Monday, November 19, 2007

Signs of the Economic Apocalypse, 11-19-07

From Signs of the Times:

Gold closed at 787.00 dollars an ounce Friday, down 6.1% from $834.70 at the close of the previous week. The dollar closed at 0.6821 euros Friday, up 0.1% from 0.6814 at the close of the previous Friday. That put the euro at 1.4662 dollars compared to 1.4676 the Friday before. Gold in euros would be 536.76 euros an ounce, down 6.0% from 568.71 for the week. Oil closed at 93.84 dollar a barrel Friday, down 2.6% from $96.32 at the close of the week before. Oil in euros would be 64.00 euros a barrel, down 2.5% from 65.63 for the week. The gold/oil ratio closed at 8.39 Friday, down 3.3% from 8.67 at the end of the week before. In U.S. stocks, the Dow closed at 13,176.79 Friday, up 1.0% from 13,042.74 for the week. The NASDAQ closed at 2,637.24 Friday, up 0.4% from 2,627.94 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 4.15% Friday, down six basis points from 4.21 for the week.

Gold fell sharply last week, pulling back in a correction after many weeks of steady increase. Oil eased off a bit, too, and the dollar stopped dropping. All in all a welcome respite from some frightening trends. But, most likely only a respite. The bad fundamentals haven’t changed.

George Ure published a letter from his attorney that sums up the fundamentals pretty well:

My more "back of the envelope" math from last week about the extent of the "problem"

Amount of basic paper supporting the derivatives game $9 trillion dollars

Approximate amount of large firm write downs to date from the sub-prime fall out; $25 Billion Dollars


1) Generally only the better paper was held "in house" so the quality of the paper held by so far unreporting third parties is worse

2) Amount of paper retained in house would be 5% or less of the paper generated (probably more like 2.5% but that would make the final numbers even worse so I will stick at 5% for these assumptions)

3) Amount of writedowns still to come from the large firms ... approximately equal to that which have already been reported (ie: large firms that have not yet reported and the ones that have will be increasing the amounts of their writedowns as time moves forward)

25 billion (5% of the paper generated) x 20 (the total amount of paper generated) = $500 billion dollars losses so far x 2 (write-offs at the big firms will eventually be twice what they have taken so far) = 1 Trillion dollars in losses by all holders.

Oh ... and this does NOT add in any losses on consumer debt paper, leverage buy out paper, etc.. If the economy tanks big time those items may add in several hundred more billion in losses thus raising the ultimate loss amount to the 1.3 to 1.5 trillion level +-

Of course this is a "back of the envelope" look at the problem but I think I can for sure say that we are probably looking at $1 trillion dollars +- of paper destruction as this unwinding works it's way through the system.

One thing to keep in mind: While the overall paper "debt" load supporting the derivatives game stands at about 9 trillion dollars much of that is US Government securities, the basic amount of which which will NOT be written down at all since that is solid paper (though the Dollar itself may drop precipitously) ... so this write down will ALL come out of the public side of the debt, which will actually make the write down amounts VERY HIGH as a percentage of public debt out there which supports the derivatives markets…

Instead of a potential death by one cut, such as the system was looking at with LTCM a few years back, this time around the potential may be death by a thousand cuts as smaller risk assumer after risk assumer bites the dust as the underlying securities supporting the derivatives pyramid fall into insolvency and liquidation situations.

I assume the FED will provide enough liquidity during this collapse to keep the system from locking up, but such a liquidity injection will have to be so massive that it will probably further fuel the fires causing the Dollar collapse and could easily stoke massive internal inflation within the US.

Just a country attorney who is sitting out here scratching my head and amazed that others are actually amazed at what is happening. Stripped down to its basics this is actually a very simple and easily foreseeable problem.

So the bottom line is that “the system,” the one that works for the interests of those who contol inconceivable amounts of wealth, will be prevented from locking up by collapsing the dollar and destroying the standard of living of nearly everyone. And at this point, who could blame the Fed, since not flooding the system with money would cause massive deflation which would also destroy the standard of living of nearly everyone. This is the end result of neoliberal financial deregulation, or “innovation” as the neolibs call it.

