Signs of the Economic Apocalypse, 3-31-08

From SOTT.net:

Gold closed at 936.50 dollars an ounce Friday, up 1.8% from $920.00 for the week. The dollar closed at 0.6330 euros Friday, down 2.4% from 0.6480 at the close of the previous week. That put the euro at 1.5798 dollars compared to 1.5432 the week before. Gold in euros would be 592.80 euros an ounce, down 0.6% from 596.16 at the close of the previous week. Oil closed at 105.08 dollars a barrel Friday, up 3.2% from $101.84 for the week. Oil in euros would be 66.51 euros a barrel, up 0.8% from 65.99 at the close of the week before. The gold/oil ratio closed at 8.91 Friday, down 1.3% from 9.03 for the week. In U.S. stocks, the Dow closed at 12,216.40 Friday, down 1.2% from 12,361.32 at the close of the previous week. The NASDAQ closed at 2,261.18 Friday, up 0.1% from 2,258.11 at last week’s close. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 3.44%, up 11 basis points from 3.33 for the week.

The past week was the last in the first quarter of 2008. Exciting quarter, huh? Let’s survey the damage. Gold rose 11.1% from $842.70 to $936.50 and ounce in the first quarter. The dollar fell 7.3% from 0.6795 to 0.6330 euros in the first quarter. The euro went from 1.4716 dollars to 1.5798. Gold in euros rose 3.5% from 572.64 to 592.80 euros an ounce. Oil rose 9.3% from $96.16 to $105.08 a barrel. In euros, oil rose 1.8% from 65.34 to 66.51 euros a barrel in the first quarter. The gold/oil ratio rose 1.7% from 8.76 to 8.91. The Dow Jones Industrial Average fell 9.4% from 13,365.87 to 12,216.40 for the quarter, while the NASDAQ fell 18.3% from 2,674.46 to 2,261.18 in the same period. In U.S. interest rates, the yield on the ten-year U.S. Treasury note fell from 4.07 to 3.44%, a drop of 63 basis points.

Here are some charts showing changes over the past three and a quarter years.

The most striking thing about the past quarter is the accelerating drop in the value of the dollar. The steepness of its decline in 2008 (7% against the euro) can be seen in the last chart above. And that is against the euro, a currency with its own problems. Against gold, the dollar dropped 11%, against oil, 9%. That’s in three months.

The Fed was able to buy a little time with its more active stance, stabilizing the dollar for a week by pumping money into the system by, among other things, taking bad assets from financial institutions in exchange for money. Of course this can only work for a short time, because the actions weaken the currency in several ways. But the Fed used the time it bought to begin to re-regulate the financial system. The Fed is now taking over Wall Street (before it just regulated banks):

Treasury regulatory overhaul plan "timely": Fed

Doug Palmer

Mar 29, 2008

WASHINGTON (Reuters) - Upcoming Treasury Department proposals to make the Federal Reserve the chief regulator of U.S. financial markets and give it sweeping new powers won praise on Saturday from the central bank and the head of the Securities and Exchange Commission.

Treasury Secretary Henry Paulson is expected to unveil a blueprint on Monday for fixing gaps in the U.S. financial market regulatory structure that have been exposed by the ongoing subprime mortgage crisis.

Lax regulation has been widely blamed for permitting a flood of inadequately documented loans to be made during the boom years of a U.S. housing market that has since soured and now threatens to drag the economy into a deep recession.

"The Treasury's report presents a timely and thoughtful analysis and is an important first step in the complex task of modernizing our financial and regulatory architecture. We look forward to working with the Congress and others to help develop a policy framework that will enhance financial and economic stability," a Federal Reserve spokeswoman said.

An executive summary of the Treasury proposals says a "market stability regulator" is needed and the Fed best fits that role, suggesting the central bank could use its control over interest rates as well as its ability to provide market liquidity to fulfill its functions.

Step Back And Modernize

When the current regulatory structure was put into place 75 years ago, "our capital markets were in New York and very few people were invested and the number of products was limited," said David Hirschmann, president of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness.

The financial world has changed dramatically since then, and over the years there has been a tendency to respond to market crises by adding new layers of regulation, he said.

"It's become clear, I think to all, that the solution at this point is not to simply layer on more layers of regulation on a creaky outdated system, but really to step back and modernize the entire structure," Hirschmann said.

Among its recommendations, Treasury suggests merging the Securities and Exchange Commission, the U.S. markets watchdog, with the Commodity Futures Trading Commission that oversees the activities of the futures market.

The subprime mortgage crisis provides "further evidence, if more were needed, that financial services regulation in the United States needs to be better integrated among fewer agencies, with clearer lines of responsibility," SEC Chairman Christopher Cox said in a statement.

"Just as systemic risk cannot be neatly parceled along outdated regulatory lines, the overarching objective of investor protection can't be fully achieved if it fails to encompass derivatives, insurance, and new instruments that straddle today's regulatory divides," Cox said.

The Same Fallback

Democratic presidential candidate Barack Obama called the plans inadequate.
"There are some good things about consolidating the multiple regulatory agencies," but now that the Fed has opened its discount window to investment banks it should hold them to the same reserve requirements as commercial banks, he said at a campaign stop in Johnston, Pennsylvania.

"If I'm a commercial bank right now I'm still not clear why it is that investment banks are still able to do things I can't do, aren't subject to the same capital requirements and liquidity requirements that I am and yet they've got the same fallback with the Fed," Obama said.

CFTC Commissioner Bart Chilton warned it could be disastrous to hastily consolidate the CFTC and the SEC into one agency because of the different approaches they take to regulatory oversight.

The CFTC has "an entirely different regulatory approach and the data confirms that it works," he said.

"The SEC has a very proscriptive old-style approach to government. Putting those two in the same room doesn't solve any problems. In fact, I think it would create a calamity" unless Congress takes its time and does a thorough overhaul of statutes authorizing the two agencies, Chilton said.

Can such a move restore confidence in the financial system and the U.S. dollar? Of course not. The re-regulation of finance is needed, but is way too late and done by the wrong entity. Notice that it will be the private Federal Reserve Bank and not the U.S. government that will be regulating banks and Wall Street investment firms. And the resources available to the central banks are way too small compared to the magnitude of the problem.

Slip Sliding Away: Bernanke's Next Big Bail Out Plan

Mike Whitney

March 29 / 30, 2008

The Federal Reserve is presently considering an emergency operation that is so risky it could send the dollar slip-sliding over the cliff. The story appeared in the Financial Times earlier this week and claimed that the Fed was examining the feasibility of buying back hundreds of billions of dollars of mortgage-backed securities (MBS) with public money to restore investor confidence and clear the struggling banks' balance sheets. The Fed, of course, denied the allegations, but the rumors abound. Currently the banking system is so clogged with exotic investments, for which there is no market, it can't perform its main task of providing credit to businesses and consumers. Bernanke's job is to clear the credit logjam so the broader economy can begin to grow again. So far, he has failed to achieve his objectives.

