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

By Simon Davies and Donald Hunt
SOTT.net

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

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

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

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

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

Markets

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

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

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

Dollar/Gold -- Note the ceiling at $1000

Dollar/Oil - back to Jan 05 levels

Euro/Oil

Dollar/Euro

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


Reserve Currency

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

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

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

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

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

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

Global reserve currency

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

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

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

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

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

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

Gold

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

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

NYSE Runs Out of Gold Bars: What Happens Next?

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

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

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

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

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

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

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

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

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

Monetary Policy, Inflation, Stimulus

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

Financial Rescue Nears GDP as Pledges Top $12.8 Trillion

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

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

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

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

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

'Within an Eyelash'

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

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

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

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

The Real Economy

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

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

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

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

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

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

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

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

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

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

US banking rescue

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

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

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

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

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

Joe Kishore again:-

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

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

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

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

The Free Market, Financial Style: How the Scam Works

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

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

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

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

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

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

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

The free market at work, financial style.

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

AIG and Goldman Sachs

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

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

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

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

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

AIG Payments to Banks Should Be Probed, Lawmakers Say

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

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

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

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

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

Imposing 'Haircuts'

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

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

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

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

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

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

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

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

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

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

As FTAlphaville put it:-

... which caused something of a furore.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sen. Gramm:-

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

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

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

The New York Times article did say that

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

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

Under a Guise

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

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

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

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

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

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

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

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

Market Data

The markets from March 23rd to March 31st

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

The markets from January 2nd to March 31st

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

The Shocks Continue : Currency Crisis and Emerging Market Collapses

On both sides of the Atlantic there is incredulity at the gall of bankers. Goldman Sachs is reported to have set aside $7 billion for bonuses having received $6 billion from the federal government in bailout funds; while The Royal Bank of Scotland is scheduled to pay out a much more modest $2.9 billion equivalent.

The age old argument that bonuses have to be paid to keep people from walking has of course been trotted out. In the current atmosphere, it might be said that bankers are lucky not to be walking the plank let alone getting a bonus. Indeed, in any just society many of them would be in jail already.

Markets

World stock markets rebounded strongly last week. The major world indices all gained back more than they lost the week before, with the ones that fell the most rising the most. The Hang Seng was up 19% and the Nikkei was up 13%. The Dow rose 11% after only falling 5% the week before.

Oil prices rose regaining about half of what was lost the week before. Gold however continued its suspicious decline.

The U.S. Federal Reserve Board announced another interest rate cut, reacting to more news of contraction in the real economy and of plummeting consumer confidence, which seemed to help stocks and oil regain previous losses.

The markets this week

	Previous week's close	This week's close	Change	% change
Gold ($)	730.30	718.20	12.10	1.66%
Gold (€)	578.50	564.40	14.10	2.44%
Oil ($)	64.15	67.81	3.66	5.71%
Oil (€)	50.82	53.29	2.47	4.86%
Gold:Oil	11.38	10.59	0.79	6.94%
$ / €	0.7922 / 1.2624	0.7858 / 1.2725	0.0064 / 0.0101	0.81% / 0.80%
$ / ₤	0.6290 / 1.5898	0.622 / 1.6077	0.0070 / 0.0179	1.11% / 1.13%
$ / ¥	94.318 / 0.0106	98.465 / 0.0102	4.147 / 0.0004	4.40% / 3.77%
DOW	8,379	9,325	946	11.29%
FTSE	3,883	4,377	180	12.72%
DAX	4,295	4,988	692	16.12%
NIKKEI	7,568	8,577	1,009	13.33%
BOVESPA	31,482	37,257	5,775	18.34%
HANG SENG	12,373	14,709	2,336	18.88%
US Fed Funds	1.00%	0.12%	0.88	88%
$ 3month	0.84%	0.38%	0.46	54.76%
$ 10 year	3.69%	3.96%	0.27	7.32%

You may have noticed some new numbers in a new format. We have added a sampling of the world's stock indexes along with the Japanese Yen and British Pound exchange rates. Here is a brief summary of what these numbers mean

Precious Metals

Gold Price in Dollars

Gold has held value for thousands of years, for far longer than any currency. So the price of gold can be considered to measure the value of currencies. Gold is also a commodity however, so it is a rare thing: a commodity and a currency. Historically, gold is seen as a haven/store of value in uncertain and volatile times.

Gold Price in Euros

Following this number allows us to determine, to some extent, whether gold is rising in price or whether the dollar is falling. If gold stays stable against the euro but rises against the dollar, than what is really happening is that the dollar is falling.

