Rescuing Capitalism or Grand Theft & Military Dictatorship?

By Simon Davies and Donald Hunt
SOTT.net

World stock indexes fell the week ending 16th February led by the Dow losing more than 5% while gold continued to inch its way towards the psychologically important $1,000/oz level, driven by the approach of what looks like another emerging market crisis in Eastern Europe which is driving the Euro and Sterling lower, sending - it would seem - mobile money towards gold. The big US news, however, was the passage of the almost $800 billion stimulus package in the United States and the decidedly lukewarm reception to US Treasury Secretary Timothy Geithner's much heralded $2 trillion bank rescue plan.

The G7 finance ministers met in Rome in an exercise in hot air generation, stating, as if we needed reminding, that the "downturn" will persist through 2009 and that the various "stimulus measures" won't have any noticeable effect for a while as they "build over time". The ministers did pledge to restore confidence to financial markets and growth to the world economy but didn't happen to mention how they plan to do it. Timothy Geithner demanded "exceptional measures" from his counterparts which we can only assume means "exceptionally large amounts of money" to prop up the international banking system so that it can continue to concentrate even greater wealth in even fewer hands.

The vagueness of Mr Geithner's plan for rescuing US banks is rather strange considering his technocrat status and that his boss promised "change" which one might have hoped meant something different. Yet all we have seen so far from both Mr Geithner and Barack Obama is more of the same. They haven't the simple courage nor the desire to tell us straight that they need to recapitalise the US banking system to the tune of some $6 trillion - that's $6,000,000,000,000 - that they plan to have the US taxpayer bear the burden of almost incalculable losses from worthless assets all the while urging austerity and sacrifice for all but the elite including the further decimation of the last threads of America's social fabric. Instead they brandish rescue plans, stimulus packages and a myriad of programme acronyms in the hope that we might not notice.

Across the Atlantic the same games are being played. The distraction of the week being a ritualized bashing of banker's bonuses. In the UK, the Chancellor of the Exchequer, Alastair Darling, was decidedly ill at ease in a Channel 4 TV interview when pressed on the bonuses to be paid to bankers at the Royal Bank of Scotland which is now 69% government owned and whose excess liabilities over the every diminishing value of its assets are now on the balance sheet of the UK Treasury. He really is caught between a rock and a hard place - in one ear he can hear the clamour of the street, the people whose money he has liberally dished out to the Royal Bank of Scotland while in the other he has the whispering bankers who tell him that all will be lost if he can't retain the best staff, the ones who can make the bank profitable again. No doubt Barack Obama finds himself in much the same position.

Both of those voices are right; it is ridiculous to have a business that has been rescued with public money pay out vast wads of it to the already well remunerated employees when in any other business they'd have been sent home as the shutters were pulled down for the last time. That is what happened to the coal miners, steel workers and printer workers under Margaret Thatcher, that is what happened in every other industry and business that "couldn't cut it" in the world of the free market, that is what is happening to millions around the globe now. That bankers even have jobs should be sufficient; that they need bonuses to retain them is beyond ridiculous. Yet, those that earn the bank the most money are indeed highly mobile and until the wheeler-dealing banking industry is brought crashing to its final demise there will be those who are more than happy to employ bankers who can generate millions in income, and pay them accordingly. This will not change until there is a fundamental change in the way banks are run and in the activities in which they engage.

The brand of free market capitalism whose inevitable conclusion is exactly the crisis we see today is a pathological system that sucks all economic activity into its gapping maw; it is a system where the lowest denominator rules. Whoever sinks the lowest wins. It is a world driven by quarterly financial results, by illusory "shareholder value", by pure monetary valuation of all things and by insatiable greed, until there is fundamental change there will be no change at all.

What is needed is somebody with the power to deliver, to stand up and announce a truly radical reform of the financial system, one in which banks go back to being boring money lenders, one in which the derivatives they deal in are for the benefit of their clients to manage risk and not for themselves and their gambling cohorts in the hedge fund and "wealth management" industries, one where capital is allocated not to where it can make the hottest buck to where it can generate the greatest social benefit and one in which no bank is too big to fail so that should it fail it can be allowed to fall without the need for government life support. When that happens we will be seeing the "exceptional measures" that the US Treasury Secretary demanded of the G7 this weekend.

However, as a hollow parody of what might be, Mr Geithner and his fellow finance ministers final summit statement was a collective affirmation of what they have all already done in handing out citizens dollars to the banks and other favoured sectors and the by now familiar statement championing free trade and decrying protectionism.

The shallowness of these statements being illustrated by the fact that the US stimulus package that had just been passed by Congress as Timothy Geithner headed for Rome had "buy American" provisions in, albeit significantly more limited than originally proposed. Protectionism is on the rise in Europe, with the catchy slogan in the UK of "British jobs for British workers". Not to mention the recent bailout by the Dutch government of ING Bank, the terms of which require the bank to expand lending domestically within the Netherlands; an understandable provision given the Dutch taxpayer had just handed ING another €25 billion to ING - but protectionist, in the literal sense of favouring the domestic market, nonetheless.

We were left with the impression from the G7 summit that there is much more going on behind the scenes than we are being told. There is a G20 summit in April and a G8 one in July as which we are vaguely told that new "common principles" on transparency and regulation are expected, no doubt these new regulations will be trumpeted as being designed to prevent "failures" in the future while in fact completely failing to address the root causes of this crisis while in actuality creating the walls of the new economic world order. We wonder if the details of this new order are so staggeringly awful that they will only be revealed once full dictatorship is in place; if so it's going to be an interesting spring and summer.

We are also highly skeptical at the wave of government and media attention being focused on banker's bonuses. It is not that we do not think the matter a valid one it is just the amount of energy and focus on it makes us wonder what it is that we are not seeing. We know that governments do not and will not address the real issues of the collapsing economic order nor seize the real culprits, so our radar tells us that something is afoot when so much media space and government energy is focused on this one topic. Perhaps it just a diversion from the details of the deals being done behind the scenes; details that would cause uproar if widely circulated.

One such deal is the aforementioned state support for ING Bank. The deal is extraordinarily sweet for ING and, by definition, the converse for the Dutch citizen. The deal has been structured so that the Dutch state will buy a €27.7 billion portfolio of US Alt-A mortgaged backed securities (one level better than sub-prime) for 90% of the face value at a time when the market value is about 60% to 65% of face value. The other details of the deal are such that the negative effects to ING will be covered by the state, one example being the payment of a management fee of €700 million to the bank. In return ING has promised to provide new lending of €25 billion inside the Netherlands during 2009. However, that will be using "at least €10 billion of the government's credit guarantee scheme." Even financial analysts had to admit that, "this deal sounds almost too good to be true".

We came across the details of this deal in one of the professional banking magazines for which we have a limited free trial. To be a subscriber costs over €5,000 per annum and that is for just one magazine. We worked out that to have access to a reasonable level of information regarding what is happening in the banking world would cost us €20,000 or more per annum and even then that would be a less than complete picture. With these sorts of barriers to market information it is no wonder that we are kept in the dark. We certainly cannot afford such expenses and the mainstream media that can has no interest in informing us of the details.

If this deal is even partly indicative of what is happening behind the scenes, and the complete lack of transparency in the US and the UK suggests it is, then it is little wonder that we are being directed to the topic of banker's bonuses rather than the shenanigans of state handouts to the banks themselves.

While on the topic of banker's bonuses here are the details of the pay out to Merrill Lynch banker's just prior to the bank announcing $15 billion quarterly loss and $27 billion full year loss, losses that have been absorbed by the US citizen through the US government's support of Bank of America:-

- the top four bonus recipients received $121 million in aggregate,
- the next four, $62 million in aggregate,
- the next six, $66 million in aggregate,
- ie. the top fourteen people received $10 million or more and combined more than $250 million,
- Twenty received more than $8 million but less then $10 million,
- Fifty three received between $5 million and $8 million,
- One hundred and forty nine received between $3 million and $5 million,
- The top one hundred and forty nine bonus recipients received a combined $858 million, and
- Six hundred and ninety six individuals received $1 million or more.

You will notice that we have referred to "citizen's" money being used rather than the more familiar "taxpayer's" money as it is all the citizens of a nation that are paying for these bailouts not just the ones that pay taxes for it is the unemployed, the underemployed and the children who also suffer due to the raping of their nations treasury.

So just where is all this headed?

United States and Canada

The three-quarters of a trillion dollar economic stimulus package was passed by the U.S. Congress with the usual partisan pork barrel politics from both "sides" of the corrupt elite. Seeing as it's the Democrats whose president is in power its the turn of the Republicans to play the role of the opposition and seek personal favours to allow the passing of the Bill. For a president whose mandate is to provide change for the American people, Obama has been singularly unimpressive in his handling of the stimulus package, not only is not nearly radical enough to truly make a difference to ordinary Americans but it relies on the idea that tax cuts will result in more spending rather than saving and therefore falls back on the hackneyed and desperately out of place notion that Americans must consume their way out of this crisis. It is frustrating to see so much money being thrown around in an attempt to keep an economy based on excessive consumption going when what is needed is a fundamental re-balancing and restructuring.

The lack of clear direction in the stimulus package is of course a reflection of the political elite's loyalty to their corporate and banking paymasters and to political dogma. Patrick Martin, in noting that the Republicans had fewer qualms voting for the same spending last year in a giveaway to banks to hide their insolvency, puts their recent reticence down to ideology:-

A large section of the congressional Republican caucus adheres to an ultra-right ideological opposition to any government spending except on the military and direct handouts to the wealthy...

The editorial page of the Wall Street Journal denounced the stimulus bill in revealing terms, declaring, "Combine this new spending, and the borrowing it will require, with the trillions of dollars still needed for the banking system, and we are about to test the outer limits of our national balance sheet." The newspaper howls about the evils of deficit spending to meet the needs of the unemployed, while passing over the "trillions of dollars" for the banks as though it was a given.