Given that, why would anyone want to adopt this system? The only ones who would are the few who would stand to gain unimaginable wealth. The rest would ultimately have their lives ruined. It is hard for Americans who have lived through all this to sit back and watch France begin to go down this path. The stage was set for a showdown last week between Sarkozy and the transit workers, but, as happened so often in the United States, the strikers were betrayed by the union leaders.

France: Sarkozy seeks confrontation with the working class

Peter Schwarz

14 November, 2007

France faces a confrontation between its right-wing president, Nicolas Sarkozy, and the working class which could develop into one of the bitterest social clashes in recent French history.

On Tuesday evening employees of the national railway company (SNCF) stopped work. Seven of the eight trade unions represented in the SNCF have called an unlimited strike, the course of which is to be decided on by the unions on a daily basis. On Wednesday the staff of the Paris Metro, as well as gas and electricity workers, are to join the strikers.

A week from Wednesday, November 21, will see a day of action by public service workers to defend wages, and on November 29 employees of the French judicial system plan to demonstrate against a planned judicial “reform.” French students have already been protesting in recent days against a “reform” of the universities, and several universities have been taken over by protesting students.

At the heart of the various disputes are the special pensions paid to state-employed workers. The so-called “régimes spéciaux” have their roots in the 19th century and allow state employees engaged in particularly arduous occupations to retire at either 50 or 55. Those with 37.5 years seniority are entitled to a full pension (i.e., 75 percent of the wage level at the time of retirement).

Such régimes spéciaux exist for a variety of professions in France, although the most significant groups of workers affected are the railway workers and employees of the gas and electricity companies. In the case of French Railways, a workforce of 164,000 is complemented by a total of 300,000 pensioners.

Gas and electricity companies have a total workforce of 145,000 and an equal number of retired workers. The Metro employs 45,000 workers and has an equivalent number of retirees.

The deficit arising from the special pension schemes is drawn from the national budget and it is reckoned that the state contribution this year to the pension scheme of just the SNCF will total 2.7 billion euros.

For the French ruling elite, the abolition of such régimes spéciaux is a crucial step in cutting back all forms of social welfare—even more for political than for economic reasons.

The railway, gas and electricity workers traditionally are among the most militant layers of the French working class. When former president Jacques Chirac and his prime minister at the time, Alain Juppé, sought to eliminate the régimes spéciaux in 1995 they were met with a strike wave that paralyzed France for a period of weeks.

Juppé was obliged to make a partial retreat and Chirac never again dared to challenge the special pensions. Even when the social minister at the time (now the prime minister), François Fillon, implemented an unpopular pension reform in 2003, he made an exception for the régimes spéciaux.

Sarkozy now wants to bite the bullet. In a clear allusion to the back-down by Chirac and Juppé, he declared last Friday, “I will not do what others have done before.” He called the abolition of the special pensions to be a test case for the “rupture” he had promised in the election campaign, thereby investing his entire personal prestige in carrying through such a policy.

It is highly unusual for a French president to intervene so publicly and directly into a dispute relating to domestic affairs or industrial relations. This is usually the task of the prime minister. Traditionally, this gives the president room to replace the government should the planned confrontation not go as planned.

This is not the path chosen by Sarkozy. “It’s either you or me,” is his message to railway workers, and he has left little room for compromise or retreat.

“Victory or the premature end of Sarkozyism. It is in these terms and with a high level of risk for himself that the president has defined the framework of the first major social conflict he confronts,” wrote Liberation.

During a visit to Germany on Monday, Sarkozy stressed his determination to remain firm. He praised the “great reforms” carried out in Germany as a model for France, and added that now was the time to be “cold blooded.”

“We were elected to change France,” he said, “and we are carrying out these reforms, because they have to be made.”

