- Since 9/11, the notion of an October surprise has been
around. The idea going something like this. Another real or manufactured
terror attack. The dominant media stokes fear. The public is again traumatized.
The Bush administration pledges all effective measures to protect national
security. Formerly seizes total power. Suspends the Constitution and declares
martial law. Mass detentions follow. Beginning with dissenters and elements
of the public considered "dangerous."
-
- This may be coming with the 3rd Infantry's 1st Brigade
Combat Team back in the US as of October 1. According to the Army Times,
as "an on-call federal response force for natural or manmade emergencies
and disasters, including terrorist attacks." Augmented by USNORTHCOM.
-
- According to Wayne Madsen's recent article titled "FEMA
sources confirm coming martial law," it gets worse. He cites "knowledgeable"
FEMA sources saying that "the Bush administration is putting the
final touches on a plan (to declare) martial law in the US with various
scenarios anticipated as triggers." Economic collapse. Massive social
unrest. Bank closures. Street protests. Violence in response, and another
stolen election.
-
- Early in the month, a different October surprise arrived.
Not the expected one. Not yet at least. The Wall Street Journal put it
this way: "The Dow Jones Industrial Average (DJIA) capped the worst
week in its 112-year history with its most volatile day ever, as hopes
for a major international bank rescue plan were overwhelmed at day's
end by another wave of selling."
-
- The DJIA dropped 22% over the past eight trading sessions.
Investors were "shell-shocked." Many spent Friday "trying
to protect themselves from further declines. The past week's (October
6 - 10) 18% decline "and Friday's 1018.77 point swing from low to
high were the biggest since the Dow was created in 1896." The VIX
measure of market fear hit 69.95. By far its highest level ever, and
some investors think it may touch 100 in the current climate. Until now,
the Dow's worst week was in 1933. Trading volume also set a record at
11.16 billion shares.
-
- "Market crash shakes world" headlined the Financial
Times (FT). Mass trauma, fear and uncertainty sent tremors everywhere,
and no one knows if Friday ended it. Maybe just began it. First markets
crater. Then world economies, and finally the inevitable human fallout.
Affecting many tens of millions everywhere. Innocent people paying dearly.
-
- Morning headlines say it all. And they're getting grimmer.
On October 10, the Wall Street Journal said the "Market's 7-Day Rout
Leaves US Reeling. Stocks in a Slow-Motion Crash....After Year of Declines,
Investors Lose $8.4 Trillion of Wealth." Most scary is what's ahead
and how much more people can or will tolerate.
-
- The Financial Times was just as grim headlining "Global
equities plunge....Japan leads Asian market rout...Wall Street in biggest
fall since 1987 crash." Once the nation's largest company, General
Motors may now face bankruptcy. Its October 10 stock fell to its 1950
valuation and now has a market capitalization of just $2.6 billion. Shockingly
expressed in one headline saying "Wheels falling off for General
Motors." Add the engine and chassis, too.
-
- Ford Motor's outlook is little better. Its stock price
is the lowest in decades, and one analyst warned that "the accelerating
deterioration in industry fundamentals will be a serious challenge to
liquidity (for both companies and Chrysler) during 2009." JD Power
and Associates was even grimmer saying that the global auto market may
experience an "outright collapse" in 2009. And we're only talking
about autos.
-
- Look at banks and world finance. The source of today's
crisis and reason global economies are reeling. Economists like Nouriel
Roubini were once scoffed at. No longer. He warned for months that "the
risk of a total systemic meltdown is now as high as ever since the credit
crunch is gripping European banks as well" and spreading globally.
Affecting good ones as well as bad. Trashing the baby with the bath water.
Erasing savings for tens of millions everywhere. And for seniors who may
not have time to recoup.
-
- The crisis didn't emerge like Topsy. It's been simmering
for years, and in July 2006 historian Gabriel Kolko warned about it in
an article titled "Bankers Fear World Economic Meltdown." He
noted how:
-
- the "whole nature of the global finance system has
changed radically in ways that have nothing whatsoever to do with 'virtuous'
national economic policies....The investment managers of private equity
funds and major banks have displaced national banks....moving well beyond
regulatory structures....Traders have taken over from traditional bankers
because buying and selling shares, bonds, derivatives and the like now
generate the greater profits, and taking more and higher risks is now
the rule....They often bet with house money (and) low interest rates....let
them do things....that were once deemed foolhardy."
