Grand Ponzi scheme

[theDoors]

Grand US Ponzi scheme

By a Malaysian Conspiracy Theorist Matthias Chang

Let me explain why the situation is so dire and dangerous.

Since Wednesday, when the financial shits hit the ceiling fan, I was hoping that the so-called leading economics and financial commentators and opinion makers would explain the situation to the Malaysian public via the national dailies, the blogs and the TV network. I came across not one article or broadcast that explains the underlying reasons for the inevitable dire consequences.

Sure there were articles on the crisis, but they were merely describing the rescue of the largest insurance company in the USA (A.I.G.) if not the world and the amount involved. No explanation whatsoever, as to why only a few days earlier the Fed and the Treasury allowed the 4th largest bank, Lehman Bros to fold up but rushed in to rescue AIG with an unprecedented US$ 85 billion.

In my various articles published in my website and my final volume of the Future Fast-Forward Trilogy – The Shadow Money-Lenders and the Global Financial Tsunami – I explained in great detail the corruption within the global banking system and how these financial leeches through fraud and political protection created and amassed a global financial fortune in excess of US$500 Trillion. ( A book riddled with racist overtones)

Let me assure you that this is not a typo error. You got it right. It is not billions but a whopping US$500 trillion. I have been advised that as of the Q2 of 2008, the figure may have reached US$565 trillion.

This is a complex subject but I shall endeavour to make it as simple as I can.

Starting Point

The Ponzi Scheme

The crux of the fraudulent Ponzi scheme is the twin pillars of:

1) Fannie Mae & Freddie Mac – the two giant mortgage corporations of USA

2) The Derivative financial tool known as Credit Default Swap (CDS)

Once you have a grasp of these two concepts, you cannot but agree that we are facing total global banking collapse. Why? Because the entire global banking system has been built on these two financial pillars! But the system became irreparable in the last 7 years when CDS became the linchpin in the massive expansion of derivative trading and financial engineering.



The Mechanics

1. Banks became greedy and were unwilling to earn safe and steady profits from mortgages for housing and commercial properties which usually spread over a period of between 5 to 30 years.

2. Banks wanted massive profits in the shortest period of time and the ability to lend massive amounts and not be regulated as to how to do it.

3. The crooks devised a scheme. It was a simple idea.

4. Banks will provide mortgages to all and sundry.

5. I am going to use a simple example and using small numbers to illustrate for ease of calculation. Thus, assuming the Bank gave out US$1 million to finance mortgages, bearing interest at 10%.

6. The bank then sold the mortgages to Fannie Mae and Freddie Mac at a discount. Fannie Mae and Freddie Mac being Government Sponsored Companies (GSCs) are able to get cheap financing to purchase these mortgages as they were assumed to be “guaranteed by the US Government”.

7. Fannie Mae and Freddie Mac then package these mortgages into all sorts of structured financial products and these were sold to investors (private as well governments). Central Banks hold massive amounts of dollar reserves and they need to find a safe haven for them. Hence, and invariably, Central Banks invest their reserves in US Treasuries and financial “mortgage-backed” products issued by Fannie Mae and Freddie Mac as well as other US financial institutions.

8. With the payment of US$ 1 million by Fannie Mae / Freddie Mac, the bank by law, can lend ten times the amount after keeping 10% reserves i.e.US$100,000. Therefore, the bank can lend US$9 million by “creating money out of thin air” i.e. by crediting the borrowers in their loan accounts in amount of the loans extended. These US$9 million loans secured by mortgages are then sold to Fannie Mae / Freddie Mac again.

The cycle keeps repeating and the banks keep creating more and more loans.

It was so easy that the banks decided to create dubious loans called “Liars Loans” whereby the borrower need not state the actual income and or ability to repay.

9. As more and more of these loans were created, investors (government and private) demanded assurances that these loans were good for investments. The rating agencies (e.g. Moodys, Standard & Poor and Fitch etc.) who in collusion with banks, gave AAA ratings to what were essentially junks. This fraud led investors to believe that these financial products were good investments.

10. The rating agencies were only too aware that this scheme needed something more concrete to prolong the fraud and induce the investors to part with their monies.

11. The insurance companies like A.I.G. came into the picture. They were seduced by the idea that if they can insure against risks of accidents, storms etc., they could also insure risks against default by the mortgage holders. Thus was born the financial innovation – Credit Default Swap (CDS). Any financial product with a sound CDS would be rated AAA. It was as good as being guaranteed by Uncle Sam. *******s the world over, especially central banks, fell for it – hook, line and sinker. Bank Negara was no exception.

12. The scheme works out like this – AIG sells protection – i.e. in the event there is a default, AIG will pay out to the buyer who buys the protection (the CDS) in exchange for the payment of premiums covering the period of protection not unlike your usual insurance policy. It was easy money for everyone.

The banks get to sell their loans and have the liquidity to create more loans.

Fannie Mae / Freddie Mac and other financial institutions get the opportunity to repackage these loans / mortgages and sells them to investors with a tidy profit.

The investors are happy with their so-called guaranteed returns. The insurance companies, investment banks and other players get their premium income for selling protection. It was old fashion mafia loan sharking and protection business dressed up in modern financial jargon and everyone was too arrogant and greedy to see through the fraud.

13. When loans default and continue to be delinquent, the law (depending on each country) provides that if the loan is in default for 90 days or more, it should be declared a Non-Performing Loan (NPL) and banks must provide reserve to cover the loss.

14. What happened was banks were covering the defaults and kept them on the books for two years or more in the hope that no one would be wiser and interest income from new loans would cover the defaulted old loans – the classic ponzi modus operandi.

15. When the two years default reached critical proportions starting with the sub-prime loans, the fraud began to unravel. Investors began demanding their protection money for the losses arising from these defaults. It has been estimated that the market value of the CDS was in excess of US$60 trillion but the capital of the insurance companies like AIG are only in the billions. It is therefore a physical impossibility to make good the demand for payment for the defaults.

16. If AIG the No. 1 insurer in US and the world is in default, it means the rest are in deep shits. You can take it as a given that no one and no one has good coverage and protection anymore.

17. When there is no coverage and protection, how can there be AAA ratings for new issues of such financial products? Fannie Mae/Freddie Mac etc. cannot package these products for sale to investors and if they cannot sell, they will have no funds to buy more dubious mortgages from corrupt and fraudulent Wall Street banks. With no additional funds, these crooks in JP Morgan Chase, Goldman Sachs, Citigroup, Lehman Bros., Morgan Stanley, Merrill Lynch, Bank of America, UBS, Barclays, HSBC, Deutsche Bank, Credit Suisse, etc. will have difficulty extending new loans.

The “Musical Money Chair” will have to come to a complete halt. The entire system gets into a gridlock.

