It is bankrupt because that is it's nature.

We have been researching the history of the ethics of business and in particular the role of religion in the rise of capitalism. This research is ongoing but one thing is becoming abundantly clear - whatever system of morals and laws that has been conceived at whatever time in history, there has always been a yawning chasm between the purported morals and laws and the daily practices of the time. The medieval ban on usury was easily bypassed by clever framing of contracts and business arrangements and was totally ignored by the Church, Kings and Princes when they needed funding for their pet enterprises and especially in the financing of wars.

In our own time, we have a plethora of morals and laws which stand in stark contrast to the daily actions we see around us and in complete isolation when compared to the actions or those at the forefront of free market capitalism. We should not be surprised for the god of love has been replaced for many centuries by the god of money and power.

Markets

The markets this week (to Feb 2nd)

	Previous week's close	This week's close	Change	% change
Gold (USD)	901.90	928.90	27.00	2.99%
Gold (EUR)	695.43	725.02	29.60	4.26%
Oil (USD)	45.90	41.66	4.24	9.24%
Oil (EUR)	35.39	32.52	2.88	8.13%
Gold:Oil	19.65	22.30	2.65	13.48%
USD / EUR	0.7711 / 1.2969	0.7805 / 1.2812	0.0094 / 0.0157	1.22% / 1.21%
USD / GBP	0.7249 / 1.3795	0.6878 / 1.4539	0.0371 / 0.0744	5.12% / 5.39%
USD / JPY	88.779 / 0.0113	89.920 / 0.0111	1.141 / 0.0002	1.29% / 1.77%
DOW	8,078	8,001	77	0.95%
FTSE	4,052	4,150	97	2.40%
DAX	4,179	4,338	159	3.81%
NIKKEI	7,745	7,994	249	3.21%
BOVESPA	38,132	39,301	1,168	3.06%
HANG SENG	12,579	13,278	700	5.56%
US Fed Funds	0.19%	0.19%	0.00	0.00%
$ 3month	0.10%	0.23%	0.13	130%
$ 10 year	2.62%	2.85%	0.23	8.78%

Africa

The World Bank is projecting lower growth this year (around 3.5%) due to falling commodity prices. The way the free market system works, 3.5% growth would be regarded as fine for developed countries, but for the poorest and most under developed, where all the benefits of growth go to a minute percentage of the poulation much higher growth and much more equitable income distribution would be needed to avoid suffering. Because African countries mostly export raw materials, the sharp drop in commodity prices is hitting them hard. Since most African countries cannot afford large stimulus packages, the World Bank official in charge of African programs called for developed countries to chip in some of their stimulus money:

Obiageli Ezekwesili, the World Bank's vice president for Africa, told reporters today at an African Union summit in Addis Ababa, Ethiopia. "Africa did not create this problem. Africa should not be left to suffer the impact of this alone."

Many governments on the continent don't have the flexibility for stimulus plans that would add to deficits, the official said. Industrialized nations should divert 0.7 percent of their measures to Africa to soften effects of the crisis and improve roads, electric lines and infrastructure, she said.

There's not much chance of the wealthy countries diverting any of their stimulus money to Africa. South Africa, with one of the strongest economies on the continent, plans to implement a $69 billion infrastructure program in hopes of restarting growth, few other African countries can afford to do the same.

Asia

Chinese stocks are holding up well, leading to some optimism about China weathering the storm. Speaking to people we know in China it does seem that aside from the low end manufacturing, there is still reasonable activity within China. Companies which have previously relied on foreign banks for as much as 60% of their funding are finding that as these foreign banks pull back from lending, so far the Chinese banks are stepping into the gap. One company we talked to reported that this year it expects Chinese banks to provide up to 80% of their funding needs.

China's World-Beating Stocks Keep BlackRock Bullish on Economy

The world's largest money managers say China's steepest monthly stock gain in more than a year shows the fastest-growing major economy will avert a
recession.

The Shanghai Composite Index, the broadest measure of shares traded on the mainland, opens after a weeklong celebration of the Lunar New Year and a 9.3 percent gain in January, the best among the world's 10 biggest markets. Last year, the index fell 65 percent, the worst since at least 1996, according to data compiled by Bloomberg.