-
- Compounded by the irrational development of global finance,
liberalization and loose regulations. Playing fast and loose and betting
on the come. The potential gains are enormous and so are the risks of
a major financial crisis. A meltdown. Now we've got one that global institutions
are "utterly inadequate" to deal with.
-
- Kolko warned then that "the entire global financial
structure (was) becoming uncontrollable....financial liberalization produced
a monster....contradictions wrack the world's financial system (that's)
both crisis-prone (and) immoral. (We) may very well be on the verge of
serious crises." Now we've got one and in dire straits.
-
- Because "a kleptocratic class (took) over the economy,"
according to economist Michael Hudson. A criminal element betting on high
returns through computerized gambling "and when bad bets are made,
bailouts are the (payoff) for campaign contributions." For having
friends in high places as well.
-
- Today's crisis isn't an accident or from happenstance.
It was planned, according to economist and critic F. William Engdahl in
his recent article titled "Behind the Panic." To "shape
the future of global banking" through creative destruction. Panic
incited by a well-designed "long-term strategy." To change the
"face of European banking." Weaken it with toxic junk. Asset
Backed Securities. Force enough of it into liquidation or cheap enough
to buy at fire sale valuations. The idea being to "create three colossal
global financial giants - Citigroup, JP Morgan Chase, and Goldman Sachs."
Add Bank of America and make it a foursome. Then use their "muscle
to ravage European banks." Even if they wreck the US and world economies.
Resuscitate them so they can "advance their global agenda over the
coming years." To dominate world finance and increase US hegemony
in the new century.
-
- That's the scheme, and Engdahl calls it "a fight
for the survival of the American Century." Built on "the twin
pillars of American financial (and military) dominance," but the
game is far from over. "Battle lines are drawn." EU nations
have their own ideas. Stabilization and recovery plans as well that differ
from Washington's and look much sounder. It remains to be seen where
things are heading and whether competing nations can work together and
do it effectively. They haven't much time.
-
- Washington's Efforts to Shape the Last Century
-
- Engdahl recounted some of them in his important book
on war, geopolitics, oil and finance: "A Century of War." He
explained how Washington designed "the greatest confidence game"
ever. A "special hegemony" to:
-
- -- print limitless amounts of dollars;
-
- -- accumulate huge trade deficits;
-
- -- "inflate (the) currency beyond imagination;"
-
- -- have the government pay bankers interest on its own
money; and
-
- -- create an unprecedented public and private debt to
enrich the few at the expense of the many.
-
- Up to now it worked. Let America rule the world. Control
its energy and finance. Avoid serious challengers and crush potential
ones.
-
- From the early years of the last century, US muscle flexing
took many forms. From conflicts to geopolitics to controlling world resources
to financial warfare. JP Morgan and other Wall Street notables were experts
on the latter. Creating panics for greater power. Like today's with similar
aims.
-
- In 1969, Richard Nixon had his own scheme with the country
in recession. Interest rates were cut. Dollars flowed abroad. The money
supply was expanded, and in May 1971 America recorded its first monthly
trade deficit. It triggered a panic US dollar sell- off. Gold backed the
currency then. Reserves were one-quarter of official liabilities, and
(on August 15) Nixon unilaterally imposed a 90-day wage and price freeze.
A 10% import surcharge. An 8% currency devaluation, and he closed the
gold window. Suspended dollar convertibility into the metal and ended
compliance with Bretton Woods' core provision. He pulled the plug on world
economies. Shook them and on February 12, 1973 did again. With a further
10% dollar devaluation that created the worst global instability since
the 1930s. What lay behind his actions?
-
- To buy time ahead of a bold new monetary "paradigm
shift." To revive a strong dollar and US hegemony. By a "colossal
assault" on world industrial growth. Through an engineered oil embargo.
A 400% increase in oil prices. A flood of petrodollars to be recycled
into US investments and purchases. Big Oil and major banks to profit
hugely at the cost of economic crisis. The worst since the 1930s. Causing
bankruptcies, unemployment and stagflation.