While the entire political establishment fails to admit that there are infinitely better alternatives to pumping more and more money in the organs and institutions of a corrupt and diseased system they do acknowledge the likely effects of their bailouts and stimulus failing to rejuvenate that system. It is infuriating to see them sleep walking us towards economic Armageddon while being seemingly aware that that is exactly where they are taking us.

Here it is from the horse's mouth, the New York Times:-

Rise in Jobless Poses Threat to Stability Worldwide

From lawyers in Paris to factory workers in China and bodyguards in Colombia, the ranks of the jobless are swelling rapidly across the globe.

Worldwide job losses from the recession that started in the United States in December 2007 could hit a staggering 50 million by the end of 2009, according to the International Labor Organization, a United Nations agency. The slowdown has already claimed 3.6 million American jobs.

High unemployment rates, especially among young workers, have led to protests in countries as varied as Latvia, Chile, Greece, Bulgaria and Iceland and contributed to strikes in Britain and France.

Last month, the government of Iceland, whose economy is expected to contract 10 percent this year, collapsed and the prime minister moved up national elections after weeks of protests by Icelanders angered by soaring unemployment and rising prices.

Just last week, the new United States director of national intelligence, Dennis C. Blair, told Congress that instability caused by the global economic crisis had become the biggest security threat facing the United States, outpacing terrorism.

"Nearly everybody has been caught by surprise at the speed in which unemployment is increasing, and are groping for a response," said Nicolas Véron, a fellow at Bruegel, a research center in Brussels that focuses on Europe's role in the global economy.

In emerging economies like those in Eastern Europe, there are fears that growing joblessness might encourage a move away from free-market, pro-Western policies, while in developed countries unemployment could bolster efforts to protect local industries at the expense of global trade.

So, if the U.S. DNI (Director of National Intelligence), the spy chief, says that unemployment is the biggest threat to national security and we are told that they are "groping for a response" we wonder whether they honestly believe that bailing out the banking system and economic stimulus will work or whether they are preparing for a war against their own citizenry, a war that will be fought with the Taser, the prison camp and all the powers garnered under the guise of the "war-on-terror'. It would certainly put the last eight years into perspective.

According to Ed Hightower, the biggest problem with the U.S. stimulus package is that it is not big enough, the infrastructure investments in the stimulus bill only providing 5% of infrastructure needed according to a January report by the American Society of Civil Engineers. When we combine this with the assessment that the US banking system, as we said earlier is estimated to need at least $6 trillion, a number well in excess of what has been admitted to date, we are inclined to agree with Bill Van Auken that military dictatorship may not be far off:-

US intelligence chief: World capitalist crisis poses greatest threat

In testimony before the Senate Committee on Intelligence Thursday, Washington's new director of national intelligence, Dennis Blair, warned that the deepening world capitalist crisis posed the paramount threat to US national security and warned that its continuation could trigger a return to the "violent extremism" of the 1920s and 1930s.

This frank assessment, contained in the unclassified version of the "annual threat assessment" presented by Blair on behalf of 16 separate US intelligence agencies, represented a striking departure from earlier years, in which a supposedly ubiquitous threat from Al Qaeda terrorism and the two wars launched under the Bush administration topped the list of concerns.

Clearly underlying his remarks are fears within the massive US intelligence apparatus as well as among more conscious layers of the American ruling elite that a protracted economic crisis accompanied by rising unemployment and reduced social spending will trigger a global eruption of the class struggle and the threat of social revolution.

The presentation was not only the first for Blair, a former Navy admiral who took over as director of national intelligence only two weeks ago, but also marked the first detailed elaboration of the perspective of the US intelligence apparatus since the inauguration of President Barack Obama.

"The primary near-term security concern of the United States is the global economic crisis and its geopolitical implications," Blair declared in his opening remarks. He continued: "The crisis has been ongoing for over a year, and economists are divided over whether and when we could hit bottom. Some even fear that the recession could further deepen and reach the level of the Great Depression. Of course, all of us recall the dramatic political consequences wrought by the economic turmoil of the 1920s and 1930s in Europe, the instability, and high levels of violent extremism."

Blair described the ongoing financial and economic meltdown as "the most serious one in decades, if not in centuries."

"Time is probably our greatest threat," he said. "The longer it takes for the recovery to begin, the greater the likelihood of serious damage to US strategic interests."

The intelligence chief noted that "roughly a quarter of the countries in the world have already experienced low-level instability such as government changes because of the current slowdown." He added that the "bulk of anti-state demonstrations" internationally have been seen in Europe and the former Soviet Union.

But Blair stressed that the threat that the crisis will produce revolutionary upheavals is global. The financial meltdown, he said, is "likely to produce a wave of economic crises in emerging market nations over the next year." He added that "much of Latin America, former Soviet Union states and sub-Saharan Africa lack sufficient cash reserves, access to international aid or credit, or other coping mechanism."

Noting that economic growth in these regions of the globe had fallen dramatically in recent months, Blair stated, "When those growth rates go down, my gut tells me that there are going to be problems coming out of that, and we're looking for that." He cited "statistical modeling" showing that "economic crises increase the risk of regime-threatening instability if they persist over a one to two year period."

In another parallel to the 1930s, the US intelligence director pointed to the implications of the crisis for world trade and relations between national capitalist economies. "The globally synchronized nature of this slowdown means that countries will not be able to export their way out of this recession," he said. "Indeed, policies designed to promote domestic export industries - so-called beggar-thy-neighbor policies such as competitive currency devaluations, import tariffs, and/or export subsidies - risk unleashing a wave of destructive protectionism."

It was precisely such policies pursued in the 1930s that set the stage for the eruption of the Second World War.

Blair also raised the damage that the crisis has done to the global credibility of American capitalism, declaring that the "widely held perception that excesses in US financial markets and inadequate regulation were responsible has increased criticism about free market policies, which may make it difficult to achieve long-time US objectives." The collapse of Wall Street, he added, "has increased questioning of US stewardship of the global economy and the international financial structure."

The threat assessment also included evaluations of potential terrorist threats, the "arc of instability" stretching from the Middle East to South Asia, conditions in Latin America and Africa and strategic challenges from both China and Russia, centering in Eurasia. It likewise dealt with the war in Afghanistan, which the Obama administration is preparing to escalate, providing a scathing assessment of the Karzai regime in Kabul and the familiar demand for an escalation of the intervention in Pakistan. Nonetheless, the report's undeniable focus was on the danger that economic turmoil will ignite revolutionary challenges on a world scale.

Blair's emphasis on the global capitalist crisis as the overriding national security concern for American imperialism seemed to leave some of the Senate intelligence panel's members taken aback. They have been accustomed over the last seven years to having all US national security issues subsumed in the "global war on terrorism," a propaganda catch-all used to justify US aggression abroad while papering over the immense contradictions underlying Washington's global position.

The committee's Republican vice chairman, Senator Christopher Bond of Missouri, expressed his concern that Blair was making the "conditions in the country" and the global economic crisis "the primary focus of the intelligence community."

Blair responded that he was "trying to act as your intelligence officer today, telling you what I thought the Senate ought to be caring about." It sounded like a rebuke and a warning to the senators that it is high time to ditch the ideological baggage of the past several years and confront the real and growing threat to capitalist rule posed by the crisis and the resulting radicalization of the masses in country after country.

It may have been lost on some of those sitting at the dais in the Senate hearing room, but when Blair referred to a return to the conditions of "violent extremism" of the 1920s and 1930s, he was warning that American and world capitalism once again faces the specter of a revolutionary challenge by the working class.

There is no doubt that behind the façade of Obama, the US national security apparatus is making its counter-revolutionary preparations accordingly.

Including Blair, Obama has named three recently retired four-star military officers to serve in his cabinet. The other two are former Marine Gen. James Jones, his national security adviser, and former Army chief of staff Gen. Erik Shinseki, his secretary of veterans affairs. This unprecedented representation of the senior officer corps within the new Democratic administration is indicative of a growth in the political power of the US military that poses a serious threat to basic democratic rights.

A report that appeared in a magazine published by the US Army War College last November, just weeks after the election, indicates that the Pentagon and the US intelligence establishment are preparing for what they see as a historic crisis of the existing order that could require the use of armed force to quell social struggles at home.

Entitled "Known Unknowns: Unconventional 'Strategic Shocks' in Defense Strategy Development," the monograph insists that one of the key contingencies for which the US military must prepare is a "violent, strategic dislocation inside the United States," which could be provoked by "unforeseen economic collapse" or "loss of functioning political and legal order."

The report states: "Widespread civil violence inside the United States would force the defense establishment to reorient priorities in extremis to defend basic domestic order... An American government and defense establishment lulled into complacency by a long-secure domestic order would be forced to rapidly divest some or most external security commitments in order to address rapidly expanding human insecurity at home."

In other words, a sharp intensification of the unfolding capitalist crisis accompanied by an eruption of class struggle and the threat of social revolution in the US itself could force the Pentagon to call back its expeditionary armies from Iraq and Afghanistan for use against American workers.

The document continues: "Under the most extreme circumstances, this might include use of military force against hostile groups inside the United States. Further, DoD [the Department of Defense] would be, by necessity, an essential enabling hub for the continuity of political authority in a multi-state or nationwide civil conflict or disturbance." The phrase - "an essential enabling hub for continuity of authority" - is a euphemism for military dictatorship...