Given the above explanation, can the US government and the Fed continue to bail out banks and other financial institutions? When US is in deficit in both the budget and current accounts, where else can they get the extra monies except by creating out of thin air (virtually by keying digits into computers) or print more dollars.

If you are a sovereign lender or a private hedge fund, knowing the situation, would you lend more monies to the US Treasury knowing that each dollar issued (whether digitally or in printed notes) are not worth the value stated therein.

These dollars ARE NO BETTER THAN TOILET PAPER.

The bulk of our reserves are in US dollars. Our trade – petroleum products, palm oil and other exports are mainly traded in dollars. When the dollar dives into the cesspool of waste, what then?

This is the impending mess that Malaysia will be facing as early as end of 2008.

Have you heard anyone other than this writer talking about it?

http://iamamalaysian.wordpress.com/2008/09/20/how-close-are-we-to-a-financial-collapse/

http://tankinlian.blogspot.com/search?q=ponzi+schme

 

[theDoors]

Behind the panic:
Financial Warfare over future of global bank power
By F. William Engdahl, 10 October 2008
http://www.engdahl.oilgeopolitics.net/print/Behind the panic Financial Warfare.htm

What's clear from the behavior of European financial markets over the past two weeks is that the dramatic stories of financial meltdown and panic are deliberately being used by certain influential factions in and outside the EU to shape the future face of global banking in the wake of the US sub-prime and Asset-Backed Security (ABS) debacle. The most interesting development in recent days has been the unified and strong position of the German Chancellor, Finance Minister, Bundesbank and coalition Government, all opposing an American-style EU Superfund bank bailout. Meanwhile Treasury Secretary Henry Paulson pursues his Crony Capitalism to the detriment of the nation and benefit of his cronies in the financial world. It's an explosive cocktail that need not have been.

Stock market falls of 7 to 10% a day make for dramatic news headlines and serve to foster a broad sense of unease bordering on panic among ordinary citizens. The events of the last two weeks among EU banks since the dramatic state rescues of Hypo Real Estate, Dexia and Fortis banks, and the announcement by UK Chancellor of the Exchequer, Alistair Darling of a radical shift in policy in dealing with troubled UK banks, have begun to reveal the outline of a distinctly different European response to what in effect is a crisis 'Made in USA.'

There is serious ground to believe that US Goldman Sachs ex CEO Henry Paulson, as Treasury Secretary, is not stupid. There is also serious ground to believe that he is actually moving according to a well-thought-out long-term strategy. Events as they are now unfolding in the EU tend to confirm that. As one senior European banker put it to me in private discussion, 'There is an all-out war going on between the United States and the EU to define the future face of European banking.'

In this banker's view, the ongoing attempt of Italian Prime Minister Silvio Berlusconi and France's Nicholas Sarkosy to get an EU common 'fund', with perhaps upwards of $300 billion to rescue troubled banks, would de facto play directly into Paulson and the US establishment's long-term strategy, by in effect weakening the banks and repaying US-originated Asset Backed Securities held by EU banks.

Using panic to centralize power

As I document in my forthcoming book, Power of Money: The Rise and Decline of the American Century, in every major US financial panic since at least the Panic of 1835, the titans of Wall Street-most especially until 1929, the House of JP Morgan-have deliberately triggered bank panics behind the scenes in order to consolidate their grip on US banking. The private banks used the panics to control Washington policy including the exact definition of the private ownership of the new Federal Reserve in 1913, and to consolidate their control over industry such as US Steel, Caterpillar, Westinghouse and the like. They are, in short, old hands at such financial warfare to increase their power.

Now they must do something similar on a global scale to be able to continue to dominate global finance, the heart of the power of the American Century.

That process of using panics to centralize their private power created an extremely powerful, concentration of financial and economic power in a few private hands, the same hands which created the influential US foreign policy think-tank, the New York Council on Foreign Relations in 1919 to guide the ascent of the American Century, as Time founder Henry Luce called it in a pivotal 1941 essay.

It's becoming increasingly obvious that people like Henry Paulson, who by the way was one of the most aggressive practitioners of the ABS revolution on Wall Street before becoming Treasury Secretary, are operating on motives beyond their over-proportional sense of greed. Paulson's own background is interesting in that context. Back in the early 1970's Paulson started his career working for a rather notorious man named John Erlichman, Nixon's ruthless adviser who created the Plumbers' Unit during the Watergate era to silence opponents of the President, and was left by Nixon to 'twist in the wind' for it in prison.

Paulson seems to have learned from his White House mentor. As co-chairman of Goldman Sachs according to a New York Times account, in 1998 he forced out his co-chairman, Jon Corzine 'in what amounted to a coup' according to the Times.

Paulson, and his friends at Citigroup and JP Morgan Chase, had a strategy it is becoming clear, as did the Godfather of Asset Backed Securitization and deregulated banking, former Fed Chairman Alan Greenspan, as I have detailed in my earlier series here, Financial Tsunami, Parts I-V.

Knowing that at a certain juncture the pyramid of trillions of dollars of dubious sub-prime and other high risk home mortgage-based securities would come falling down, they apparently determined to spread the so-called 'toxic waste' ABS securities as globally as possible, in order to seduce the big global banks of the world, most especially of the EU, into their honey trap.

They had help. In recent testimony under oath by Mr Lynn Turner, Chief Accountant of the Securities & Exchange Commission (SEC) testified that the SEC Office of Risk Management which had oversight responsibility for the Credit Default Swap market, an exotic market worth nominally some $62 trillions, was cut in Administration ‘budget cuts’ from a staff of one hundred down to one person. Yes, that was not a typo. That’s one as in ‘Uno.’

Vermont Democratic Congressman Peter Welsh queried Turner, ‘... was there a systematic depopulating of the regulatory force so that it was impossible actually for regulation to occur if you have one person in that office? ...and then I understand that 146 people were cut from the enforcement division of the SEC, is that what you also testified to?’ Mr. Turner, in Congressional testimony replied, ‘Yes…I think there has been a systematic gutting, or whatever you want to call it, of the agency and it's capability through cutting back of staff.’

Was that just ideological budget cutting fervor, or was it deliberate? Was former Goldman Sachs man, the man who convinced the President to hire Paulson, Bush's former Director of the Office of Management and Budget (OMB), Joshua Bolten, now the President's Chief of Staff, responsible for insuring there was no effective government oversight on the exploding securitization of mortgage assets?

These are perhaps some questions which the good Congressmen ought to be asking people like Henry Paulson and Josh Bolten, and not such red herring questions as how large Richard Fuld's bonus pay at Lehman was. Are Mr Bolten's fingerprints on the corpse here? And why is no one questioning the role of Paulson as CEO of Goldman Sachs, then the most aggressive promoter of exotic and other Asset Backed Securitization products on Wall Street?

