Tuesday, December 30, 2008

The Economic Noose Tightens

By Simon Davies and Donald Hunt


It is hard to focus on the economies of the world when Palestinians are being blown to pieces by US supplied warplanes and smart bombs delivered by Zionism, one of the central evils on this planet. It is hard to focus when reading the inhumanity that spews forth from the mouths of the world's leaders in abject supplication to Zionism and the supporting voices of the ignorant and empathyless in the world's media.

But focus we must, for economics is the 'non-violent' means by which those same forces we see at work in Palestine exert their tentacles of control across this once beautiful and bounteous planet. While F16s and GBU-39s deliver death and suffering instantly, economics and more particularly the control of economies and money deliver their payload of death and suffering with a long slow interminable inevitability; an inevitability that has become a permanent feature for most people on earth and one that is fast approaching the doorsteps of the US and Europe.

It is no coincidence that Israel's latest war crimes come during the financial crisis; for empathy and the desire to defend the helpless victims of naked aggression are quick to evaporate when people are fearful for their own safety and security.

In an admission of the 'business as usual' approach of those who run the world, speaking ahead of the World Economic Forum meeting in Davos at the end of January, Professor Klaus Schwab, Founder of the World Economic Forum has given his views on how the Forum's Annual Meeting should respond to the global economic crisis, saying in an interview that "the first task is to help to manage the crisis and the second is to shape the post-crisis world because only if we look at longer term perspectives can we recreate trust, in the economic system and the future." Professor Schwab stressed the importance of a big turnout of officials from Barack Obama's new administration.

As if further evidence were needed of the exceptionally high level of "cooperation" between the world's central banks the People's Bank of China dropped its benchmark interest rates with the market fully expecting further cuts in every major economy. This is the sort of "expectation" that is driven by a deep understanding of how the central banks will be acting, not mere speculation.

In a hint of events to unfold in the first quarter of 2009 the Bank of Japan, which has been leading the action for rate dropping and fiscal intervention announced that it is may consider "extraordinary steps" to counter financial-market turmoil and a deepening recession.

Seeking Alpha makes the commendable point that all this new capital being pumped into banks is not real. "After all, it's easy to recognize that it's not real capital, it was just printed up in the basement of the Fed. What is the dilutive affect of all this brand-new faux capital? As I have asked elsewhere many times, how long until a currency crisis is initiated? The central bankers, in my opinion, hope to mask this capital dilution and stave off a currency crisis by debasing all currencies cooperatively and equally; you can see this cooperation now in rate cuts and stimulus packages around the globe."

Ambrose-Evans Pritchard, writing in the UK Daily Telegraph, has an uncanny ability to write ahead of events so it was interesting to see that he raised the spectre of protectionism, the nemesis of free market capitalist globalisation. The villains of his piece being Russia, India, Vietnam and Indonesia. He also rolls out the time worn but apparently still workable (ie. his readers will still fall for it) Cold War rhetoric of the Chinese police state and Stalin's Enemies of the People law. He fails to mention the very real suffering of ordinary people in these countries nor the overt police state in the US and his own country the UK. We should expect more of this propaganda as those in the Circles of Power seek competitive advantage over each other.

One wonders how much of this rhetoric is actually directed at the fifteen countries of the Gas Exporting Countries Forum who announced the formalization of their organization into a sort of "Gas OPEC" headquartered in Qatar, to "coordinate forecasts, investments and relations with consumers to defend their market interests amid volatile energy prices."

Meanwhile, oil fell another 12% last week. Oil is now lower than it has been in the four years this column has been written. In July 2008 it reached $145. That is a stunning collapse in the price of the "strategic commodity." Gold, on the other hand rose.