Markets

The markets this week (to Feb 16th)

	Previous week's close	This week's close	Change	% change
Gold (USD)	914.30	942.70	28.40	3.11%
Gold (EUR)	706.51	732.59	26.08	3.69%
Oil (USD)	40.17	37.95	2.22	5.53%
Oil (EUR)	31.04	29.49	1.55	4.99%
Gold:Oil	22.76	24.84	2.08	9.14%
USD / EUR	0.7727 / 1.2941	0.7771 / 1.2868	0.0044 / 0.0073	0.57% / 0.56%
USD / GBP	0.6763 / 1.4786	0.7008 / 1.4270	0.0245 / 0.0516	3.62% / 3.49%
USD / JPY	91.893 / 0.0109	90.750/ 0.0110	1.143 / 0.0001	1.24% / 0.92%
DOW	8,281	7,850	430	5.20%
FTSE	4,292	4,190	102	2.38%
DAX	4,645	4,413	231	4.98%
NIKKEI	8,077	7,779	297	3.68%
BOVESPA	42,756	41,674	1,082	2.53%
HANG SENG	13,655	13,555	100	0.74%
US Fed Funds	0.25%	0.25%	0.00	n/a
$ 3month	0.27%	0.29%	0.02	n/a
$ 10 year	2.99%	2.89%	0.10	n/a

Africa

Nigeria is cutting spending due to sharp drops in oil revenues.

Asia

Asian stocks fell last week amid a deteriorating outlook for corporate profits and doubts over whether U.S. stimulus measures will succeed in alleviating the financial crisis.

"Investors are disappointed with the lack of clarity on the U.S. bank-rescue plan," said Daphne Roth, Singapore-based head of Asia equity research at ABN Amro Private Bank, which manages about $27 billion of Asian assets. "We will see more earnings downgrades going into the next few months and that's going to drag down Asian stocks at least till the end of the first half."

India's currency strengthened on news that it will continue offering stimulus programs.

Rupee Strengthens as India May Step Up Efforts to Boost Growth

India's rupee strengthened the most in more than two weeks on speculation the government and the central bank will announce more measures next week to revive economic growth.

[ ] The government unveiled two stimulus packages and the central bank cut its key rate four times since Oct. 20.

"The rupee is stronger as the market expects additional measures to boost growth to be announced next week," said Sudarshan Bhatt, chief currency trader at state-owned Corporation Bank in Mumbai. "Such measures look inevitable after yesterday's industrial output report. The central bank may cut rates and help restructure loans of companies."

[ ]

Industrial production fell 2 percent in December, the most since 1993, after a revised 1.7 percent gain in November, the government said yesterday. India expects the $1.2 trillion economy will expand 7.1 percent in the fiscal year to March, the slowest pace in six years.

Record Low

The rupee will weaken almost 10 percent to a record low of 54 to the dollar by the end of the year as the worldwide credit crisis curbs foreign direct investment, HSBC Holdings Plc said.

The rupee may also extend last year's 19 percent slide as employers cut jobs overseas amid a global recession, reducing remittances from Indian workers abroad, Richard Yetsenga, HSBC's Hong Kong-based strategist, wrote in a research report today. The U.K. bank revised its rupee forecast from 45, HSBC's Singapore-based economist Robert Prior-Wandesforde, who co-wrote the report, confirmed in a phone call.

"We expect the slower moving remittance and FDI [Foreign Direct Investment] flows to now start to show the strain," wrote Yetsenga. "Our estimates suggest FDI into Asia could fall to roughly zero this year. While that may be overly pessimistic, the fall in FDI should certainly be spectacular for global reasons."

Overseas direct investment in India averaged $3.1 billion a month in 2008, compared with $1.3 billion in the previous year, government data show.

"The boom in FDI is long overdue, but cannot last, given the state of corporate finances globally," Yetsenga wrote.

Renault SA, France's second-largest carmaker, may abandon a factory project in the southern Indian city of Chennai, Chief Financial Officer Thierry Moulonguet said yesterday. The French company said it is reducing capital investment by 20 percent.

John Chan puts the vulnerabilities of export dependent Asian economies in perspective:-

Asia's export economies in free fall

Staggering falls in exports across Asia have shocked economic analysts and ended all claims that the global slump may be nearing its bottom. The IMF's growth forecast for Asia this year is just 2.7 percent - less than a third of the 9 percent growth rate of 2007. The prediction is a full percentage point less than during the 1997-98 Asian financial crisis.

IMA Asia analyst Richard Martin commented in the Australian: "It's a bit like watching a train wreck in slow motion. North Asia is suffering the biggest collapse in demand since World War II." Westpac bank's Richard Franulovich said that the "speed of the decline embedded in the latest Asia data is on par with the collapse in the US during the 1930s Depression."

Japan, the world's second largest economy, is already in recession and still declining. Japanese exports fell 35 percent in December from a year earlier, as the global demand for its cars, electronics and capital goods dried up. Industrial production plunged a record 9.6 percent, month on month, in December.

Bank of Japan chief economist Kazuo Momma warned this week that the economy was facing an "unimaginable" contraction, as analysts estimated that there was an annualised rate of contraction of 10 percent in the last quarter of 2008, even worse than the US. The government warned that 125,000 irregular workers, mainly in manufacturing, will lose their jobs in the six months to March, but an industry estimate put the figure far higher at 400,000.

China, the so-called "workshop of the world," is being hit particularly hard. Exports declined for the third consecutive month in January, falling 17.5 percent from a year earlier, after a 2.8 percent decline in December. Imports plunged even further - 43.1 percent, twice as much as December's 21.3 percent year-on-year drop, the General Administration of Customs said on Wednesday.

Because many of China's imports are inputs into the country's manufacturing exports, the sharp decline in imports indicates further falls in industrial activity. Imports of machinery and high-tech goods fell by roughly 40 percent, also spelling disaster for the countries that sell such components for Chinese factories to assemble. Shipments from Japan fell by 43.5 percent from a year earlier; those from South Korea were down 46.4 percent and from Taiwan, 58 percent.

Although many economists are predicting that China will still grow at 5-6 percent this year, these figures are no more reliable than the previous claims that China would continue to expand at a near-record pace. More than 20 million migrant workers have lost their jobs so far, with some analysts warning of 50 million more job losses if the economy deteriorates further.

India, the other economy previously touted as a possible bulwark against world depression, is suffering as well. Exports fell 24 percent in January. According to official data, one million Indian workers in the export sector have lost their jobs since September, when the global financial crisis erupted in the US. Textile, gem and jewelery workers have been worst affected. Another half a million workers are expected to lose their jobs by March.

Although better known for its IT outsourcing services, India has become a major Asian exporter in recent years. Its exports increased from 16.9 percent of India's GDP in 2002-03 to 24.8 percent in 2007-08. Export industries employ 150 million workers, the second largest sector after farming. India's economic growth for the fiscal year ending in March is officially projected to be 7.1 percent - down from 9.1 percent last year.

For the next fiscal year, economists believe the Indian growth rates will be near 6 percent at best. Citigroup estimated a growth rate of just 5.5 percent. Although India is less dependent on exports than most East Asian countries, its financial position is much weaker. New Delhi's public debt stands at 75 percent of its GDP, compared to just 18.5 percent in China, leaving less room for large stimulus packages.

South Korea's plight is equally stark. Exports, the main driving force of the economy, plunged 32.8 percent in January. Finance minister Yoon Jeung-hyun warned on Tuesday that the fourth largest economy in Asia would shrink by about 2 percent this year - a sharp revision from the previous official forecast of 3 percent growth. According to Yoon, this would mean the loss of 200,000 jobs in 2009. Even this figure is too optimistic compared to the IMF's forecast of 4 percent negative growth. Credit Suisse has projected as much as a 7 percent contraction.

Taiwan, the sixth largest Asian economy, saw its exports fall 44.1 percent in January from a year earlier - the biggest fall since records began in 1972. Imports plunged 56.5 percent in the same month. For an economy where exports account for 70 percent of GDP, the impact is devastating. Morgan Stanley has sharply revised down Taiwan's growth rate this year to minus 6 percent - down from the previous positive 0.5 percent. CLSA, a Hong Kong-based brokerage house, last week predicted an even greater contraction - 11 percent.

The export-dependent economies of South East Asia are also suffering. The IMF's projection for Philippines is just 2.25 percent this year, down from 4.6 percent last year and 7.1 percent in 2007. The official predication for Singapore, the region's trade and financial hub, in 2009 is a contraction of 5 percent - the deepest recession since the city-state was founded in 1965. Malaysia's exports in December plunged 14.9 percent from a year earlier, with exports to the US falling by 30 percent. Analysts expected the Malaysian economy to grow by just 1-1.5 percent in 2009, far lower than the government's target of 3.5 percent. Indonesia's central bank predicts the country's economy will slow to 4-5 percent in 2009 compared to 6.2 percent for 2008.

High saving rates and relatively secure financial institutions have not prevented the Asian economies from suffering massive losses. After the financial crisis of 1997-98, Asian countries strove to increase their exports in order to build large foreign currency reserves as a shield against further financial shocks. As a result, however, they have merely swapped dependence on global finance for reliance on global demand.

Credit Suisse analyst Cem Karacadag has estimated that net exports account for two-thirds of GDP in Hong Kong and Singapore, almost half in Malaysia and Thailand and one-third in Taiwan and South Korea. He calculated that, even without taking into account secondary impacts, every 10 percent fall in exports would cut 2 percentage points of growth in South Korea and Taiwan, and up to 7 percentage points in Hong Kong and Singapore.

Over the past decade, the export share of Chinese GDP doubled to 40 percent. With a vast supply of heavily-policed cheap labour, combined with infrastructure developed by the state, it became a final assembly point for transnational corporations. They supplied factories in China with components, raw materials and capital goods made elsewhere in Asia, transforming the region into a giant export machine. It appeared that China had replaced the US as the growth engine for many Asian countries.

In fact, as Jong Wha-Lee of the Asian Development Bank pointed out, the intra-regional trade disguised the fact that 60 percent of the final demand for Asian goods still came from advanced capitalist countries in North America, Europe and Japan. China's exports to the United States and European Union fell by 9.8 percent and 17.4 percent, respectively, in January. As the demand in the West has collapsed, the booming intra-trade, which involved mainly components, inputs and capital goods, has quickly evaporated.