One of the closest advisors to the president, Henri Guaino, was even more explicit. “If we are incapable of carrying out this reform then we might as well just give up, because we will be unable to carry out any sort of reform,” he said.

One-and-a-half years ago, Sarkozy demonstrated a degree of flexibility following mass demonstrations against the “first job contract” (CPE), but now he is utterly unyielding. At that time, he had his eye on the post of president and, according to Le Monde, the issue “was to get rid of his image as an uncompromising advocate of law-and-order and win support from the left... Today the calculation is completely different. Even the smallest deviation from such a symbolic project as the régimes spéciaux would seriously weaken his ability to reform the country.”

The conservative Le Figaro newspaper noted that in France, a president wins his “true legitimacy” only by confrontation on the streets. The newspaper added: “And through victory on the streets wins (or loses) his ability to push ahead further with his reforms and put into practice the rupture he announced more than a year ago.”

Le Figaro continued, “If Nicolas Sarkozy is victorious in his first attempt, when everybody forecast a dead end, the way is free to challenge many of the outdated relics of the French social model.”

Thus, there is much more at stake in the dispute over the régimes spéciaux than the pensions of railway workers.

Sarkozy is able to base his offensive against the working class on two factors: the bankruptcy of the Socialist Party and the treacherous role of the trade unions. His election victory in May was primarily due to the fact that the Socialist Party had completely discredited itself with its right-wing policies. Since the election, the party has drifted even further to the right and is rent by internal divisions.

Six months after taking over as president, and in the absence of any serious opposition from within the political establishment or from the unions, Sarkozy has been able to maintain a certain degree of popularity. According to a recent poll by Libération, 59 percent of those polled supported his stand against the régimes spéciaux.

Libération also pointed out, however, that the tide is shifting against Sarkozy. More than half of those polled declared he had failed in the spheres of employment and budgetary policy. With regard to purchasing power, 79 percent expressed criticism of the president—a clear consequence of rising inflation, which has created problems for an increasing share of the population. In total, just 54 percent expressed a positive opinion about the president—his lowest rating since the election. In September, the figure had stood at 66 percent.

The trade union leaders are aware of the fact that the dispute over the régimes spéciaux constitutes a struggle against Sarkozy and his government. This is something they wish to avoid at all costs, and all of their comments have stressed this point. They bitterly deplore the way in which the government has worked to exacerbate the conflict for political purposes, and they plead for an opportunity to sit down around the negotiating table.

In an interview with Libération, the leader of the Communist Party-dominated CGT (General Confederation of Labor) railway union, Didier Le Reste, declared that he “regretted this instrumentalisation for political purposes.” There were “possibilities for resolving this conflict situation at a leadership level,” he said, but it was necessary “to put an end to all the secretiveness and bilateral meetings” and “call a national round table.”

The general secretary of the Force Ouvrière union federation, Jean Claude Mailly, stressed to Le Monde that his organization did not want any “a priori connection with the strike by state employees” on November 21, nor with the protests by students. “We are not an anti- Sarkozy movement with a political character,” he stated. In addition, he said, there were clear differences between régimes spéciaux applying to Metro and electricity workers—meaning every company had to carry out separate negotiations.

The leader of the Socialist Party-influenced CFDT (French Democratic Confederation of Labour), François Chérèque, went even further and threatened: “If it comes down to a combination of movements against the régimes spéciaux involving state employees and who knows what, we reserve the right to withdraw [from the strike movement].”

The trade union leaderships are gripped by panic at the prospect that the dispute over Sarkozy’s “reforms” could broaden into a mass movement which could challenge the authority of the government and the president. This would inevitably lead to a political crisis and rock the entire political system upon which the power of the ruling elite is based.

But, in fact, there is no other way for workers to conduct the struggle. Sarkozy has long since transformed it into a question of power.

It is already clear that the trade unions, with the backing tacitly or openly of the Socialist Party and Communist Party, will do everything in their power to sabotage the movement as it grows in strength.

