- It's a minority but growing view, including from 86-year
old former Goldman Sachs chairman, John Whitehead, at the November 12
Reuters Global Finance Summit in New York. As disturbing evidence mounts,
he said: "I think it would be worse than the depression. We're talking
about reducing the credit of the United States of America, which is the
backbone of the economic system. I see nothing but large increases in
the deficit, all of which are serving to decrease the credit standing
of America.
-
- Before I go to sleep at night, I wonder if tomorrow is
the day Moody's and S & P will announce a downgrade of US government
bonds. Eventually (they'll) no longer be the triple-A credit that they've
always been. I've always been a positive person and optimistic, but I
don't see a solution here." Powerful words from a man who "want
(s) to get people thinking about this, and realize (we're on) a road to
disaster."
-
- A subject writer, precious metals analyst, and Safe Money
Report editor Larry Edelson also comments on. Most recently on November
13 in an article titled: "The G-20's Secret Debt Solution."
He's quite dire in saying short-term fixes won't be discussed at its November
15 summit. A "far more fundamental fix is being (secretly) discussed
- the possible revaluation of gold and the birth of an entirely new monetary
system." It's a topic Edelson has spent much time on previously.
-
- Given the speed and severity of the current crisis, he
believes something big is planned and puts it this way: "If we can't
print money fast enough to fend off another deflationary Great Depression,
then let's change the value of the money." In other words, devalue
it, but do it globally. "It would be a strategy designed to ease
the burden of ALL debts - by simultaneously devaluing ALL currencies (or
at least all that matter) and re- inflating ALL asset prices."
-
- Edelson thinks G-20 officials will discuss this seriously.
Essentially, the idea of "a new financial order that includes new
monetary units that (will help) wipe clean the world's debt ledgers."
At best, it will be a tough sell given that the US, by far, is the world's
largest debtor and the one most in need of help. The urgency for all others
is that if America sinks, it'll drag down all world economies with it,
so it's possible some kind of solution will be arranged. But it's not
assured, nor can it be ruled out that the summit will be stalemated as
every nation has its own concerns and its own constituency to serve.
-
- Edelson believes that key US officials, including Fed
chairman Bernanke, Treasury secretary Paulson, and president-elect Obama
back the idea, and (most but not all) key world central bankers and politicians
agree that a new monetary system is needed.
-
- Consider a historical precedent at a previous dire time
- the Great Depression. In April 1933, Roosevelt issued Executive Order
(EO) 6102 that stated:
-
- ....a "national emergency still continues to exist
(and) by virtue of the authority vested in me....(I) do hereby prohibit
the hoarding of gold coin, gold bullion, and gold certificates within
the continental United States by individuals, partnerships, associations
and corporations...."
-
- The EO required the delivery on or before May 1, 1933
"to a Federal Reserve Bank or a branch or agency thereof" all
such holdings other than amounts used in industry, profession or art and
other listed exceptions. Failure to comply carried a fine up to $10,000
(adjusted for inflation today would be 16 times or more that amount),
up to 10 years in prison or both. This EO is called the Gold Confiscation
(act) of 1933. It's price at the time was $20.67 an ounce. Shortly thereafter,
it was raised to $35 an ounce for an effective US dollar 41% devaluation.
-
- What Edelson is suggesting is that world economies together
will do the same thing - "a simultaneous and universal currency
devaluation" without confiscating gold. They don't have to and instead
can "raise the current official central bank price from its booked
($42.22) value an ounce - to a price that monitizes a large enough portion
of the world's outstanding debts."
-
- If this happens, debts will be reduced to a fraction
of re-inflated asset prices "led higher by the gold price."
Further, Edelson believes, in place of the dollar as a reserve currency,
"three new monetary units of exchange (will emerge) with equal reserve
status" - a new dollar, euro and "a new pan-Asian currency"
with the Chinese yuan likely surviving and linked to a basket of the other
three.
-
- With devaluation, new currencies will be worth less than
the old ones by a considerable amount. For example, "10 new units
of money (may then equal) one old dollar or euro." They'll have new
names as well, and new "regulations and programs would be designed
and implemented to ease the transition to a new monetary system"
- if it happens and it's by no means assured.
-
- But if it does, central banks and governments would run
things along with the IMF that's had contingency plans for such an eventuality
since it was established in 1944. According to Edelson, a new monetary
system will include the following:
-
- (1) A new fixed-rate currency regime
-
- Once the price of gold is increased and new currencies
introduced, "a new fixed exchange rate system" will be introduced.
The floating one and old currencies will be eliminated to reduce market
volatility.
-
- (2) New compensatory measures for savers
-
- They'll be introduced as an inducement and to protect
against further devaluation. For example, a possible "one-time windfall
tax- free deposit could be issued directly to individual accounts or to
employer-sponsored pensions, to IRAs, or Social Security accounts."