It now would appear that the Paulson strategy was to use a crisis-a crisis that was pre-programmed and predictable as far back as 2003 when Josh Bolten became head of OMB-when it exploded, to panic the more conservative European Union governments into rushing to the rescue of US toxic waste assets.

Were that to have happened, it would in the process destroy what was left of sound EU banking and financial institutions, bringing the world one step closer to a global money market controlled by Paulson's cronies-US-style Crony Capitalism. Crony Capitalism is certainly appropriate here. Paulson's predecessor at both Goldman Sachs and at Treasury, Robert Rubin, liked to accuse the Asian bankers of Thailand, Indonesia and other lands hit with the speculative attacks of US-financed hedge funds in 1997 of 'crony capitalism,' leaving the impression the crisis was home grown in Asia and not the result of a deliberate executed attack by US-financed financial institutions to eliminate the Asia Tiger model among other goals, and turn Asia into the funder of US debt.

Interesting to note is that Rubin is now a Director of Citigroup, obviously one of Paulson's crony bank 'survivors,' and the bank which to date has had to write off the largest sum in toxic waste securitized assets.

If the allegation of pre-planned panic, a la the Panic of 1907 is accurate, and it is a big if, then the plan worked…up to a point. That point came over the weekend of October 3, coincidentally the national unification holiday of Germany.

 

[theDoors]

Germany breaks with US model

In closed door talks well into the evening of Sunday October 5, Alex Weber the hard-nosed head of the Bundesbank, BaFin head Jochen Sanio and representatives of the Berlin coalition Government of Chancellor Merkel came up with a rescue package for Hypo Real Estate of a nominal €50 billion. However, behind the dramatic headline number, as Weber pointed out in a September 29 letter to Finance Minister Peer Steinbrück that has been made public, not only did the private German banks have to come up with 60% of that figure, the state with 40%. But also, given the careful manner in which the Government in cooperation with the Bundesbank and BaFin, structured the rescue credit agreement, the maximum possible loss, in a worst case scenario, to the state would be limited to €5.7 billion, not €30 billion as many believed. It's still real money but not the blank check for $700 billion that a US Congress under duress and a few days of falling stock market prices agreed to give Paulson.

The swift action by Finance Minister Steinbrück to fire the head of HRE, in stark contrast to Wall Street where the same criminal fraudsters remain at their desks reaping huge bonuses, indicates as well a different approach. But that does not cut to the heart of the issue. The situation of HRE arose as noted previously, from excesses in a wholly-owned daughter bank of HRE subsidiary DEPFA in Ireland, an EU country known for its liberal loose regulation and low tax regime.

A British policy shift

In the UK, after the costly and foolish bailout of Northern Rock earlier in the year, the Government of Prime Minister Gordon Brown has just announced a dramatic change in policy in the direction of Germany's position. Britain's banks will get an unprecedented 50 billion-pound (€64 billion) government lifeline and emergency loans from the Bank of England.

The government will buy preference shares from Royal Bank of Scotland Group Plc, Barclays Plc and at least six other banks, and provide about 250 billion pounds of loan guarantees to refinance debt, the Treasury said. The Bank of England will make at least 200 billion pounds available. The plan doesn't specify how much each bank will get.

That means the UK Government will at least partially nationalize its most important international banks, rather than buy their bad loans as under the unworkable Paulson plan. Under such an approach, costs to UK taxpayers once the crisis abates and business returns to more normal conditions, the Government can sell the state shares back to a healthy bank at perhaps a nice profit to the Treasury. The Brown Government has apparently realized that the blanket guarantees it gave to Northern Rock and Bradford & Bingley merely opened the floodgates of government costs without changing the problem.

The new nationalization policy is a dramatic contrast to the Paulson ideological 'free market' approach of buying the worthless bonds held by the select banks Paulson chooses to save, rather than recapitalize those banks to allow them to continue to function.


The battle lines drawn

What has emerged are the outlines of two opposite approaches to the unfolding crisis. The Paulson plan is now clearly part of a project to create three colossal global financial giants-Citigroup, JP MorganChase and, of course, Paulson's own Goldman Sachs, now conveniently enough a bank. Having successfully used fear and panic to wrestle a $700 billion bailout from the US taxpayers, now the big three will try to use their unprecedented muscle to ravage European banks in the years ahead. So long as the world's largest financial credit rating agencies-Moody's and Standard & Poors-are untouched by the scandals and Congressional hearings, the reorganized US financial power of Goldman Sachs, Citigroup and JP Morgan Chase could potentially regroup and advance their global agenda over the coming several years, walking over the ashes of a bankrupt American economy made bankrupt by their follies.

By agreeing on a strategy of nationalizing what EU finance ministers deem are 'EU banks too systemically strategic to fail,' while guaranteeing bank deposits, the largest EU governments, Germany and the UK, in contrast to the US, have opted for what will in the longer run allow European banking giants to withstand the anticipated financial attacks from the likes of Goldman or Citigroup.

The dramatic selloff of stocks across European bourses and across Asia is in reality a secondary and far less critical issue. According to market reports, the selloff is being driven mainly by US hedge funds desperate to raise cash as they realize the US economy is going into economic depression, that they are exposed and that the Paulson Plan does nothing to address that.

A functioning solvent banking and interbank system is far the more strategic issue. The ABS debacle was 'Made in New York.' Nonetheless, its effects have to be isolated and viable EU banks defended in the public interest, not just the interest of Paulson's banking cronies as in the US. Unregulated offshore vehicles such as hedge funds, unregulated banking, unregulated insurance all went into building the $80 trillion ABS Tsunami as I have called it. Certain more conservative EU hands are not about to buy the remedy being offered by Washington.

The coordinated interest rate cut by the ECB and other European central banks while grabbing headlines, in effect do little to address the real problem: banks fear to lend to each other until their solvency is assured.

By initiating state partial nationalizations across the EU, and rejecting the Berlusconi/Sarkozy bailout scheme, the governments of the EU, interestingly enough this time led by the German, are laying a more sound foundation to emerge from the crisis.

Stay tuned, it's far from over. This is a fight for the survival of the American Century which has been built since 1939 on the twin pillars of American financial dominance and American military dominance-Full Spectrum, Dominance.

Asian banks, badly burned by Wall Street's manipulated 1997-98 Asia Crisis, are apparently very little exposed to the US problem. European banks are exposed in different ways, but none so serious as in the US banking world. (Which I disagree)

 

[theDoors]

THE COLLAPSE OF A 300 YEAR PONZI SCHEME:
THE REAL DEBATE IS CRONY SOCIALISM OR FINANCIAL SOVEREIGNTY

Ellen Brown, October 16th, 2008
www.webofdebt.com/articles/modest_proposal.php

“Admit it, mes amis, the rugged individualism and cutthroat capitalism that made America the land of unlimited opportunity has been shrink-wrapped by half a dozen short sellers in Greenwich, Conn., and FedExed to Washington, D.C., to be spoon-fed back to life by Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson. We’re now no different from any of those Western European semi-socialist welfare states that we love to deride.”

