Signs of the Economic Apocalypse, 7-7-08

From SOTT.net:

Gold closed at 935.50 dollars an ounce Friday, up 0.5% from $931.30 for the week. The dollar closed at 0.6367 euros Friday, up 0.6% from 0.6332 at the close of the previous week. That put the euro at 1.5706 dollars compared to 1.5793 the week before. Gold in euros would be 595.63 euros an ounce, up 1.0% from 589.69 at the close of the previous week. Oil closed at 144.18 dollars a barrel Friday, up 2.8% from $140.21 for the week. Oil in euros would be 91.80 euros a barrel, up 3.4% from 88.78 at the close of the Friday before. The gold/oil ratio closed at 6.49 Friday, down 2.3% from 6.64 for the week. In U.S. stocks, the Dow closed at 11,288.54 Thursday (Friday was a holiday), down 0.5% from 11,346.51 at the close of the previous Friday. The NASDAQ closed at 2,245.38 Thursday, down 3.1% from 2,315.63 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 3.98% up one basis point from 3.97 for the week.

Recent trends continued last week with gold up, oil up much more, stocks down and, in the U.S., jobs down.

Job losses mount as US economy heads into virtual freefall

Jerry White

3 July 2008

Job losses in the US are mounting as inflation, the credit crunch, plunging home values and tighter family budgets are combining to produce a perfect storm of economic malaise, which is threatening the livelihoods of tens of millions of working people.

The private sector eliminated 79,000 jobs from May to June, according to a survey of nearly 400,000 US businesses released Wednesday by Automatic Data Processing, Inc. The ADP National Employment Report said the decline was “broad based across industrial sectors and suggests continued weakness in employment.”

The goods-producing sector slashed 76,000 jobs last month, ADP reported, with manufacturing employment falling by 44,000, marking their nineteenth and twenty-second consecutive monthly declines, respectively. Service jobs also declined by 3,000, the first fall-off since November 2002.

Construction and financial services related to home sales and lending are the two sectors of the economy hardest hit by the housing and mortgage crises. In June, ADP reported, construction employment dropped by an additional 34,000 jobs, marking the nineteenth straight monthly decline. A staggering 349,000 construction jobs have been lost since the peak of August 2006. Three thousand jobs in financial services were also lost in June.

“It’s clear that the housing downturn and credit crunch are still very much under way,” Andrew Tilton, an economist with Goldman Sachs told the New York Times. Clearly, there are more jobs to be lost in housing, finance and construction—hundreds of thousands of more jobs to be lost collectively.”

The US Bureau of Labor Statistics will release its monthly jobs report on Thursday, with economists predicting a loss of as many as 60,000 jobs in June. This would be the sixth consecutive month of employment declines.

Meanwhile, the Chicago-based job placement firm Challenger, Gray & Christmas Inc., which tracks job cutting announcements by employers, said planned layoffs rose to 81,755 last month, up 47 percent from June 2007.

“Downsizing in the financial sector has remained heavy, but now we’re seeing increased job cuts in other non-housing-related industries, mostly due to the added burden of skyrocketing oil prices,” chief executive officer John A. Challenger said in a statement released Wednesday. “The overall economy could continue to experience net losses for several months to come.”

…The massive loss of jobs in the US is part of an international trend fueled by the worldwide credit crisis, economic slowdown and spiking commodity prices. On Wednesday, the Paris-based Organization of Economic Co-operation and Development (OECD)—which includes 23 European states as well as the US, Australia, Turkey, New Zealand, Canada, Mexico, Japan and South Korea—warned that joblessness in industrialized countries would rise by 9 percent to 34.8 million, reversing the downward trend of recent years.

In the face of spreading unemployment, the OECD noted, “the growth in real compensation per employee should slow down in 2008 in the majority of the 30 OECD countries and be broadly in line or below productivity gains.”

From the standpoint of the world’s corporate and financial elite, this is the positive side of the growing economic insecurity felt by masses of working people. Citing the OECD figures on slowing job growth the Financial Times of London noted, “Rising unemployment, however, should dampen fears of inflationary pay rises as workers worry more about retaining their job than using their bargaining power to increase real pay.”