The Markets

The markets this week
Previous week's close This week's close Change% change
Gold (USD) 838.60869.6031.003.70%
Gold (EUR)602.88619.9917.122.84%
Oil (USD) 42.9437.705.2412.20%
Oil (EUR)30.8726.883.9912.93%
USD / EUR0.7189 / 1.39100.7129 / 1.4026 0.006 / 0.01160.83% / 0.83%
USD / GBP0.6706 / 1.49120.6857 / 1.4584 0.0151 / 0.0328 2.25% / 2.20%
USD / JPY89.310 / 0.0112 90.810 / 0.0110 1.500 / 0.00021.68% / 1.79%
HANG SENG 15,12814,1849436.24%
US Fed Funds 0.06%0.05%0.0116.67%
$ 3month -0.01%-0.01%0.000.00%
$ 10 year 2.12%2.13%0.010.47%

The gold/oil ratio soared 18% to 23. Gold has been trending higher recently, but the Israeli attack on Gaza certainly contributed to last week's rise. Some suspect some insider trading on the part of those who had some advance knowledge of the attack:

Israel Attacks Gaza, Hundreds Dead: Who Made a Killing?

What did the Benazir Bhutto assassination and the latest Israeli attacks in Gaza have in common?

There was a strong move higher on gold immediately preceding both incidents, which were spaced one year apart, to the day.

Remember how gold moved before Bhutto was killed?

Check out this Bloomberg piece from yesterday (a day before the Israeli attack):

Gold prices rose the most in a week as mounting tensions in the Middle East and South Asia boosted the appeal of the precious metal as a haven.

Palestinian militants yesterday launched their biggest rocket attack on southern Israel in at least six months after a truce expired Dec. 19. Pakistani troops are being diverted from tribal areas near Afghanistan to the border with India, the Associated Press reported. Gold gained 4 percent this week.

"The only possible explanation for gold's gains are the geopolitical tension in Gaza and in India and Pakistan," said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.

Gold futures for February delivery climbed $23.20, or 2.7 percent, to $871.20 an ounce on the Comex division of the New York Mercantile Exchange, the biggest gain for a most-active contract since Dec. 17. The metal is up 6.4 percent this month.
Yes, this is a coincidence, but you might want to see, They Made a Killing: The Use of Knowledge of Covert Operations in the Stock Market, anyway, to see how this has worked in the past. Obviously, the Gaza attack isn't a covert operation, but the point is the same.
More evidence, if we needed it, of the sinister nexus of the economic and "foreign policy" worlds.

Surveying economic news across the world, we can see that economies are contracting at record rates. We can also see the beginnings of popular unrest in Greece and Iceland, which will likely intensify in 2009. As George Ure wrote, if you don't have a conscience, this would be a good time to invest in the crowd control weapons industry. No doubt there will be plenty queuing to make just those investments.

Normal people may be beginning to wake up to the nature of their enemy, the psychopaths, humans without conscience, and their instrument, corporations which by nature act like psychopaths. Even if the leaders of corporations have consciences, they are bound by precedent, self preservation and often law not to act that way. In Wisconsin, for example, hatred is growing towards the head of Cerberus Capital Management, the owner of Chrysler:

Feinberg Despised in Wisconsin Where Cerberus Lives Up to Name

Just about everyone in Kimberly, Wisconsin, hates billionaire Stephen Feinberg.

"This is a greedy, extremely greedy guy who doesn't care about other human beings," said Jeffery Wyngard, a third- generation Kimberly mill worker with 30 years on the job.

"Feinberg has no morals," said paper mill workers union local president Andy Nirschl.

"There won't be a lot of Stephen Feinberg Little League fields," said Bob Brukardt, who also worked at the mill for 30 years. "He sold his soul to the devil."

Feinberg inspires this reaction in Kimberly because Cerberus Capital Management LLC, the company he founded in 1992, owns NewPage Corp., which closed the town's 119-year-old paper mill that Local 2-9 of the United Steelworkers says was profitable when NewPage bought it nine months ago. Six hundred people are out of work in the town of 6,200 at the same time Cerberus's money-losing Chrysler LLC automotive unit was seeking a taxpayer loan.