Chinese shares rebounded after the central bank lowered interest rates five times since September and the government announced a $585 billion stimulus plan. China's economy is expected to grow near 8 percent this year even after expanding 6.8 percent in the fourth quarter, the slowest pace since December 2001, according to fund managers Richard Urwin at BlackRock Inc. and Barclays Plc's Russ Koesterich, who together help manage more than $3 trillion in assets.

"China is going to do what it has to do to keep the economy humming," Koesterich, the San Francisco-based head of investment strategy at Barclays Global Investors, said in a Bloomberg Television interview Jan. 26. "They can enjoy faster growth than the rest of the world in 2009 and in 2010 as well."

In Korea, the Hyundai and Kia auto manufacturers are increasingly targeting China to make up for weaker sales in the U.S.

Western Europe and the U.K.

European stocks rose last week led by gains in bank stocks, of all things.

French workers staged a one-day general strike last week as millions took to the streets to protest Nicholas Sarkozy's policies of bailing out banks while cutting spending for people.

Sarkozy Response Sought by Unions After French Strike, Protests

French President Nicolas Sarkozy is under pressure to review his response to the economic crisis after more than a million people took to the streets yesterday in the biggest protest since he was elected in May 2007.

"The president said 'I hear you,'" Jean-Claude Mailly, general secretary of the Force Ouvriere union, said today on La Chaine Info. "I'd rather have 'I understand you.' With 2.5 million people in the streets, the president should be careful."

Sarkozy, whose €26 billion ($33.5 billion) economic stimulus package to support banks and spur investment was passed by parliament last night, needs to do more to counter rising unemployment and falling purchasing power as the French economy enters its first recession in 16 years, the unions said.

Yesterday's one day general strike disrupted transport, closed schools in large swathes of the country and, according to the police, brought 1.1 million people to the streets in cities and towns across France. Unions Confederation Generale du Travail and FO put the number closer to 2.5 million.

While France has a history of street protests, the global financial crisis has sparked similar demonstrations and unrest in countries from China and Greece to Iceland.

Sarkozy responded in an emailed statement after the demonstrations, saying the "concern is legitimate" and that he is ready for "dialogue." Today, his aides say he won't change his policies.

"No change in direction," Raymond Soubie, the president's social affairs adviser, told RTL radio. Sarkozy "will maintain" his economic and social policies, he said.

Popular Backing

The government will, however, respond, Labor Minister Brice Hortefeux said. "We will respond, but not in an immediate, inarticulate way," he told reporters today.

The strike had widespread backing. About 69 percent of the French people supported the strike, a poll by CSA-Opinion for newspaper Le Parisien showed on Jan. 25.

"French people have turned to their president to say 'this crisis is serious and we need more protection,'" Stephane Rozes, head of CSA-Opinion, said in an interview today. "Missing that point may bring more social protest."

Eastern Europe

Russia raised interest rates last week to curb inflation and support the ruble.

Poland announced it will delay long-term spending plans in response to anticipated loss of revenue. Poland is planning on adopting the euro in 2012 and needs to avoid large deficits.

Latin America

Mexico's economy probably shrank 1% in the fourth quarter of 2008, spurring talk of stimulus plans.

In Brazil, President Lula announced a 12% rise in the minimum wage.

United States

Shocking fourth quarter 2008 Gross Domestic Product (GDP) numbers for the United States came out last week : a 3.8% drop even including inventory sitting in warehouses or on store shelves. Equally shocking was the announcement by Exxon-Mobil of profits of $45.2 billion, the largest ever in US corporate history.

Gold Bubble?

We conclude this week with the thoughts of Naufal Sanaullah on the possibilities of a Gold Bubble in the near and medium term:-

With an insolvent public and no foreign demand for Treasuries, the Federal Reserve will monetize debt [ie. print money] to finance its continued bailouts and economic stimulus. This is purely created capital pumped right into the system. This is not anything new for the Fed, for the past two decades, it has kept interest rates artificially low and created massive artificial wealth in the form of malinvestment and debt-financing. In the past, the Fed has been able to funnel the inflationary effects of its expansionary monetary policy into equity values with its low rates, which discourage saving, causing bubble after bubble, in the form of techs, real estate, and commodities. The excess liquidity (the artificial capital lent and spent because of low interest rates and debt financing) was soaked up by the stock market, which gave the appearance of economic growth and production. With inflation being funneled into equity and real estate over the last two decades, illusionary wealth was created and the public remained oblivious to the inflationary risk and the much lower real returns than nominal.