Meltdown of the US auto industry

Job cuts, higher prices and crushing levels of debt all threaten to slow US consumer spending, which accounts for 70 percent of the country’s economic activity. In a sign of the impact this is having on retailers, Starbucks, the world’s largest coffee chain, said Tuesday it would close 600 stores in the US—in addition to 100 already announced—laying off more than 12,000 employees.

American Airlines—which, like several other carriers, has cut back routes in the face of the high cost of fuel and fewer air travelers—announced Wednesday it would furlough 900 flight attendants.

UnitedHealth, the largest US health insurer, also announced it would lay off 4,000 workers, due to falling profits and rising health care costs.

The auto industry has been particularly devastated, with vehicle sales hitting a 10-year low, down 18 percent in June. Detroit automakers continued to see sharply declining sales, with Chrysler’s June sales down 36 percent compared to a year ago, Ford down 28 percent and General Motors falling 18 percent. Japanese automaker Toyota was also hit hard, with US sales down 21 percent.

Analysts predict automakers will sell well below 15 million new vehicles in the US this year, far fewer than the 16 million typical sold throughout the decade.
The decline—driven by high gas prices and falling demand, including from contractors and construction workers, for SUVs and pickups, upon whose high profit margins the US automakers depend —has now raised the prospect of the financial failure of one or more of Detroit’s famed “Big Three.”

GM, which is reportedly burning up $1 billion in cash reserves each month, could face bankruptcy, according to Merrill Lynch analyst John Murphy, who lowered his outlook for GM stock to $7 a share in a note to investors Wednesday. “The key change in our outlook is a much lower forecast for US auto sales that is driving higher cash burn necessitating a much larger raise than the market is currently anticipating,” Murphy wrote in reference to GM’s need to quickly borrow money.

Other analysts say GM must raise as much as a $10 billion as early as this quarter to keep operating. The company says it has liquidity and flexibility to meet its financial requirements. However, it could find raising additional cash difficult, if not impossible, because of the unfavorable rates in the tight credit market.

The threatened collapse of the once mighty icon of US industrial supremacy underscores the historic decline in the world position of American capitalism and the virtual takeover of the US economy by various forms of financial parasitism. Wall Street has carried out a deliberate policy of deindustrialization, in order to free up capital from unprofitable industries and invest it in more lucrative and speculative ventures, including the dot-com boom, the housing bubble and the new frenzy in oil, corn and other commodity future markets.

GM stock has fallen to a 50-year low, plummeting from $43 last November to close at $9.98 Wednesday. The total value of GM stock is the least of all companies traded on the Dow Jones Industrial Average. By contrast, the Internet company Google is selling at $527 per share and has a market capitalization 28 times the size of GM.

“What’s GM worth now—$7 billion?”, Bruce Birger, managing director of Birger Capital Management asked the Detroit News. “People can write checks for that amount.”

Ford, which has borrowed heavily against its assets, is not much better off, with shares of its stock selling at $4.36, roughly equivalent, the newspaper noted, to the price of gas in some major American cities.

Both companies are reportedly scrambling to sell off assets or use overseas divisions as collateral for new loans, which could mean selling them off to raise cash.

Another candidate for bankruptcy is privately-held Chrysler, which was bought by the private equity firm Cerberus. “They’re a limited liability company—when they run out of money, they’ve run out of money,” Steven Davidoff, a law professor at Wayne State University told the Detroit News. “Cerberus may push for the nuclear option and go into bankruptcy to restructure the organization,” he added, suggesting that the company could follow the lead of auto parts maker Delphi, which used the bankruptcy court to tear up its labor agreements and impose 50 percent wage cuts on its workers.

The News reported that there was “talk” of the automakers reopening union contracts, less than a year after the four-year agreement signed by the United Auto Workers bureaucracy, which handed over massive wage and benefit concessions in return for what have proven to be worthless “job guarantees.” All three of the companies have since carried out mass layoffs.