The Kimberly workers are searching for new jobs as the U.S. unemployment rate reached a 15-year high last month. The government has pledged more than $8 trillion to rescue cash- strapped financial companies, plus $4 billion for Chrysler.

'Pent-Up Anger'

"There's a pent-up anger wherever I travel," said Leo Gerard, president of the Pittsburgh-based United Steelworkers, which represents 1.2 million members, including the Kimberly mill workers. "People feel very much like they're being screwed. I really think you'll see tens of thousands of people if not hundreds of thousands taking to the streets and protesting across the country."

During the Great Depression of the 1930s, Kimberly paper mill bosses spread the work around so every family in the Wisconsin town could put food on the table, said Mark Van Stappen, whose grandfather started at the mill in 1892.

Cerberus's investors include pension funds, endowments and family savings, and the company has a fiduciary responsibility to protect those investments, Tim Price, a Cerberus managing director, said in a phone interview.

"NewPage has about 8,000 employees whose livelihoods would be in jeopardy if the company hadn't closed the Kimberly plant, Price said. NewPage's management runs the day-to-day operations of the company, while Cerberus functions as an investor,"

Three-Headed Dog

Still, the workers blame Cerberus, named after the three- headed dog from Greek and Roman mythology who guards the gates of hell, and Feinberg, its 48-year-old founder.

Feinberg "is partly responsible for my little girl not being able to sleep at night, the 9-year-old girl who worries about her father losing his job," Brukardt said. "That's why he hides under his rock. Because in his heart he knows he isn't right."

As CEO of a $26 billion company, Feinberg has a net worth of about $1 billion, according to Forbes Magazine's 2008 list. Brukardt made $24 an hour, or about $80,000 last year including overtime. Brukardt said he owes $160,000 on the mortgage for his five-bedroom duplex on College Avenue in Appleton, Wisconsin, and he doesn't know how long he can keep making payments.

Caring Person

Price said Feinberg was a responsible person who agreed to give up Cerberus's stake in Chrysler if the automaker takes any taxpayer money.

Cerberus acquired 80 percent of Chrysler, the third-largest U.S. carmaker, in 2007 from Daimler AG for $7.4 billion. Because it is privately owned, Chrysler does not report its financial results.

Feinberg "is a good guy and a caring person," said Price. "Steve is the kind of guy who's shy about publicity. He doesn't feel he's worthy of it and he's embarrassed by it. He has very high integrity and I think in every case he tries to do the right thing."

As unemployment grows, displaced workers are starting to protest. In Chicago, employees of Republic Windows & Doors occupied a factory earlier this month after Bank of America Corp. of Charlotte, North Carolina, forced the company out of business by cutting its credit line. Bank of America and New York-based JPMorgan Chase & Co., a part-owner of Republic Windows, agreed Dec. 10 to a $1.75 million loan to cover the severance pay of 240 employees.


"With nothing left to lose, militancy gave them their one hope," said Harley Shaikin, a labor relations professor at the University of California, Berkeley. "We'll see more rather than less of this..."
Which would show the events of the last few years in the US as being in preparation for just this eventuality. All those freedoms which American's were so willing to give away for false security are just the freedoms that they will wish they still had when they want to take their disgust onto the streets and into the factories and offices. They will be faced down by the immense paramilitary brutality of the police armed, as they are with guns of all shapes and sizes, tazers and a "crown control weapons" of extraordinary power.

United States

In the United States, house prices fell at Great Depression rates and new unemployment claims hit a 26-year high. California is expected to have a budget deficit of $42 billion by mid 2010 and looks to be sliding towards bankruptcy; a fine example of the inevitable result of a state or nation having to borrow to fund itself rather than creating money to fund itself as we discussed in some detail a few weeks back.