Now that the "artificial wealth bubble" being inflated for the past two decades is finally collapsing, one of two scenarios can occur: capital destruction or purchasing power destruction. Capital destruction occurs when the monetary supply decreases as individuals and institutions sell assets to pay off debts and defaults and savings starts growing at the expense of consumption. This is deflation and the public immediately sees and feels its effect, as checking accounts, equity funds, and wages start declining. Deflation serves no benefit to the Federal Reserve, as declining prices spur positive-feedback panic selling and bank runs, and debt repayments in nominal terms under deflation cause real losses.

Purchasing power destruction is much more desirable by the Fed. Its effects are "hidden" to a certain extent, as the public doesn't see any nominal losses and only feels wealth destruction in unmanageable price inflation. It breeds perceptions of illusionary strength rather than deflation's exaggerated weakness. The typical taxpayer will panic when his or her mutual fund goes down 20% but will probably not react to an expansion of monetary supply unless it reaches 1970s price inflationary levels. In addition, the government can pay back its public debt with devalued nominal dollars, which transfers wealth from the taxpayers to the government to pay its debt. Inflation is essentially a regressive consumption tax, which the government wants and the Fed attempts to "hide". Not only is the Treasury's debt burden reduced, but the government's tax revenues inherently increase.

The Fed, in an effort to minimize inflationary perception, has for the last two decades supported naked COMEX gold shorts to keep gold prices artificially low. The Fed, as well as European central banks, unconditionally supported these naked shorts to deflate prices and stave off inflationary perception, as gold prices stay artificially low. This caused gold shorts to be "guaranteed" eventual profit, by Western central banks offering huge artificial supply whenever necessary, causing long positions in gold to be wiped out by margin calls and losses.

[The liquidity generated by such quantitative easing (printing of money) will have a similar effect to the excess credit and liquidity boom of the last twenty years - it will seek a home and generate inflation - estimated at 300% at today's liability level before Obama gets to spend a single dollar.]

In order to funnel the excess liquidity into a less harmful asset, the Fed appears to be abandoning its support for gold naked shorts, causing shorts to suffer their own margin calls and cause rapid price expansion in gold. On December 2, for the first time in history, gold reached backwardation. Gold is not an asset that is consumed but rather it is stored, so it is traditionally in what is called a contango market. Contango means the price for future delivery is higher than the spot price (which is for immediate settlement). This is sensible because gold has a carrying cost, in the form of storage, insurance, and financing, which is reflected in the time premium for its futures. Backwardation is the opposite of contango, representing a situation in which the spot price is higher than the price for future delivery.

On December 2, COMEX spot prices for gold were 1.99% higher than December gold futures, which are for December 31 delivery. This is highly unusual and it provides strong evidence to the theory that the Fed is abandoning its support for gold shorts. Backwardation represents a perceived lack of supply (in this case, the artificial supply the Fed would always issue at strategic times no longer existed), causing investors to pay a premium for guaranteed delivery. On May 21, when crude oil futures reached contango, I started waiting patiently for the charts to offer a short sell trigger because the contango represented a supply glut relative to perception and current pricing. Oil was priced at $133/barrel at that time and six weeks later, on July 11, oil topped at $147, and six days later crude broke its 50DMA on volume and triggered a large bearish position against commodities that resulted in some of my most profitable trades last year.

I consider gold's backwardation as a similar leading indicator to the opposite effect - a dramatic increase in prices. Crude began its most recent backwardation in August 2007 at around $75/barrel and increased dramatically over the next nine months to $133/barrel at contango levels. Backwardation, especially in the case of gold prices, reflects a lack of supply at current prices and is very bullish.

But why would the Fed abandon its support for naked COMEX shorts? What makes gold such a desirable asset to attempt to direct excess liquidity into? The unique nature of gold and precious metals provides its desirability in this Fed operation. Gold has little utility outside of store of value, unlike most commodities (like oil, which is consumed as quickly as it's extracted and refined), so its supply/demand schedule has unusual traits. Most commodities and assets go down in price as the public loses capital, because the public has less to consume with and that is reflected in demand destruction that leads to price deflation. Gold is not directly consumed and its industrial use and consumer demand (jewelry) is at a lower ratio to its financial/investment demand than almost any other asset in the world.

