Debt Spreading ‘Like a Cancer’: Black Swan Author
The economic situation today is drastically worse than a couple years ago, and the euro is doomed as a concept, Nassim Taleb, professor and author of the bestselling book “The Black Swan,” told CNBC on Thursday.
“We had less debt cumulatively (two years ago), and more people employed. Today, we have more risk in the system, and a smaller tax base,” Taleb said.
“Banks balance sheets are just as bad as they were” two years ago when the crisis began and “the quality of the risks hasn’t improved,” he added.
The root of the crisis over the past couple of years wasn’t recession, but debt, which has spread “like a cancer,” according to Taleb, who is now relived that public attention has shifted to debt, instead of growth.
The world needs to prepare itself for austerity, he warned. “We need to slash debt. Unfortunately, that’s the only solution,” Taleb said.
Other analysts warned about austerity programs spreading from the euro zone to the US where the growth in debt will become unsustainable over the longer term.
Gold surges to all time record high as double-dip recession fears grow
Paul Joseph Watson
Tuesday, June 8, 2010
A top investment banker has warned that the economic fallout of the sovereign debt crisis could get so nasty over the next five years that people would be wise to abandon the markets and instead buy land, barbed wire and guns.
With gold smashing through its all time record high this morning on the back of fears over a double dip recession, analysts are turning increasingly bearish on the markets. Anthony Fry, senior managing director at Evercore Partners, told CNBC that the bond markets could turn nasty over the next few months and said that the current problems created by the European debt crisis could be with us for at least five years.
“Look at the current situation. You have Greece, now you have Hungary and huge issues surrounding Spain and Portugal,” he said, warning of a “nightmare scenario” of hyper-stagflation, where inflation rises dramatically but asset prices deflate.
“I don’t want to scare anyone but I am considering investing in barbed wire and guns, things are not looking good and rates are heading higher,” said Fry.
RBS Chief Strategist Bob Janjuah echoed Fry’s sentiments, predicting that governments would inject at least $15 trillion dollars more qualitative easing into the system and that investors should get into gold to offset the depreciating value of fiat currencies.
“Over the next 6 months we will see private sector deflation pushing 10-year yields down to 2 percent,” he said. “This will see the policymakers mistakenly attempt to kick-start the economy and market with a global quantitative easing program worth between $10 and $15 trillion dollars.”
Janjuah pointed out that, while gold has dramatically risen in value over the last ten years, the S&P 500 and the Dow Jones have both remained flat over the course of a decade.
Gold hit a record high of $1,251.85 dollars an ounce this morning as investors continued to flock to the precious metal as a hedge against economic turmoil and the very real possibility of a double dip recession.
With U.S. debt moving towards parity with GDP, members of Congress and leading financial experts are warning that the United States will be in the same dire situation as Greece within 7-10 years unless the federal government implements radical austerity measures.
The backlash to those austerity measures usually takes the form of rioting and violence, as we have seen unfold in Greece.
Top historians, social and financial analysts, along with police bodies are all predicting that Europe and America are set to experience a summer of rage, with social discontent building as a result of economic hardship.
“Far be it for me to make a dicey situation dicier but you can’t smell the sulphur in the air right now and not think we might be on the threshold of an age of rage,” wrote historian Simon Schama in his recent Financial Times column.
By Timothy R. Homan
May 16 (Bloomberg) — Greece is considering taking legal action against U.S. investment banks that might have contributed to the country’s debt crisis, Prime Minister George Papandreou said.
“I wouldn’t rule out that this may be a recourse,” Papandreou said, in response to questions about the role of U.S. banks in the crisis, in an interview on CNN’s “Fareed Zakaria GPS.” The program, scheduled for broadcast today, was taped on May 13. Neither Papandreou nor Zakaria mentioned any banks by name.
U.S. stocks fell and the euro slumped on concern that Europe wouldn’t be able to contain the debt crisis stemming from Greece. The Standard & Poor’s 500 Index declined 1.9 percent May 14, while the euro fell below $1.24 for the first time since November 2008.
Papandreou said the decision on whether to go after U.S. banks will be made after a Greek parliamentary investigation into the cause of the crisis.
“Greece will look into the past and see how things went,” Papandreou said. “There are similar investigations going on in other countries and in the United States. This is where I think, yes, the financial sector, I hear the words fraud and lack of transparency. So yes, yes, there is great responsibility here.”