California is not the only state or municipality to be under sever financial stress. A respected accountant (yes, there are some) is predicting ten or more municipal bankruptcies in 2009 of which he expects four to be in California. We are inclined towards a rather more pessimistic outlook. We see numerous states and municipalities being driven to economically restrictive measures in order to try to balance their budgets ahead of filing for Chapter 9 bankruptcy protection during the first half of 2009 at the same time as Obama's new economics team will be trying to fight the economic firestorm left behind by Paulson, Bernanke and Bush, while also needing to deliver on whatever dodgy election promises were made. Obama will be caught in a classic Catch 22, he won't want to see Democrat run states such as California collapse nor will he want to be profligate with the already teetering finances of the Treasury, he will naturally be led by the bankers to what will be presented as a compromise involving the Fed. Exactly what form this compromise will take we do not know but we are fairly sure it will involve the Fed in such a way as to lock the Fed into state and municipal financing in a clear breach of the independence of the states under the Constitution.

In another audacious piece of maneuvering General Motors Acceptances Corporation (GMAC) after years of acting as an unregulated in-house bank for General Motors miraculously became a bank holding company. The cynical and suspicious would suggest that this was to enable GMAC to use the TARP funding and other bailout packages set up for banks and sure enough just such an announcement was made this morning. GMAC is to receive $6 billion of bank bailout money.

If the situation wasn't so dreadfully serious you'd be driven to shrieks of hysterical laughter at the sheer audacity of the ruling elites in the US. There is nothing they will not do to weave their way to having ordinary citizens bail them out. The thing that turns laughter to tears is that there isn't a revolution taking place as a result, in fact there are millions of Americans who still support the system and buy into the drivel that passes for news, comment and opinion in the mainstream media.

Last week we commented on the literally unbelievable story that is the Madoff Affair including deeply disturbing details as to the apparent lack of regulatory oversight. It came as no surprise then that this week it was revealed that the Office of Thrift Supervision allowed blatantly false accounting and illegal misrepresentation by IndyMac Bank.

In further Madoff news, Thierry Magon de La Villehuchet, 65, co-founder of Access International Advisors, was found dead in his Madison Avenue office on December 23rd. Police said he probably killed himself. It seems that Thierry Magon de La Villehuchet managed some funds for Lillian Bettencourt, heiress to the L'Oreal billions. It was interesting to note the comment of a New York lawyer, Ron Geffner of Sadis Goldberg LLP, "More high-profile names who have been victimized by Madoff will start to become known now." The 'victims' of Madoff had fortunes beyond the dreams of 99.99% of the people of this planet it is a shame that lawyers such as Mr Geffner and investors such as his clients did not spend more time on addressing the very real victimhood of that 99.99%.


East Asian export-based economies are feeling the effects of the global collapse in demand. Japan's exports suffered the sharpest fall on record in November (compared to November 2007). Taiwan's exports fell by a record 28.5%. Thai exports fell the most in 17 years.

Plunge in Exports Reverberates Across Asia

Japan reported yesterday that its exports plunged a record 27 percent in November, signaling a dramatic deterioration in the world's second-largest economy and the collapse of the export-led boom that had lifted many Asian nations.

Indeed, even mighty Toyota said yesterday that it would post its first operating loss in seven decades, providing a vivid example of how some of the world's most profitable companies have been quickly humbled by the global recession.

Japan's stunning decline in exports is being echoed across Asia, where country after country is reporting data that have exceeded even the grimmest forecasts. Thailand said yesterday that its exports in November fell by nearly 19 percent, the most in 17 years. Similarly, Taiwan's exports fell 23 percent in November, and a government report on future export orders set to be released today is expected to show another steep drop.

"Everyone is tanking together. A fall of 27 percent is really striking and portends substantially greater weakness," said Easwar Presad, a senior professor of trade policy at Cornell University. "The bottom line is that many of these countries that relied on export-led growth will have to rely on domestic demand to get out of this thing."

China had reported that its November exports took their biggest dive in seven years - a drop that has reverberated across Asia because China has become the largest export market for many of its neighbors. Japanese shipments to China fell 25 percent, the steepest decline in 13 years, the Japanese Finance Ministry said.