Since September, Bernanke has slashed interest rates by 3 per cent and opened various auction facilities (Term Securities Lending Facility, the Term Auction Facility, the Primary Dealer Credit Facility, and the new Term Securities Lending Facility) which have made $400 billion available in low-interest loans to banks and non banks. He has also accepted a "wide range" of collateral for Fed repos including mortgage-backed securities and collateralized debt obligations (CDOs) which are worth considerably less than what the Fed is offering in exchange. But the Fed's injections of liquidity have not solved the basic problem which is the fall in housing prices and the persistent downgrading of mortgage-backed assets that investors refuse to buy at any price. In fact, the troubles are gradually getting worse and spreading to areas of the financial markets that were previously thought to be risk-free. The credit slowdown has also put additional pressure on hedge funds and other financial institutions forcing them to quickly deleverage to meet margin calls by dumping illiquid assets into a saturated market at fire-sale prices. This process has been dubbed the "great unwind".

In the last six years, the mortgage-backed securities market has ballooned to a $4.5 trillion dollar industry. The investment banks are presently holding about $600 billion of these complex debt instruments. So far, the banks have written down $125 billion in losses, but there's a lot more carnage to come. Goldman Sachs estimates that banks, brokerages and hedge funds will eventually sustain $460 billion in losses, three times greater than today. Even so, those figures are bound to increase as the housing market continues to deteriorate and capital is drained from the system.

The Fed has neither the resources nor the inclination to scoop up all the junk bonds the banks have on their books. Bernanke has already exposed about half ($400 billion) of the Central Bank's balance sheet to credit risk. But what is the alternative? If the Fed doesn't intervene, then many of country's largest investment banks will wind up like Bear Stearns; DOA. After all, Bear is not an isolated case; most of the banks are similarly leveraged at 25 or 35 to 1. They are also losing more and more capital each month from downgrades, and their main streams of revenue have been cut off. In fact, many of Wall Street's financial titans are technically insolvent already. The Fed is the only force keeping them from bankruptcy.

Case in point: "Citigroup may write down $13.1 billion of assets including leveraged loans and collateralized debt obligations in the first quarter..... U.S. bank earnings overall will tumble 84 percent in the quarter....``We anticipate further downside to both estimates and stock prices'' because banks will be under pressure to mark down assets to reflect falling market indexes." (Bloomberg News)

…The Fed chairman has simply responded to events as they unfold. The collapse of Bears Stearns came just weeks after the SEC had checked the bank's reserves and decided that they had sufficient capital to weather the storm ahead. But they were wrong. The bank's capital ($17 billion) vanished in a matter of days after word got out that Bear was in trouble. The sudden run on the bank created a risk to other banks and brokerages that held derivatives contracts with Bear. Something had to be done; Rome was burning and Bernanke was the only man with a hose.

According to the UK Telegraph:

"Bear Stearns had total (derivatives) positions of $13.4 trillion. This is greater than the US national income, or equal to a quarter of world GDP - at least in 'notional' terms. The contracts were described as 'swaps', 'swaptions', 'caps', 'collars' and 'floors'. This heady edifice of new-fangled instruments was built on an asset base of $80bn at best.

"On the other side of these contracts are banks, brokers, and hedge funds, linked in destiny by a nexus of interlocking claims. This is counterparty spaghetti. To make matters worse, Lehman Brothers, UBS, and Citigroup were all wobbling on the back foot as the hurricane hit.

"' Twenty years ago the Fed would have let Bear Stearns go bust,' said Willem Sels, a credit specialist at Dresdner Kleinwort. 'Now it is too interlinked to fail.'"

Bernanke felt he had no choice but to step in and try to minimize the damage, but the outcome was disappointing. Bernanke and Secretary of the Treasury Henry Paulson worked out a deal with JP Morgan that committed $30 billion of taxpayer money, without congressional authority, to buy toxic mortgage-backed securities from a privately-owned business that was failing because of its own speculative bets on dodgy investments. The only people who made out were the investors who were holding derivatives contracts that would have been worthless if Bear went toes up.

Still,the prospect of a system-wide derivatives meltdown left Bernanke with few good options, notwithstanding the moral hazard of bailing out a maxed-out, capital impaired investment bank that should have been fed to the wolves.

It is worth noting that derivatives contracts are a fairly recent addition to US financial markets. In 2000, derivatives trading accounted for less than $1 trillion. By 2006 that figure had mushroomed to over $500 trillion. And it all can be traced back to legislation that was passed during the Clinton administration.

"A milestone in the deregulation effort came in the fall of 2000, when a lame-duck session of Congress passed a little-noticed piece of legislation called the Commodity Futures Modernization Act. The bill effectively kept much of the market for derivatives and other exotic instruments off-limits to agencies that regulate more conventional assets like stocks, bonds and futures contracts.
Supported by Phil Gramm, then a Republican senator from Texas and chairman of the Senate Banking Committee, the legislation was a 262-page amendment to a far larger appropriations bill. It was signed into law by President Bill Clinton that December." ("What Created this Monster" Nelson Schwartz, New York Times)

The Fed chief is now facing a number of brushfires that will have to be put out immediately. The first of these is short term lending rates, which have stubbornly ignored Bernanke's massive liquidity injections and continued to rise. The banks are increasingly afraid to lend to each other because they don't really know how much exposure the other banks have to risky MBS. This distrust has sent interbank lending rates soaring above the Fed funds rate to more than double in the past month alone. So far, the Fed's Term Auction Facility (TAF; under the Term Auction Facility (TAF), the Federal Reserve will auction term funds to depository institutions) hasn't helped to lower rates, which means that Bernanke will have to take more extreme measures to rev up bank lending again. That's why many Fed-watchers believe that Bernanke will ultimately coordinate a $500 billion to $1 trillion taxpayer-funded bailout to buy up all the MBSs from the banks so they can resume normal operations. Of course, any Fed-generated scheme will have to be dolled up with populous rhetoric so that welfare for banking tycoons looks like a selfless act of compassion for struggling homeowners. That shouldn't be a problem for the Bush public relations team.

The probable solution to the MBS mess is the restoration of the Resolution Trust Corp., which was created in 1989 to dispose of assets of insolvent savings and loan banks. The RTC would create a government-owned management company that would buy distressed MBS from banks and liquidate them via auction. The state would pay less than full-value for the bonds (The Fed currently pays 85 per cent face-value on MBS) and then take a loss on their liquidation. "According to Joseph Stiglitz in his book, Towards a New Paradigm in Monetary Economics, the real reason behind the need of this company was to allow the US government to subsidize the banking sector in a way that wasn't very transparent and therefore avoid the possible resistance."

The same strategy will be used again. Now that Bernanke's liquidity operations have flopped, we can expect that some RTC-type agency will be promoted as a prudent way to fix the mortgage securities market. The banks will get their bailout and the taxpayer will foot the bill.