Something like a tax rebate. At the same time, income taxes may be raised
to cover the cost or perhaps some kind of global sales tax instead.
-
- (3) Additional programs to protect lenders and creditors
-
- They'll get top priority over individuals but with a
currency worth far less than before. So programs will be needed (like
tax help) to help them offset the losses that will be considerable.
-
- Can this work? Edelson thinks so as hard as the medicine
would be to swallow. Also, it's not a recipe for high growth rates or
improved returns on investments the way it was in the great bull market
now ended.
-
- Another issue is what gold price would be legislated
to reflate world economies. Who can say, but here are some possibilities
Edelson sees, and note the dramatic effect on the precious metal if he's
right:
-
- -- if 100% of public and private sector debt is monetized,
"the official government price of gold would have to be raised to
about $53,000 per ounce;"
-
- -- at 50% monitization, gold would be $26,500 an ounce;
-
- -- at 20%, it would be $10,600 an ounce; and
-
- -- at 10%, it would be $5300 an ounce.
-
- The lowest figure isn't outlandish in light of historical
precedent. Gold hit $850 an ounce in 1980. In CPI inflation- adjusted
terms, around $2300 an ounce would equal it today. But if the government
hadn't cooked the CPI calculation to keep it low, the number would be
about $6250 an ounce. So if a devaluation occurs, perhaps even $10,600
might not seem unusual.
-
- Edelson bases his numbers on US debt only because this
country is the world's largest debtor and at "the epicenter of the
crisis." He won't be surprised if "the G-20 monetize(s) at least
20% of the US debt markets." If so, he sees gold at over $10,000
an ounce along with currency devaluations "by a factor of at least
12 to 1, meaning it would take 12 new dollars or euros to equal 1 old
dollar or euro."
-
- A gold standard isn't needed because central banks need
only monitize and reduce their debt burdens "via inflating asset
prices in fiat money terms." The obvious question is what to do if
he's right. Think gold, and in his judgment, make it "as much as
25% of your investable funds." He's not alone recommending this,
including others who believe America is insolvent, will simply default
on its debt, perhaps create a new currency as Edelson believes, and do
it sooner than most people imagine. Next year perhaps because conditions
are so dire and deteriorating fast.
-
- Macro data keep confirmng it. The latest on November
13 with initial unemployment claims at 516,000 or the highest since September
2001. Continuing claims are at the highest level since 1983. For the week
ending November 1, the seasonally adjusted insured unemployment advance
number was 3,897,000 or an increase of 65,000 from the preceding week.
-
- Crucial to understand is that these figures are grossly
understated given the numbers of discouraged workers, part-time and occasional
ones, and other ways the government cooks the books to soften or otherwise
alter all types of "official" data. None of it, including GDP,
inflation, and the rest is reliable. For unemployment, a good rule of
thumb is to double the announced figures, so the Labor Department's reported
6.5% is, in fact, around 13% and rising.
-
- In addition, housing continues to deteriorate. Large
builder Toll Brothers president, Bob Toll, says "These are bad times
if there ever were" any. Along with declining prices and rising
foreclosures, it shows in new mortgage application figures - down 40%
from a year earlier and no evident leveling off signs.
-
- Still more bad news on November 14 with the Commerce
Department reporting October retail sales plunging a record 2.8% after
falling the previous three months. Even excluding a 5.5% drop in auto
purchases, they fell a record 2.2% with lower gasoline prices accounting
for much of the drop. Nonetheless, numbers were down across the board,
and August and September figures were revised lower signaling a poor holiday
shopping season and very bleak Q 4 that's certain to continue into the
new year.
-
- Some observers believe that these and other data lie
behind Paulson abandoning his toxic asset purchase plan to give more to
"nonbank financial institutions, like insurers and speciality-finance
companies" as well as to "Shift Focus in (the) Credit Bailout
to the Consumer," according to The New York Times. Others see the
Treasury in disarray and still others think the original plan was a head
fake, and all along Paulson had other things in mind and will gradually
unveil them. They'll offer little for beleaguered households if anything
at all.
-
- Details on his newest plan are vague, but apparently
consumers won't directly benefit. Around $50 billion will be for a new
loan facility to help companies issuing credit cards, making student
loans and financing car purchases. It means maxed out households won't
be able to borrow because they're already overextended, and lenders will
only do business with good credit risks.
-
- Nonetheless, this is the latest twist in what some critics
call making Treasury policy on the fly. First toxic asset purchases,
then bank recapitalizations and various other handouts, and now the vague
outlines of a new plan just announced. Tomorrow something else in the
wake of the G-20 November 15 summit.
-
- Its official 47-action items statement (drafted well
in advance of the meeting) was in the usual type political-speak. According
to The New York Times, "leaders of 20 countries agreed Saturday to
work together to revive their economies, but they put off thornier decisions
about how to overhaul financial regulations until next year (when it plans)
its next meeting for April 30, 101 days after (Obama) is sworn into office."