As much as 50 percent of China's trade is related to processing -- buying semiconductors and other parts from Japan, South Korea and other neighbors and then assembling them at low cost into finished products for companies such as Sony, Panasonic and Samsung. China, in effect, is the final assembly station for vast global production networks, which are now sputtering to a halt.

Japan has already officially entered a recession, propelled by its close ties to the U.S. economy, and the government has cut interest rates and boosted domestic spending in an effort to mitigate the recession's impact. But Toyota's woes are the latest sign of what the World Bank predicts will be the first decline in global trade since 1982...
New Zealand's recession deepened as its economy shrank by 0.4% in the third quarter.

Western Europe

The United Kingdom announced that its economy shrank 0.6% in the third quarter, the most since 1990.

Riots continued last week in Greece and popular unrest continues in Iceland
Iceland 'Like Chernobyl' as Meltdown Shows Anger Can Boil Over

It was the week before Christmas in Reykjavik, and all through the town Eva Hauksdottir led a band of 60 whistle-blowing, pan-banging, shouting demonstrators.

"Pay your own debts," they yelled as they visited one bank office after another in Iceland's capital. "Don't make the children pay."

When she isn't leading one of the almost daily acts of protest in this land devastated by the global financial meltdown, Hauksdottir sells good luck charms made from the claws of ptarmigans, a local bird, and voodoo dolls in the form of bankers. She says she expects to lose her home, worth less than when she bought it two years ago, after the amount she owes jumped more than 20 percent.

Unrest following the end of a five-year economic boom is overshadowing the holidays in a country of 320,000 near the Arctic Circle, where the folklore is filled with magic, trolls and elves. Expansion ended with the collapse of the U.S. subprime mortgage market. The fallout in Iceland may presage civil disruptions elsewhere, as job losses multiply and credit bills come due. Few nations can count themselves safe, says Ian Bremmer, president of the New York-based Eurasia Group, which analyzes political risk for businesses.

"As people have their expectations changed radically, you can have protests come out of nowhere," even in developed countries, Bremmer said.

'Maybe Axes'

Riots in Greece this month, sparked by the police shooting of a teenager, became tinged with economic dissension. A group of Kuwaiti equity traders marched on the emir's office in October to demand the closing of the stock exchange to stem losses. Even in U.S. cities, civil disorder is "conceivable" if unemployment rises above 10 percent from November's 6.7 percent, Bremmer says.

Hauksdottir, the owner of a Reykjavik witchcraft shop, says over a cup of thyme and juniper tea that only civil disobedience can force banks to stop collecting debts that people can't pay.

"We'll use our voices, and then if we have to we'll use our hands, and maybe axes," Hauksdottir says.

At Reykjavik's half-built concert hall, a symbol of the good times that juts from the harbor toward the North Pole, the visitor center is closed to visitors. The principal owner, Landsbanki Islands hf, failed in October. Marketing director Thorhallur Vilhjalmsson says he's making ends meet on severance pay.

"Iceland right now is like Chernobyl after the blast," Vilhjalmsson says. "It looks normal, but there's radiation."

Kicking Down Doors

The protests may escalate as bills come due and severance pay runs out for those who lost jobs at the three biggest lenders, including Landsbanki, the second-largest, says Stefan Palsson, a historian. He once led the Campaign Against Militarism, opposing NATO bases in the 1960s.

He said he's surprised ordinary people are backing activists once considered "hooligans." There was public outrage three years ago when environmentalists poured yogurt over aluminum representatives to protest a new plant.

"Now you have protesters kicking down doors at police stations, and respectable elderly people saying 'Well, they're young and full of enthusiasm, and anyway, they're right!'" he said.

Inflation rose to 18.1 percent this month, and the International Monetary Fund predicts that Iceland's economy will shrink 9.6 percent next year...