-
- Under Jimmy Carter in 1979, Fed chairman Paul Volker
advanced his own radical monetary policy on the pretext of fighting high
inflation. It was another Washington scheme to preserve dollar hegemony.
Keep it the world's reserve currency, and do it by crushing industrial
growth to let political and financial power prop up dollar strength.
-
- It worked by raising interest rates from 10% to 16% and
then 20% in weeks. The US and world economies plunged into deep recessions,
and the dollar began a strong five year ascent.
-
- In the 1980s under Ronald Reagan, Mexican president Jose
Lopez Portillo wanted to use his oil revenue to modernize and industrialize
the country. To make it stronger and more independent. That prospect was
anathema to Washington and it reacted. With a scheme to demand rigid repayment
of Mexican debt at exorbitant rates.
-
- In 1981, it began with an orchestrated run on the peso.
Stories were circulated about an impending devaluation and capital flight.
Portillo instituted an austerity plan, and his government cracked under
pressure. The peso was devalued 30%. Mexican industry was devastated.
Industrial production cut. Bankruptcies followed. Millions of Mexicans
suffered grievously. The nation became effectively insolvent. It had to
accept IMF help. Took on large amounts of debt, and major banks profited
hugely by working with the government and IMF. Socializing the debt. Spinning
it off to tax payers and privatizing gains through structural adjustment
looting. Similarly in other countries. Causing mounting debt. Charging
onerous interest rates, and earning greater profits from
- hundreds of billions of dollars in servicing costs.
-
- Reagan-era deregulation caused the S & L crisis.
A lesser version of today's. By letting banks invest in speculative real
estate. Engage in massive fraud. And get the right wing Cato Institute
to say: "If Congress had set out in 1980 to create an environment
that would lure all the crooks and frauds in the country into one industry,
few would have been more suitable than" this one. "It was easy
(finding) disenchanged S & L owners who were willing to sell out for
a reasonable price, and once one had an S & L charter, opportunities
abounded."
-
- It ended up bankrupting hundreds of banks. Shrunk the
industry from 4500 in 1979 to about 2200 in 1991 and hundreds more afterward.
It also cost taxpayers around $200 billion. Pocket change compared to
the trillions needed for the current crisis.
-
- In the 1980s, Japan was the country that could say "no."
At decade's end, it was the world's economic and banking leader. Because
reckless speculation left American banks in deep crisis. Japan operated
more prudently. It prospered, and challenged American dominance. Washington
feared former communist countries would adopt its model. This was anathema.
It might shut out US companies. Show Japan's way was superior so it had
to be stopped.
-
- The 1985 Plaza accord was the scheme. To get Japan to
exercise monetary and fiscal measures to expand domestic demand and reduce
the country's external surplus. At the same time, the Bank of Japan held
interest rates at 2.5% from 1987 - 1989. To stimulate US goods purchases.
Instead cheap money went into Japanese stocks and real estate. It created
two colossal bubbles. A lost decade followed, and the economy is still
recovering and under new duress from the current panic.
-
- The 1990s Asian crisis was also manufactured. In summer
1997, it hit. For no apparent reason beyond rumors that the Thai bhat
was in trouble, and Thailand had too few dollars to back it. "Asian
Contagion" was unleashed. Hot money came in earlier. Then exited
electronically. From Thailand, Indonesia, South Korea, the Philippines,
and other Asian Tiger countries. Through a Washington- engineered scheme
because these nations' economic model bested America's and threatened
it.
-
- Tiger countries grew by protecting their markets and
barring foreign companies from owning land and national firms. They also
restricted Western and Japanese imports to grow their own economies and
homegrown industries. Again anathema so it had to be stopped.
-
- The countries were hammered. Forced to devalue their
currencies and get IMF help. With strings. Accepting debt bondage. Opening
their markets. Structural adjustments. Privatizations. Spending cuts.
Mass layoffs and constrained wages and benefits. The whole toxic package
in return for aid. The regional toll was devastating. An estimated 24
million lost jobs. Its growing middle class destroyed. A black hole of
misery for around 20 million people. Forcing them to do anything to survive.