Gold/Oil Ratio

Historically, an ounce of gold has bought about ten barrels of oil. This ratio can sometimes get out of balance in one direction or the other. But it can tell us if there is an unusual run-up in either gold or oil, or if what we are seeing is a general rise in the price of all commodities. That is another way of saying that all currencies are worth less.

Stock Indexes

Stock indexes are total groups of stocks traded in different world stock exchanges. They can be weighted in different ways, such as price-weighted or capitalization-weighted (capitalization meaning the total value of a company's stock) but the idea is to have a snapshot of the perceived health of companies traded in different stock exchanges.

DOW

The Dow Jones Industrial Average. An index of 30 "Blue Chip" U.S. stocks, or stocks of prestigious, well-established corporations. These stocks often pay regular dividends. The stocks that make up the Dow change over time, but represent leading companies in different industries, such as Disney, DuPont, Kraft, General Motors, General Electric, ATT, Coca-Cola, IBM, you get the idea. Big-time American corporations.

FTSE

Pronounced "Footsie," the FTSE 100 is like a British Dow Jones, comprised of the leading 100 British corporations.

DAX

The DAX is an index of 30 leading stocks traded in the Frankfurt exchange, so it's like a German Dow. The DAX is a good way to get an idea of the health of European corporations, since Germany is the leading economy in continental Europe.

NIKKEI

The Nikkei 225 is the most important Japanese index. The Nikkei is a price-weighted index of 225 leading Japanese stocks traded on the Tokyo stock exchange. Along with the Hang Seng, it is a good indicator of the health of Asian capitalism. Most of your favorite Japanese companies are in the Nikkei, such as Sony, Toyota, Mitsubishi, Konica-Minolta, etc.

HANG SENG

The Hang Seng is an index of 45 stocks traded on the Hong Kong stock exchange. It is a good indicator of the health of Chinese capitalism in particular, and, along with the Nikkei, Asian capitalism in general. Mainland China's stock exchanges are not yet mature enough to be a reliable indicator, but may be soon as their banking and regulatory systems mature.

BOVESPA

The Bovespa index measures Brazilian stocks traded on the Sao Paolo stock exchange. Brazil is the largest economy in Latin America and can be seen as an indicator of second-tier capitalist countries on the verge of the first tier.

Currency Exchange Rates

U.S. dollar

The greenback is the world's most important reserve currency (for now). The dollar's supremacy is due to US economic and military dominance of much of the world, and the pricing/trading of commodities in dollars.

Euro

The currency of the European Union and newest of the major currencies. It is the official currency of 15 of the member states of the E.U. It has joined the dollar as a major reserve currency, giving a stable alternative to those central banks that want to diversify away from the dollar.

Japanese Yen

Japan's currency is the third most traded currency after the dollar and euro and is also used as a reserve currency.

British Pound

The grand old lady of world reserve currencies. Reflects the strength of Anglo capitalism and the world's oldest central bank, the Bank of England. The pound is the third-ranked reserve currency. Not bad for a former imperial power. Maybe the British bankers are not so "former" after all.

Interest Rates

U.S. 10-Year Treasury Note

How much annual interest you get for loaning the U.S. government money for ten years, in other words for buying a 10-year Treasury Note. The main indicator of long term interest rates for the dollar.

U.S. Dollar, 3 Month Rate

How much interest (on an annual equivalent basis) you would get lending money to the US government for 3 months.

U.S. Federal Funds Rate

The rate that US banks lend reserves held with the Federal Reserve to each other on an overnight basis. While determined between the banks, the Federal Reserve targets the nominal rate as a means controlling money supply.

While markets rebounded in the US on Halloween, October remained ugly and the state of the real economy continues to worsen:-

Ugly October ends with an upbeat day on Wall St

Leah Schnurr
Fri Oct 31, 5:10 pm ET

U.S. stocks ended one of their worst months on record, but signs of further thawing in credit markets lifted battered shares on Friday.

Hammered by worries over the extent of the damage the credit crunch has inflicted on the global economy, the Dow Jones industrial average logged its biggest monthly decline in a decade, while the S&P 500 had its worst month since the October 1987 market crash.
[ ]

The decrease in overnight interbank borrowing costs prompted hopes that global efforts to bolster confidence in credit markets are taking hold following the Federal Reserve's interest-rate cut earlier this week and spurred investors to search for bargains.