The burgeoning economic crisis is taking place in the middle of an election campaign that is remarkable for the lack of any serious proposals to meet what is increasingly becoming a catastrophe for tens of millions of working people in the US. The economic stimulus checks Washington sent out to the public have long since been eaten up by rising gas and food prices, and neither party nor their respective presidential candidates—Democrat Barack Obama and Republican John McCain—has any proposal to provide relief to workers facing the loss of their jobs and their homes.

These are the economic effects of a crumbling empire: loss of jobs, falling currency.

The buck doesn't stop here; it just keeps falling

Tom Raum

July 6, 2008

Dollar woes cramp economy, US consumers, but the government's options are limited

WASHINGTON (AP) -- Things in the U.S. sure are tough. Brother, can you spare a euro? Signs saying "We accept euros" are cropping up in the windows of some Manhattan retailers. A Belgium company is trying to gobble up St. Louis-based Anheuser-Busch, the nation's largest brewer and iconic Super Bowl advertiser.

The almighty dollar is mighty no more. It has been declining steadily for six years against other major currencies, undercutting its role as the leading international banking currency. The long slide is fanning inflation at home and playing a major role in the run-up of oil and gasoline prices everywhere.

Vacationing Europeans are finding bargains in the U.S., while Americans in Paris and other world capitals are being clobbered by sky-high tabs for hotels, travel and even sidewalk cafes. Northern border-city Americans who once flocked into Canada for shopping deals are staying home; it's the Canadians flocking here now.

Everything made in America -- from goods to entire companies -- is near dirt cheap to many foreigners. Meanwhile, American consumers, both those who travel and those who stay at home, are seeing big price increases in energy, food and imported goods. The dollar has lost roughly a quarter of its purchasing power against the currencies of major U.S. trading partners from its peak in 2002.

Since oil is bought and sold in dollars worldwide, the devalued dollar has made the recent surge in energy prices even worse for Americans, leading to $4 gasoline in the United States. Analysts suggest that of the $140 a barrel that oil fetches globally, some $25 may be due to the devalued dollar.

Further declines in the dollar will add to oil's appeal as a commodity to be traded.

Oil, suggests influential energy consultant Daniel Yergin, is "the new gold."

The limp greenback has had one big benefit to the U.S. economy: Since it makes American goods cheaper overseas, it has helped manufacturers who export and other U.S. based companies with international reach. Exports have been one of the few bright spots in an otherwise darkening U.S. economy…

Mark Zandi, chief economist at Moody's Economy.com, said expanding exports due to a weak dollar are "an important source of growth, but it doesn't add a lot to jobs, it doesn't mean very much for the average American household. For the average American, for the average consumer, these are pretty tough times."

The loss of the dollar's purchasing power and international respect has some experts worrying that the euro might one day replace the dollar as the so-called primary reserve currency. And that could trigger a dollar rout as foreign governments and international investors flee from U.S. Treasury bonds and other dollar-denominated investments.

Making matters worse: The gaping U.S. current-account deficit -- the amount by which the value of goods, services and investments bought in the U.S. from overseas exceeds the amount the U.S. sells abroad -- and the low levels of domestic savings means that foreigners must purchase more than $3 billion every business day to fund the imbalance.

Since roughly half of the nation's nearly $10 trillion national debt is held by foreigners, mostly in Treasury bills and bonds, such a withdrawal could have enormous consequences.

Yet Washington finds its options limited.

President Bush asserts longtime support for a "strong" dollar, and made that point again Sunday in a news conference in Japan with Prime Minister Yasuo Fukuda. "In terms of the dollar, the United States strongly believes -- believes in a strong dollar policy and believes that the strength of our economy will be reflected in the dollar."

But not once in his presidency has the U.S bought dollars on foreign exchange markets -- called intervention -- to help prop up the greenback. There's no telling where the buck will stop these days, although for the past few weeks it seems to be in a holding pattern. Even as three Bush Treasury secretaries in a row spouted the strong-dollar mantra, the dollar kept tumbling against the euro, the pound, the yen, the Canadian dollar and most other major currencies.