–Bill Saporito, “How We Became the United States of France,” Time (September 21, 2008)

Last night, the Presidential candidates had their last debate before the election. They talked of the baleful state of the economy and the stock market; but omitted from the discussion was what actually caused the credit freeze, and whether the banks should be nationalized as Treasury Secretary Hank Paulson is now proceeding to do. The omission was probably excusable, since the financial landscape has been changing so fast that it is hard to keep up. A year ago, the Dow Jones Industrial Average broke through 14,000 to make a new all-time high. Anyone predicting then that a year later the Dow would drop nearly by half and the Treasury would move to nationalize the banks would have been regarded with amused disbelief. But that is where we are today.1

Congress hastily voted to approve Treasury Secretary Hank Paulson’s $700 billion bank bailout plan on October 3, 2008, after a tumultuous week in which the Dow fell dangerously near the critical 10,000 level. The market, however, was not assuaged. The Dow proceeded to break through not only 10,000 but then 9,000 and 8,000, closing at 8,451 on Friday, October 10. The week was called the worst in U.S. stock market history.

On Monday, October 13, the market staged a comeback the likes of which had not been seen since 1933, rising a full 11% in one day. This happened after the government announced a plan to buy equity interests in key banks, partially nationalizing them; and the Federal Reserve led a push to flood the global financial system with dollars.

The reversal was dramatic but short-lived. On October 15, the day of the Presidential debate, the Dow dropped 733 points, crash landing at 8,578. The reversal is looking more like a massive pump and dump scheme – artificially inflating the market so insiders can get out – than a true economic rescue. The real problem is not in the much-discussed subprime market but is in the credit market, which has dried up. The banking scheme itself has failed. As was learned by painful experience during the Great Depression, the economy cannot be rescued by simply propping up failed banks. The banking system itself needs to be overhauled.

A Litany of Failed Rescue Plans

Credit has dried up because many banks cannot meet the 8% capital requirement that limits their ability to lend. A bank’s capital – the money it gets from the sale of stock or from profits – can be fanned into more than 10 times its value in loans; but this leverage also works the other way. While $80 in capital can produce $1,000 in loans, an $80 loss from default wipes out $80 in capital, reducing the sum that can be lent by $1,000. Since the banks have been experiencing widespread loan defaults, their capital base has shrunk proportionately.

The bank bailout plan announced on October 3 involved using taxpayer money to buy up mortgage-related securities from troubled banks. This was supposed to reduce the need for new capital by reducing the amount of risky assets on the banks’ books. But the banks’ risky assets include derivatives – speculative bets on market changes – and derivative exposure for U.S. banks is now estimated at a breathtaking $180 trillion.2 The sum represents an impossible-to-fill black hole that is three times the gross domestic product of all the countries in the world combined. As one critic said of Paulson’s roundabout bailout plan, “this seems designed to help Hank’s friends offload trash, more than to clear a market blockage.”3

By Thursday, October 9, Paulson himself evidently had doubts about his ability to sell the plan. He wasn’t abandoning his old cronies, but he soft-pedaled that plan in favor of another option buried in the voluminous rescue package – using a portion of the $700 billion to buy stock in the banks directly. Plan B represented a controversial move toward nationalization, but it was an improvement over Plan A, which would have reduced capital requirements only by the value of the bad debts shifted onto the government’s books. In Plan B, the money would be spent on bank stock, increasing the banks’ capital base, which could then be leveraged into ten times that sum in loans. The plan was an improvement but the market was evidently not convinced, since the Dow proceeded to drop another thousand points from Thursday’s opening to Friday’s close.

One problem with Plan B was that it did not really mean nationalization (public ownership and control of the participating banks). Rather, it came closer to what has been called “crony capitalism” or “corporate welfare.” The bank stock being bought would be non-voting preferred stock, meaning the government would have no say in how the bank was run. The Treasury would just be feeding the bank money to do with as it would. Management could continue to collect enormous salaries while investing in wildly speculative ventures with the taxpayers’ money. The banks could not be forced to use the money to make much-needed loans but could just use it to clean up their derivative-infested balance sheets. In the end, the banks were still liable to go bankrupt, wiping out the taxpayers’ investment altogether. Even if $700 billion were fanned into $7 trillion, the sum would not come close to removing the $180 trillion in derivative liabilities from the banks’ books. Shifting those liabilities onto the public purse would just empty the purse without filling the derivative black hole.

Plan C, the plan du jour, does impose some limits on management compensation. But the more significant feature of this week’s plan is the Fed’s new “Commercial Paper Funding Facility,” which is slated to be operational on October 27, 2008. The facility would open the Fed’s lending window for short-term commercial paper, the money corporations need to fund their day-to-day business operations. On October 14, the Federal Reserve Bank of New York justified this extraordinary expansion of its lending powers by stating:

“The CPFF is authorized under Section 13(3) of the Federal Reserve Act, which permits the Board, in unusual and exigent circumstances, to authorize Reserve Banks to extend credit to individuals, partnerships, and corporations that are unable to obtain adequate credit accommodations. . . .

“The U.S. Treasury believes this facility is necessary to prevent substantial disruptions to the financial markets and the economy and will make a special deposit at the New York Fed in support of this facility.”4

That means the government and the Fed are now committing even more public money and taking on even more public risk. The taxpayers are already tapped out, so the Treasury’s “special deposit” will no doubt come from U.S. bonds, meaning more debt on which the taxpayers have to pay interest. The federal debt could wind up running so high that the government loses its own triple-A rating. The U.S. could be reduced to Third World status, with “austerity measures” being imposed as a condition for further loans, and hyperinflation running the dollar into oblivion. Rather than solving the problem, these “rescue” plans seem destined to make it worse.

 

[theDoors]

The Collapse of a 300 Year Ponzi Scheme

All the king’s men cannot put the private banking system together again, for the simple reason that it is a Ponzi scheme that has reached its mathematical limits. A Ponzi scheme is a form of pyramid scheme in which new investors must continually be sucked in at the bottom to support the investors at the top. In this case, new borrowers must continually be sucked in to support the creditors at the top. The Wall Street Ponzi scheme is built on “fractional reserve” lending, which allows banks to create “credit” (or “debt”) with accounting entries. Banks are now allowed to lend from 10 to 30 times their “reserves,” essentially counterfeiting the money they lend. Over 97 percent of the U.S. money supply (M3) has been created by banks in this way.5 The problem is that banks create only the principal and not the interest necessary to pay back their loans. Since bank lending is essentially the only source of new money in the system, someone somewhere must continually be taking out new loans just to create enough “money” (or “credit”) to service the old loans composing the money supply. This spiraling interest problem and the need to find new debtors has gone on for over 300 years -- ever since the founding of the Bank of England in 1694 – until the whole world has now become mired in debt to the bankers’ private money monopoly. As British financial analyst Chris Cook observes:

“Exponential economic growth required by the mathematics of compound interest on a money supply based on money as debt must always run up eventually against the finite nature of Earth’s resources.”6

The parasite has finally run out of its food source. But the crisis is not in the economy itself, which is fundamentally sound – or would be with a proper credit system to oil the wheels of production. The crisis is in the banking system, which can no longer cover up the shell game it has played for three centuries with other people’s money. Fortunately, we don’t need the credit of private banks. A sovereign government can create its own.