Pretty big words from the National Inflation Association — This is a must-see video.
By George Russell
The World Health Organization is moving full speed ahead with a controversial plan to impose billions of dollars in global consumer taxes on such things as Internet activity and everyday financial transactions like paying bills online — while its spending soars and its own financial house is in disarray.
The World Health Organization (WHO), the United Nations’ public health arm, is moving full speed ahead with a controversial plan to impose global consumer taxes on such things as Internet activity and everyday financial transactions like paying bills online — while its spending soars and its own financial house is in disarray.
The aim of its taxing plans is to raise “tens of billions” of dollars for WHO that would be used to radically reorganize the research, development, production and distribution of medicines around the world, with greater emphasis on drugs for communicable diseases in poor countries.
The irony is that the WHO push to take a huge bite out of global consumers comes as the organization is having a management crisis of its own, juggling finances, failing to use its current resources efficiently, or keep its costs under control — and it doesn’t expect to show positive results in managing those challenges until a year from now, at the earliest.
Fox News initially reported last January on the “suite of proposals” for “new and innovative sources of funding,” prepared by a 25-member panel of medical experts, academics and health care bureaucrats, when it was presented of a meeting of WHO’s 34-member Executive Board in Geneva.
Now the proposals are headed for the four-day annual meeting of the 193-member World Health Assembly, WHO’s chief legislative organ, which begins in Geneva on May 17.
The Health Assembly, a medical version of the United Nations General Assembly, will be invited to “take note” of the experts’ report. It will then head back with that passive endorsement to another Executive Board meeting, which begins May 22, for further action. It is the Executive Board that will “give effect” to the Assembly’s decisions.
What it all means is that a major lobbying effort could soon be underway to convince rich governments in particular to begin taxing citizens or industries to finance a drastic restructuring of medical research and development on behalf of poorer ones.
The scheme would leave WHO in the middle, helping to manage a “global health research and innovation coordination and funding mechanism,” as the experts’ report calls it.
In effect, the plan amounts to a pharmaceutical version of the U.N.-sponsored climate-change deal that failed to win global approval at Copenhagen last December. If implemented as the experts suggest, it could easily involve the same kind of wealth transfers as the failed Copenhagen summit, which will send $30 billion a year to poor nations, starting this year.
The WHO strategy involves a wide variety of actions to transfer “pharmaceutical-related technology,” and its production, along with intellectual property rights, to developing countries, according to a condensed “global strategy and plan of action” also being presented to the World Health Assembly.
Regional “networks for innovation” would be cultivated across the developing world, and some regions, such as Africa, would be encouraged to develop technology to exploit “traditional medicines.”
According to the condensed plan of action being presented to the Assembly, a number of those initiatives are already well under way.
The rationale for the drastic restructuring of medical R and D, as outlined in the group of experts’ report, is the skewed nature of medical research in the developed world, which concentrates largely on non-communicable diseases, notably cancer, and scants research on malaria, tuberculosis and other communicable scourges of poor countries. It cites a 1986 study that claimed that only 5 percent of global health research and development was applied to the health problems of developing countries.
(In dissecting contemporary medical R and D, however, the expert report glosses over the historical fact that many drugs for fighting communicable diseases in developing countries are already discovered; the issue in many cases is the abysmal living and hygienic conditions that make them easily transmitted killers.)
What truly concerns the experts, however, is how to get the wealth transfers that will make the R and D transfers possible — on a permanent basis. The panel offers up a specific number of possibilities.
Chief among them:
• a “digital” or “bit” tax on Internet activity, which could raise “tens of billions of U.S. dollars”;
• a 10 percent tax on international arms deals, “worth about $5 billion per annum”;
• a financial transaction tax, citing a Brazilian levy that was raising some $20 billion per year until it was canceled (for unspecified reasons);
• an airline tax that already exists in 13 countries and has raised some $1 billion.
Almost casually, the panel’s report notes that the fundraising effort would involve global changes in legal structures — and policing. As the report puts it: “Introducing a new tax or expanding an existing tax may require legal changes, nationally and internationally and ongoing regulation to ensure compliance.”
As a backup, the panel offers some less costly, voluntary alternatives, including “solidarity contributions” via mobile telephone usage, or set-asides on income taxes.