The Federal Reserve could prop up the dollar by increasing interest rates under its control. Increased yields would make dollar-denominated investments more attractive to foreigners. But that could undercut the already anemic economic growth in a frail U.S. economy rocked by soaring fuel costs, falling home prices and rising unemployment -- and the lowest reading of consumer confidence in 16 years.

The Fed must do a balancing act between keeping the domestic economy from going into recession and keeping inflation at bay.

Furthermore, no Fed likes to raise rates aggressively in a presidential election year. It seems more inclined to hold interest rates low for now to give financial markets time to recover from the housing meltdown and credit crunch. It did just that in its meeting on June 25, leaving a key short-term rate at 2 percent. The rate reached that level in April after a series of aggressive cuts that brought it down 3.25 percentage points since September. Those cuts helped ease the housing and credit crises -- but drove the dollar further down.

In early June, Bush declared before his trip to Europe: "A strong dollar is in our nation's interests. It is in the interests of the global economy." That, plus a warning by Fed Chairman Ben Bernanke that the dollar's weakness was contributing to U.S. inflation, seemed to temporarily break the dollar's tumble. Presidents and Fed chairmen don't usually talk directly about the dollar and exchange rates -- leaving that up to the Treasury secretary -- and international bankers and investors took note of the high-level attention.

Over the past few weeks, the dollar has remained relatively stable, although it took a dip after the Fed decided to leave rates unchanged. The long slide may not be over.

Still, if the Fed moves to lift rates later this year, as some traders and investors anticipate, it could buttress the dollar and spur an exodus of speculators from the oil market -- helping to both prop up the dollar and drive down oil prices. But few economists are sanguine that the economy will improve any time soon.

The other main tool to move the dollar -- intervention in currency markets by buying dollars and selling other currencies -- is risky.

It would take great sums of money to make any difference. The foreign exchange market is the largest in the world, with over $1 trillion traded each day. Seeing the U.S. trying to prop up the greenback by buying dollars could be taken as a sign of desperation and possibly trigger a renewed round of selling.

Furthermore, there has been little encouragement for such a strategy from finance ministers from the Group of Eight wealthy democracies -- Japan, Britain, Germany, France, Italy, Canada and Russia plus the U.S.

Leaders of the eight countries were to meet in Japan beginning Monday, but the falling dollar was not even on the formal agenda. It's too touchy an issue, and the dollar's relative stability over the past few weeks makes it easier for world leaders to steer clear. "People will be talking about it in the corridors," said Reginald Dale, a senior fellow with the Center for Strategic and International Studies.

Treasury Secretary Henry Paulson has suggested that nothing is "off the table" including intervention. But Bush has made statements suggesting he intends to let market forces set exchange rates.

The dollar has fallen so far, it will be difficult to halt or reverse its slide.

U.S. efforts to persuade Saudi Arabia and other major oil-producing nations to increase their production -- and help ease pressure on both oil prices and the dollar -- have brought scant results.

"There's no magic wand," said White House press secretary Dana Perino. "It's not going to be a problem that we solve overnight."

The impact of the falling dollar is not always visible to the average consumer. Not like the big numbers on gas pumps that give stark evidence of price levels.

But imported goods, from fuel to cars from Japanese automakers and toys from China -- are getting more expensive just as U.S. wages are either stagnant or falling.

American companies suddenly look cheap to acquisition-minded foreigners, particularly those based in Europe.

Belgian-based InBev's hostile bid for Anheuser-Busch is a recent example. It has bid $46 billion to acquire the company -- a 30 percent premium above where Anheuser's shares traded before the June 11 proposal.

A successful acquisition by InBev would put the last remaining mass-market American brewer in foreign hands. InBev is based in Belgium but run by Brazilians. Anheuser-Busch, which brews both Budweiser and Bud light, holds a 48.5 percent share of U.S. beer sales. Anheuser-Busch rejected InBev's bid, but the Belgian brewer forged ahead, seeking to unseat Anheuser's 13-member board and take its offer directly to shareholders.

If the takeover goes through, it might open the floodgates to other foreign takeovers of American companies.