The New Deal Revisited

Today’s credit crisis is very similar to that facing Franklin Roosevelt in the 1930s. In 1932, President Hoover set up the Reconstruction Finance Corporation (RFC) as a federally-owned bank that would bail out commercial banks by extending loans to them, much as the privately-owned Federal Reserve is doing today. But like today, Hoover’s plan failed. The banks did not need more loans; they were already drowning in debt. They needed customers with money to spend and to invest. President Roosevelt used Hoover’s new government-owned lending facility to extend loans where they were needed most – for housing, agriculture and industry. Many new federal agencies were set up and funded by the RFC, including the HOLC (Home Owners Loan Corporation) and Fannie Mae (the Federal National Mortgage Association, which was then a government-owned agency). In the 1940s, the RFC went into overdrive funding the infrastructure necessary for the U.S. to participate in World War II, setting the country up with the infrastructure it needed to become the world’s industrial leader after the war.

The RFC was a government-owned bank that sidestepped the privately-owned Federal Reserve; but unlike the private banks with which it was competing, the RFC had to have the money in hand before lending it. The RFC was funded by issuing government bonds (I.O.U.s or debt) and relending the proceeds. The result was to put the taxpayers further into debt. This problem could be avoided, however, by updating the RFC model. A system of public banks might be set up that had the power to create credit themselves, just as private banks do now. A public bank operating on the private bank model could fan $700 billion in capital reserves into $7 trillion in public credit that was derivative-free, liability-free, and readily available to fund all those things we think we don’t have the money for now, including the loans necessary to meet payrolls, fund mortgages, and underwrite public infrastructure.


Credit as a Public Utility

“Credit” can and should be a national utility, a public service provided by the government to the people it serves. Many people are opposed to getting the government involved in the banking system, but the fact is that the government is already involved. A modern-day RFC would actually mean less government involvement and a more efficient use of the already-earmarked $700 billion than policymakers are talking about now. The government would not need to interfere with the private banking system, which could carry on as before. The Treasury would not need to bail out the banks, which could be left to those same free market forces that have served them so well up to now. If banks went bankrupt, they could be put into FDIC receivership and nationalized. The government would then own a string of banks, which could be used to service the depository and credit needs of the community. There would be no need to change the personnel or procedures of these newly-nationalized banks. They could engage in “fractional reserve” lending just as they do now. The only difference would be that the interest on loans would return to the government, helping to defray the tax burden on the populace; and the banks would start out with a clean set of books, so their $700 billion in startup capital could be fanned into $7 trillion in new loans. This was the sort of banking scheme used in Benjamin Franklin’s colony of Pennsylvania, where it worked brilliantly well. The spiraling-interest problem was avoided by printing some extra money and spending it into the economy for public purposes. During the decades the provincial bank operated, the Pennsylvania colonists paid no taxes, there was no government debt, and inflation did not result.7

Like the Pennsylvania bank, a modern-day federal banking system would not actually need “reserves” at all. It is the sovereign right of a government to issue the currency of the realm. What backs our money today is simply “the full faith and credit of the United States,” something the United States should be able to issue directly without having to draw on “reserves” of its own credit. But if Congress is not prepared to go that far, a more efficient use of the earmarked $700 billion than bailing out failing banks would be to designate the funds as the “reserves” for a newly-reconstituted RFC.

Rather than creating a separate public banking corporation called the RFC, the nation’s financial apparatus could be streamlined by simply nationalizing the privately-owned Federal Reserve; but again, Congress may not be prepared to go that far. Since there is already successful precedent for establishing an RFC in times like these, that model could serve as a non-controversial starting point for a new public credit facility. The G-7 nations’ financial planners, who met in Washington D.C. this past weekend, appear intent on supporting the banking system with enough government-debt-backed “liquidity” to produce what Jim Rogers calls “an inflationary holocaust.” As the U.S. private banking system self-destructs, we need to ensure that a public credit system is in place and ready to serve the people’s needs in its stead.

 

[theDoors]

U.S. has plundered world wealth with dollar: China paper
Fri Oct 24, 2008 6:14am EDT
http://www.reuters.com/article/email/idUSTRE49N1XX20081024

BEIJING (Reuters) - The United States has plundered global wealth by exploiting the dollar's dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday.

The front-page commentary in the overseas edition of the People's Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencies.

A meeting between Asian and European leaders, starting on Friday in Beijing, presented the perfect opportunity to begin building a new international financial order, the newspaper said.

The People's Daily is the official newspaper of China's ruling Communist Party. The Chinese-language overseas edition is a small circulation offshoot of the main paper.

Its pronouncements do not necessarily directly voice leadership views. But the commentary, as well as recent comments, amount to a growing chorus of Chinese disdain for Washington's economic policies and global financial dominance in the wake of the credit crisis.

"The grim reality has led people, amidst the panic, to realize that the United States has used the U.S. dollar's hegemony to plunder the world's wealth," said the commentator, Shi Jianxun, a professor at Shanghai's Tongji University.

Shi, who has before been strident in his criticism of the U.S., said other countries had lost vast amounts of wealth because of the financial crisis, while Washington's sole concern had been protecting its own interests.

"The U.S. dollar is losing people's confidence. The world, acting democratically and lawfully through a global financial organization, urgently needs to change the international monetary system based on U.S. global economic leadership and U.S. dollar dominance," he wrote.

Shi suggested that all trade between Europe and Asia should be settled in euros, pounds, yen and yuan, though he did not explain how the Chinese currency could play such a role since it is not convertible on the capital account.

A two-day Asia-Europe Meeting (ASEM) of 27 EU member states and 16 Asian countries was set to open on Friday. Though few analysts expect much in the way of concrete agreements, Shi said it could prove momentous.

"How can Europe and Asia grasp each other's hands and together confront the once-in-a-century global financial crisis sparked by the U.S.; how can they construct a new equitable and safe international financial order?" he said.

"The world is waiting for this Asian-European meeting to achieve big results in financial cooperation."

(Reporting by Simon Rabinovitch; Editing by Ken Wills)

 

[lolabunny]

Hey great thread. Keep up the good work!