The problem, however, is that the dollar is already falling against every other currency. (On Wednesday, the dollar fell to $1.58 per euro, a new record) If Bernanke throws his support behind an RTC-type plan; it will be seen by foreign investors as a hyper-inflationary government bailout, which could precipitate a global sell-off of US debt and trigger a dollar crisis.

Reuter's James Saft puts it like this:

"It is also hugely risky in terms of the Fed's obligation to maintain stable prices.... it could stoke inflation to levels intolerable to foreign creditors, provoking a sharp fall in the dollar as they sought safety elsewhere." (Reuters)

Saft is right; foreign creditors will see it as an indication that the Fed has abandoned standard operating procedures so it can inflate its way out of a jam. According to Saft, the estimated price could be as high as $1 trillion dollars. Foreign investors would have no choice except to withdraw their funds from US markets and move them overseas. In fact, that appears to be happening already. According to the Wall Street Journal:

"While cash continues to pour into the U.S. from abroad, this flow has been slowing. In 2007, foreigners' net acquisition of long-term bonds and stocks in the U.S. was $596 billion, down from $722 billion in 2006, according to Treasury Department data. From July to December as jitters about securities linked to US subprime mortgages spread, net purchases were just $121 billion, a 65% decrease from the same period a year earlier. Americans, meanwhile, are investing more of their own money abroad." ("A US Debt Reckoning" Wall Street Journal)

$121 billion does not even put a dent the $700 billion the US needs to pay its current account deficit. When foreign investment drops off, the currency weakens. It's no wonder the dollar is falling like a stone.

Some have argued that commodities like gold, wheat and oil have experienced a bubble and will fall in value when the economy goes into recession. These arguments grew a little stronger with the easing of gold prices in the last two weeks. Given the weaknesses of all central banks—they now have to be the holder of last resort of risky assets, commodity inflation and slow growth (stagflation) can coexist. Doug Noland argues that financial assets can crash in value while commodities increase.

End of an Era

Doug Noland

March 28, 2008

The Fed-orchestrated 1998 rescue of Long-Term Capital Management (and the “leveraged speculating community”) proved instrumental in instigating the “golden age” of Wall Street finance. Thursday from the Wall Street Journal (see Speculator Watch above): “Ten years after overseeing a hedge-fund collapse that buckled the world’s financial markets, John Meriwether again is scrambling to stem losses and keep investors from jumping ship. Mr. Meriwether is best known as a founder of Long-Term Capital Management…” Meriwether’s largest hedge fund – profitable in each year since its 1999 launch - is down 28% y-t-d. The fund now surely faces investor redemptions, a problematic “high-water mark” (hedge funds must make up for past losses before they can again collect big performance fees) and a resulting exodus of top talent.

Again this week, we see one of Wall Street’s most “elder leveraged speculators” fall into serious trouble. A strategy that had worked so nicely for almost a decade turned unworkable. While sharply reducing the risk profile and degree of leverage from the LTCM days, Meriwether’s bond fund was nonetheless leveraged 14.9 to 1 (according to Jenny Strasburg’s WSJ article). As was the case with the Peloton fund and others, the most aggressive use of leverage had navigated to the perceived safest (“money-like”) instruments – “His funds’ losing positions have included mortgage securities backed by Fannie Mae and Freddie Mac, trades tied to municipal bonds and triple-A-rated commercial mortgage-backed securities”.

Understandably, most fully expect Wall Street to rebound and the leveraged speculating community to emerge from current turmoil as it did following LTCM – albeit at a more measured pace. Some assume it’s merely a case of our policymakers “playing whack a mole” until they find the requisite instrument(s) to successfully beat down the sources of financial instability. Of course, I view things very differently, instead seeing Meriwether’s predicament as emblematic of an End of an Era - with huge ramifications for both the Financial and Economic Spheres. I would expect it will be quite some time before the marketplace (investors as well as lenders) grants Mr. Meriwether or similar leveraged strategies another shot at financial genius. Indeed, there is mounting evidence supporting the Bursting Hedge Fund Bubble Thesis – from the angle of the quality of underlying assets; from the capacity to leverage; from the ability to retain investors; and from a regulatory perspective. And keep in mind that the historic ballooning in the “leveraged speculating community” has been an absolutely instrumental – and extraordinarily opaque – facet of the Bubble in Wall Street finance and the overall Credit Bubble.

I would argue forcefully that the leveraged speculating community for some years now has assumed the key role of unappreciated marginal source of demand for risk assets – risky debt instruments financing asset inflation, in particular. Over time, Wall Street “alchemy” mastered the process of transforming virtually unlimited risky loans into perceived safe and liquid securities. A sizable – and growing - chunk of these securities were then purchased on leverage by the rapidly expanding speculator community, in the process fueling an increasingly maladjusted U.S. Bubble Economy. We’re now witnessing it all beginning to wind down. End of an Era.

It is today analytically imperative to differentiate the authorities’ focus on stabilizing marketplace liquidity from the Unfolding Bursting of the Wall Street Bubble. Our policymakers may be exerting meaningful impact on the former, yet the latter remains largely out of their control - and certainly thus far impervious to their actions. Especially when it comes to the key marketplace for agency securities, policymaker efforts are directed at sustaining perceived “moneyness” - through both governmental support (tacit guarantees and Fed liquidity operations) and a renewed bid for mortgages by the GSEs (Fannie, Freddie, and the FHLB). And while such efforts have important ramifications with regard to accommodating the ongoing de-leveraging process (and averting Credit system implosion), they are at the same time completely inadequate when it comes to generating sufficient new Credit to sustain U.S. Financial and Economic Bubbles. “Moneyness” will definitely not be retained in non-agency securitizations, especially as the economy falters.

Debt problems are accelerating and expanding from mortgages to home equity, auto, Credit card, student loans, small business finance, munis and corporate Credits. At the same time, Wall Street has been significantly tightening lending requirements for the leveraging of all types of debt instruments. While the focus has been on mortgage Credit, recent deterioration in other types of loans – and, importantly, the leveraged holders of large amounts of this debt – have major consequences for Credit Availability throughout the Economic Sphere. Housing markets and foreclosures are obviously major issues. Not commonly recognized is the now virtually across the board tightening in Credit throughout the securitization markets (consumer, student, muni, corporate, etc.), exerting more expansive headwinds upon the U.S. economy than even the tightening in mortgages (that predominantly impacted transactions and home prices).

February California median home prices declined $20,550 to $409,240. Median prices are now down $67,140 in two months and a stunning $179,730 since August. Prices are down 32% from June’s high, and are now even 13% below the level from three years ago. Granted, these median prices are impacted by the dearth of sales at the upper-end. Yet it’s clear that the California market is in the midst of an historic crash. The Credit standing of Golden State households, businesses, and various governmental agencies now deteriorates virtually by the day. I would argue the explosion over the past three years in “private-label” mortgages, Wall Street balance sheets, hedge fund assets, and California home prices were all part of the same Bubble. This Bubble inflated largely outside the banking system and outside GSE finance – and will now prove stubbornly unaffected by policy maneuvers.