Yet another alternative: new health care contributions from countries such as China, India or Venezuela, or higher contributions from rich countries — neither idea looking likely in the current climate of international financial crisis. In the report’s words: “channeling these resources in this way can only be achieved if there is political will to do so and a convincing case is made.”
As follow-up, the experts suggest that WHO promote each and every suggested approach for new financing, along with “regulatory harmonization and integration” in the developing world, “research and development platforms in the developing world,” and new “product development partnerships” to kick-start the global medicines program.
Just as big an issue for WHO, however, may be whether it can adequately manage the money it is already getting — or trying to get — for its current planned needs.
Other budget documents intended for the World Health Assembly, and obtained by Fox News, paint a picture of an organization where:
• spiraling financial demands are beginning to outstrip the ability of member-nations to pay;
• outsized headquarters budgets, in contrast to the regional and country networks where WHO’s public health work is largely done, are rising even faster than the overall budget; and
• efforts to control onerous staff costs are just getting underway.
Those challenges are laid out in WHO’s proposed biennial budget for 2010-2011, which calls for a combination of mandatory and voluntary contributions from the world’s nations — meaning, overwhelmingly, the three dozen richest ones — of $5.4 billion — a whopping 27 percent increase over the same initial draft figure for 2008-2009.
But that increase, large as it is, will likely be far less than WHO needs before the latest biennium ends. In 2008-2009, the initial $4.23 billion draft budget was “revised” to a final $4.95 billion during the two-year period, a 17 percent increase.
Using the same inflationary measure, WHO’s spending could well climb to $6.3 billion before the end of 2011.
One of the biggest jumps would come in the spending centered on WHO’s headquarters in pricey Geneva — a 44 percent climb in its share of program budgets, from $1.18 billion to $1.7 billion, even before any future “revisions.”
WHO planners point to the shrinking value of the U.S. dollar, its budgeted currency, against the Swiss franc as a major factor, which they say has increased costs by 15 percent. But other factors include more meetings for WHO’s governing bodies and salary provisions for the top officers of the WHO Secretariat.
According to documents presented to the program, budget and administration committee of WHO’s Executive Board, headquarters costs for the organization have remained proportionately steady for years at almost 38 percent of WHO’s spending, however much that spending has grown. The ratio is striking, since WHO devotes most of its efforts to improving health care conditions in the developing world.
The organization’s stated goal is to spend only 30 percent of its program funding in Geneva, but the same planners think it is “unrealistic” to think WHO will reach that objective, even by 2013.
In foggy bureaucratic language, they declare that “a change that is too swift and radical will be disruptive to the entire function of the Organization or fail because of an insurmountable accumulation of practical problems of execution.”
Translation: the WHO bureaucracy won’t easily cooperate.
In a bid to get the head-to-tail ratio under better control, WHO’s top managers have set ceilings for headquarters hiring, but these only went into effect this year. The hiring limits will not cut the Geneva head-count but limit its further growth — “an acknowledgement,” the document says, “that staff numbers are the main driver of WHO’s expenditures.”
That combination of WHO’s sharp hikes in costs and a grim economic climate have led to another major management problem: “continued disparities between the approved budgets and the available resources.”
In other words, WHO’s member states and donors are not paying up as fast as the organization is spending the money across its many and varied priorities, leading to budgetary juggling and behind the scenes efforts to get major donor countries to ante up future contributions in advance, and cough up more voluntary funds in the future.
In its planning committee documents, the WHO bureaucracy promises to get a better grip on its finances in the near future.
Among the cost management efforts will be higher levies on voluntary donations to cover WHO staff costs — higher administrative fees, in short — along with more voluntary and “fully flexible” donations that can be used at the management’s discretion, rather than being earmarked for specific programs.
It will be another year, however, before WHO’s overseers will be able to see if its management juggling will bear adequate fruit.
All in all, that is not a confidence-building credential for an organization that is simultaneously trying to reorganize the world’s medical research, development, production and distribution system — and make the world’s consumers and taxpayers pick up most of the multibillion-dollar tab.
George Russell is executive editor of Fox News.
From The Economic Collapse Blog
For decades, the U.S. dollar has been the reserve currency of the world. This has given the United States an extraordinary amount of economic power, but as the U.S. economy has started to come apart over the past decade, other nations have increasingly sought to move away from the U.S. dollar and find other alternatives. For a long time it was thought that the Euro would become the next great reserve currency of the world. However, the recent Greek debt crisis, along with massive financial instability in nations such as Portugal, Spain and Italy, has caused investors to rapidly lose confidence in the Euro. In fact there are even some whispers that the Euro may not even survive the sovereign debt crisis as it sweeps across Europe. With both the U.S. dollar and the Euro looking shaky, investors have been searching somewhere safe to put their money. Increasingly, they have been turning to gold. So has gold now become a new reserve currency? Will all of this new demand drive the price of gold into unprecedented territory?