Germany continued to resist pressure to join the rest of the world in massive government spending to counter the credit crisis. The Finance Minister, Peer Steinbrueck, argued that factors unique to Germany, including a social safety net and high savings rates make large bailouts and spending programs unnecessary.
General Tax Cuts Don't Help in a Recession, Steinbrueck Says

Large-scale debt-financed spending or tax-cutting programs aren't the best way for Germany to counter the decline in global economic growth, said Peer Steinbrueck, Germany's finance minister.

Responding to criticisms that the German government isn't doing enough to mitigate the severity of the recession, Steinbrueck wrote in the Wall Street Journal that the middle class, after a couple of years at most, would have to pay the price for such measures in the form of higher taxes.

The history of the savings rate in Germany indicates that general tax cuts don't significantly boost consumption during a recession, when many people are worried about losing their jobs, he said.

To cushion the recession's impact on jobs and growth, Germany is, notwithstanding claims to the contrary, pursuing a countercyclical policy, relying in part on "automatic stabilizers," such as unemployment benefits that rise, and taxes that fall, as the economy contracts, Steinbrueck said.

In addition, as early as October, Germany introduced a 14 billion-euro ($19.5 billion) package of targeted measures to stabilize social insurance contributions, lower unemployment insurance contributions, raise child benefits, bring forward housing allowances and provide relieve in 2010 for health-insurance expenses; that was followed in November by a somewhat larger package to save jobs, he said.

Governments can limit significant declines in economic activity and reduce the likelihood of financial crises by improved regulation, "no more, no less," Steinbrueck said.

The crisis has made clear that a new balance between financial markets and government is needed, and that the laissez-faire capitalism of the Chicago school of economics is unsuitable as a model for financial-market supervision, he said.

The sharp drop in oil prices in the second half of 2008 is causing economic distress in Russia. Russia devalued the Ruble three times last week.

Russian oligarchs are lining up for $78 billion of Kremlin loans to survive the credit squeeze as about $110 billion of foreign loans fall due in 2009. It is anticipated that Prime Minister Vladimir Putin will use the opportunity to claw back some element of government ownership and control of the nation's biggest companies.

Latin America

In some bad news for the U.S. Empire and the globalists, Ecuadorean president Correa announced plans to limit imports and to continue the process of renegotiating government bonds.

Ecuador's Correa Wants Debt Restructuring to Proceed in January

Ecuadorean President Rafael Correa wants debt negotiations triggered by the South American country's second bond default in a decade to proceed in January.

In his regular Saturday radio-and-television broadcast, he repeated his call for bondholders to accept a "substantial" discount without offering specifics on the $3.9 billion owed. He will submit an offer to holders early next month, he said today.

"We will make a proposal to rebuy these bonds, many of which have already given great yields to these speculators," Correa said. "It's likely that those who hold the bonds now didn't buy them at 100 -- rather at 20, 30, or 40 -- so it's not like these people are being hurt."

Correa, a 45-year-old economist, on Dec. 12 refused to give the order to release a $30.6 million interest payment due Dec. 15, when a month long grace period expired. He has alleged much of the debt is "illegal." The $510 million bonds due in 2012 plunged to 23 cents on the dollar from 31 the previous session and 97.5 cents three months ago.

By defaulting, Correa, a close ally of Venezuelan President Hugo Chavez, fulfilled a threat he made during his 2006 presidential campaign. His decision comes as a deepening global economic slump throttles demand for oil, the country's biggest export. Ecuador, which also defaulted in 1999, owes about $10 billion to bondholders, multilateral lenders and other countries.

A debt commission Correa formed last year said in a 172-page report in November that the global bonds due in 2012 and 2030 "show serious signs of illegality," including issuance without proper government authorization.

Correa also said he would restrict some imports to reduce the withdrawal of dollars from the local economy.

"We import sweets and chewing gum for more than $60 million a year and perfume for more than $100 million a year," he said. "That situation can't continue."

Labels: , , , ,


Post a Comment

<< Home