Some argue rather forcefully that we’re now immersed in “debt deflation.” I understand the basic premise, but to examine double-digit growth in Bank Credit, GSE “books of business” and money fund assets provides a different perspective. To be sure, our Credit system continues to provide sufficient Credit to finance massive Current Account Deficits. And it is this ongoing outflow of dollar liquidity that stokes both indomitable dollar devaluation and global Credit excess. Many contend that inflationary pressures are poised to wane as the U.S. economy weakens. I’ll suggest that inflation dynamics will prove much more complex and uncooperative. There is further confirmation of this view - that the bursting of the Wall Street finance Bubble will have a significantly greater impact on asset prices than on general consumer pricing pressures.

The analysis gets much more challenging in the commodities markets. The simple view holds that commodities are just another Bubble waiting their turn to burst. This thinking gained greater acceptance last week, with the sharp reversal of prices and unwind of speculative positions. And it goes without saying that major speculative excess has developed throughout the commodities complex ("par for the course"). I am as well sympathetic to the view that liquidations by the leveraged speculating community could lead to some major price instability. Yet it’s my sense that there really is much more to the commodities story – and inflation, more generally – that is not widely appreciated.

The bursting of the Wall Street finance and U.S. Credit Bubbles marks an End of an Era. But the start of a deflationary spiral? Importantly, these bursting Bubbles are in the process of consummating the demise of the dollar as the world’s functioning “reserve currency” and monetary standard. Examining global markets, I note the ongoing strength of currencies in China, Russia, Brazil, and India, for example. Considering mounting financial and economic imbalances in all these economies – not too mention histories of less than exemplary monetary management – I can state categorically that these are fundamentally very weak currencies. Today, however, it’s all relative to the sickly dollar. In the face of rampant domestic Credit growth, these currencies nonetheless attract endless global finance and appreciate.

When it comes to Ending of Eras, I am increasingly fearful that we are falling deeper into a precarious period devoid of a functioning global currency regime necessary to discipline Credit excess and restrain mounting inflationary pressures. And as long as dollar liquidity inundates the world economy, domestic Credit systems across the globe enjoy the extraordinary capacity to inflate domestic Credit and use this new purchasing power for the benefit of their citizens and economies. And, in particular because of their enormous populations, as long as the Chinese and Indian Credit system enjoy the freedom to inflate at will there will remain significant upside pricing pressure for energy, food, and various goods and commodities in limited supply – hedge fund speculative excess and/or bust notwithstanding.

I throw this analysis out as food for thought. I am increasingly of the mind that commodities should be differentiated from U.S. financial assets when it comes to the consequences from the bursting of the Wall Street finance and leveraged speculating community Bubbles. Prices will likely remain hyper-volatile but (unBubble-like) well-supported by underlying fundamental factors. Similarly, I believe general inflationary pressures may likely prove more significantly influenced by runaway global Credit excesses than by the Wall Street and U.S. asset price busts. If this proves to be the case, perhaps the greater risk is a bursting of the Treasury Market Bubble. It may take some time, but an enormous supply of government debt is in the offing and – let’s face it – these instruments will become only less appealing over time. It also begs the question as to the advisability of aggressive Fed rate cuts. They are having little influence on the bursting Wall Street Bubbles but possibly huge effects on global inflationary forces. Little wonder the ECB is so hesitant to lower rates.

Some people see the re-regulation as a way for the globalists to make their final move. First, George Ure:

The really astute financial observer would notice, along in here somewhere, that the newest game by the central banksters is to buy up (by holding as 'security') bad loans to get a little control their multiple (naughty) children banks. In fact, I'd argue with the Fed taking (pretty much anything) as loan security, and this morning's report that the "Bank of England may join securities buy-up plan" that what's going on at a global scale is one of the most important precursors to one-world government. A single universal bank. Seems to me that's what's coming, although by fits and starts.

…In order for a New World Order to really own everything on earth, all these disparate little banks around are a terrible nuisance. Let's just buy them up, setting off a portfolio-saving inflation along the way, and centralize control! Hey - makes perfect sense, right? We'll make an almost unnavigable set of rules, force everyone to clear through a clearinghouse the same way, and then gradually let the markets forces drive everything into the hands of the few (the rich).

OK, so it may turn out to be a little slower than One Worlders would like, but nevertheless, the concentration/consolidation (and shotgun marriages orchestrated by regulators) seem to be the fad of the year in financial circles. About all we can do is watch.

But more than the regulation, the collapse of the dollar may be exactly what is needed to implement the plan. Here’s Richard Cook:

Is an International Financial Conspiracy Driving World Events?

Richard C. Cook

March 27, 2008

"They make a desolation and call it peace." -Tacitus

Was Alan Greenspan really as dumb as he looks in creating the late housing bubble that threatens to bring the entire Western debt-based economy crashing down?

Was something as easy to foresee as this really the trigger for a meltdown that could destroy the world’s financial system? Or was it done, perhaps, "accidentally on purpose"?

And if so, why?

Let’s turn to the U.S. personage that conspiracy theorists most often mention as being at the epicenter of whatever elite plan is reputed to exist. This would be David Rockefeller, the 92-year-old multibillionaire godfather of the world’s financial elite. The lengthy Wikipedia article on Rockefeller provides the following version of a celebrated statement he allegedly made in an opening speech at the Bilderberg conference in Baden-Baden, Germany, in June 1991:

"We are grateful to the Washington Post, the New York Times, Time magazine, and other great publications whose directors have attended our meetings and respected their promises of discretion for almost forty years. It would have been impossible for us to develop our plan for the world if we had been subject to the bright lights of publicity during these years. But the world is now more sophisticated and prepared to march towards a world government which will never again know war, but only peace and prosperity for the whole of humanity. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the national auto-determination practiced in the past centuries."

This speech was made 17 years ago. It came at the beginning in the U.S. of the Bill Clinton administration. Rockefeller speaks of an "us." This "us," he says, has been having meetings for almost 40 years. If you add the 17 years since he gave the speech it was 57 years ago—two full generations.

Not only has "us" developed a "plan for the world," but the attempt to "develop" the plan has evidently been successful, at least in Rockefeller’s mind. The ultimate goal of "us" is to create "the supranational sovereignty of an intellectual elite and world bankers." This will lead, he says, toward a "world government which will never again know war."

Just as an intellectual exercise, let’s assume that David Rockefeller is as important and powerful a person as he seems to think he is. Let’s give the man some credit and assume that he and "us" have in fact succeeded to a degree. This would mean that the major decisions and events since Rockefeller gave the speech in 1991 have probably also been part of the plan or that they have at least represented its features and intent.