Well, the truth is that as long as paper currencies around the world continue to show instability, gold will continue to be a preferred choice. Nations all over the world are looking for ways to diversify their very large foreign exchange reserves. For example, China now has approximately $2 trillion in foreign exchange reserves, and has been wanting to reduce its position in U.S. dollars for quite some time now.
But where should they put their money?
Are they right?
Well, let’s look at Wikipedia’s description of the four factors which make a country a banana republic.
Profits Privatized and Debts Socialized
The first feature of a banana republic as “A collusion between the overweening state and certain favored monopolistic concerns, whereby the profits can be privatized and the debts socialized.”
As I pointed out in November:
Nouriel Roubini writes in a recent essay:
This is a crisis of solvency, not just liquidity, but true deleveraging has not begun yet because the losses of financial institutions have been socialised and put on government balance sheets. This limits the ability of banks to lend, households to spend and companies to invest…
The releveraging of the public sector through its build-up of large fiscal deficits risks crowding out a recovery in private sector spending.
Roubini has previously written:
We’re essentially continuing a system where profits are privatized and…losses socialized.
Nassim Nicholas Taleb says the same thing:
After finishing The Black Swan, I realized there was a cancer. The cancer was a huge buildup of risk-taking based on the lack of understanding of reality. The second problem is the hidden risk with new financial products. And the third is the interdependence among financial institutions.
[Interviewer]: But aren’t those the very problems we’re supposed to be fixing?
NT: They’re all still here. Today we still have the same amount of debt, but it belongs to governments. Normally debt would get destroyed and turn to air. Debt is a mistake between lender and borrower, and both should suffer. But the government is socializing all these losses by transforming them into liabilities for your children and grandchildren and great-grandchildren. What is the effect? The doctor has shown up and relieved the patient’s symptoms – and transformed the tumour into a metastatic tumour. We still have the same disease. We still have too much debt, too many big banks, too much state sponsorship of risk-taking. And now we have six million more Americans who are unemployed – a lot more than that if you count hidden unemployment.
[Interviewer]: Are you saying the U.S. shouldn’t have done all those bailouts? What was the alternative?
NT: Blood, sweat and tears. A lot of the growth of the past few years was fake growth from debt. So swallow the losses, be dignified and move on. Suck it up. I gather you’re not too impressed with the folks in Washington who are handling this crisis.
Ben Bernanke saved nothing! He shouldn’t be allowed in Washington. He’s like a doctor who misses the metastatic tumour and says the patient is doing very well.
Devalued Paper Currency
The second characteristic of a banana republic is “Devalued paper currency in the international community.”
✓ Check. Here’s a chart of the trade weighted US Dollar from 1973-2009.
And here’s a bonus chart showing the decline in the dollar’s purchasing power from 1913 to 2005:
Politicians Use Time in Office to Maximize Their Own Gains
The third characteristic of a banana republic is:
Kleptocracy — those in positions of influence use their time in office to maximize their own gains, always ensuring that any shortfall is made up by those unfortunates whose daily life involves earning money rather than making it.
✓ Check. As I wrote last month:
Summers, Geithner, Bernanke and Congress like things just the way they are.
Of course they do … they’re bought and paid for:
- Lobbyists from the financial industry have paid hundreds of millions to Congress and the Obama administration. They have bought virtually all of the key congress members and senators on committees overseeing finances and banking. The Congress people who receive the most money from lobbyists are the most opposed to regulation. See this, this, this, this, this, this, and this.
- Obama received more donations from Goldman Sachs and the rest of the financial industry than almost anyone else
- Summers and the rest of Obama’s economic team have made many millions – even in the first few months of being appointed, or right beforehand – from the financial industry
- Two powerful congressmen said that banks run Congress …
The chairman of the Department of Economics at George Mason University (Donald J. Boudreaux) says that it is inaccurate to call politicians prostitutes. Specifically, he says that they are more correct to call them “pimps”, since they are pimping out the American people to the financial giants …
Corruption Remains Unchecked, Politicians Are Only for Show
And the fourth characteristic of a banana republic is:
There must be no principle of accountability within the government so that the political corruption by which the banana republic operates is left unchecked. The members of the national legislature will be (a) largely for sale and (b) consulted only for ceremonial and rubber-stamp purposes some time after all the truly important decisions have already been made elsewhere.