"It seems like you have some continued mild improvement in the credit markets and that seems to be buoying hopes but people should know, conditions may have improved, but they're improving slowly," said Chip Hanlon, president of Delta Global Advisors Inc, in Huntington Beach, California...

U.S. consumers cut their monthly spending for the first time in two years during September, according to a U.S. Commerce Department report...

In other economic news, an index of consumer sentiment suffered its steepest monthly drop on record, according to the Reuters/University of Michigan Surveys of Consumers' final reading for October.

And the Chicago Purchasing Management Index showed that business activity in the Midwest came to a halt in October as production and new orders plummeted...

Despite the rise in stocks last week, the real economy looks as bad as it ever did.

Payrolls Probably Fell, Factories Shrank

Bob Willis

Nov. 2

U.S. employers probably eliminated jobs in October for a 10th consecutive month, while manufacturing contracted at the fastest pace since the 2001 recession, economists said before reports this week.

Payrolls shrank by 200,000 workers, according to the median estimate of economists surveyed by Bloomberg News before the Labor Department's report on Nov. 7. The unemployment rate may jump to its highest level in more than five years.
[ ]

The loss of almost one million jobs, falling property values, slumping stocks and frozen credit may cause consumers and businesses to keep retrenching. The state of the economy gave Democrat Barack Obama a lift over Republican rival John McCain as Americans, who will elect a new president in two days, perceived the Democrat from Illinois had a better grasp of the issue.
[ ]

The jobless rate last month probably rose to 6.3 percent from 6.1 percent in September, the survey also showed.

''Unemployment is likely to rise sharply over the next several months as repercussions from the credit crisis ripple through the economy,'' said Russell Price, senior economist at H&R Block Financial Advisors in Detroit. ''The economy is the most important issue on the minds of voters.''
[ ]

''Downside risks to growth remain,'' the Federal Reserve said last week as it lowered its key rate by a half point to 1 percent. ''Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports.''
[ ]

''Swift and decisive actions are necessary in response to today's global economic conditions,'' Chief Executive Officer Charles ''Chip'' McClure said in a statement.
Service industries, which range from homebuilders to mortgage lenders, retailers and restaurants, and account for almost 90 percent of the economy, also probably contracted in October, economists forecast another report from the Institute for Supply Management will show on Nov. 5.
[ ]

The economy shrank at a 0.3 percent pace in the third quarter, with consumer spending dropping by 3.1 percent, the biggest decline since 1980, the Commerce Department reported last week. Business investment in equipment and software fell at a 5.5 percent rate. Economists surveyed by Bloomberg forecast the economy will contract at a 0.8 percent rate in the fourth quarter.

Circles of Power

Last week we talked a bit about Circles of Power stating that, "Throughout history, bankers have formed circles and clubs around them, the present day is no different. The members of these circles, of which there are inner, intermediate and outer, some interlocking some not, are bound by common values and psychology (psychopathy and characteropathy), by blood, inheritance, education, history, money and ultimately of course, power and the desire to retain it absolutely."

A fine example of these 'circles of power' and how they operate has been the recent revelations in the UK regarding Oleg Deripaska, a Russian billionaire 'Oligarch'; Nathan Rothschild, a member of the Rothschild banking family; Peter Mandelson, a controversial Labour Party minister and George Osbourne, a senior member of the Conservative party opposition.

Nathaniel Philip James Rothschild, co-chairman of Atticus Capital, is the 37 year old only son of Jacob Rothschild (4th Baron Rothschild).

His father controls RIT Capital Partners, hold shares in Rothschild Continuation Holdings, is said to have strong personal and business links with Henry Kissinger and maintains exceptionally strong links with Israel, the family having given the Knesset and Supreme Court buildings to Israel.

Rothschild Continuation Holdings' UK operating company, N.M Rothschild & Sons lists as "notable current and former employees" men at the top of: Blackstone Indosuez, Telecom Italia, Citigroup, Heineken, Shell, National Power, Repsol, Coca-Cola, McGraw Hill, Philips Electronics, Aviva, Gallaher, Jardine Matheson, De Beers, Economist Intelligence Unit, Guardian Media, Marks & Spencer, Bear Stearns, Lazard, BBC, Freshfields, Coopers & Lybrand, Savills, Verizon, Royal Bank of Scotland, British Telecom. This list of men in politics and public service is equally impressive including a former President of France, French Minister of Economy, Governor of the Bank of England, British Finance Minister, Chancellor and Germany and UK Chief of the Defense Staff.