The Korea Times complained last week: "China has been emerging as the biggest threat to the Korean economy" because the "high dependence on China has made the country particularly vulnerable to the emerging China risk". Korea's exports to China, much of them for re-export, fell 33 percent in December, and 46.4 percent in January, compared to a year earlier, due to the accelerating drop in global demand for "Chinese" goods.

Chinese officials have been loudly talking up the prospect of sparking a "rebound" by stimulating infrastructure spending and ordering state banks to increase lending. But analysts are skeptical that the state spending will boost private investment. The Morgan Stanley China economist Wang Qing told the Wall Street Journal: "Profits and profitability in 2009 will be very poor, and this is the key reason why I do not expect much private investment - especially in the manufacturing sector where China suffers from an overcapacity problem." He estimated that manufacturing investment would be zero this year, with a 12 percent drop in property investment.

The Financial Times on February 10 explained: "Most of all, China cannot escape the broader global economic environment. The government's fiscal stimulus was designed to keep the economy going until Western consumers recover. Yet the recent indications are that the global economy could be in for a more prolonged slump than first thought."

The same conclusion can be applied to all the stimulus packages across Asia. Most Asian countries are largely cheap labour platforms whose exports outweigh their relatively small domestic markets. Confronted by the global slump, each is trying to export more, which means taking market share at their neighbours' expense. This is causing rising trade tensions. India has started 17 investigations into Chinese imports since October, and imposed restrictions on Chinese steel, textiles and petrochemicals. In January, India banned Chinese toys imports for six months to protect its own toy industry.

Apart from pitting their "own" workers against other workers in neighbouring countries, the Asian elites have no understanding of, let along solution for, the economic crisis. Some have turned to the gods for answers. During the Chinese New Year a senior Hong Kong official selected a fortune stick on the city's behalf. It was the unluckiest, 27. "A fortune teller at Che Kung temple, shrouded in incense and consulting the heavens for inspiration, declared it meant Hong Kong could not isolate itself from global financial turmoil," the Financial Times reported.

The world's economies are like a group of people chained together and sliding down a mountain. No one economy can de-link and save itself, the inevitable result from decades of globalisation. The Chinese are stuck holding U.S. government bonds while they watch the deficit spending of the U.S. skyrocket. And there is nowhere else for them to put their money. As the director-general of China's Banking Regulatory Commissions said to the Americans last week, "We hate you guys."

China to stick with US bonds

China will continue to buy US Treasury bonds even though it knows the dollar will depreciate because such investments remain its "only option" in a perilous world, a senior Chinese banking regulator said on Wednesday.

China has used the dollars it accumulates selling manufactured goods to US consumers to accumulate the world's largest holding of Treasuries.

However, the increasing US budget deficit and its potential impact on the dollar have raised questions about the future Chinese appetite for US debt.

Luo Ping, a director-general at the China Banking Regulatory Commission, said after a speech in New York on Wednesday that China would continue to buy Treasuries in spite of its misgivings about US finances.

"Except for US Treasuries, what can you hold?" he asked. "Gold? You don't hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option."

Mr Luo, whose English tends toward the colloquial, added: "We hate you guys. Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn] . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do."

However, Mr Luo said Chinese officials would encourage its banks to finance domestic mergers and acquisitions rather than provide rescue finance to distressed financial companies in other countries: "There will be no bottom-fishing of financial institutions, particularly in the US, because there is a lot of uncertainty about the quality of the books."

Mr Luo said China intends to maintain its separation of investment and commercial banking based on its observations of the US after repeal of the Glass-Steagall Act that enforced a similar division of banking activities.

"To some extent, Glass-Steagall has fuelled the crisis," Mr Luo said. "The separation of commercial and investment banking is likely to stay longer [in China] than before." Like senior financial officials in other developing nations - such as Mohammad Al Jasser, vice-governor of the Saudi Arabian Monetary Agency - Mr Luo also spoke out against what he called America's laissez-faire capitalism.

"Government ownership was viewed as something negative but the pendulum is swinging the other way. Perhaps banking is [no different from] public utilities where government participation is necessary," he said.

"Deregulation in the US has gone a little bit too far. The market can't be omnipotent."

Eastern Europe

In Russia, the ruble rose as the governments attempts to defend it bore fruit. Eastern European economies continued to show signs of serious trouble as Estonia and Hungary announced that their economies contracted in the 4th quarter of 2008, and growth slowed sharply in the Czech Republic and Slovakia.

"The data was all pretty grim," said Neil Shearing, an emerging Europe analyst at Capital Economics in London. "The big point is it will become worse before it gets better. The region's economy may contract 3 percent this year, while the consensus in the market still seems to be for a 1 percent growth."

In fact, it looks like Eastern Europe is shaping up to be a key determinant in the next phase of the global financial crisis:-

European governments, the European Union and international financial organizations need to act fast on risks stemming form banks' exposure in the eastern part of the continent to avert an escalation of the credit crisis, Nomura Holdings Inc. said.

East European countries are struggling to refinance foreign currency loans taken out by borrowers during years of prosperity through 2007, when economic growth averaged at more than 5 percent. The International Monetary Fund, which has bailed out Latvia, Hungary, Serbia, Ukraine and Belarus, warned on Jan. 28 that bank losses may widen as "shocks are transmitted between mature and emerging market banking systems."

[ ]

As companies and consumers [ ]sought cheap loans, denominated mainly in euros and Swiss francs, external liabilities reached about 100 percent of gross domestic product in Poland and the Czech Republic and almost twice the national output in Hungary, according to figures compiled by Nomura.

Banks' Exposure

Euro region banks' exposure totals $1.25 trillion in the region, and including U.K., Swedish and Swiss banks' liabilities it pushes the figure to $1.45 trillion, Nomura said, citing figures from the Basel, Switzerland-based Bank of International Settlements.

"We find the absolute levels and some of the risks worrying," wrote Montalto. There's "a serious risk that these exposures will have grave consequences for the central and east European economies themselves as well as for the European banks that hold the ultimate risk."

Non-performing loans in the region rose to 8 percent, from 5 percent through last year, and Standard & Poor's has forecast they may top 25 percent on average.
The risks stemming from the level of exposure are aggravated by the slump in currencies in the region and the increasing default risks on repayments as more workers lose their jobs and companies scale back production and pay, Montalto wrote. The region will have a recession this year as exports collapse, the IMF has said.

'Upside Risks'

The "upside risks" to bad loans are "very large" as wages are falling and unemployment rising, Montalto said.

A group of six banks, including Italy's UniCredit SpA and Austria's Raiffeisen International Bank Holding AG, have pressed the European Union to organize financial aid for countries on its eastern fringes like Romania and Ukraine.

Austrian banks alone have lent 230 billion euros ($294 billion) in the region, equal to about 80 percent of the country's GDP, according to data compiled by the Bank for International Settlements.

The banks, which also include Italy's Intesa SanPaolo SpA, Austria's Erste Group Bank AG, Societe Generale SA of France and KBC Groep NV in Belgium, requested a 12-point assistance program for the region ranging from foreign-exchange loans for banks to guarantees for customer deposits from organizations such as the European Bank for Reconstruction and Development, according to a Dec. 1 letter sent to the European Commission.

"There does not currently seem to be a consensus about a solution, with opinion split on whether any bailout should be at the EU or member-state level and where funding could come from," Montalto said. "With continued weakness in currencies in the region and a worsening economic picture, this issue is not going to go away on its own."

The EBRD, the World bank and euro-area governments should provide capital to banks, Montalto wrote. The EBRD is in talks about providing financial support to OTP Bank Nyrt., Hungary's largest bank.

The Ukrainian finance minister resigned as that country's credit rating and currency fell.

Hryvnia Drops After Ukraine Rating Downgraded, Minister Resigns

Ukraine's hryvnia weakened against the dollar after Fitch Ratings downgraded the country yesterday and the finance minister resigned, deepening concern the former Soviet republic won't be able to shore up the economy.

The currency, which has slumped 52 percent versus the dollar over the past six months, dropped 0.6 percent to 8.0550 per dollar by 1:46 p.m. in Kiev, paring a 0.9 percent advance this week. It lost 0.9 percent to 10.3549 per euro.

Fitch yesterday reduced Ukraine's credit rating to B, five levels below investment grade, the same day Finance Minister Viktor Pynzenyk submitted his resignation after saying the post had become "hostage" to politics. Pynzenyk objected to the parliament-endorsed budget for 2009, which plans for a budget deficit of 2.97 percent of gross domestic product in violation of the country's $16.4 billion loan agreement with the International Monetary Fund.

"It's negative news, it's unwelcome news as the situation in Ukraine is deteriorating," said Ali Al-Eyd, an emerging markets fixed-income analyst in London at Citigroup Inc. "Ukraine is going to be hit with a vicious slowdown."

The political instability in Ukraine during the worst global financial crisis since the Great Depression puts the country at risk of a banking and currency crisis, Fitch said yesterday. The outlook for the nation's ratings was kept at "negative," indicating that it may be reduced further.

Fitch predicts the economy will shrink 4.5 percent this year, and Citigroup may revise its current forecast of a 3 percent contraction "much lower," Al-Eyd said. Ukraine, dependent on exports of steel and other products as the global economic slowdown depresses demand, is struggling to fund a $12.3 billion current-account deficit amid the seizure in credit markets.

In what many might consider an upside to all this bad economic news out of Eastern Europe, the number of Russian billionaires fell by half.

Western Europe and UK

Meanwhile, at least publicly, European Central Bank officials continue to downplay the crisis.

ECB Policy Makers Signal no Rush to Start Unconventional Tools

European Central Bank policy makers signaled they are in no rush to step up their response to the credit crisis by purchasing securities and downplayed concerns about the fiscal health of some euro-region nations.

"We have already introduced a number of unconventional measures," ECB governing council member Axel Weber said in Rome today, echoing comments by President Jean-Claude Trichet, Italy's Mario Draghi and France's Christian Noyer. Trichet said "no decision has been taken yet on top of the non-standard action" announced so far.