✓ Check. There’s no accountability.
For example, former Vice President of Dallas Federal Reserve, who said that the failure of the government to provide more information about the bailout signals corruption. As ABC writes:
Gerald O’Driscoll, a former vice president at the Federal Reserve Bank of Dallas and a senior fellow at the Cato Institute, a libertarian think tank, said he worried that the failure of the government to provide more information about its rescue spending could signal corruption.
“Nontransparency in government programs is always associated with corruption in other countries, so I don’t see why it wouldn’t be here,” he said.
As I noted in October:
William K. Black – professor of economics and law, and the senior regulator during the S & L crisis – says that that the government’s entire strategy now – as during the S&L crisis – is to cover up how bad things are (“the entire strategy is to keep people from getting the facts”).
Indeed, as I have previously documented, 7 out of the 8 giant, money center banks went bankrupt in the 1980’s during the “Latin American Crisis”, and the government’s response was to cover up their insolvency.
Black also says:
There has been no honest examination of the crisis because it would embarrass C.E.O.s and politicians . . .
Instead, the Treasury and the Fed are urging us not to examine the crisis and to believe that all will soon be well.
PhD economist Dean Baker made a similar point, lambasting the Federal Reserve for blowing the bubble, and pointing out that those who caused the disaster are trying to shift the focus as fast as they can:
The current craze in DC policy circles is to create a “systematic risk regulator” to make sure that the country never experiences another economic crisis like the current one. This push is part of a cover-up of what really went wrong and does absolutely nothing to address the underlying problem that led to this financial and economic collapse.
Baker also says:
“Instead of striving to uncover the truth, [Congress] may seek to conceal it” and tell banksters they’re free to steal again.
Politicians are for sale.
And Congress made a big show of passing derivatives reform legislation, but actually weakened existing regulations. In fact, the legislation was “probably written by JP Morgan and Goldman Sachs” (two of the biggest derivatives players). In other words, Congress just rubber-stamped decisions which were already made elsewhere.
It’s all for show, folks. Dodd, Frank, Obama and all the other politicians of both parties (with the exception of a handful trying to do the right thing) are “consulted only for ceremonial and rubber-stamp purposes some time after all the truly important decisions [about economic legislation] have already been made elsewhere”
Without the Bananas
Wikipedia gives some additional background on the term “banana republic”:
Banana republic is a pejorative term originally used to refer to a country that is politically unstable, dependent on limited agriculture (e.g. bananas), and ruled by a small, self-elected, wealthy, and corrupt clique.
Well, America isn’t dependent on limited agriculture like bananas. But just about the only areas of growth are in the military and in giant companies lavished with buckets of cash and special “favors” by Uncle Sugar.
As one commentator succinctly put it, America has become:
A banana republic with no bananas.
This article is so good that I wanted to reproduce it here in its entirety. We are rapidly heading toward global governance, and this article is a wonderful breakdown of all angles as they converge.
By Giordano Bruno
Neithercorp Press – 03/10/2010
Winter is slowly melting away here in the U.S., and Spring will soon be upon us. Wall Street is currently flush with delight at the year long run of the stock market (driven by fiat bailouts), which at first glance appears to be doing quite well, though international incidences such as those in Dubai and Greece have revealed how shaky the market actually is in the face of any unhealthy news. In the meantime, the dollar, recently on the edge of detrimental value loss, has made a semi-miraculous recovery in the span of a few months, especially as the Euro suffers. Official employment numbers, despite the continuous loss of jobs monthly, have somehow fallen and are for the moment stabilized. Is it time for America to dust off the old credit cards and return to the wild and rollicking carefree spending days of pre-2007? Perhaps not…
While the mainstream media puts on the recovery song and dance, the fundamental problems of the collapse remain the same, and in some cases are growing ever more precarious. Subsections of the public, unaware of the real issues at hand, are holding a misguided jubilee in the tranquil eye of a hurricane, wrongly assuming that the storm has passed.