In 2003 Jacob Rothschild was found to have exceptionally close links with Russian oil oligarch Mikhail Khodorkovsky when it became public that the voting rights on Khodorkovsky's shares in Yukos passed to him in the event of Khodorkovsky being unable "to act as beneficiary". Thus solving the apparent mystery as to how a handful of unknown's succeeded in buying up the crown jewels of the Russian economy thus transforming themselves into "Oligarchs". As the expression goes, "follow the money".

Young Nathan Rothschild, in keeping with the family tradition, is the "financial advisor" to Oleg Deripaska purportedly Russia's richest man. Deripaska, like all the Russian Oligarchs, is under pressure from his bankers having borrowed heavily to finance his expansive business empire.

During this last summer (2008) Rothschild held a party aboard Deripaska's immense yacht, the Queen K, while it was moored in Corfu. Attending the party and staying on the yacht, was Peter Mandelson EU Trade Commissioner and now a British government minister. Mandelson is regarded by many as being exceptionally corrupt in both is personal life where he is reported to have a penchant for young boys and in his business and political dealings which have led him to be dismissed from government office twice before.

For an EU Trade Commissioner to have such a close relationship with a man of Deripaska's reputation is highly suspicious to many including the UK Sunday Times. What Mandelson lacks in personal integrity he makes up for in political cunning, representing therefore a potent threat to the political opposition in the UK.

So it is that it must have seemed a chance too good to miss for George Osbourne, a university friend of Nathan Rothschild and shadow chancellor for the Conservative Party, having attended the party on the Queen K as well, not to leak Mandelson's attendance to the press in the hope of scoring a potentially fatal political blow to Mandelson.

However, while Mandelson has indeed been wounded, it has been fascinating to see the counterattack against Osbourne which has emanated, in a public letter, from none other than Nathan Rothschild. The counter accusations of political impropriety against Osbourne have been investigated and he is deemed innocent but one can only wonder at the comment in the UK Daily Telegraph "George Osborne and the [Conservative] Party have been warned that they should stop their attempts to 'rubbish' Nat Rothschild, or risk being brought down".

Currency Crisis

Last week we commented:-

What is needed is not a new currency system although that is the focus of much rhetoric as we have seen [...] At this stage we don't see there being sufficient stress in the currency markets to swing a new currency on a single region [...] All the talk of current institutions being insufficient to manage global affairs and of individual countries being swamped by capital movements suggests to us that there is a move afoot to bring in a global central bank; and not the BIS which would remain in the background, at least for the time being. This might be achieved via some sort of reform of the IMF but we doubt it.

The Euro, British Pound and Japanese Yen had all depreciated substantially against the US dollar. While more dramatic depreciations had been in commodity based and emerging market currencies, led by the Australian and New Zealand dollars with the currencies of Korea, Poland, Hungary, Mexico and South Africa among those quickly following. No sooner had we commented than on October 26th the G7 Finance Ministers and Central Bank Governors had this to say:-

We reaffirm our shared interest in a strong and stable international financial system. We are concerned about the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability. We continue to monitor markets closely, and cooperate as appropriate.

Plus a mass of "currency crisis" headlines hit the media:-

Currency markets in turmoil as crisis extends

Europe's financial crisis is spreading eastward

Denmark currency crisis prompts euro re-think

Denmark made its clearest commitment to a currency u-turn as it became the latest country to clamour for the euro as a result of the financial crisis.....
[ ]

Among the 12 'new' members who joined since 2004, Slovenia, Cyprus and Malta have adopted the euro and Slovakia will follow on January 1, while high-level opposition dramatically softened in Poland this week with talk of a 2012 entry date.

Hungary also said that it wanted to speed up entry following the damaging run on the forint which led to Wednesday's $25 billion international rescue package for its economy.

"The euro ensures political and economical stability in Europe and the current financial turmoil makes it evident that Denmark has to join the Euro,"
[ ]

Danish voters have been very sceptical of euro entry, rejecting the Maastricht Treaty in 1992 and only passing it with an opt-out for the single currency, and again resisting the currency in a referendum in 2000 by 53.2 per cent to 46.8 per cent on a massive 87.6 per cent turnout. But a recent poll showed that a slim majority, 50.1 per cent, were now in favour.

Support for the euro is also on the up in Sweden, with a poll this week showing 42 per cent in favour and 47 per cent again, with 11 per cent undecided. In May, just 34.6 per cent were in favour and 51.7 per cent against.

The financial crisis has also concentrated minds in Poland, where the eurosceptic President, Lech Kaczynski, has relaxed his opposition and seems likely to support the constitutional changes needed to adopt the single currency, following a referendum.