Crushing the Asian miracle to let Western brands replace local ones. Bargain
hunters get great deals at fire sale prices. The New York Times called
it "the world's biggest going-out-of-business sale." The region
now hammered again from the current crisis. No secret where it was manufactured.
No telling how it will end up. No guessing many millions feel pain and
are fearful.
-
- No end to other notable examples. Two especially stand
out. The 1990s ones affecting post-Soviet Russia and South Africa. In
each case, neoliberal "shock therapy" was devastating. It empowered
an oligarch class in Russia. Let them strip mine the nation's wealth
and offshore it to tax havens. Impoverished tens of millions of people.
Bankrupted 80% of farmers. Caused mass unemployment. Created a permanent
underclass. An annual 700,000 a year population decline and much more.
-
- South Africa fared no better. Despite Nelson Mandela's
pledge to support black economic empowerment. As president he surrendered
to capital. The consequences were horrific. Far worse than under apartheid.
Double the unemployment rate and number of people in desperate poverty.
Millions of poor blacks without homes. Another million evicted from farms.
One-fourth of the population with no running water or electricity. Around
60% with inadequate sanitation. A 13 year life expectancy decline since
1990. Appalling human wreckage much like what happened in Russia and elsewhere.
To empower capital at the expense of people. Heading for America and
in one week took a quantum leap.
-
- Spreading everywhere. On October 2, enough for The New
York Times to say that Latin American leaders have gone from "schadenfreude
to fear(ful)." Hugo Chavez skipped the UN General Assembly opening
to visit China and said Beijing is more relevant than New York. Venezuela
and Bolivia expelled their US ambassadors, and Brazil's Lula da Silva
railed against an American regional naval presence and said his nation's
warships must be on alert in response. He's also furious at Wall Street
and Washington for the current crisis and said: "We did what we were
supposed to do to get our house in order. They spent years telling us
what to do and they themselves didn't do it."
-
- Argentina's Christina Fernandez de Kirchner was also
bitter in stating: "We are witnessing the First World, which at one
point had been painted as a mecca we should strive to reach, popping like
a bubble." And the Chicago Tribune quoted an Inter-American Dialogue
expert saying that "whatever credibility the US had in the region,
on economic management, that's clearly gone."
-
- Forty world specialists from 20 countries attended the
International Conference of Political Economy in Caracas, Venezuela from
October 8 - 11. To analyze and propose South-based, alternative solutions
to the financial crisis. Venezuela's Minister for Planning and Development,
Haiman El Troudi, highlighted his country's relative strength. Its impressive
economic growth (at 6% in first half 2008), and recommended that Venezuelans
repatriate their US investments given the current climate. To protect
them from unsafe American banks.
-
- He and President Chavez also criticized the IMF and called
for it to "dissolve....kill itself." They were harsh on the
World Bank as well. Chavez added that "We are decoupling from the
wagon of death." El Troudi said we are witnessing the end of neoliberal
hegemony. Others agreed that a new model is needed. The old one clearly
failed.
-
- The Current Panic and Meltdown
-
- Credit today is frozen. From a debt crisis, not a liquidity
one. Markets are reeling as a result. Crashing in free fall from severe
financial stress. From the largest ever leveraged asset and credit bubbles.
Multiple ones. Imploding. Starting with housing. Causing widespread mortgage
defaults and huge financial institution losses. Multi-trillions more asset
dollars at risk. Compounded by banks reluctant to lend. Fearing they won't
be repaid. Prices are falling. Trust is eroded. Losses mounting from destructive
deleveraging. Mortgages, stocks, bonds, commodities, credit, private
equity, hedge funds imploding more intensively than since the Great Depression.
-
- Forcing troubled companies to the wall. Each one exposing
others. Some too big to fail but they did. Getting investors to run for
the exits. Selling good assets to cover bad ones. Freezing up money markets.
Making short-term Treasuries the only safe bet. Getting world governments
scrambling for solutions. Already in recession and getting worse. Fearing
an intensified financial crisis. A systemic collapse.Turning a deepening
recession into a global depression. A disaster only urgent, well-designed,
and coordinated actions may prevent. But no assurance anything will work
this late.