The world is breathing a hasty sigh of relief at the beginning of 2010, but what are the facts behind the current “peaceful” economic moment? In this article, we will examine whether or not the good news is legitimate, or, if are we being lulled into a false sense of security…
Job Market Statistics Manipulated
At the beginning of the year, official unemployment stood at around 10%. This number of course does not include those people who are off unemployment benefits and still have not found jobs, or those people who are underemployed. The Labor Department then announced their intention to revise their “birth/death ratio” method of calculating job loss, which would supposedly add a whopping 800,000 lost jobs to their books that were hidden before:
Directly after this news was released, markets braced for a substantial increase in the unemployment percentage. Yet, by some act of magic, the unemployment percentage fell to 9.7%!
How is this possible? Well, those of us who were hoping for greater Labor Department transparency (including myself) should have known better. With the Labor Department, two-plus-two NEVER equals four…
As the EPI article above indicates, while the government has reportedly changed their dubious “birth/death ratio” method, they also at the same time changed their “home survey” method. This survey is meant to give the Labor Department an overall view of unemployment percentages, but now the government has sharply reduced the number of households they actually survey, making the results more volatile and easier to manipulate. This why even though nearly a million jobless people were added to the unemployment rolls, the government was still able to report a drop in unemployment percentages. Sound like a dirty trick? Yes, it is…
According to the EPI’s estimates, which are probably still conservative, over 11 million jobs would need to be created in order to bring employment rates to pre-2007 levels. This is called the “jobs gap.” To fill the jobs gap by 2013 (which is about the time frame that the government has suggested it would take for a full recovery) the U.S. would need to generate over 400,000 jobs a month for the next three years! As I think most of you can see, this is not going to happen. Last month according to official numbers the U.S. lost another 36,000 jobs. Jobs are not being created, and will not be created anywhere near the 400,000 a month mark required for a three year recovery.
Also not often reported is the span of weeks at which those who are unemployed have to wait until they find another job. This “lag time” in-between jobs has grown markedly higher in recent months as the chart below shows:
In January of this year alone, 6.3 million people (over half of those unemployed) had been without a job for more than 6 months. This is an astonishing number, and it shows just how out of touch MSM reports of recovery are. Anyone who has been unemployed for more than just one month knows how tense and uncertain such a situation makes life. Imagine the misery of a 6 month hiatus from steady work, not able to fully support ones self and not knowing when you’ll be able to again. The Labor Department, nor the media, seems to take the factor of ‘duration’ into account when considering whether employment is actually in recovery. Nor do they take into account the fact that most of the jobs lost over the past two years were high paying and specialized, while most of the scant few jobs created have been low paying service sector positions.
What is most frightening about this information is that it reveals deliberate mishandling of statistics. Instead of being more open about unemployment numbers, the government is moving to hide them further. But why would they escalate secrecy on the economy?
The Day The Dollar Died
Last week, Li Ruogu, chairman of Export-Import Bank of China, a lender tasked with supporting the country’s foreign investments, stated that China would continue to support the dollar and that reports of a break from U.S. treasuries were “absolute nonsense.” Investors in treasuries this week seemed to take the comment as a good sign that the dollar’s place as world reserve currency is assured. However, one might ask why it was suddenly so important for China to comfort treasury markets?
Interestingly, statements of China’s “affection” for the dollar have come right after their central bank decided to dump $34 billion in U.S. treasuries. Along with other nations, the U.S. suffered the worst one month treasury dump on record so far at $53 billion:
This follows a treasury dump last year by China of $25 billion, after which we predicted that such dumps would occur more frequently and in larger amounts. Apparently, we were right:
Initially, it was reported after their latest dumping of U.S. bonds that China had lost its position as the number one investor in U.S. debt, placing Japan in the top spot. Strangely, only days later this report was rescinded after the Treasury released a statement claiming that China did indeed dump $34 billion in bonds, but, they were still the number one investor in T-bills:
How is this possible? According to the Treasury, they “forgot” to include Chinese treasury holdings in third markets such as Hong Kong and Britain. This is very strange. Who holds these extra bonds and what are they doing sitting in foreign venues? Is it not convenient that these bonds appeared from thin air just as news of China’s treasury dump was hitting the bond market? And now we suddenly have a Chinese finance official attempting to reassure the world that China still wants T-bonds while at the same time they are trying to get rid of them? If this behavior seems confusing it is because this is what occurs when governments lie big; no matter how good they are at it, they can’t make the facts add up.