The other small country buffeted by the worst of the financial storms and eyeing the security of the euro is Iceland - which would first have to join the EU. Polls are showing a huge change of heart in the island with 70 per cent in favour of membership of the organisation.

Europe on the brink of currency crisis meltdown

The financial crisis spreading like wildfire across the former Soviet bloc threatens to set off a second and more dangerous banking crisis in Western Europe.........Currency pegs are being tested to destruction on the fringes of Europe's monetary union in a traumatic upheaval that recalls the collapse of the Exchange Rate Mechanism in 1992.

"This is the biggest currency crisis the world has ever seen," said Neil Mellor, a strategist at Bank of New York Mellon.
[ ]

The risk is a surge in capital flight from Austria - the country, as it happens, that set off the global banking collapse of May 1931 ....

The latest data from the Bank for International Settlements shows that Western European banks hold almost all the exposure to the emerging market bubble, now busting with spectacular effect......Austria's bank exposure to emerging markets is equal to 85pc of GDP - with a heavy concentration in Hungary, Ukraine, and Serbia - all now queuing up (with Belarus) for rescue packages from the International Monetary Fund.

Exposure is 50pc of GDP for Switzerland, 25pc for Sweden, 24pc for the UK, and 23pc for Spain. The US figure is just 4pc. America is the staid old lady in this drama. ....Amazingly, Spanish banks alone have lent $316bn to Latin America, almost twice the lending by all US banks combined ($172bn) to what was once the US backyard......as Argentina spirals towards another default, and Brazil's currency, bonds and stocks all go into freefall.
[ ]

The IMF's experts drafted a report two years ago - Asia 1996 and Eastern Europe 2006 - Déjà vu all over again? - warning that the region exhibited the most dangerous excesses in the world.

Inexplicably, the text was never published, though underground copies circulated.

It is just blood in the water for hedge funds sharks, eyeing a long line of currency kills.
[ ]

Russia too is in the eye of the storm, despite its energy wealth..........The foreign debt of the oligarchs ($530bn) has surpassed the country's foreign reserves. Some $47bn has to be repaid over the next two months.
[ ]

It is almost guaranteed that euroland money supply is about to implode," he said.
[ ]

The threat to Britain lies in emerging Asia, where banks have lent $329bn, almost as much as the Americans and Japanese combined.

The last of these being from Ambrose Evans-Pritchard at the UK Daily Telegraph who quickly followed up a couple of days later with the catchy headline, "IMF may need to "print money" as crisis spreads":-

The International Monetary Fund may soon lack the money to bail out an ever growing list of countries crumbling across Eastern Europe, Latin America, Africa, and parts of Asia, raising concerns that it will have to tap taxpayers in Western countries for a capital infusion or resort to the nuclear option of printing its own money.

Brad Setser, an expert on capital flows at the Council for Foreign Relations, Russia, Mexico, Brazil and India have together spent $75bn of their reserves defending their currencies this month, and South Korea is grappling with a serious banking crisis.

"Right now the IMF is too small to meet the foreign currency liquidity needs of the larger emerging economies. We're in a dangerous situation and there is the risk of extreme moves in the markets, as we have seen with the Brazilian real. I hope policy-makers understand how serious this is," he said.

What a clear message the Council on Foreign Relations is sending to those in the intermediate and outer circles of power, and to us too. There will be extreme moves in the markets controlled, indirectly of course, by those very people that can make such starkly accurate predictions when it suits them.

So we were right, there wasn't sufficient stress in the currency markets to justify a new currency system but all that can be changed in a week with a bit of market manipulation and perception management. We are about to have a finely engineered currency crisis with all that that entails in terms of human suffering at one end of the scale and further accumulation of wealth at the other. More pain and suffering and further shocks to the system to add to the pressure upon people so that we clamour for certainty and welcome our new slavery with open arms.

Not only will we have a currency crisis but it seems we are being softened up for a global central bank. One that might even create it's own money. Evans-Pritchard continues:-

The IMF, led by Dominique Strauss-Kahn, has the power to raise money on the capital markets by issuing 'AAA' bonds under its own name. It has never resorted to this option, preferring to tap members states for deposits.

The nuclear option is to print money by issuing Special Drawing Rights, in effect acting as if it were the world's central bank. This was done briefly after the fall of the Soviet Union but has never been used as systematic tool of policy to head off a global financial crisis.