The ECB is coming under pressure to follow the Federal Reserve and the Bank of England's policy to buy government or corporate debt as Europe faces its worst recession in decades. Investors are also increasing bets that the price of banking bailouts and stimulus packages will strain public finances and hobble governments' ability to meet bond payments.

Ireland yesterday led a surge in the perceived risk of holding European government bonds, with credit-default swaps on Irish debt rising 7.5 points to a record 355. Trichet indicated that investors' concerns may be overdone, saying that market expectations go "up and down."

"I would say that the euro area is not in question in any respect," Trichet said after meeting officials from the Group of Seven nations. "I have absolutely full confidence that the governments at stake will continue to take the appropriate decisions to have sustainable policy, particularly on the fiscal side."

ECB officials have so far resisted pledging to buy securities to increase the supply of money in the economy and grease credit markets. Unlike the U.S. and U.K., which have indemnified their central banks against any default risk, it is also unclear how the ECB could be covered.

[ ]

German Finance Minister Peer Steinbrueck said that unprecedented liquidity injections may stoke inflation pressures in the future. Earlier, ECB colleague Juergen Stark said in Tutzing, Germany that the central bank is prepared to act "but always with appropriate caution."

Less Aggressive

The ECB has also been less aggressive than the Fed and the Bank of England in reducing rates. The Fed has cut the benchmark rate to close to zero, while the Bank of England has lobbed off 400 basis points since October, bringing the key rate to 1 percent.

While the ECB lowered its benchmark down to 2 percent from 4.25 percent in the past five months, it's still the highest among the G-7 group of nations.

The ECB last year more than doubled the amount of funds offered in its longer-term refinancing operations and increased the provision of dollars and Swiss francs. In addition, it loosened its rules on the collateral it accepts when making loans.

The U.K. is projecting a 3.3% shrinkage in its economy this year, the worst since 1980.

Inevitably politicians, seeking to retain their power, are increasingly playing to their domestic audiences desire for their governments to focus their economic policies at home. Nations now find themselves in the carefully laid traps that make up the web known as the global economy. In Europe, without the ability to have any influence on their currency, politicians are reverting to old fashioned protectionism. Such measures threaten both other countries' exports and, possibly, the survival of the European Union itself.

Europe turns to protectionism as industry plummets

For some time, leading European politicians have attempted to put a positive gloss on declining figures for European production, but the results released Thursday ushered in a new tone. European Union Industry Commissioner Günter Verheugen told the Financial Times Deutschland, "The extent and speed of the crisis is completely new."

One day previously, an Ifo Institute for Economic Research survey revealed that business sentiment within the 16-country common-currency eurozone declined for the sixth consecutive quarter, plunging to its lowest point since the survey began 16 years ago. The European Central Bank (ECB) also issued a warning that the recession gripping Europe will not be short-lived. Rather, it will be a "long-lasting and clear downturn," the ECB said.

The response of the individual European nations to the growing crisis has been to embrace a raft of protectionist measures. Italian Premier Silvio Berlusconi recently warned appliance maker Indesit SpA not to transfer production and jobs to Poland, and in Britain, trade unions and politicians are demanding "British jobs for British workers."

On Wednesday, the acting EU Council president, Czech Prime Minister Mirek Topolanek, appeared before the press in Brussels and warned of a "protectionist race" in Europe, while acknowledging that national economies in the European Union were being hit hard by the international crisis and losing ground with unanticipated speed.

[ ]

After a meeting with EU Commission President José Manuel Barroso, Topolanek described the situation in Europe "as worse than it has ever been." The confidence of citizens in the economic and political system had been shaken, he said, and warned that the battening down of national markets endangered the European domestic market and the world economy.

The Süddeutsche Zeitung echoed the statements of the EU Council president, writing, "Any politician seeking to solve the economic crisis by protectionist measures only worsens the situation."

Barroso also warned against states going it alone. European heads of state and government should put an end to any "nationalist navel gazing," he said. Otherwise, there was a danger of "intensifying the powerful downward trend."

[ ]

Last Wednesday, the French automaker Peugeot announced it was shedding at least 11,000 jobs, and one day later, Renault announced its own plans to cut its workforce by 9,000. These job cuts have been agreed to by the French government and trade unions and are bound up with the announcement by French President Nicolas Sarkozy that he plans to subsidise domestic automakers with the sum of €6 billion.

Sarkozy declared that, in his opinion, it was irresponsible "to continue to manufacture French cars in the Czech Republic." He demanded a halt to the transfer of production to other countries. "If we give financial aid to the automotive industry," he said, "we do not want them to set up a factory in the Czech Republic again." He also urged the carmakers to support French industries involved in supplying parts and services to French auto companies.

Czech Prime Minister Topolanek reacted sharply to this openly protectionist policy and called for a special European summit to block it and similar policies.

German Chancellor Angela Merkel (Christian Democratic Union - CDU) also criticised the French action. The defence of free trade and the European domestic market is of crucial importance, Merkel said.

The German economy, which is heavily dependent on its export industries, would be especially vulnerable to any growth of protectionist measures in Europe.

Sarkozy defended his decision and drew attention to the fact that the German chancellor had rejected a joint European stimulus programme just a few weeks before. Now, every government was forced to take its own measures to deal with the crisis, he said. He added that the latest German stimulus programme includes many measures aimed at subsidising German enterprises.

The conflict between Berlin and Paris runs deep. In his role as EU Council president last year, Sarkozy repeatedly raised the demand for an "economic administration" for the eurozone. He made it quite clear that he regarded himself as best suited to head such an administration.

Supported by a majority of the 16 eurozone countries, Sarkozy is seeking to compel the German government to take more responsibility for financial policy. According to the Élysée Palace, Germany, as the continent's biggest national economy, must contribute much more to managing the crisis.

The German government wants precisely to prevent such a development. It regards itself better prepared for the crisis than other euro countries due to the labour market reforms introduced by the previous Social Democratic-Green government, which slashed welfare payments and opened the way for the creation of a huge low-wage sector in Germany.

Backed by the country's business federations, the Merkel government is seeking to exploit the crisis to strengthen Germany's dominant role in Europe. Berlin is vehemently opposed to taking any responsibility for Europe's "weak states" - i.e., those countries that have thus far failed to implement drastic social and welfare cuts.

Behind the German chancellor's appeals for adherence to "free trade" and rejection of protectionism lie the egoistic interests of the German business elite, which profits most from the European domestic market.

The varying economic performances of individual euro countries and the absence of a uniform financial and economic policy have led to increasing discrepancies ("spreads") between the government loans of the euro countries. In mid-January, Greece had to take out a new government loan at an interest rate well above the 3 percent levied on German government securities. Financial experts have said that the trend of rising spreads has "definitely not stopped" and warn that it could have explosive consequences for the fate of the euro as a common currency.

When the chairman of the euro group, Luxembourg Finance Minister and Prime Minister Jean-Claude Juncker, suggested introducing eurobonds to allow weaker member states access to credit on the basis of a pan-European solution, his proposal was immediately rejected by German Finance Minister Peer Steinbrück (Social Democratic Party - SPD). Instead, the German government is seeking to use its EU industry commissioner, Günter Verheugen, to force member states to implement budget cuts and strict austerity policies.

In view of increasing tensions, the EU presidency and the European Commission have announced plans for no fewer than three separate summits in the coming three months. On March 1, the heads of state and government will meet in Brussels to "coordinate national stimulus packages." The agenda is to include the struggle against protectionist tendencies, measures to revive the circulation of credit, the handling of "toxic" securities, and policies directed against the rise of unemployment. Three weeks later, the regular spring summit of the EU takes place in Brussels, which is also likely to concentrate on the economic and financial crisis. In May, the Czech council president has invited member countries to Prague for an employment summit.

Behind this summit frenzy are fears of a possible break-up of the European Union and an escalation of working class resistance to mass unemployment and growing poverty.

Latin America

Argentina Unlikely to Pay Back Paris Club During Global Slump

Argentina is unlikely to pay back $6.7 billion of defaulted debt owed to Paris Club creditors until the global recession shows signs of easing, a government official said.

It would be a mistake to drain the country's foreign reserves to pay back the debt amid the global credit crisis, said the official, who declined to be identified in accordance with government policy. He said the government is comfortable with its current foreign reserve level of $47.1 billion.

Argentina continues to negotiate with the Paris Club, an informal association of creditors that includes the U.S., Germany, Italy and Japan, the official said.

President Cristina Fernandez de Kirchner had said on Sept. 2 that the government would tap central bank reserves to pay off the Paris Club, a move that would help companies obtain financing as growth falters in South America's second-biggest economy.

Republicans and Free Marketeers Fiddle while the World Burns

By Donald Hunt and Simon Davies
SOTT.net

In Nigeria oil workers are protesting the ongoing wave of violence against their industry which operates with legal impunity among the poorest people on earth.

Unemployment soared in the US and Canada; while Obama's dreams of bipartisan support for the rescue of the US economy took a beating as the pathological Republicans in the Senate played their usual games of economic dogma and political mendacity seemingly oblivious to the risk that when the whole house of cards comes down they might not have that cozy seat in an underground bunker they think is reserved in their name. But at least one US politician has had the courage to tell defaulting homeowners to resist eviction for as long as possible.

Unemployment is rising the world over while the social infrastructure in many countries, weakened by years of deliberate destruction from pernicious application of Friedmanite free market ideology, is already struggling under the strain. We are living the Shock Doctrine in real time.

Economic Overview

World stock indexes rose last week as job losses mounted. Agreement in the United States Senate on a bailout package helped stocks rise, despite signs of economic depression nearly everywhere.

Africa

In South Africa, concerns that drops in exports are happening now and will be announced later this month led to the head of the central bank hinting at an emergency meeting of the Monetary Policy Committee.

In Nigeria there was more trouble in the oil regions, as there usually is whenever oil prices get too low. Funny how that works.