And, just as predicted, later in the week the union leadership began to betray the strikers:

French union leaders seek to strangle rail strike

Peter Schwarz and Antoine Lerougetel

16 November 2007

A number of commentaries in the French press on Thursday make clear that the General Confederation of Labour (CGT) is preparing a betrayal of historic proportions.

On Tuesday, on the eve of strikes by rail workers and gas and electrical employees in defence of the régimes spéciaux—special pensions for certain public sector employees—CGT leader Bernard Thibault asked for a discussion with French Employment Minister Xavier Betrand in order to smooth the way for negotiations.

Since the outbreak of the strikes, which have shut down much of the country’s transport system, the government of President Nicolas Sarkozy has responded to Thibault’s initiative and offered the unions one month of negotiations at either an industry or factory level. The government has said that should there be no agreement after one month, it will unilaterally impose its pension “reform,” i.e., major cuts in pension benefits.

Thibault’s initiative is being treated by the press as a bid to effect a speedy end to the strike movement, which threatens to develop into the biggest social conflict in more than a decade. It is also being hailed as the herald of a “new social culture,” in which militant strikes will be a thing of the past and the unions will cooperate “responsibly” with companies and the government.

The newspaper Libération points out that Thibault’s initiative is unprecedented. It writes, “Never before has a general secretary of the CGT personally called the employment minister of a right-wing government, as did Bernard Thibault on Tuesday, to propose a meeting... and the beginning of negotiations while, as an indication of good will, making an important concession.”

According to Libération, the leadership of the CGT “made a strategic choice with its opening to the government, i.e., the rejection of an ‘all or nothing attitude.’”

The newspaper makes clear that Thibault’s initiative has helped the government out of a fix. Libération writes that the team led by Sarkozy feared “that the crisis could go on for some time and the strike over the régimes spéciaux could coincide with the action planned by state administrators next Tuesday.”

It continues: “Sarkozy’s power has lost credibility with regard to economic questions. All recent polls demonstrate that the French do not expect his government to bring about any improvement in their living conditions. It was therefore necessary to prevent the current conflicts from expanding into other branches and a situation where all those dissatisfied layers of every variety took to the streets...”

Similar comments have appeared in other newspapers.

The editor-in-chief of the Nouvel Observateur, Jean Marcel Bouguereau, declared: “With his proposal to the government on Tuesday evening, the boss of the CGT has broken a taboo in a manner without precedent just a few hours before a major strike.”

If one reads the editorials of the pro-government Le Figaro, one can almost hear the sound of champagne corks popping in the salons of the rich and powerful. The conservative newspaper is already celebrating the “victory” of Sarkozy and calls it “an important stage in the development in our ‘social model’ and a crucial date in the history of social relations in our country—a diminution of the trade union strike culture, of the power to systematically say no and resort to the barricades.” The situation provides proof, the newspaper continued, “that with will and method, one can reform France.”

When it refers to “reform,” this mouthpiece of big business means the dismantling of social security benefits and employees’ rights and the removal of all obstacles to the unrestrained attainment of wealth by a small minority. According to a recently published social analysis, the richest ten percent of Frenchmen earn “only” 3.15 times as much as the poorest ten percent. That is less than ten years ago, when the factor was 3.35. In other countries, such as Germany and the US, the gulf between the earnings of the rich and poor is much greater.

The findings of this study seem to be belied by conditions in France, where the sharp disparities in wealth are very evident. Nevertheless, such a state of affairs is intolerable for the ruling elite. They feel handicapped in their quest for ever greater wealth by the demands made by workers, and now detect a chance to finally turn things around. This mood is shared by Sarkozy, who recently increased his own presidential salary by 172 percent and is friendly with some of the richest men in the country.

Figaro represents the views of such layers when it writes: “The French have changed. One sees the awakening of a genuine sense of responsibility instead of the simple repetition of outdated slogans—the French social model, the right to a pension, the unrestricted right to strike, free health care for all, an unchallengeable right to work. They know that one cannot evade a reality which our neighbours have already embraced.”