Therefore by examining these decisions and events we can determine whether in fact Rockefeller is being truthful in his assessment that the Utopia he has in mind is on its way or has at least come closer to being realized. In no particular order, some of these decisions and events are as follows:

The implementation of the North American Free Trade Agreement by the Bill Clinton and George W. Bush administrations has led to the elimination of millions of U.S. manufacturing jobs as well as the destruction of U.S. family farming in favor of global agribusiness.

Similar free trade agreements, including those under the auspices of the World Trade Organization, have led to export of millions of additional manufacturing jobs to China and elsewhere.

Average family income in the U.S. has steadily eroded while the share of the nation’s wealth held by the richest income brackets has soared. Some Wall Street hedge fund managers are making $1 billion a year while the number of homeless, including war veterans, pushes a million.

The housing bubble has led to a huge inflation of real estate prices in the U.S. Millions of homes are falling into the hands of the bankers through foreclosure. The cost of land and rentals has further decimated family agriculture as well as small business. Rising property taxes based on inflated land assessments have forced millions of lower-and middle-income people and elderly out of their homes.

The fact that bankers now control national monetary systems in their entirety, under laws where money is introduced only through lending at interest, has resulted in a massive debt pyramid that is teetering on collapse. This "monetarist" system was pioneered by Rockefeller-family funded economists at the University of Chicago. The rub is that when the pyramid comes down and everyone goes bankrupt the banks which have been creating money "out of thin air" will then be able to seize valuable assets for pennies on the dollar, as J.P. Morgan Chase is preparing to do with the businesses owned by Carlyle Capital. Meaningful regulation of the financial industry has been abandoned by government, and any politician that stands in the way, such as Eliot Spitzer, is destroyed.

The total tax burden on Americans from federal, state, and local governments now exceeds forty percent of income and is rising. Today, with a recession starting, the Democratic-controlled Congress, while supporting the minuscule "stimulus" rebate, is hypocritically raising taxes further, even for middle-income earners. Back taxes, along with student loans, can no longer be eliminated by bankruptcy protection.

Gasoline prices are soaring even as companies like Exxon-Mobil are recording record profits. Other commodity prices are going up steadily, including food prices, with some countries starting to experience near-famine conditions. 40 million people in America are officially classified as "food insecure."

Corporate control of water and mineral resources has removed much of what is available from the public commons, and the deregulation of energy production has led to huge increases in the costs of electricity in many areas.

The destruction of family farming in the U.S. by NAFTA (along with family farming in Mexico and Canada) has been mirrored by policies toward other nations on the part of the International Monetary Fund and World Bank. Around the world, due to pressure from the "Washington consensus," local food self-sufficiency has been replaced by raising of crops primarily for export. Migration off the land has fed the population of huge slums around the cities of underdeveloped countries.

Since the 1980s the U.S. has been fighting wars throughout the world either directly or by proxy. The former Yugoslavia was dismembered by NATO. Under cover of 9/11 and by utilizing off-the-shelf plans, the U.S. is now engaged in the military conquest and permanent military occupation of the Middle East. A worldwide encirclement of Russia and China by U.S. and NATO forces is underway, and a new push to militarize space has begun. The Western powers are clearly preparing for at least the possibility of another world war.

The expansion of the U.S. military empire abroad is mirrored by the creation of a totalitarian system of surveillance at home, whereby the activities of private citizens are spied upon and tracked by technology and systems which have been put into place under the heading of the "War on Terror." Human microchip implants for tracking purposes are starting to be used. The military-industrial complex has become the nation’s largest and most successful industry with tens of thousands of planners engaged in devising new and better ways, both overt and covert, to destroy both foreign and domestic "enemies."

Meanwhile, the U.S. has the largest prison population of any country on earth. Plus everyday life for millions of people is a crushing burden of government, insurance, and financial fees, charges, and paperwork. And the simplest business transactions are burdened by rake-offs for legions of accountants, lawyers, bureaucrats, brokers, speculators, and middlemen.

Finally, the deteriorating conditions of everyday life have given rise to an extraordinary level of stress-related disease, as well as epidemic alcohol and drug addiction. Governments themselves around the world engage in drug trafficking. Instead of working to lower stress levels, public policy is skewed in favor of an enormous prescription drug industry that grows rich off the declining level of health through treatment of symptoms rather than causes. Many of these heavily-advertised medications themselves have devastating side-effects.

This list should at least give us enough to go on in order to ask a hard question. Assuming again that all these things are parts of the elitist plan which Mr. Rockefeller boasts to have been developing, isn’t it a little strange that the means which have been selected to achieve "peace and prosperity for the whole of humanity" involve so much violence, deception, oppression, exploitation, graft, and theft?

In fact it looks to me as though "our plan for the world" is one that is based on genocide, world war, police control of populations, and seizure of the world’s resources by the financial elite and their puppet politicians and military forces.

In particular, could there be a better way to accomplish all this than what appears to be a concentrated plan to remove from people everywhere in the world the ability to raise their own food? After all, genocide by starvation may be slow, but it is very effective. Especially when it can be blamed on "market forces."

And can it be that the "us" which is doing all these things, including the great David Rockefeller himself, are just criminals who have somehow taken over the seats of power? If so, they are criminals who have done everything they can to watch their backs and cover their tracks, including a chokehold over the educational system and the monopolistic mainstream media.

One thing is certain: The voters of America have never knowingly agreed to any of this.

At some point soon, to maintain power and the value of its currency, the United States will have to come up with gold to support its currency, and who knows whether it has any left. Everything else has been looted, why not that? In other words, how much is actually in Fort Knox? Any that it has may have been pledged many times over. Paul Craig Roberts explains what happens to a world power when it runs out of money:

A Bankrupt Superpower: The Collapse of American Power

Paul Craig Roberts

March 18, 2008

In his famous book, The Collapse of British Power (1972), Correlli Barnett reports that in the opening days of World War II Great Britain only had enough gold and foreign exchange to finance war expenditures for a few months. The British turned to the Americans to finance their ability to wage war. Barnett writes that this dependency signaled the end of British power.

From their inception, America's 21st century wars against Afghanistan and Iraq have been red ink wars financed by foreigners, principally the Chinese and Japanese, who purchase the US Treasury bonds that the US government issues to finance its red ink budgets.

The Bush administration forecasts a $410 billion federal budget deficit for this year, an indication that, as the US saving rate is approximately zero, the US is not only dependent on foreigners to finance its wars but also dependent on foreigners to finance part of the US government's domestic expenditures. Foreign borrowing is paying US government salaries--perhaps that of the President himself--or funding the expenditures of the various cabinet departments. Financially, the US is not an independent country.

The Bush administration's $410 billion deficit forecast is based on the unrealistic assumption of 2.7% GDP growth in 2008, whereas in actual fact the US economy has fallen into a recession that could be severe. There will be no 2.7% growth, and the actual deficit will be substantially larger than $410 billion.

Just as the government's budget is in disarray, so is the US dollar which continues to decline in value in relation to other currencies. The dollar is under pressure not only from budget deficits, but also from very large trade deficits and from inflation expectations resulting from the Federal Reserve's effort to stabilize the very troubled financial system with large injections of liquidity.