If one examines Treasury Auctions month-to-month, they would find that “Primary Buyers” of treasuries (who have to buy treasuries when no one else is buying) now dominate auction sales. Indirect buyers, who cannot be tracked, also make up a large portion of competitive bids on treasury bonds. It is suspected that most of these indirect buys are made by the Federal Reserve itself in order to prop up the dollar. The article below explains the process succinctly:
The bottom line is that foreign governments are NOT buying treasuries at volumes necessary to keep the U.S. afloat amidst its ever climbing national debt, and in some cases, they are now trying to quietly and gradually dump what they have so as to not arouse immediate suspicion from the markets. In fact, the Treasury and the Federal Reserve seem to be helping them do this!
The dollar is, in effect, dead, but disinformation and market manipulation, mainly by the private Federal Reserve, is being used to reanimate it for appearances. The result is the conjuring of a kind of “zombie currency,” a Weekend at Bernie’s currency that the Fed props up with strings and pulleys to fool everyone at the party.
The most obvious question here is, why go through so much trouble to keep the dollar around at all?
World Government And The SDR
Since the “Great Recession” began, economic forums and conferences such as the G20, and the annual World Economic Forum (WEF) in Davos, Switzerland have spoken of little else except the formation of a centralized world economy and the establishment of a legal body that has the power to run it. At the Davos “workshops,” economists and others present ideas for world governance as if they were the originators of the concept. It may not be surprising to most of us that there is rarely if ever anyone who participates in the WEF meetings that supports the restoration of national sovereignty. In fact, nearly all the participants seem to assume that a world government is the solution to all our ills. It is also important that like the G20, government officials from all over the world attend, including those from the U.S., and that very often the policies developed at these forums end up in legislation and mass media here at home. Meaning, the laws and propaganda supporting forced globalization and world government are fine tuned at the meetings and then brought to America for mass consumption. Below are a couple video examples of Davos workshops:
It is important to recognize what exactly is being presented in these two videos because they reveal much about our current economic circumstances. The goal of the G20 and the WEF, as they have stated on numerous occasions, is to dissolve national sovereignty. If they had their way, America as we know it would not exist, along with the Constitutional framework that is meant to protect our liberties. To achieve this end, a carefully engineered breakdown of the U.S. dollar is being enacted.
As we have shown, U.S. treasuries auctions have tanked and those long term treasuries already held by foreign nations are being slowly cast off. So far, the Federal Reserve has propped up the dollar by purchasing T-bonds in the place of foreign banks who no longer want them. By continually monetizing this debt, the Fed will inflate an incredible bubble in the treasury market. When will this bubble burst? The key lay in the rules governing Special Drawing Rights.
Special Drawing Rights (SDRs) are securities much like treasury bonds. Their value is determined by a basket of international currencies including the Dollar, the Euro, the Yen, and the Pound Sterling. The IMF claims that SDRs are not technically considered currency, but SDRs serve nearly all the functions of a currency except that they are not available to the general public (yet). It walks like a duck, and quacks like a duck, but the IMF would rather not call it a duck. In the end, the SDR is a world reserve currency, and its purpose is to topple the dollar.
Not long after the economic meltdown began, the IMF announced that they would begin the unlimited printing of SDRs. In 2009, within the span of a few months, SDR circulation went from $21 billion, to nearly $204 billion, and this is only the amount they have admitted to:
Governments across the world have purchased SDRs, while at the same time dropping U.S. treasuries. China in particular has shown sharp interest in the SDR as a replacement for the U.S. dollar:
It may be prudent to mention that China’s heightened dumping of U.S. treasuries began right around the time that the IMF began mass printing SDRs. And, even more disconcerting, the U.S. Treasury also quintupled its supply of SDRs in August of 2009:
Being that the U.S. dollar is supposedly the undisputed world reserve currency, why would the U.S. Treasury have any need to buy SDRs at all? Would this not be redundant? Unless, the Treasury knows that the dollar will not remain the world reserve currency for much longer….
Now we get to the tricky part…
The IMF has instituted new rules governing the SDR and those countries who trade it (called “member countries”). Drafting the “Fourth Amendment” governing SDR allocation, the IMF now requires member nations to retain a “special allocation” of the currency much higher than previous allocations. Countries who keep their SDR supply above the required level receive interest payment on their excess. Countries that fall below the required level have to PAY interest on the shortfall. That is to say, if the U.S. were to allow its SDR reserves to fall below the level demanded by the IMF, we would be punished monetarily. Also, under current rules, the interest rates of the currencies that make up the SDR help to determine the interest rates of the SDR.