 

[theDoors]

Financial Implosion and the New American Century
What It Means for Societies and People in the Multipolar World Order
http://www.globalresearch.ca/index.php?context=va&aid=10694
Part I

By Niloufer Bhagwat

Global Research, October 26, 2008
FutureFastForward.org

The New American Century, the strategic concept of Anglo-American - Zionist Capital has imploded, along with major Investment Banks and financial and banking institutions of close alliance partners, humiliatingly in full view of peoples and societies where they pillaged, killed, tortured and terrorized rendering millions homeless into refugees.

The propaganda ploy of the global “War on Terror” for invading countries and incorporating proxy governments into an alliance against their own peoples and citizens of neighbouring countries, to secure resources, national budgets of the countries occupied and station military bases in strategic regions , was unable to conceal or camouflage the scale of the financial fraud, perpetrated by the ‘Best and Brightest’ of Bankers and CEOs and the nature of the exploding speculative bubble unprecedented in world history, endangering the entire banking system of these financial centers and those interlinked, destroying the myth of the finality of this system, what was described with intellectual arrogance and ignorance as the ‘end of history’ of mankind’s quest for better, equitable and just economic and political systems, forgetting that that nothing is static and civilizations evolve.

The collapse has neither been sudden nor overnight as the corporate media attempts to project, having earlier concealed the fraud, even as those in control of sinking Banks, financial institutions and corporations supported abandonment of all regulations oversight, resorted to imaginative/inventive accounting methods, dumped subprime mortgages onto unsuspecting home owners, now overwhelmed by interest payments and depreciating value of houses ,with millions facing the prospect of being homeless. At the core of the fraud and criminality has been the financial trading in dubious securities, fraudulently rated and termed as complex financial instruments or derivatives of colossal financial magnitude.

Even as the unraveling of the fraud commenced, a constitutional coup was resorted to in the United States of America to seize control of the government through electoral fraud, stamping out civil rights and liberties by executive fiat rubber stamped by Congress, assuming extensive and intensive powers of surveillance and arbitrary detention, to declare citizens and foreigners as ‘enemy combatants’ to deploy troops/national guards to take over society, witnessed by the herding of the poorest of the poor following Hurricane Katrina and the nature of menacing security measures put in place around banks directed at bank customers .It is now reported that the 3rd Infantry, First Brigade Combat Team, specialists in counterinsurgency, which spent three out of the last five years in Iraq, including in the retaking and patrolling of Fallujah, has been redeployed to the Northern Command, within the United States. Events have come a full circle, it is now people of the United States, UK, Europe and Japan, who are fearful victims of an economic system which earlier sought to devour the rest of the world.

It was on the basis of hard intelligence of the impending collapse of the ‘Unipolar’ economic, political and military world order, that then President Putin with an impeccable sense of historical timing, after an assessment of the increasing reliance of the United States, the UK and its alliance partners on neighbouring countries and regional powers to prevent a humiliating retreat from Iraq and Afghanistan, similar to Vietnam, with the close military ally Israel already defeated by the Hezbollah led national resistance of Lebanon, raised vital questions at Munich in 2007, on the grossly unjust, archaic and unworkable nature of the unipolar world and its ideology in the following words:

“What is a unipolar world? It refers to one type of situation, one center of authority, one center of force, one center of decision making. It is a world in which there is one Master, one Sovereign. This is pernicious… .unacceptable …. impossible.”

The capacity of Wall Street and London City among other western financial institutions and those interlinked, to determine the destinies of the world, even through proxy governments, has now weakened substantially, even as their banks and financial institutions continue to implode and this is only the beginning of the unraveling. Increasingly this financial and corporate oligarchy seek to round up their own citizens, to take over national budgets, tax revenues and income of working and middle class people, reducing them to debt peonage and to a homeless existence for millions, hitherto the lot of the poor in Asia, Africa and Latin America, while installing the very perpetrators of the gigantic financial fraud in the inner councils of government in the UK among other countries. In the US the financial bailout is presided over by the Secretary of the Treasury, Hank Paulson former Chairman of Goldman Sachs, dispensing this largesse, first to the most delinquent erstwhile Investment Banks, financial institutions and their CEOs. The “moral hazard” of such a bailout, the political backlash, apart from the feasibility of such massive sums being injected to delinquents of the financial system, without announcing any restructuring and regulation for a systemic change of the financial system, is now affecting the real economy impacting liquidity, inter bank transactions, with paralysis of corporate and trading, day to day activity. On the other hand unemployment and underemployment figures grow into double digits, with pension funds and savings defrauded and more and more people unable to afford health insurance.

All confidence in the banking and financial sectors have collapsed, even as the total sum of fraudulent derivatives and securities, camouflaged as complex financial instruments passed on from one financial institution and bank to others in the chain, are estimated at $516 trillion, whereas the market for credit and loan derivatives is said to be $56 trillion* [1]. These are mind boggling sums even for financial analysts, as these sums can never be correlated to reality and dwarf in financial figures alone and in terms of extensive geographical impact of the crisis , the ‘ Great Depression’ of 1930.

The figures of the bailout packages for banks and financial institutions, is the largest financial transfer of resources in world history from working citizens to finance capital in world history, with far reaching political impact not only on future developments in these societies but across continents. In the United States the financial bailout package of $ 700 billion is in addition to the bailout of Bear Stearns and the $85 billion expended on AIG Insurance along with another 35 billion expended, even after Congress was aware that AIG insurance company used funds from the earlier financial bailout to host Insurance Agents at the luxury resort at St. Regis‘s Resort, Monarch Beach in California, running up a bill of $443,000. Britain has followed with an announcement of $655 billion to support seriously imploding British Banks. Germany‘s bailout package is approximately $480 billion ($400 billion as state endorsements for credit between Banks and $ 100 billion as fresh capital for banks).

 

[theDoors]

PartII

France announced $ 380 billion for non –performing loans and $40 billion for supply of fresh capital to banks; Spain has announced $100 billion.

These bailout packages have been followed by similar announcements from countries with close interconnected banking and financial operations such as Australia, Singapore, Indonesia, New Zealand and Switzerland. The latter known for its banking operations including the deposits of slush funds by the leaders and officials of some developing countries.

Earlier a serious diplomatic and economic row broke out even as a bankrupt Iceland declined responsibility for $10 billion of deposits of British Local Authorities, Councils, Corporations and individual account holders in Iceland. In retaliation for which the British government has seized the assets of Iceland Companies in England even as Iceland has negotiated a loan from Russia.

A vital fall out effect of this financial collapse is the end of the neoliberal imperial world order and its ideology, now seen as directly responsible for engineering this systemic collapse with its absurd ideological construct of “free markets”, as the concept of “free markets” is itself a myth created by this ideology, as markets were secured by transnational financial and other companies based in countries now facing financial implosion through the WTO order by diverse strategies.