-
- Here's what Nouriel Roubini and others recommend. Mirror
opposite of EESA that will do more harm than good:
-
- -- additional rapid rate cuts globally; at least to 1%
in America; much lower in the EU, Asia and elsewhere;
-
- -- guarantee all deposits until stability is restored
at least;
-
- -- partially nationalize troubled banks; recapitalize
them with public funds; in some form that now seems the plan according
to The New York Times in its October 11 article headlined: "White
House Overhauling Rescue Plan;" capital to be injected into banks
by buying non-voting shares; what's known is Henry Paulson's October
10 statement that "We can use the taxpayer's money more effectively....if
we develop a standardized program to buy equity in financial institutions;"
it remains to be seen what, in fact, happens; Paulson represents Wall
Street; not the public, national or world interests;
-
- -- he's not for reestablishing responsible regulation
to curb market excesses; what economists like Roubini recommend;
-
- -- freeze all home foreclosures; establish a 1930s type
Home Owners' Loan Corporation (HOLC) to refinance homes and prevent foreclosures;
let foreclosed homeowners retain their properties and pay affordable rent;
- -- ease the debt burden of distressed households; cap
credit card and other high consumer loan interest rates at much lower
levels; put cash in peoples' hands; lots of it; at least several hundred
billion dollars for starters; more if needed; as much as it takes;
-
- -- provide solvent financial institutions with as much
liquidity as they need; corporate sector companies as well, including
small businesses;
-
- -- save solvent companies; liquidate troubled ones too
far gone;
-
- -- fund massive stimulus to revive the economy; for public
works, infrastructure, education, alternative energy, unemployment benefits,
job training, tax rebates to the needy, and state and local governments
strapped for cash; money for what's needed most and that can do the most
good;
-
- -- get stronger, more solvent countries to help weaker,
more indebted ones; and
- -- move on these policies fast; world governments have
little time left to save themselves; there's no assurance they can; and
these measure don't address our destructive military Keynsianism; permanent
war economy and need to redirect those funds for constructive homeland
needs; mirror opposite of a reported a new Pentagon document requesting
an additional $450 billion over the next five years.
-
- Reeling from One Policy Response to Another
-
- First came EESA. The Emergency Economic Stabilization
Act. To reward fraudsters and not address the root of the crisis. Nor
help millions of troubled households. Homeowners in foreclosure. Others
threatened. The public traumatized by the most calamitous economic events
since the 1930s.
-
- Europeans formed their own plans. Different from Washington's.
On October 10, G-7 finance ministers met to discuss policy. In early
evening, they presented an action plan. Long on promises. Short on specifics.
The New York Times reported that: "Many investors had hoped the ministers
would (propose) more concrete steps" and quoted Peterson Institute
of International Economics deputy director, Adam Posen, saying: "This
fell short." But he wasn't giving up entirely or saying what they
have in mind or will later decide can't work.
-
- They agreed to:
-
- -- act decisively with all available tools to support
financial institutions and prevent their failure;
-
- -- unfreeze credit and money markets; assure banks and
other financial institutions "have broad access to liquidity and
funding;"
-
- -- ensure banks and financial intermediaries "can
raise (sufficient) capital from public (and) private sources;" to
rebuild confidence and get them again lending to households and businesses;
-
- -- ensure national deposit insurance protection is sound
so people have confidence in the safety of their deposits; and
-
- -- take appropriate action "to restart the secondary
markets for mortgages and other securitized assets;" assure accurate
valuations and transparency according to "high quality accounting
standards."
-
- Besides the US Treasury planning to "buy equity
in financial institutions," AP reported on October 12 that the 15
euro-zone countries will "temporarily guarantee future bank debt
to encourage lending....for an interim period and on appropriate terms"
for up to five years. Recapitalizing banks is part of the plan. The hope
is to unfreeze credit and get markets operating normally again.
-
- According to The New York Times on October 12, "each
country will announce concrete figures for the measures they expect to
take individually." Belgian finance minister Didier Reynders said
"There is no question of setting up a European fund." A final
proposal will be presented to the full 27-member EU summit later in the
week, and individual parliaments will have to vote on it.