Nigerian Union to Strike Over Attacks, Abductions in Oil Region

Nigeria's white-collar oil workers' union will begin an "indefinite" strike on Feb. 9 in protest at attacks and abductions by armed groups in the country's southern oil region.

[ ] Members will also shut premises of foreign oil companies operating in Nigeria, it added. Royal Dutch Shell Plc, Exxon Mobil Corp., Chevron Corp., Total SA and Eni SpA run joint ventures with the Nigerian government producing more than 90 percent of the country's oil.

President Umaru Yar'Adua's government has shown "ineptitude" in dealing with violent unrest in the Niger Delta, Pengassan [an oil workers union] said. [ ]

Armed attacks, including kidnapping and hijacking of vessels in the Niger Delta, which is home to Nigeria's oil industry, have cut its exports by more than 20 percent since 2006. Nigeria is Africa's leading oil producer and the fifth- biggest source of U.S. oil imports.

The Movement for the Emancipation of the Niger Delta, the main armed group in the region, says it's fighting for the region's poor. [ ]

Shot Dead

The union decided to take action after gunmen shot dead an 11-year-old girl in the oil hub of Port Harcourt and abducted her 9-year-old brother last week. They were the children of an employee of Royal Dutch Shell Plc's local subsidiary.

Pengassan issued an ultimatum to the government to ensure the release of the boy and other kidnap victims or the unions will pull members out of oil locations in the region. Though the boy was released yesterday, the union said many oil workers abducted by armed groups are still being held.

Pengassan and its blue-collar counterpart, the National Union of Petroleum and Natural Gas Workers of Nigeria, or Nupeng, in the past warned they may suspend work over insecurity in the Niger Delta. This is the first time either union has called a strike over the issue.

Asia

Concern about Japan's economy spread last week, as exports plunged. The big problem is that Japan has recently moved away from the traditional concern with the long-term welfare of employees to a more U.S. style employment insecurity, a change that's taking place in France and in many other previously socially progressive countries.

Japan on the brink of the abyss?

The economic outlook in Japan is very grim, as brief overviews below indicate. Right now, Japan has the worst growth outlook in Asia. That is a surprising fact, if one recalls that this is a country presumably dusting itself off from the collapse of its own bubble nearly two decades ago.

After such a long period of economic crisis, Japan should be renovated and ready to thrive. Instead, it may be in worse shape than even the United States (though clearly not Iceland and much of Eastern Europe). Exports plunged a record 35% annually in December, while the industrial production figures for November revealed a record 8.9% month-over-month drop.

Japanese financial institutions were not big players in the markets for collateralized debt obligations, credit default swaps and the other toxic assets that have ravaged the capital bases of banks in the US and much of Europe.

Rather, Japan's key policy failure would appear to be over-reliance on exports as the engine of growth, while hoping that the fruits of this growth would trickle down into the rest of the economy and bolster demand.

But in the rest of the economy, deregulation of labor and other markets had seen firms shifting to insecure employment (especially part-time and contractual staff) and rolling back pay, thus crimping the level of demand. And that weak domestic demand was of course blunting domestic-oriented businesses' incentives to invest (compared with incentives for export-oriented businesses).

With the startling 35% drop in exports in December 2008, it's as if someone kicked the chair away from a man who was standing on it to test out what it felt like to have a noose around his neck.

The ruling Liberal Democratic Party and Prime Minister Aso Taro are trying to assert that the problem is global, a once-in-a-century event. But the pattern of fallout varies among low toxic-asset countries (especially Asian), notably in accordance with their degree of reliance on the trade bubble.

Japan seems to be suffering the legacy of the structural reforms of former prime minister Koizumi Junichiro and financial services minister Heizo Takenaka in that the reformists were content to rely on exports (stimulated by ultra-low interest rates) and to use deregulation, privatization and (to some extent) tax cuts to eviscerate the public sector's role and let the market determine the strategic focus of the economy.

They were loath to look at the Scandinavian model as a guide to building safety nets for encouraging labor mobility and laying a strong floor as the basis of the domestic economy (also by investing in education and encouraging higher remuneration and professionalization in elder care and other growth sectors).

They disparaged the role of the public sector in framing markets and in sketching the strategic focus of the overall economy, such as in deciding targets in energy and environmental areas and thus giving incentives for market actors to achieve.

Koizumi's neo-liberal brain, Heizo Takenaka, still recently trumpeted in the Japanese weekly, ekonomisuto (economist), the small state and deregulatory nirvana. Elsewhere he has blamed Japan's current crisis on insufficient deregulation.

But he and Koizumi were champions of low interest rates, even though these rates cost domestic savers some 35 trillion yen per year (nearly 12% of their previous income). This was not only a subsidy to the export industries. Low rates also helped keep zombie firms (about 20% of small and medium enterprises) in business, since low interest allowed them to roll over their loans even though they were effectively broke.

A strategic investment focus from the central government during the Koizumi "structural reform" years would have put momentum into the recovery on the domestic side and allowed the ratcheting up of interest rates while softening the damage from failures of zombie firms that simply couldn't modernize fast enough as their low-interest security blanket was lifted.

The extra income for savers (from normalization of interest rates) would have bolstered the domestic economy enough to provide new employment opportunities to labor and capital shed by many inefficient enterprises and retraining could have been offered to the hard-core unemployed.

That's all hindsight of course, but it beats the hindsight on offer recently: many of the newly anti-market crowd are trumpeting "Edo" (old Tokyo) society and even the Jomon Era (14,000-400 BC) as models for the present, lauding their closeness to nature, stability, and community values. One Jomon booster is a former free-market cheerleader who got his economics PhD from Harvard and has been big in government deliberation councils.

Japan's public debate still hasn't cut through the nonsense of idealizing the "free market" or the "unique Japanese" and come to focus on what the public sector of this advanced, industrialized country needs to be doing in the midst of the worst economic crisis since the 1930s.

Japan's export troubles are causing a drop in the value of the Australian dollar to sixty U.S. cents, since Japan is the largest purchaser of Australian goods and inventories are piling up in Japan.

Eastern Europe

Russia is working to keep the Ruble stable by limiting money available to currency speculators.

Bank Rossii told lenders yesterday it will restrict loans to force banks to convert foreign-currency holdings into rubles, Kommersant newspaper reported, citing unidentified bankers. "Almost all" of the loans secured by bonds or other collateral in so-called repurchase auctions last month were used by banks to bet against the ruble, according to Natalia Orlova, chief economist at Moscow's Alfa Bank.

"This is a signal from the central bank that further speculation can be stopped," said Evgeny Gavrilenkov, chief economist in Moscow at Troika Dialog, Russia's oldest investment bank. "Those who accumulated dollars and euros will now have to start selling and the central bank will be able to maintain their level."

The currency slumped 35 percent against the dollar since August as Bank Rossii drained more than a third of Russia's foreign-exchange reserves, the third-largest worldwide, to stem the drop. A war with neighboring Georgia, sliding oil prices and the worst global financial crisis since the Great Depression spurred investors and locals to withdraw at least $290 billion from the country since Aug. 1, according to BNP Paribas SA.

The Czech Republic announced that it may need to exceed the 3% government deficit rule the European Union rules imposes on countries planning on adopting the Euro if the economy does poorly. These arbitrary EU rules are likely to be points of great contention in the near future as they limit the ability of governments to provide much needed social support in the crisis thereby effectively moving key elements of national sovereignty to the unelected technocrats in Brussels..

Western Europe and the U.K.

Norway announced a $15 billion financial bailout fund "to keep institutions lending" or rather to prevent them imploding.

The Governor of the Bank of France and member of the European Central Bank Governing Council, Christian Noyer lost all credibility last week by saying the recession in Europe will be brief, that French banks are "largely healthy," and by defending French President Nicolas Sarkozy's response to the crisis.

The U.K. further cemented its reputation as the economy most like the U.S. in this crisis when the leaders of its financial institutions paid themselves and their staff huge bonuses while being bailed out with public money.

Latin America

Brazil released some bad economic numbers last week, threatening the hope that its economy had somehow decoupled from the collapsing world economy. While there has been some basis for the decoupling theory, Brazil remains a country of extreme wealth inequality in which the middle class have been all but wiped out (economically) over the last ten to fifteen years.

New economic figures rattle Brazilians

Luciano Coutinho, head of Brazil's national development bank, has strong views on what has become a controversial subject for investors and economists looking at the world's tenth biggest economy.

"There is an idea going around that decoupling is over," he says. "That's a mistake. Decoupling has, yes, taken place and you'll see it in the rate of economic growth."

Brazil was widely said to have decoupled from the rest of the world because its increasingly vibrant economy has become less vulnerable to destabilising forces from overseas. Thrown off course by the Russian and Asian crises of the late 1990s, it had until recently weathered the current global crisis better than many expected.

But decoupling came under severe questioning this week after the release of some alarming economic data. Nevertheless, other contradictory evidence suggests that while Brazilians are suffering a crisis of confidence, they also believe their economic downturn will end soon.

Brazil is the second biggest of the so-called Bric countries - the others are Russia, India and China - which many economists say will deliver most of the world's growth as developed nations slide into recession.

So investors were rattled this week when figures for December showed Brazil's economy apparently hitting a brick wall. Industrial output slumped by 14.5 per cent year on year while, seasonally adjusted, more than 200,000 jobs were lost in the month, mostly in manufacturing. Both figures reversed recent steady gains, and were the worst on record.

However, also this week, a widely respected opinion poll showed approval of the government and of president Luiz Inácio Lula da Silva at all-time highs. Mr Lula da Silva's approval rating, at 84 per cent, is extraordinarily high for a president half way through a second term, suggesting Brazilians believe him when he says the crisis will be shallow and short.

By some measures, Brazilians should indeed have little to fear. The amount of credit in the economy is small by international standards, reducing the potential impact of a cut in lending.

And although Brazil's recent growth has been fueled by exports of commodities, the country has not been hit hard by falling commodity prices. It has a healthy domestic market and exports are equal to only about 14 per cent of GDP - much less than many of its peers.