A troubled currency and financial system and large budget and trade deficits do not present an attractive face to creditors. Yet Washington in its hubris seems to believe that the US can forever rely on the Chinese, Japanese and Saudis to finance America's life beyond its means. Imagine the shock when the day arrives that a US Treasury auction of new debt instruments is not fully subscribed.

The US has squandered $500 billion dollars on a war that serves no American purpose. Moreover, the $500 billion is only the out-of-pocket costs. It does not include the replacement cost of the destroyed equipment, the future costs of care for veterans, the cost of the interests on the loans that have financed the war, or the lost US GDP from diverting scarce resources to war. Experts who are not part of the government's spin machine estimate the cost of the Iraq war to be as much as $3 trillion.

The Republican candidate for President said he would be content to continue the war for 100 years. With what resources? When America's creditors consider our behavior they see total fiscal irresponsibility. They see a deluded country that acts as if it is a privilege for foreigners to lend to it, and a deluded country that believes that foreigners will continue to accumulate US debt until the end of time.

The fact of the matter is that the US is bankrupt. David M. Walker, Comptroller General of the US and head of the Government Accountability Office, in his December 17, 2007, report to the US Congress on the financial statements of the US government noted that "the federal government did not maintain effective internal control over financial reporting (including safeguarding assets) and compliance with significant laws and regulations as of September 30, 2007." In everyday language, the US government cannot pass an audit.

Moreover, the GAO report pointed out that the accrued liabilities of the federal government "totaled approximately $53 trillion as of September 30, 2007." No funds have been set aside against this mind boggling liability.

Just so the reader understands, $53 trillion is $53,000 billion.

Frustrated by speaking to deaf ears, Walker recently resigned as head of the Government Accountability Office.

As of March 17, 2008, one Swiss franc is worth more than $1 dollar. In 1970, the exchange rate was 4.2 Swiss francs to the dollar. In 1970, $1 purchased 360 Japanese yen. Today $1 dollar purchases less than 100 yen.

If you were a creditor, would you want to hold debt in a currency that has such a poor record against the currency of a small island country that was nuked and defeated in WW II, or against a small landlocked European country that clings to its independence and is not a member of the EU?

Would you want to hold the debt of a country whose imports exceed its industrial production? According to the latest US statistics as reported in the February 28 issue of Manufacturing and Technology News, in 2007 imports were 14 percent of US GDP and US manufacturing comprised 12% of US GDP. A country whose imports exceed its industrial production cannot close its trade deficit by exporting more.

The dollar has even collapsed in value against the euro, the currency of a make-believe country that does not exist: the European Union. France, Germany, Italy, England and the other members of the EU still exist as sovereign nations. England even retains its own currency. Yet the euro hits new highs daily against the dollar.

Noam Chomsky recently wrote that America thinks that it owns the world. That is definitely the view of the neoconized Bush administration. But the fact of the matter is that the US owes the world. The US "superpower" cannot even finance its own domestic operations, much less its gratuitous wars except via the kindness of foreigners to lend it money that cannot be repaid.

The US will never repay the loans. The American economy has been devastated by offshoring, by foreign competition, and by the importation of foreigners on work visas, while it holds to a free trade ideology that benefits corporate fat cats and shareholders at the expense of American labor. The dollar is failing in its role as reserve currency and will soon be abandoned.

When the dollar ceases to be the reserve currency, the US will no longer be able to pay its bills by borrowing more from foreigners.

I sometimes wonder if the bankrupt "superpower" will be able to scrape together the resources to bring home the troops stationed in its hundreds of bases overseas, or whether they will just be abandoned.

The dollar collapse and the fall of the American Empire will no doubt work to the globalists benefit. They can introduce the North American Union and the Amero. When the world abandons the dollar with a rush to the exits, what will the U.S. government come up with? Nothing, it’s all been taken private, including now financial regulation. All the “security” firms, mercenary firms, military contractors, and prison companies will still be there. All the weapons will still be there, but they will be in private hands. The globalists don’t need national governments anymore.

Signs of the Economic Apocalypse, 11-5-07

From Signs of the Times:

Gold closed at 808.50 dollars an ounce Friday, up 2.7% from $787.50 at the close of the previous week. The dollar closed at 0.6894 euros Friday, down 0.8% from 0.6948 at the close of the previous Friday. That put the euro at 1.4504 dollars compared to 1.4393 the Friday before. Gold in euros would be 557.43 euros an ounce, up 1.9% from 547.14 for the week. Oil closed at 95.93 dollars a barrel Friday, up 4.4% from $91.86 at the close of the week before. Oil in euros would be 66.14 euros a barrel, up 3.6% from 63.82 for the week. Thje gold/oil ratio closed at 8.43 Friday, down 1.7% from 8.57at the end of the week before. In U.S. stocks, the Dow Jones Industrial Average closed at 13,595.10 Friday, down 1.6% from 13,806.70 for the week. The NASDAQ closed at 2,810.38 Friday, up 0.2% from 2,804.19 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 4.31%, down nine basis poinst from 4.40 for the week.

Oil and gold continued their shocking rise last week. Oil has gone up 30% against the dollar since September 1 and gold has gone up 19%. During that same period the dollar has fallen 6.5% against the euro, so gold and oil are going up against both currencies. Oil is going up in absolute terms, measured against gold. Things seem to be reaching a crisis point.

Paul Craig Roberts summed it up this way:

…The "Cakewalk War" in Iraq was supposed to be over in a few weeks and to pay for itself out of Iraqi oil revenues. The war is now five years old and has cost American taxpayers, and those left dependent on government programs by decades of a welfare state, $1 trillion in out-of-pocket and already incurred future costs.

As large and troublesome as this cost is, it pales in comparison to the damage the war has done to the value of the dollar and its role as reserve currency. Since 2001, the Euro has risen 60 percent against the dollar.

This means much more to Americans than the higher cost of a European vacation and status symbol German cars. The US dollar is losing its reserve currency role when the Euro, the currency of a nonexistent country--Europe--becomes so much more desirable than the dollar that it rises 60 percent in value.

The Euro is a monetary unit that has run far ahead of the political entity whose currency it is. Europe still consists of separate sovereign states, and many of them are unhappy with the Euro. Yet, since 2001 people throughout the world have been shifting from dollars to Euros.

It is not normal for people to flee from the reserve currency. It only happens when people believe it cannot continue to fill that role.

The US dollar is under double assault. One assault is from the offshoring of American jobs, which turns US GDP into foreign GDP and worsens the US trade deficit. It is not possible to achieve a trade balance when the production of goods and services for the US market is being moved offshore by US corporations.

The other assault is from the US budget deficit. Americans have become so hard pressed that their savings rate is negligible. The US government has to rely on foreigners to lend it money for its annual expenditures. Washington's two biggest bankers are China and Japan, the countries with the largest trade surpluses with the US.