-
- Key to understand about whatever emerges in final details
or any that follow - world governments will loot their treasuries to save
powerful capital interests. Despite bold pronouncements we can expect
more of ahead, practically nothing will be done for many tens of millions
of people globally in greatest need. At best for them....crumbs.
-
- In the coming days and weeks, we'll see statements become
policies and how world markets react. Given the immensity of the crisis,
no one's sure if anything can work. Nor is it reassuring to hear George
Bush say remain calm. We've got things under control. On October 10, the
Dow dropped 300 points while he spoke.
-
- In an October 13 Barron's interview, noted money manager
Jeremy Grantham (now age 70) was asked if he thought we'd learn anything
from the current crisis. His response: "an enormous amount in a
very short time, quite a bit in the medium-term, and absolutely nothing
in the long-term."
-
- He's been bearish since last year but added that "the
fundamentals are turning out worse than" he expected. "The terrible
thing - after all this pain - is that the US equity market is not even
cheap." It was so high in 2000 that it hasn't come down to trend,
but it's getting close. However, "the really bad news is that great
bubbles in history always overcorrect." He believes S & P 500
fair value is around 1025 compared to its 899.22 October 10 close. But
"typically bubbles overcorrect by quite a bit, possibly by 20%.
This is very discouraging," so he's not rushing to buy but he fears
he'll act too soon. He predicts a market low in 2010.
-
- Where he sees things going from here was also posed.
He's highly respected as an expert, and yet he emphasized "how little
(he) understand(s about) all of the intricate workings of the global
financial system. (He) hopes that someone else gets it, because (he) doesn't.
And (he) has no idea, really, how this will work out....(It's) so intricate
that all (he) can conclude, by instinct (and from history), is that it
will be longer, harder and more complicated than we expect." Quite
an assessment from a man called "the philosopher king of Wall Street."
-
- The Human Cost of Manufactured Crisis
-
- Ordinary people are hit hardest. Millions will suffer
grievously for years as a result of this totally avoidable crisis. Fraudsters
who caused it are rewarded. Innocent homeowners, households, and workers
are punished. Mercilessly. The result:
-
- -- trillions of dollars lost; likely trillions more ahead;
-
- -- millions of lost homes, homeowners behind in their
payments, or threatened with foreclosure in the worst housing crisis since
the Great Depression; ultimately may exceed it given current estimates
of up to 10 million foreclosures before stability and recovery;
-
- -- likely well over a million 2008 personal bankruptcies
and much higher numbers in 2009 compared to 800,000 in 2007 and 573,000
in 2006; figures below the 2000 - 2005 1.5 million average before passage
of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act; according
to Samuel Gerdano, American Bankruptcy Institute director, consumer over-indebtedness
"made worse by the home mortgage crisis" is the problem; it
won't likely recede in the near or intermediate-term;
-
- -- rising unemployment; not the spurious 6.1%; including
discouraged workers and people working part-time who want (but can't
find) full-time jobs, economist John Williams puts the real figure above
12% and rising;
-
- -- consumer over-indebtedness; maxed out on credit but
needing more of it to survive; and charged usurious rates to get it;
-
- -- declining wages and benefits in the face of soaring
expenses; making it all the harder to cope;
- -- food banks and homeless shelters facing increasing
demands but forced to turn away people for lack of resources; and
- -- things overall are worsening; to the edge of the abyss
according to some; even the most optimistic fear what's coming; who can
know; no one dares be complacent.
-
- Whatever final policies emerge. In whatever form they
take. Unless they address the human dimension, they'll do nothing for
people in most need. Growing millions. Desperate and in trouble. Their
issue is economic and ethical. The G-7 statement addressed neither. It
dealt only with saving Wall Street. Industrial capitalism. A better idea
is let them die and replace them with a new order. A workable one. Respecting
people, not capital.
-
- Stephen Lendman is a Research Associate of the Centre
for Research on Globalization. He lives in Chicago and can be reached
at lendmanstephen@sbcglobal.net.
-
- Also visit his blog site at sjlendman.blogspot.com and
listen to The Global Research News Hour on RepublicBroadcasting.org Mondays
from 11AM - 1PM US Central time for cutting edge discussions with distinguished
guests. All programs are archived for easy listening.
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