Some of the dollar's decline depends on hard-to-measure factors, like the psychology of foreign investors.

When the U.S. economy is weakening, many investors stay away. The slide of the dollar has coincided with a long period of relatively low interest rates.

And some of the decline in the dollar's global role "is due to the foreign policy failures of the Bush administration, not just to recent economic developments and policies," suggests Adam S. Posen, deputy director of the Peterson Institute for International Economics and a former economist at the Federal Reserve Bank of New York. In other words, some international investors unhappy with Bush's policy on Iraq or toward other parts of the world might not wish to invest in American companies or buy U.S. bonds…

No, not because investors are “unhappy” with the policies. It’s because the policies have failed and have wasted over a trillion dollars. These policies have enriched a few insiders feeding at the trough while bankrupting the U.S. government. If there is one think we can thank George Bush for it is for destroying the U.S. empire and making the United States just another country. And as a U.S. citizen, I mean that sincerely, not ironically. Let’s let Joseph Heller explain, in Catch-22, in the scene where Lieutenant Nately encounters a disrespecful old man in an Italian whorehouse:

“America,” he said, “will lose the war. And Italy will win it.”

“America is the strongest and most prosperous nation on earth,” Nately informed him with lofty fervor and dignity. “And the American fighting man is second to none.”

“Exactly,” agreed the old man pleasantly, with a hint of taunting amusement. “Italy, on the other hand, is one of the least prosperous nations on earth. And the Italian fighting man is probably second to all. And that is exactly why my country is doing so will in this war while your country is doing so poorly.”

Nately guffawed with surprise, then blushed apologetically for his impoliteness. “I’m sorry I laughed at you,” he said sincerely, and he continued in a tone of respectful condescension. “But Italy was occupied by the Germans and is now being occupied by us. You don’t call that doing very well, do you?”

“But of course I do,” exclaimed the old man cheerfully. “The Germans are being driven out, and we are still here. In a few years you will be gone, too, and we will still be here. You see, Italy is a weak country, and that’s what makes us so strong. Italian soldiers are not dying any more. But American and German soldiers are. I call that doing extremely well. Yes, I am quite certain that Italy will survive this war and still be in existence long after your own country has been destroyed.”

Nately could scarcely believe his ears. He had never heard such shocking blasphemies before, and he wondered with instictive logic why G-men did not appear to lock the traitorous old man up. “America is not going to be destroyed!” he shouted passionately.

“Never?” prodded the old man softly.

“Well…” Nately faltered.

The old man laughed indulgently, holding in check a deeper, more explosive delight. His goading remained gentle. “Rome was destroyed, Greece was destroyed, Persia was destroyed, Spain was destroyed. All great countries are destroyed. Why not yours? How much longer do you really think your own country will last? Forever? Keep in mind that the earth itself is destined to be destroyed by the sun in twenty-five million years or so.” (Joseph Heller, Catch-22, ch. 23)

But the downfall will be hard on those who grew up in affluence. Who knows how it will play out, but Ran Prieur wrote an essay two years ago imagining six different collapse scenarios. He concluded by imagining how it plays out for one person:

In 2006 there's a war that doesn't seem to affect you directly. But you really start to notice prices going up. You can't sacrifice on fuel, and you couldn't stand to live with other people, so you slash your food budget -- no more organics, and more white sugar and white flour. Your health deteriorates, you get depressed, and when the first serious crisis hits, you find yourself on a bus to an "evacuee facility" where you get sick and die... Back up.

You decide to share an apartment and cut your rent in half. It's no fun having to compromise with other people, but it builds your skills in working out conflicts and tolerating annoyances, and makes you generally more adaptable. You spend the extra money paying higher prices to maintain the lifestyle you're accustomed to. Then you lose your job. For a few months you live on credit cards, but they run out, and the company hassles you to collect your debt which now grows exponentially even though you're not spending anything. You live in fear of eviction and stand in line all day to get really bad food. Your health deteriorates, you have to sell your car, you get desperate, and one day you get caught stealing something, and you're sent to a prison where everyone is left to die in the next disaster... Back up.