So why did the economy stumble in December? Many observers say it is because banks, made nervous by the global crisis even though they source little of their funding overseas, simply stopped lending.

Shaun Wallis, head of HSBC in Brazil, rejects this. "Banks are open for business," he says. "The problem is primarily one of demand, not of supply."

He concedes that banks have become more cautious in the crisis but says many companies, themselves worried by the global slowdown, have chosen to fall back on cash reserves. Meanwhile salaried consumers, who by law receive an extra month's pay at the end of each year, used those bonuses instead of debt to fund year-end spending. Many retailers actually had a better December last year than in 2007.

Francisco Valim, head of Serasa, which provides credit risk evaluation services to banks, says the biggest danger to Brazil now is "fear of recession". And he warns that, without decisive action from the government, this fear could become a self-fulfilling prophecy.

The government has acted on several fronts. The central bank began cutting interest rates last month, although at 12.75 per cent a year its base rate is still high and market lending rates are much higher.

Mr Coutinho's development bank has been given an extra 100bn reais ($443m) to lend, especially for much-needed infrastructure projects. And on Thursday the central bank announced it would release $36bn from its international reserves to lend to companies with foreign debts falling due up to the end of the year, providing relief to many who would find it impossible to raise dollars on international markets.

Nevertheless, many economists worry about the government's capacity to promote growth through fiscal stimulus. Heavy commitments to new public sector employment have earmarked much of the available money, while tax revenues are falling as the economy slows. The government is still aiming for 4 per cent growth this year but many market economists expect growth to fall below 1 per cent.

Mr Valim at Serasa says banks should be obliged to make more credit available, although recent initiatives in this direction have had little impact.

With limited scope for action, the government must hope that Brazilian's faith in their president will outweigh their fear of the outside world and make decoupling a reality.

Markets

The markets this week (to Feb 9th)

	Previous week's close	This week's close	Change	% change
Gold (USD)	928.90	914.30	14.60	1.57%
Gold (EUR)	725.02	706.51	18.51	2.55%
Oil (USD)	41.66	40.17	1.49	3.58%
Oil (EUR)	32.52	31.04	1.48	4.54%
Gold:Oil	22.30	22.76	0.46	2.08%
USD / EUR	0.7805 / 1.2812	0.7727 / 1.2941	0.0078 / 0.0129	1.00% / 1.01%
USD / GBP	0.6878 / 1.4539	0.6763 / 1.4786	0.0115 / 0.0247	1.67% / 1.70%
USD / JPY	89.920 / 0.0111	91.893 / 0.0109	1.973 / 0.0002	2.19% / 1.80%
DOW	8,001	8,281	280	3.50%
FTSE	4,150	4,292	142	3.43%
DAX	4,338	4,645	306	7.06%
NIKKEI	7,994	8,077	83	1.03%
BOVESPA	39,301	42,756	3,455	8.79%
HANG SENG	13,278	13,655	377	2.84%
US Fed Funds	0.19%	0.25%	0.06	31.58%
$ 3month	0.23%	0.27%	0.04	17.39%
$ 10 year	2.85%	2.99%	0.14	4.91%

United States and Canada

Shocking job loss numbers for January were released last week in the United States and Canada. Canada lost a stunning 129,000 jobs putting the unemployment rate at 7.2% and the United States lost 598,000 jobs for an official unemployment rate of 7.6%.

Global jobs crisis deepens: US sheds 600,000 jobs in January

In a clear indication the economic crisis is rapidly heading into a severe global depression, US employers purged 598,000 jobs in January, the most job losses in a single month since 1974. January's firings raised the unemployment rate to 7.6 percent, the highest level since 1992.

Job cuts accelerated even more rapidly in Canada, where 129,000 jobs were eliminated, the highest monthly toll ever, with the unemployment rate spiking to 7.2 percent from 6.6 percent. Given a Canadian population of about one tenth that of the United States, the job losses are equivalent to about 1.3 million US cuts. Canadian economists, who had anticipated a figure of 40,000, were left dumbfounded by the data from Statistics Canada.

The new US Labor Department figures, released Friday, also far surpassed the expectations of economists, who had anticipated 524,000 lost jobs. The figure for December (577,000) was also revised upwards. In the coming period, job losses are expected to soar well above 600,000 a month.

Economists used the following terms to describe the Labor Department figures: "horror show," "alarming," "terrible toll," "endless spiral," "no end in sight," "slow motion train wreck," "horrific," "massive hemorrhage," and "stunning."

In the 12 months since January 2008, the American economy has hemorrhaged 3.5 million jobs, the most in one year since 1939, during the Great Depression. About half of those job cuts came in the past three months alone.

According to the Labor Department, there are now 11.6 million unemployed workers in the US. In addition, there are 7.8 million more who are underemployed, workers who seek full-time employment but are unable to find the hours they need.

If underemployed and marginally attached workers are counted, the US unemployment rate stands at 13.9 percent, according to the Wall Street Journal. The industrial sector suffered the most, with 207,000 jobs lost, after losing 162,000 in December. This represented the steepest decline since 1982, when US industrial production was intentionally decimated by the high interest rate "shock therapy" of former Federal Reserve Chief Paul Volker, who is now a key economic advisor to President Barack Obama. There are now only 12.6 million US factory workers, the lowest number since 1946.

In Canada, meanwhile, nearly 80 percent of January's job losses were among factory workers, with Ontario particularly hard-hit. This is an indication that the collapse of the US economy is ravaging Canada's export-oriented industries and their suppliers.

In the US, the job losses extended across economic sectors. White collar and managerial workers were eliminated in large numbers, 121,000 in all. Construction companies cut 111,000 jobs; 76,000 temporary worker were fired; 45,000 retail workers lost their jobs; and 28,000 more workers are now unemployed in the "leisure and hospitality" industry.

The unemployed face increasingly long periods between jobs, if new jobs are to be found, Labor Department statistics reveal. The average job hunt for unemployed workers has increased to 19.8 weeks, up from 17.5 weeks one year ago.

The wave of job cuts is being undertaken in tandem with a broad assault on the conditions of those workers fortunate enough to keep their jobs. In keeping with the spirit of the Obama administration, employed workers are being asked to make new "sacrifices."

Over the previous months, US employers have launched an unprecedented wave of pay and benefit cuts, hours reductions, and other takeaways. The sacrifices of the employed are also registered in an increase in productivity, which the Labor Department recently revealed has shot up by 3.2 percent in the last quarter of 2008.

The flood of job losses in the US is such that the system of unemployment benefits has been overwhelmed, both financially and physically. After decades of free-market orthodoxy, the social safety system in the US is woefully ill equipped to confront an economic crisis.

The National Conference of State Legislatures recently released a report revealing that seven states have depleted their unemployment insurance funds, and eleven others will likely do so within a year. On Thursday, the Washington Post published an article noting that rising unemployment "is overwhelming claims offices" that are short on staff, facilities, and equipment to meet the needs of desperate workers ("Deluge Is Holding Up Benefits to Unemployed").

The prospects for the coming year are grim. Analysts anticipate that 3 million more jobs will be lost, although even these dire estimates are contingent upon passage of Obama's stimulus package and the administration's assertions on job creation.

"We see job losses accelerating for at least the next several months to the point where that 600,000 mark will soon be a dot in the distance behind us," said economist Guy LeBas of Janney Montgomery Scott LLC. Robert MacIntosh, chief economist with Eaton Vance Management in Boston, said, "it is just another confirmation that we're in a deep and long recession, and the bottom is not even in sight."

The flood of job losses in North America is an expression of a world process. In December, Japan experienced the sharpest increase in unemployment in 41 years. More layoffs are to come, as industrial production declines precipitously. The Japan Manufacturing Outsourcing Association has stated that 400,000 temporary workers will be laid off by March. Many of these live in company dormitories, and will be made homeless in the process.

Earlier this month, China announced a massive growth in unemployment. Some 20 million of the country's 130 million migrant workers are unemployed. Manufacturing jobs for export production have been particularly hard-hit.

In Europe, economists anticipate that the overall unemployment rate will climb to 8.7 percent for the 27 EU countries. French employers purged 217,000 jobs last year, and the unemployment rate is expected to rise to 10.6 percent by the end of next year. In Spain, Europe's fifth-largest economy, the unemployment rate is at 14.4 percent and rising. Industrial output in Spain fell by nearly 20 percent in December.

The International Labor Organization recently released a report that forecast global job losses with a range of 18 to 51 million. In the latter scenario, global unemployment would climb past 7.1 percent.

Enough U.S. senators reached agreement this past weekend to pass a weakened and reduced stimulus bill, which helped to buoy world stocks momentarily. The problem was to get even three Republican senators to support the Bill, the Democrats had to agree to decrease the overall size of the package while increasing the tax cutting components and decreasing the infrastructure spending components. Last year's Nobel Prize in economics winner, Paul Krugman explains why this is bad:-

The Destructive Center

What do you call someone who eliminates hundreds of thousands of American jobs, deprives millions of adequate health care and nutrition, undermines schools, but offers a $15,000 bonus to affluent people who flip their houses?

A proud centrist.

Actually, at sott.net we call them by their proper name, psychopaths.

For that is what the senators who ended up calling the tune on the stimulus bill just accomplished.

Even if the original Obama plan - around $800 billion in stimulus, with a substantial fraction of that total given over to ineffective tax cuts - had been enacted, it wouldn't have been enough to fill the looming hole in the U.S. economy, which the Congressional Budget Office estimates will amount to $2.9 trillion over the next three years.

Yet the centrists did their best to make the plan weaker and worse.

One of the best features of the original plan was aid to cash-strapped state governments, which would have provided a quick boost to the economy while preserving essential services. But the centrists insisted on a $40 billion cut in that spending.

The original plan also included badly needed spending on school construction; $16 billion of that spending was cut. It included aid to the unemployed, especially help in maintaining health care - cut. Food stamps - cut. All in all, more than $80 billion was cut from the plan, with the great bulk of those cuts falling on precisely the measures that would do the most to reduce the depth and pain of this slump.