The transformation of the Iraq "cakewalk" into an interminable war has run up a one trillion dollar price tag, and an even larger war with Iran is looming. US generals and neoconservative ideologues predict a decade or multi-decade long war in the Middle East. Washington's bankers are waking up to the reality that they will not be repaid.

The only reason the dollar has not already lost its reserve currency role is that the only alternative is the currency of a non-existent political entity. Yet, even the Euro, a virtual currency, may have taken the dollar's role by the end of 2008.

Full of hegemonic hubris, the US government does not understand that US power and hegemony have always depended, not on missiles and military force, but on the financial power conveyed by the dollar's role as reserve currency.

The reserve currency is world money, good in any country to pay any bill. The reserve currency country is not a debtor in the usual sense. As the reserve currency can be used to settle international accounts, the reserve currency country can borrow at will until lenders lose confidence in the currency.

There is abundant evidence that the loss of confidence in the dollar is underway. When it is complete, the US will no longer be a superpower.

The decline in American power and influence could be dramatic. Part of America's power results from European countries going along with Washington. However, the sharp rise in the Euro's value has hurt European exports, squeezing profit margins, wages, and encouraging offshore production. Fights over monetary policy between European capitals could doom both the EU and the Euro, leaving the world with no reserve currency and America with embittered former allies.

By going to war for hegemony, the Bush Regime has brought about American decline. While the neocons have spent two administrations trying to deracinate Islam, real threats to America's power have been neglected. Offshoring, which turns US GDP into imports and larger trade deficits, together with war debts, has eroded the dollar's status as reserve currency, undermining the foundation of American power.

The collapse of a hegemonic empire and its reserve currency is much bigger than a “business cycle” recession. All we can say a this point is things will soon be much different than they have been for the last two decades. We can look at where people live, for example. Alan Farago points to the central role played by suburban sprawl in the era that is coming to an end. The sprawl was driven by massive infusion of cheap credit gained from the export of productivity away from the United States that Roberts referred to. The sprawl had more than economic consequences, it also propelled a political, psychological and spiritual crisis:

The Housing Crash, Suburban Sprawl and the Crisis of the American Middle Class

Alan Farago

November 3 / 4, 2007

Congress and the White House, state governments, local legislatures and lobbyists are vested to the hilt in denial: that the downgrade by Moody's of at least $50 billion in collateralized debt from AAA to junk is a verdict on an economic model-suburban sprawl-that is torpedoing America's middle class.

At the heart of sprawl is securitization: that is to say, the packaging of mortgages by Wall Street indifferent to locale so long as the shape, size, and purpose of its components is more or less the same.

The catalogue of horrors is not exclusive to the middle class, of course. In places like Miami, the housing bubble had the collateral effect of diverting attention from the needs of the poor. While local legislatures did the bidding of the growth machine, the county housing agency was looted to a fare-thee-well.

But it is suburbia is where the financial avalanche in debt markets started-in states like Florida where a sophisticated economic elite, tied to the interests of production homebuilders, primed the pump of the growth machine.

Today, the stock market remains near historic highs but it is increasingly irrelevant to the middle class. The Wall Street press is filled with hope for another interest rate cut by the Federal Reserve. There is James Cramer (who even appeared on NBC Nightly News! as a reporter from the trenches) hyperventilating over the Fed "doing something", but when it can turn its TV set off long enough to pay attention, the middle class is like a boxer looking at its face in the mirror for the first time.

Round after round of promises: low inflation, steady job growth, health care, bridges, highways, the promise of public education, social security, the environment: what stares back at the middle class is an almost unrecognizable result.

The phenomenon was noted in the Sunday New York Times Magazine, "End Times for Evangelicals?" The report explored the profound change as Christian conservatives abandon the Republican party.

Some evangelical leaders are apparently concerned how closely tied the religious right has become to corporate America.

Another aspect, scarcely noted by the Times, is how the religious right organized in megachurches located in suburbia and rose exactly in proportion to the false prosperity of a housing bubble.

The constituents of suburban sprawl need constant spiritual renourishment even as discomfort spreads of its strip mall culture. The megachurches are a welcome relief for wage-earners pinned by long commutes from home to work and especially for latch-key children otherwise languishing in homes without mom or dad.

The bursting housing bubble is fragmenting the religious right. It's not a matter of evangelical convictions faltering. It's a matter of home economics ruining families as lines of credit and home equity make fools of believers. It's not just about church on Sunday. It's about the middle class coming to a boil over manifest inflation despite government assurances, good news papering over rampant fraud, it's about vanishing home equity, and it's about the middle class realizing that it has been left behind by arks of privilege.

It's in this context to consider two pieces of news: first, that Stanley O'Neal-the CEO of Merrill Lynch-has been held accountable for the worst loss in Mother Merrill's history, some $8.4 billion and yet will retire, according to press reports, with a payday that could reach $200 million.

The second piece of news is from the New York Times (Saturday, October 27, 2007), "As Housing in Florida Plummets, the Top Tier of the Market Just Dips."
"Despite a record number of foreclosures and a raft of public auctions of unwanted houses, the upper tier of the real estate market in Florida remains relatively immune to the spreading disaster As in other once-booming regions, in Florida the housing market seems to be not one market, but two. The lower end is littered with vacant houses and unfinished developments, and homeowners are struggling to meet their monthly payments as rates adjust upward. The luxury end has its unsold new condos and mansions lingering on the market, too, but as in New York, where the demand in pricey Manhattan is still strong, sales have fallen less. And Miami and other parts of Florida are continuing to attract interest among the wealthy."

At the same time, the stratification of housing markets in places like Manhattan or tony vacation retreats in Florida appear to the middle class to be supported by the kinds of financial fraud that turned dreams of wealth into bankruptcy on Main Street and turned AAA rated paper to junk on Wall Street.

But it does not pass unnoticed by Main Street that Wall Street can walk away from its failures with hundreds of millions, all taken down as fees and commissions and salaries in the creation of financial derivatives-or how speculators and bankers and developers in places like suburban Miami have squirreled away profits from developments at the edge of the Everglades foisted off as a public good-or, how the deal worked out by Wall Street banks whose off-book transactions shielded nearly $100 billion in losses will result in a further rain of commissions-as much as $1 billion worth according to recent financial reports.

These are the arks of privilege insulating the highest strata of society from the disintegration of the US dollar.

Today, homeowners in the millions-middle class Americans-are absorbed with the anxiety of foreclosure, of a home that can't be sold except at a loss, or, of personal debt tied to vanished gains of an unrealized asset. But there is more.

How much more remains to be seen. The total damage to financial institutions, measured in the hundreds of billions, may be absorbed by the wealth of nations, but the damage is so large, so global, no wonder most middle class Americans have no idea what hit them.

Here is what hit the middle class: wealth drained from the US economy by the forces of globalization-owned as equity now in low-cost labor or oil-producing nations-returned to the United States in the form of US government debt but also ownership of mortgage backed securities and other higher yielding financial derivatives. That they should be less than eager for a repeat performance should surprise no one.