Many governments signed the WTO without any debate or discussion in the legislatures as to the impact of the WTO on their society as a whole. These markets were far from free, opened up more by economic, financial or military coercion than by means of so called free and fair trade and in many regions were also acquired by the subversion and corruption of the political and corporate leadership of the developing countries in Asia, Africa, Latin America and in Central and Eastern Europe, apart from in what are termed as in the “emerging economies”. To quote Professor Anatol Lievan, Professor of King’s College, London and Senior Fellow at the New America Foundation in Washington:

“The crisis has finished the Washington Consensus, the standard package of free market reforms promoted by Washington and the Bretton Woods Institutions to replace the State run economies of developing countries.”

The debacle in Iraq has seen Latin America , hitherto considered an economic , political and military backyard of the USA ,shake off more than century old yoke and sweep away the remnants of the Monroe doctrine . The Bolivarian alternative to the Washington Consensus led by Venezuela , has seen the establishment of terms of trade , banks, energy and communications network beneficial interse to the countries and people of Latin America , which includes the historic agreement between Argentina and Brazil to settle the terms of trade in their own countries and the end of the isolation of Cuba among a series of other initiatives ending conclusively the historic oppression of Latin America and the indigenous communities .Brazil in this context has emerged as an economic power committed to co-operation with and interdependent on the resources of Latin America including hydrocarbons.

The strategic and military consequences of the weakening, including as the consequence of the sustained and indomitable national resistance movements, are visible in Iraq, Lebanon and Afghanistan, with the Palestinian people refusing to accept subjugation and denial of statehood and the recent military denouement of President Saakashvili of Georgia, a close military ally of the USA and Israel even as he was egged on by his allies to brutally attack the South Ossetian Capital Tskhinvali, in violation of the ceasefire, killing hundreds of South Ossetians and Russian peacekeepers.

This is a vital strategic development, which has resulted in the end of Russian isolation on the Caspian, the Black Sea, the Caucasus and Central Asia, with Azerbaijan gradually altering course in the light of strategic and economic developments and the Ukraine with close economic, political and historical ties to Russia and a large Russian population already transformed, the political situation in that region is reinforced by the ongoing cascading financial collapse of Wall Street.

Undoubtedly it was the establishment of the Shanghai Co-operation Organization, on the joint initiatives of China and Russia with members from the former Republics of the USSR, and Iran among others as observers, which was really the precursor of present developments, which brought home to the region the realization that neither China nor Russia were ready to continue their subordinate status. For the first time since the grant of most favoured nation status to China for trade by the United States, both China and Russia opposed the Security Council Resolutions on Iraq in 2002 and 2003.

China once again opposed the Security Council Resolution on Myanmar in 2007 and on Zimbabwe, while Russia dissented on Kosovo, in regions of vital interest to China and Russia. The CSTO, the Collective Security Treaty Organization of Russia, Armenia, Belarus, Kyrgyzstan, Kazakhstan, Tajikistan and Uzbekistan has also consequently been revitalized by recent developments.

In what is an on the ground strategic conundrum for the United States, is that the military occupation of Iraq, Afghanistan, Lebanon and Palestine, the threats held out to Syria, has seen the emergence and consolidation of Iran as a major regional power, fortified by hydrocarbon resources and consolidation of scientific, technical and commercial achievements, despite the state of siege imposed by the United States and some of the European allies and economic sanctions. Iran has shifted away from the dollar, like Iraq under the late President Saddam Hussein and has accepted Yen and Euro for oil exports. Ironically if the national resistance of Iraq has not turned into a rout for the US, UK and the tattered coalition of the willing, this is entirely due to Iran reining in with its political and religious influence, one of the flanks of the national resistance in Iraq, to prevent a widening of the war into Iran and to deter a nuclear attack on the region, with far reaching consequences not only for the middle east, central Asia and South Asia, but for the world as a whole.

In Europe the stark realities of the economic situation are presently unfolding, whereas the realization has grown of energy dependence on Russia, with approximately 70% - 80 % of hydrocarbon resources all over the world presently controlled by State entities. In recent weeks Europe took an independent position on Georgia. President Sarkozy in his address to the UN has called for common economic space for Europe and Russia while President Medvedev at Evian advised the reconstruction of the European Security Structure and a new European Security Pact . The proposal of the European Union and Russia for a new concept of a Pan – European Defense will be discussed at the meeting of the OSCE to be held at the end of 2009.

In Africa there are no enthusiastic takers for the military bases of AFRICOM, the military command of the US for the African theatre to seize the region’s resources including hydrocarbons. China’s economic and trade presence in Africa is a reality.

Kuwait though controlled by both its oligarchy and the financial oligarchy of the USA-UK those with investments in Kuwait has shifted away from the dollar. Whereas Saudi Arabia and UAE, close allies of the United States, face a serious dilemma with their investments in the USA being swallowed up by black holes in financial institutions and banks, the declining value of US real estate, a 30 % inflation in the region with the doubling of the price of rice, the staple food among other commodities, goods and services and with migrants the main blue collar work force of the region restive. With the recession spreading and the decline in oil prices, the Arab allies may have no choice but to desert the dollar and talks have already begun on currency alternatives.

In the changing fortunes of several regions affected by the financial tsunami much was expected of the emerging economies of China and India. A realistic assessment is now called for, to assess whether these economies have the political will and the economic policies in place to move ahead with the de-coupling, after almost two decades of ‘free market’ policies.

One of the most significant developments on the industrial front was the recent announcement of John Engler, President of the US National Association of Manufacturers, that China is set to overtake the US as the world’s largest producer of manufactured goods and that China will account for 17 % of manufacture value. China has been dazzling the very oligarchies which till two decades ago scorned the Peoples Republic of China and its socialist policies, which made the economic take off of China possible, as the Communist Party of China unified China and liberated the country for the first time in a hundred years from foreign rule in 1949 and gave it a modern and egalitarian base.

When the most favoured nation status for trade was extended by the US government to China on behalf of US transnational companies for outsourcing of manufacture, in the continuing pursuit of US companies for economies of scale, to lower production costs, the government of China steadily dismantled the socialist system, dovetailing policies with the US and other Transnational Companies.

 

[theDoors]

Part III
Despite awesome economic achievements and growth rates, the present financial crisis is negatively impacting China with fall out effect on Japan and South Korea. Thousands of factories in the export zones are affected by declining demand and downward pressure on wages, with the transfer of manufacture to lower wage areas such as Indonesia, Vietnam and Bangladesh among others.

The limitations of export oriented growth are now visible. Financially unwise investments have been made by China’s Sovereign Wealth Funds and some banks and companies in sinking US companies and financial institutions. China has nearly two trillion in accumulated dollar holdings which may be in jeopardy with the inevitable decline in dollar value and its replacement as the world‘s reserve currency.