"The IMF can in theory create liquidity like a central bank," ............The IMF clearly fears a domino effect in Eastern Europe where a collapse in one country automatically leads to a collapse in another,"
[ ]

The root problem is that Eastern Europe and Russia have together borrowed $1,600bn from foreign banks in euros and dollars to fund their catch-up growth spurt over the last five years, according to data from the Bank for International Settlements. These loans are now coming due at an alarming pace. Even rock-solid companies are having trouble rolling over debts.

Mr Schering said Turkey was likely to join the queue for bail-outs very soon. "Their external liabilities have reached $186bn, and a lot of this is short-term debt that has to be rolled over in coming months," he said.

Turkey's prime minister Recep Tayyip Erdogan said over the weekend that his country would not "darken its future by bowing to the wishes of the IMF", but it is unclear how long Ankara can maintain its defiant stand as capital flight drains reserves.

Pakistan - now facing imminent bankruptcy - has also raised political hackles, balking at IMF demands for deep cuts in military spending as a condition for a standby loan. Diplomats say it is unlikely that the West will let the nuclear-armed Islamic state slip into chaos.

So crisis upon crisis is set to roll over us, just as we discussed last week.

The Origins of Totalitarianism

Hannah Arendt, in The Origins of Totalitarianism (1951) demonstrates the interconnected nature of racism, expansionist capitalism and imperialism. Bureaucracy and rascism were the main traits of colonial imperialism which might be better called unlimited capitalist expansionism. Excess capital built up in European nation states during the 19th century and had to be invested outside those nation states. Very soon, the export of money led to the export of government power in protection of that money. Business was transformed into a political issue and the narrow economic interests of a relatively small group became equated with national interests. Expansion became an end in itself and its protagonists became "nothing but functionaries of violence [who] could only think in terms of power politics. They were the first who, as a class and supported by their everyday experience, would claim that power is the essence of every political structure."

We children of the 20th century have never known a world not dominated by the equating of business interests with national interests. All modern foreign policy is about business. Arendt continues:-

The new feature of this imperialist philosophy is not the predominant place it gave to violence, nor the discovery that power is one of the basic political realities. Violence has always been the ultima ratio in political action and power has always been the visible expression of rule and government. But neither had ever before been the conscious aim of the body politic or the ultimate goal of any definite policy. For power left to itself can achieve nothing but more power, and violence administered for power's (and not for law's) sake turns into a destructive principle that will not stop until there is nothing left to violate.

Arendt was writing in 1951 about a philosophy that developed the previous century. Since then Western, and in particular US, power backed by violence wielded for the benefit of global corporations has dominated history. While masquerading as "freedom" facing the implacable "communist" enemy it was all too easy for many to fail to observe the true nature of events spanning the globe from Latin America to Southeast Asia. Now, seen for the naked expansionism that it is, with its overt and covert racism, unmitigated brutality and violence at home and abroad, we can only thank Hannah Arendt for her perspicacity in seeing its origins and detailing where, by virtue of its own nature it has to end - Totalitarianism.

So here we are, at the natural conclusion of all that power and violence in the thrall of a singular creed of monetary greed, or as Arendt put it, "the unlimited accumulation of capital". It is our conjecture that we are in a new, and possibly final, phase of this "unlimited accumulation of capital". A phase in which the meagre "capital" that ordinary people have accumulated, or have any hope of accumulating in the future, is in the process of being stripped from them so as to become concentrated in the hands of a very small elite.

As we look into the economic abyss we must also face the political and social abyss that is the totalitarian society that steadily surrounds us, which those in the circles of power are working feverishly to consolidate before enough of us wake up to make a difference.

There are alternatives to this 19th century philosophy gone wild. The US economist Herman Daly, delivered a paper to the Sustainable Development Commission in the UK in April this year in which he reiterated his idea of a Steady State Economy that can replace the "failed growth economy". We will be exploring his ideas on the macro-economic scale and some of our own on the micro-economic scale next week.

However, the issues of our time extend far beyond the economic sphere, they extend to our very conception of ourselves and each other and the true circumstances in which we find ourselves. We need to learn how to survive within the system in which we find ourselves while also building our own new systems. It would seem to us to be foolhardy to cut ourselves off from the existing system as that system is so dominating and so clearly intent on total global domination that we must find a role to play in it to maintain our very existence. Yet, if we wish for a better world, one in which a different set of values maintains, we have to take responsibility and build that world ourselves.

One of the saddest attributes of the political systems in which we find ourselves is that we have surrendered our political rights and social responsibilities to the state. It is time we reclaimed both.