And American voters think the biggest problem is tax dollars financing both sides of the "war on terror"? No. There's more.

If securitization defines suburban sprawl as a matter of scale (ie. more Targets, more Lowes, more McDonalds: can you really fit a hundred million people into Florida?), scale itself makes accountability vanish.

As accountability vanishes, uncertainty rises exponentially. There is a domestic analogue to the uncertainty plaguing world credit markets: for the American middle class, as accountability vanished in the financial sphere, so did the ideals of a civil society and representative democracy.

The middle class was promised the "ownership society", and while it was passively satiated by "American Idol" and "Dancing with the Stars" promising that anything is possible, its pockets were picked.

The middle class was robbed by liar loans and mortgage fraud, from toxic consumer debt to the wholesale conversion of local government to the purposes of the growth machine.

The biggest risk-one that the mainstream press and Wall Street, both, should take into account-is that the coming recession will trigger a backlash against the bankers and financiers whose engineering related to housing markets and mortgages did not, in fact, diversify risk (as securitization of mortgages was advertised to do,) but concentrated risk by raising the unquantifiable to exalted status.

America's political and economic elites have been perfectly happy with the arrangement, but in 2008, watch the "values voters". This time, the middle class, evangelical or not, will be pegged to the value of the dollar more than the morals so many candidates for political office wear on their lapel like laquered pins of the American flag.

The psychological costs of all this can be seen in the results of a survey done by the American Psychological Association.

One-third of Americans live with “extreme stress”

Naomi Spencer
29 October 2007

One in three adults in the US regularly contend with extremely high levels of stress, resulting in problems with their health, relationships, and work, according to a new national survey. Economic troubles are the driving force of stress for ordinary Americans, who reported money, workload, and housing expenses among their most stressful concerns.

The survey, Stress in America 2007, released October 24 by the American Psychological Association, was conducted online last month by polling agency Harris Interactive. It was based on a sample of 1,848 adults. Responses indicated that nearly half of all Americans are living with more stress than in the past few years.

It is no surprise that the rising cost of living, stagnating wages, and poor job market figure heavily into the worries of working families. Three-quarters of respondents reported money and work as the leading causes of stress, a significant jump from 2006, when 59 percent cited those factors.

Because the survey was undertaken on the Internet, media outlets have cautioned that the findings do not carry the same scientific weight as other research. However, if anything, the survey results probably underestimate the stress borne by lower income workers, who are less likely to use the internet.

Nearly half of all respondents reported that stress negatively impacted both their personal and professional lives, leading to difficulties in managing work and family responsibilities. More than half said stress led to fighting, and many attributed stress to the ostracism of family members, family separation, and divorce.

Interpreting the findings, Dr. Bankole Johnson, chair of the Department of Psychiatry and Neurobehavioral Sciences at the University of Virginia, told ABC News that the economy was alienating to individuals, leading to mass uncertainty. “A lot of people are faced with a sense of an uncertain situation, and for most people that’s a big stressor,” he said.

The political climate has also contributed to stress. Johnson remarked, “There is the constant stress of the war on terrorism...I would say that in the last ten years, there is more stress in general in the world. There is more uncertainty and a feeling that the world is somehow less safe than it ever has been.”

This stress has been deliberately grafted onto American life over the past seven years, as the government and media have subjected the population to a constant barrage of color-coded terror alerts and fear-mongering. To the extent possible, the political establishment has promoted fear in order to justify militarism abroad and the attack on democratic rights at home.

Immense social inequality assumes a definite place among the burdens shouldered by ordinary Americans. For example, the APA report notes in passing that 40 percent of respondents said they do not use all their allotted vacation time annually. Among employed respondents, the leading sources of stress reported were low pay (44 percent), heavy workload (40 percent), and long hours (39 percent).

A September report from the International Labor Organization found that Americans are the world’s most productive workers, largely because of the sheer number of hours worked. As one company after another in every economic sector carries out layoffs, workers are required to take on greater workloads and increase their output. Meanwhile, these wages have declined relative to inflation, and the cost of basic needs such as gasoline, food, and home energy contributes to the stress of working families.

Across industries, a third of workers reported experiencing extreme levels of stress during the month prior to being surveyed. Workers in the education and health services industries reported higher stress levels, with four in ten reporting “extreme stress.” These workers were among those who most frequently citied work as a cause of stress. Half of education and health workers reported low salaries, high workloads, and unrealistic job expectations.

The APA reported that adults with less than $50,000 in annual household income were more likely than those with higher incomes to report both physical (80 percent versus 74 percent) and psychological (77 percent versus 68 percent) symptoms of stress. Physical symptoms included fatigue, headaches, tightness in the chest, faintness and dizziness, upset stomach and other digestive problems. Common psychological symptoms included anger, anxiety, and “feeling as though you could cry.” On average, the survey found that Americans lost 21 hours of sleep per month due to stress, with half of respondents reporting insomnia at night during the last month.

Lower income adults managed their stress poorly, according to the APA, relying more heavily on smoking and drinking, skipping meals and missing sleep. Poor management of stress contributes to serious health problems such as obesity and heart disease. Chronic stress, which results in an elevated heart rate over long periods, is strongly associated with increased risk of heart attack.

The APA noted, “While 69 percent recognize that a mental health professional could aid in stress management, only 7 percent have sought professional support to help manage their stress during the past year.”

The ongoing collapse of the housing market presents a particular strain for individuals. More than half of the APA’s respondents cited rent or mortgage costs as sources of “extreme stress.” Dr. Beverly Thorn, president of the APA health psychology division, told ABC News that the respondents cited housing costs even when they were not necessarily prompted to specify the source of their stress.

On the West Coast, where median housing prices and foreclosure rates are among the highest in the country, 61 percent of respondents reported housing costs as a significant stressor.

According to statistics from housing sector tracker DataQuick Information Systems, mortgage companies sent over 72,500 pre-foreclosure default notices to California borrowers in the third quarter, substantially surpassing the previous record of 61,500 set in 1996. DataQuick also reported last week that California home sales for September were the slowest since the company began keeping records in 1988.

The decline of the housing market has very real consequences for the economy at large and the living conditions of working class households. As interest rates reset on millions of adjustable rate mortgages, borrowers in default are confronted with a market saturated with devalued houses. Unable to sell for what is due on the mortgage, homebuyers are pressed into foreclosure.

A number of new reports project more than a million foreclosures in the next year, wiping out an estimated $71 billion in housing wealth. Another $32 billion is expected to be lost indirectly as a result of neighborhood home devaluation in areas where foreclosures occur.

Recent books by Martha Stout (The Paranoia Switch, see also this review) and Naomi Klein (The Shock Doctrine: The Rise of Disaster Capitalism, see also this video) show that the stress and the fear is no accidental by-product of a fast paced economy nor merely a justification for wars but something much more sinister.