These developments may now see a review of the policy of low wage export led growth and to creating domestic demand with focus on priority for expenditure on health, education, employment and social security. The economic alternative which Henry C. K. Liu, eminent financial analyst, a Chairman of a New York based Investment Group advises, is the necessity to increase wages and purchasing power in urban and rural China by harnessing sovereign economic policy towards China‘s development and de-linking it from the dollar. This may be the beginning of a more balanced, longer lasting economic development for China with equity and a concern for the environment.

With the possible weakening of China’s economic and financial ties with the United States, China is emerging as one of the independent poles of decision making. Yet there are no possibilities in the unfolding configuration of any one or more superpowers emerging either independently or as is being advocated by some, as an adjunct to the United States.

Neither China nor India, though both countries are considered as emerging economies, are superpowers, despite their growth rates. India has a larger backlog of economic development despite a substantial pool of scientific, technical and managerial manpower. In the immediate future both economies are impacted by the present crisis, as a consequence of the contraction of the US market and the financial implosion of US Investment Banks and companies and the slowing down of Europe, as whereas manufacture was outsourced by the US and other companies to China.

Its software and knowledge based activities and the related infrastructure was outsourced to India. The worst impact in both countries is already being felt on falling employment and lay offs of the politically vocal sections, with a voice in urban and industrial regions, as against the hitherto silent unemployed and underemployed in rural China (15% to 20%) of the population and in India (40% to 50%). The acceptance by the political leadership of neoliberal policies in the 1990s in both countries, weakened awareness of the impending financial implosion in the US and European economies.

The advantage that China enjoys is that the Chinese Communist Party still has leadership which is nationalist, though both countries will face opposition from those sections tied to the interest of foreign capital and individuals from the Chinese and Indian diaspora based in and operating from the USA, UK and some other regions, resisting any change in course. The political weakness in India is the tendency to resort to attacks on minorities, tribals and dalits (socially deprived sections) to divert attention from the impacting economic crisis creating anarchic conditions in society with adverse effects on the economy. The report of the International Food Policy Research Institute ranks India 66 out of 88 countries on the Global Hunger Index, [2] and is a reversal of the positions of India and China in the nineteen sixties, when food consumption availability /consumption figures were comparatively better in India.

The financial Tsunami engulfing the advanced economies and impacting the world has reopened the public debate, on the nature of economic and political policies available to societies, to transcend the present denouement and to overcome the historic backlog of development a legacy of colonization and neo-liberalism, which is in fact imperialism.

It is time to revaluate the achievements and failures of alternative systems including of the socialist societies of the former USSR, the democratic socialist patterns of Europe immediately after the Second World War, the earlier socialist policies of China, Central and East Europe; the policies adopted post Indian independence for a public sector at the commanding heights of the economy and the use of domestic capital and domestic resources to widen development and employment and the mandate of the Constitution of India against monopolies and cartels; the Malaysian development model of Dr. Mahathir Mohammad; the Cuban pattern of health care, education and social security, the Bolivarian initiatives in Venezuela and the reestablishment of State sector companies by Russia to preserve and control vital national resources in the interest of the development of Russia as a whole as against the neoliberal experiment of reforms in Russia, when a minority of oligarchs stole public property and the entire society was pauperized. The reality of the historical isolation imposed on Russia, East Europe and China among other countries adopting a different economic and political system, with denial of access to technology and trade, which were among the reasons these societies were handicapped in some indices of overall growth, despite astounding achievements, will have to be taken note of in any serious study and objective assessment of policies.

The IMF, now seen as a part of the outdated and irrelevant Bretton Woods system has made a grim assessment on the present situation, pronouncing that the “financial system …. on the brink of a systematic meltdown despite the intervention of the US and Europe to stabilize markets … the crisis of the financial system has deepened and is now affecting many more parts of the global financial system, including emerging markets, which until now have been shielded from the crisis…”

It is time that alternative voices are heard. Hitherto the policy space has been dominated by neoconservatives and neoliberals who have dominated the discourse and the corporate media. The eminent economist of the United States Professor J.K. Galbraith had as early as the mid – eighties perceptively concluded that there was a serious crisis affecting the core of the US economic system even while attempting to be even handed on the ongoing dilemmas facing what he termed as “State Socialism” in the former USSR, highlighting that:

“For a long time socialism worked very well in the Soviet Union and Eastern or as now preferred Central Europe. It ended an unequal, incompetent, archaic and often oppressive feudalism and in Russia built the greatest industrial infrastructure after the United States. For this latter task the planning and command system of socialism – for getting steel mills, machinery and machine tools, hydro-electric dams and plants, railway equipment and also weaponry, functioned very well… it was in agriculture which needs the motivation of the self –propelled and self-rewarded farmer and in consumer goods industries with their stupefying number of designs, changing tastes and supporting services that the planning system did not serve … democracy and freedom are undoubted virtues. They are beyond a certain point a social and political necessity … in both advanced socialism and advanced capitalism ...”

Another viewpoint, requiring careful consideration is that of Professor Minqui Li (Department of Political Science at York University, Toronto, Canada an expert on China where he has lived earlier). Writing in the Monthly Review (published from New York) in January 2004 Professor Li anticipated that “the neoliberal experiment would be under powerful downward pressures and exposed to the threat of increasingly frequent and violent crises…..” even “...as under neoliberal capitalism …decades of social progress and development efforts have been reversed … and even regulations which stabilized capitalism have been dismantled”.

Professor Minqi Li concedes that the “historical justification for capitalism was to develop the forces of production, which had succeeded in bringing about material prosperity for the top 15% - 20 % of the world’s population …. However it has decidedly failed to meet the emotional and physical needs of the great majority of the citizens who live at the periphery and semi-periphery…… even in China where the economy has been the most dynamic in the world, capitalist reforms since the 1990s have substantially reduced the standards of the peasants and the urban working class.” Professor Li while drawing up a balance sheet emphasizes that “… It is well known that the state socialist countries had been more successful in meeting the people’s basic needs (nutrition, health care, education, housing and pensions) and improving women’s conditions than capitalist countries with similar levels of economic development.”

The last word in respect of the “The Grand Chess Board”, with 11 trillions worth of assets wiped out in the last four weeks alone on stock markets, corresponding to the gross national product of the United States or the European Union, is once again that of President Putin, who even before political movements and parties gave their analysis, reacted with characteristic irony and understatement:

“Trust in the United States as the leader of the free world and the free economy and confidence in Wall Street, has been damaged I believe forever. There will be no return to the previous position.”

This is now a new world, with different poles, “economic, political, military and cultural”, for which the national resistance movements have struggled long and hard. [3]

 

[lolabunny]

So what's going to happen in this new world? What will the new world be like?