The IMF claims it only acts as an “intermediary” between countries wishing to trade in SDRs, but since the IMF is the creator and printer of SDR’s, this would ultimately make them the controller of the SDR market, not some outside intermediary.
Participation in the SDR market for now is voluntary. However, what we are witnessing here is the subtle positioning of the SDR as the only alternative in the event that the U.S. dollar fails, and once again, China is the key.
China’s Slow Dollar Dive
The argument is constantly made by mainstream economists that China could never drop its large supply of U.S. T-bills because if they tried, the dollar would collapse, virtually erasing the value of their dollar holdings. The suggestion that “they are as dependent on us as we are on them” is rampant in the MSM, but, if we throw in the wild card factor of the SDR, this all changes.
If the Chinese central bank along with certain others amass enough SDRs over an extended period of time while gradually selling off their T-bonds, the SDR’s could act as a cushion to prevent foreign central banks from losing a large portion of their wealth while the dollar sinks. In fact, in the event that the Federal Reserve raises interest rates on the dollar (perhaps in response to the heightened risk of a mass treasury dump) those holding SDR’s actually benefit, because the interest they receive on their SDR reserves will also go up:
This would not absorb all of China’s losses in the event of a dollar collapse, but it would be a very effective stop gap, and ample incentive for them to continue dumping treasuries. I believe that this is the exact reason why the dollar and the Dow have been held up by the Federal Reserve for so long. They cannot allow a major dollar depreciation until the SDR is established on the world market as a ready substitute.
A good sign that this process might accelerate would be in the event that China de-pegs the Yuan from the Dollar and allows it to appreciate in value. This would signal that China is moving away from the traditional export arrangement with the U.S. Talks of a Yuan appreciation are already hitting the MSM:
Investors in the U.S. will foolishly cheer a rise in the value of the Yuan, thinking that this will increase American exports to China. In reality, China will be preparing to dump the last of its U.S. bonds, and begin exports and imports with the new ASEAN trading bloc:
This new bloc has the potential to surpass profit margins in U.S. markets, especially in the face of extremely weak consumer activity in America. As the U.S. falters under sovereign debt pressure, China will be in prime standing with a ready supply of SDRs and an organized trading bloc to take up the slack of falling exports to the West.
Shock And Awe
The illusion of U.S. recovery seems to be paramount in the plan for Globalist centralization. Every scam imaginable has been fashioned to lure the public into a sense of false comfort. In my original observations on the economic collapse, I believed that we would likely see a “trigger” event in 2010, which would set off a “rolling breakdown” that would not fully climax for a few years. Now, I am not so sure. After examining the facts behind the implementation of SDRs as well as the potentially explosive situation in the treasury market, I believe that a “shock and awe” scenario is becoming more probable. The behavior of the Fed, along with that of the IMF seems to suggest that they are preparing for a focused collapse, peaking within weeks or months instead of years, and the most certain fall of the dollar.
As I think of it now, the advantages of a sudden financial flash flood are numerous. In a drawn out collapse, the Liberty Movement is given a tremendous time advantage, allowing us to double and redouble our membership while the public opinion of the Federal Reserve and the government in general would deteriorate. In a sudden breakdown, our time will be cut short, and the public will be distracted and fearful, desperate for an organized authority to offer any semblance of “order.” A slow collapse allows for the Liberty Movement to work peacefully within the system to build a third party capable of dethroning the current two party farce. A sudden collapse erases all political activity and opens the door to martial law and illegitimate government. And finally, a fast moving meltdown leaves a much stronger psychological impression; a catastrophic waking nightmare, instead of a slow grinding depression. A world government could never be brought about due to the “monotony” of a long slow economic burnout. Too many factors could present themselves in such an extended period that might interfere with the desired end result. Too many variables to calculate. In an abrupt collapse, the Globalists would need only to gage and influence the amount of fear in the populace to a sufficient boiling point then leap in with their intended solution to the problem; centralized global governance.
I feel that in either method, the Central Bankers will fail to reach their ultimate goal, but the prospect of a direct monetary break with limited warning does make the atmosphere much heavier. One can only prepare as much as possible mentally and emotionally, and keep his eyes wide open…