As a result, gold is relatively "recession-proof," as evidenced by its relative strength in 2008. Gold prices rose 1.7% last year, which is quite spectacular considering equity values went down 39.3%, real estate values went down 21.8%, and commodity prices went down 45.0% in the same period (as determined by the S&P 500, Case-Shiller Composite, and S&P Goldman Sachs Commodity Indices, respectively). Because gold is not easily influenced by consumer spending, highly inflationary gold prices don't do any direct damage to the public and are a good way to funnel excess liquidity without economic destruction.

Federal Reserve Chairman Ben Bernanke is a staunch proponent of dollar devaluation against gold and is very supportive of President Franklin D. Roosevelt's decision to do so in 1934. In the past, manipulating gold prices to artificially low levels was beneficial because it prevented capital flight into a non-productive asset like gold and kept production, investment, and consumption high (even if it were malinvestment and unfunded consumption).

Bernanke's continued active support of gold price suppression would lead to widespread deflation that would collapse equity values and cause pervasive insolvencies and bankruptcies. Insolvency in insurers removes all emergency "backups" to irresponsible lending and spending, which would surely ruin the economy. Bernanke's plan seems to be to devalue the dollar against gold with huge monetary expansion, causing equity values to rise and economic stabilization. I've heard estimates of 7500 and 8000 in the Dow Jones Industrial Average as being minimum support levels that would cause insurers and banks to realize massive losses, causing widespread insolvencies in them and other weak sectors like commercial real estate that would irreversibly collapse the economy.

This gold price expansion, set off by the massive short squeeze, will continue until gold prices reflect gold supply and Federal Reserve liabilities in circulation. The "intrinsic" value of gold today (called the Shadow Gold Price), calculated dividing total Fed liabilities by official gold holdings, is about $9600/oz, compared to around $865/oz today. This gold price calculation essentially assumes dollar-gold convertibility, as is mandated by the US Constitution and was utilized at various periods of American history. The near-term price expansion in gold, mainly led by abandonment of gold shorts and the first traces of inflationary risk, should show $2000/oz by the end of this year. As the leveraged deals from the pre-crash credit craze mature, with the majority of them maturing in 2011-2014, there will be more monetary expansion for debt repayment, which will structurally weaken the US Dollar (which is inherently bullish for gold) and will also provide new excess liquidity to be funneled into precious metals. This leads me to believe gold will be worth $10,000/oz by 2012.

The US Dollar's strength as the equity and commodity markets collapsed was due to deleveraging and an effect of the Fed's temporary sequestration of dollars, taking dollars out of supply. That is over. Oil seems to be putting in a bottom on strong volume, no one is left to buy any more negative real yield securities the Treasury is issuing, and gold has started looking very bullish.

But a good speculator always considers all situations. Even if deflation is to occur, which I see as next to impossible, gold prices should still rise to $1500/oz levels next year, because it has shown relative strength as one of the most viable assets left to invest in. In addition, the short squeeze occurring in gold will provide substantial technical price expansion, even in the absence of dollar devaluation. Because of this, I suggest gold as an investment cornerstone for the foreseeable future.

...Literally the only thing that I find suspicious in all of this is the fact that I see so many inflationists out there and I even see commercials on TV about precious metals. I usually like to stay contrarian to the public, which I consider irrational and wholly incompetent. But this enormous debt and monetary expansion is a structural problem that common sense may provide better insight for than the most complex of models and theories.

I leave you with this, a quote from Fed Chairman Ben Bernanke about President Franklin D. Roosevelt's 1934 Gold Reserve Act, which was the greatest theft of wealth I've aware of in American history:

"The finding that leaving the gold standard was the key to recovery from the Great Depression was certainly confirmed by the U.S. experience. One of the first actions of President Roosevelt was to eliminate the constraint on U.S. monetary policy created by the gold standard, first by allowing the dollar to float and then by resetting its value at a significantly lower level ... With the gold standard constraint removed and the banking system stabilized, the money supply and the price level began to rise. Between Roosevelt's coming to power in 1933 and the recession of 1937-38, the economy grew strongly."

My predictions: gold at $2000/oz by the end of the year and $10,000/oz by 2012 and silver at $30/oz by the end of the year and $130/oz by 2012.