Seeing that you might lose your job, you decide to build up savings. You stop spending on entertainment, learn to cook meals from bulk foods, get all your clothing from thrift stores, and turn the heat off. When you lose your job, you immediately sell your car, pay off your credit cards, and move to someplace even cheaper and more crowded. Here you're able to squeak by year after year, doing odd jobs, scavenging metal... Wait -- this isn't good enough. Back up.

When you lose your job, you drive your car to stay with a friend who lives on remote land. But it's only a little cheaper, since you still have to pay car expenses, and the land is nowhere near self-sufficient in food. Pine bark and larvae taste awful, and the social isolation is driving you nuts. Back up.

In the crowded cheap place, you spend a year reducing your possessions and learning skills to drop down another notch. Also, you start talking to people about your plans and building a group of allies. Together you pick out an abandoned house and openly move in and fix it up. At the same time, you find a backup abandoned house in case you're thrown out of this one. But you're able to stay for several years, with almost no expenses beyond food. You get an old wood-burning stove and scavenge wood from wrecked buildings, and one of you learns basic medical and dental skills. You catch and store rainwater from the roof -- even with the asphalt shingles it's better than city water, and later you scavenge sheets of metal to catch it. You meet someone with a farm just outside the city, and arrange to trade work at harvest time for a share of the food. This is survivable, but the food is still tight. It could be better. Back up.

Even before you find the squat, you scout some places in the near suburbs, out of the way and with good sunlight, and spend your spare cash on seedlings -- blueberry, apple, walnut, juneberry, goumi. As other food sources decrease, these increase, and you learn propagation and set up hundreds more trees and bushes around the city. You gather lamb's quarters seeds in late summer and scatter them on disturbed ground in the spring, and plant hundreds of wild onions. Most of this food is discovered by other people but there's still plenty for you and your friends. After a few more years you occupy a small area where a lot of the trees are, and set up a second homestead, but keep a presence in the city.

All this time you're working with other groups to help people get food and water and medical care, to transform the infrastructure, and to deter violent crime, or clean up after it. There are drug gangs, right wing death squads, and the occasional marauding horde of government troops and/or bandits. There are giant storms and hard summers and winters. But the vast majority of your friends are not killed, and people go about their lives less fearful than they did at the peak of the Empire.

If you don't have kids, you help raise other people's kids. They don't go to school, but jump right in doing what adults do, and spend a few weeks learning to read and write when they're ready. By 2030, the city is full of gardens and orchards. You don't know anyone with a car, but a few techies are still using old computers and surviving satellites and fiber optic lines to connect to a patchy internet. You hear strange stories of distant lands, and wonder where it's all heading. At the end of a long and very interesting life, like all your ancestors (except the most recent), you die at home surrounded by people you love.

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, 11-19-07

From Signs of the Times:

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

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

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

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

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

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

Assumptions:

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

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

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

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

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

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

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

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

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

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

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

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

France: Sarkozy seeks confrontation with the working class

Peter Schwarz

14 November, 2007

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

French union leaders seek to strangle rail strike

Peter Schwarz and Antoine Lerougetel

16 November 2007

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

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

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

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

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

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

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

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

Similar comments have appeared in other newspapers.

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

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

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

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

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

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

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

Le Figaro declares: “To accept the negotiations proposed by the government at a factory level, without at the same time losing control of its own troops, is the challenge confronting the union leaders, and in particular Bernard Thibault and the railway workers [officials]…”

Sarkozy, representing the interests of the wealthy who would like to become super-wealthy, shrewdly decided to begin the “reform” process by going after the social benefits that are the hardest to justify, special arrangements with particular occupations for early retirement. This makes sense for Sarkozy because these are not benefits available to all. He can then divide and conquer. And, “reasonable” union leaders may decide that these special benefits are not the best ones to make a last stand on. But once the “reform” process gathers steam, it becomes harder and harder to stop, so the French would be well-advised to take a firm stand earlier rather than later.

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

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

1) The General Strike.

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

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

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

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

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

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

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

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

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

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