On the other hand, the centrists were apparently just fine with one of the worst provisions in the Senate bill, a tax credit for home buyers. Dean Baker of the Center for Economic Policy Research calls this the "flip your house to your brother" provision: it will cost a lot of money while doing nothing to help the economy.

All in all, the centrists' insistence on comforting the comfortable while afflicting the afflicted will, if reflected in the final bill, lead to substantially lower employment and substantially more suffering.

But how did this happen? I blame President Obama's belief that he can transcend the partisan divide - a belief that warped his economic strategy.

After all, many people expected Mr. Obama to come out with a really strong stimulus plan, reflecting both the economy's dire straits and his own electoral mandate.

Instead, however, he offered a plan that was clearly both too small and too heavily reliant on tax cuts. Why? Because he wanted the plan to have broad bipartisan support, and believed that it would. Not long ago administration strategists were talking about getting 80 or more votes in the Senate.

Mr. Obama's post-partisan yearnings may also explain why he didn't do something crucially important: speak forcefully about how government spending can help support the economy. Instead, he let conservatives define the debate, waiting until late last week before finally saying what needed to be said - that increasing spending is the whole point of the plan.

And Mr. Obama got nothing in return for his bipartisan outreach. Not one Republican voted for the House version of the stimulus plan, which was, by the way, better focused than the original administration proposal.

In the Senate, Republicans inveighed against "pork" - although the wasteful spending they claimed to have identified (much of it was fully justified) was a trivial share of the bill's total. And they decried the bill's cost - even as 36 out of 41 Republican senators voted to replace the Obama plan with $3 trillion, that's right, $3 trillion in tax cuts over 10 years.

So Mr. Obama was reduced to bargaining for the votes of those centrists. And the centrists, predictably, extracted a pound of flesh - not, as far as anyone can tell, based on any coherent economic argument, but simply to demonstrate their centrist mojo. They probably would have demanded that $100 billion or so be cut from anything Mr. Obama proposed; by coming in with such a low initial bid, the president guaranteed that the final deal would be much too small.

Such are the perils of negotiating with yourself.

Now, House and Senate negotiators have to reconcile their versions of the stimulus, and it's possible that the final bill will undo the centrists' worst. And Mr. Obama may be able to come back for a second round. But this was his best chance to get decisive action, and it fell short.

So has Mr. Obama learned from this experience? Early indications aren't good.

For rather than acknowledge the failure of his political strategy and the damage to his economic strategy, the president tried to put a post-partisan happy face on the whole thing. "Democrats and Republicans came together in the Senate and responded appropriately to the urgency this moment demands," he declared on Saturday, and "the scale and scope of this plan is right."

No, they didn't, and no, it isn't.

Of course, massive government deficit spending scares most people in the United States, but what is the alternative when the world is facing a deflationary spiral? According to the blogger Badtux, the alternative is Mexico North, he has a point:-

The paradox of thrift

Now, some folks have wondered why I consider personal savings going up as a problem. The answer is simple: by reducing consumption, this adds deflationary pressure to prices, which in turn makes people unemployed, which in turn causes consumption to decline even further. More importantly, by reducing the number of people that banks can lend money to (since businesses seeing reduced demand will not borrow and people who are increasing their savings will not borrow), it increases the effective reserve ratio and thereby decreases the money supply due to the fractional reserve multiplier effect basically operating in reverse to de-multiply. As I pointed out previously, if the ratio of reserves to loans rises from 10% to 15%, this is effectively a 33% decrease in the money supply -- which adds even more deflationary pressure to the economy.

This is called the Paradox of Thrift. The paradox of thrift can be explained simply: What is beneficial on a personal microeconomic level (keeping your consumption level down and savings level high so that you can more easily cope with changes in economic conditions), can be disasterous on a macroeconomic scale, resulting in a lower standard of living for everybody as consumption, wages and prices decrease yet debts stay the same (thus debt inflation, the primary characteristic of deflationary spirals).

Now, does this mean that you should immediately go out and spend down your savings? No. You have to make personal decisions based upon what is best for you. But it does mean that, if millions of other Americans are making this same personal decision to decrease consumption and increase savings, that there needs to be significant government intervention to a) re-inflate the money supply (by, for example, borrowing these excess reserves in order to build infrastructure projects), and b) increase consumption (by, for example, consuming goods from the economy in order to build infrastructure projects). Otherwise there is a significant risk of entering a deflationary spiral, and said deflationary spiral, sans government intervention, ends up with a typical Latin American solution -- most people chronically un-or-under-employed living in utter squalor and poverty, and a few wealthy people owning all the wealth of the nation. Which is nice if you're one of the few wealthy people, but not particularly good for America, since under-employed or un-employed people living in utter squalor and poverty are not contributing much to the economy.

So any time you see Rethuglicans saying "Obama's recovery plan is extravagant and spendthrift", recall what the end result of following their advice is: Mexico North, with most Americans under-employed or un-employed living in cardboard boxes in utter squalor and poverty. While their advice makes superficial sense because it works on the micro-economic (i.e. personal) level, on a macro-economic level their advice is pure disaster. America is currently in the process of de-leveraging -- reducing debt and increasing savings -- and while that can be a good thing in the long term, in the short term it requires significant government intervention to avoid going into a deflationary spiral, a deflationary spiral which Republican oligarchs have wet dreams about -- but which would be a nightmare for the rest of us.

Speaking of Latin American-style disparities of wealth, tax scandals have derailed several of Barack Obama's high-level appointees. More important than the non-payment of some taxes was the clear indication of the different world these people live in. Coupled with bank CEOs whining about having to live on $500,000 annual salaries, populist anger is justified. As Joe Kishore put it,

The proliferation of scandals - and in particular tax scandals - involving top government picks in the new Obama government reflects the outlook of the layer from which these posts are filled. Those considered "qualified" for the top positions - that is, those with sufficient connections to the political and financial establishment - are drawn mainly from a relatively small and thoroughly corrupt social milieu.

American society is characterized by an enormous social chasm. In the midst of the biggest economic crisis since the Great Depression - which is leading [to]massive job losses, wage cutting, and impoverishment - the American ruling class has moved rapidly to engineer the transfer of hundreds of billions to the financial aristocracy.

These class divisions are reflected in the personnel of the political establishment, increasingly composed of millionaires who move in and out of government and corporate positions. Corruption is pervasive and exudes out of every pore of the political system.

For this layer, laws, including the payment of taxes, are considered optional (Leona Helmsley once encapsulated this sentiment with her famous declaration, "We don't pay taxes. Only the little people pay taxes."). In fact, if an ordinary person were to commit the "mistakes" committed by Daschle and Geithner, he would find himself with massive fines, financial ruin, and potential imprisonment.

Given the context of class struggle bubbling up in the United States, a milestone was crossed last week. A member of the U.S. Congress from Ohio, Marcy Kaptur, advised homeowners facing foreclosure to stay in their homes as squatters if threatened with eviction:

Kaptur advises owners facing eviction to stay

U.S. Rep. Marcy Kaptur (D., Toledo) is advocating home-owners threatened with foreclosure exercise squatter's rights in trying to stave off the loss of their house.

"I'm saying to them possession is 99 percent of the law; you stay in your house," Miss Kaptur said yesterday, continuing a crusade she started several weeks ago in Congress and CNN picked up Thursday night.

She said she believes that many so-called predatory and subprime loans - those made to borrowers who did not qualify for a conventional mortgage - may have been illegal.

She urged homeowners not to panic and leave their home just because they receive a foreclosure notice from their lender, and she said they should demand that the mortgage-holder produce a mortgage audit.

"I say to the American people, you be squatters in your own homes. Don't you leave," she said during a speech in Congress earlier this month.

Miss Kaptur was interviewed Thursday night on CNN by Lou Dobbs, and a CNN report cited a woman who lives on Cass Road in South Toledo as an example of the trend of homeowners ignoring foreclosure notices from their lender.

But Jim Moody, a Realtor who is running for mayor of Toledo as a Republican, said Miss Kaptur may be misleading people into thinking they can stop a legal foreclosure once a judge has issued an order.

"I think those are dangerous statements," Mr. Moody said. "What's she going to say when the sheriff comes and puts all their stuff on the street when they didn't leave because Marcy Kaptur said they could stay and become a squatter?

"I think she's clueless. This is goofy. Of course, the attorneys file the proper paperwork," Mr. Moody said.

Allen Seelenbinder, a Toledo-based mortgage banker with Main Street Financial, said the only audit the borrower is entitled to is an audit of the borrower's payments.

Asked if the mortgage lender is required to prove that its loan was made properly and that the borrower was qualified to sign the loan, he said, "absolutely not - you're under a contract that you both signed.

"The only audit they're required to provide to you is that the payments that you made are made correctly. It's a transaction history," he said.

But Sandusky lawyer Dan McGookle, who is representing a homeowner trying to have a predatory loan rescinded, said mortgage firms may not be able to prove they complied with truth-in-lending laws and other state and federal procedures.

"We have strong reason to believe that a majority of the mortgage loans made in the last 10 years are defective - unenforceable for various reasons," Mr. McGookle said.

Ironically, Mr. Moody agreed that people threatened with foreclosure should try to work out a solution and should stay in the home as long as possible.

Cathleen Tillman, director of the Lucas County Sheriff's Department's civil section, which carries out court-ordered foreclosures and evictions, also said people should remain in the homes until the deed has been transferred, and not to abandon a home that is still listed in their name.

"The foreclosure takes a long time," she said. More than 4,000 foreclosure actions were filed in 2008 in Lucas County, and the sheriff's department carried out 85 foreclosure-related evictions.

Miss Kaptur said she started advocating that homeowners fight foreclosure by staying their home after it became clear that the $700 billion bailout of the financial industry passed last year was not working as intended by Congress.