All of the press commentaries are united in regarding the main problem for Thibault and Sarkozy to be the determined resistance of union members and strikers, who reject the capitulation being prepared by the CGT.

The CGT “must still convince its troops to follow its lead,” Libération writes. “This is not clear in advance under conditions where a political culture prevailed for many decades over union realism.”

Le Figaro declares: “To accept the negotiations proposed by the government at a factory level, without at the same time losing control of its own troops, is the challenge confronting the union leaders, and in particular Bernard Thibault and the railway workers [officials]…”
Sarkozy, representing the interests of the wealthy who would like to become super-wealthy, shrewdly decided to begin the “reform” process by going after the social benefits that are the hardest to justify, special arrangements with particular occupations for early retirement. This makes sense for Sarkozy because these are not benefits available to all. He can then divide and conquer. And, “reasonable” union leaders may decide that these special benefits are not the best ones to make a last stand on. But once the “reform” process gathers steam, it becomes harder and harder to stop, so the French would be well-advised to take a firm stand earlier rather than later.

As someone from the United States who commented on this article in the Signs of the Times Forum wrote:

There are several things I like about France, however there are two that I truly ADMIRE about the French.

1) The General Strike.

2) The 4 to 7 weeks VACATION + holidays a year.

The General strike is the only equalizing instrument of power that the working classes have in this global elite nightmare paradigm. I pray/meditate the French do not allow Sar-Cold-zy to rape them. I so wish we could call a general nationwide strike here in the USA, where we could shut down the entire country for 2-3 days to regain what power the working class has lost in the past 70 years. Then, the PTB will finally be challenged. It has been far too easy for these reptiles.

The U.S.A. has been so thoroughly sucked dry of reason that people here believe that 4 - 7 weeks VACATION + holidays is BAD! I am not joking. Americans who have lived overseas though and have returned really UNDERSTAND how completely insane the labor situation is, and can SEE the government propaganda concerning work, work, work - the American Way – work, work, work for no vacation - work for no living wage - work for a 30 minute lunch or no lunch - work overtime - work for no insurance - work and just be grateful you have job!!! Now Work!

Since the 80’s, vacation time hasn't increased as one might suspect in the "richest" country in the world, but rather decreased to the all time low of NO vacation to 5 days a year + some holidays. 5 DAMN days a year and you can almost guarantee 3 of those days it's going to rain! And here is the most unbelievable of all, many Americans aren’t using all the vacation days they do have because they fear losing money and/or their job!?!

I am here to write in big bold letters that, 4 - 7 WEEKS VACATION A YEAR ISSSSSS GOOD!!! YES, IT IS CIVILIZED - IT IS ETHICAL - IT IS HUMAN. The Europeans have gotten this right. I am not a Euro-phille, I am simply stating TRUTH.

For those who have never visited the USA and have wondered why so many people are clueless about so many things that really matter....well, part of the reason why is that - generally speaking - we HAVE NO TIME TO THINK because we are working - working - working for reptiles. We haven't any time to reflect on a subject/topic/issue domestically or internationally or to read in-depth magazines or books.

If every HUMAN being in the working class in the USA had 4 - 7 weeks vacation a year + holidays, to travel at LEISURE in their own country and abroad, and so had enough RELAX time to read, think, dialogue, and ponder the actions of both their local community and national leaders, IMO the USA would be a more civilized country and not the Frankenstein nation it has become.

I am with the French and the German workers completely. To me though, France is the frontline, however this fight I feel is bigger than the country of France alone since this latest elizard-ist attack is really an attack on the whole of humanity, and its last citadel of CIVILIZED labor law. Imo, it will take ALL of the grit, determination, and persistence of the French to persevere.

Sar-Cold-zy has laid down the gauntlet, now let the French people pick it up and smack him in the face with it! Otherwise… the French could end up with the American Labor Scam: a descending octave, and as history demonstrates, when American reality becomes YOUR reality, there’s really no way back.

IMO, France you REALLY don’t wanna go there.

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