Whatever is finally agreed on, this much for certain is clear. Unchanged
Washington/Wall Street dominance is planned along with putting the IMF
in charge of global "neoliberalizing" with all its destructive
fallout.
-
- A Long-Term View on the Depression
-
- It's from noted sociologist, social scientist and world-systems
analyst Immanuel Wallerstein, now a Senior Research Scholar at Yale where
he covers world-systems in three ways:
-
- -- the historical development of the modern world-system;
-
- -- the contemporary crisis of modern world-economy capitalism;
and
-
- -- structures and knowledge.
-
- He's authored numerous books and writes regular commentaries
on major world and national topics. A recent October 15 one is titled
"The Depression: A Long-Term View."
-
- It's started in his view. We're "at the beginning
of a full-blown worldwide depression with extensive unemployment almost
everywhere. It may take the form of a classic nominal deflation (or less
likely) a runaway inflation, which is simply another way in which values
deflate." What caused it, he asks? Derivatives? Subprime mortgages?
Oil speculators? It's a "blame game of no real importance."
-
- Understanding it calls for far more revealing factors,
such as "medium-term cyclical swings (and) long-term structural trends."
Over several hundred years at least, he describes two major ones. "One
is the so-called Kondratieff cycles that historically" lasted 50
- 60 years. The other is called "hegemonic cycles" that are much
fewer in number but last far longer.
-
- America contended for hegemony as early as 1873, achieved
it fully in 1945, and has been declining since the 1970s. "George
W. Bush's follies have transformed a slow decline into a precipitate one.
And as of now, we are past any semblance of US hegemony. We have entered,
as normally happens, a multipolar world. The United States remains a strong
power, perhaps still the strongest, but it will continue to decline relative
to other powers in the decades to come." Nothing can change this.
-
- Kondratieff cycles are timed differently. Its last B-phase
ended in 1945, followed by "the strongest A-phase upturn in the history
of the modern world-system." It peaked around 1967 - 73, and headed
down. "This B-phase has gone on much longer than previous (ones)
and we are still in it."
-
- Its characteristics are as follows:
-
- -- "profit rates from productive activities go down,
especially in those types of production that have been most profitable;"
-
- -- it directs capitalists to financialization and speculation
for higher returns; and
-
- -- "productive activities, in order not to become
too unprofitable, tend to move from core zones (like America) to (lower
cost) parts of the world-system."
-
- Speculative bubbles are profitable while inflating, but
they always burst. "If one asks why this Kondratieff B-phase has
lasted so long, it is because the powers that be (the Treasury, Fed, IMF,
and western European and Japanese collaborators) have intervened in the
market regularly and importantly" to shore it up at times of economic
disruptions - 1987, the 1989 S & L crisis, 1997 Asian contagion, 1998
Long Term Capital Management debacle, the 2001 - 2002 corporate scandal
period, and more than ever today with big unanswered questions whether
this time it will work.
-
- It doesn't matter because we've reached the limits of
what can be done - "as Henry Paulson and Ben Bernanke are learning
to their chagrin and probably amazement. This time, it will not be so
easy, probably impossible, to avert the worst."
-
- In earlier depressions, innovations and quasi-monopolies
helped world economies recover. In the late 1930s, WW II played the major
role. Today things are different and "may interfere with this nice
cyclical pattern that has sustained the capitalist system for some 500
years." They're new structural trends, according to Wallerstein.
"The problem with all structural equilibria of all systems, is that
over time the curves tend to move far from equilibrium (and it's) impossible
to bring them back."
-
- What happened this time? It's "because over 500
years the three basic costs of capitalist production - personnel, inputs,
and taxation - have steadily risen as a percentage of possible sales
price (so) today (it's) impossible to obtain the large profits" that
previously were the "basis of significant capital accumulation."
It's the result of capitalism working so well that it finally "undermined
the basis of future accumulation."
-
- At this point, the system "bifurcates." The
immediate consequence is high chaotic turbulence (now ongoing) and will
continue....for perhaps another 20 - 50 years. From the chaos "one
of two alternate and very different paths" will emerge.
-
- The present system won't survive. A new one will replace
it. It will not be capitalism as we know it, but may be far worse or far
better (more democratic and egalitarian). Determining the outcome is
"the major worldwide political struggle of our times."
-
- In the short-term, we're moving into a "protectionist
world (forget about so-called globalization)." Governments are getting
more into production - even in America and Britain. We're also moving
more into "populist government-led redistribution," either in
a left-of- center social democratic form or a far right authoritarian one.
"And we are moving into acute social conflict within states, as
everyone competes over the smaller pie. In the short-run, it is not, by
and large, a pretty picture."
-
- A Brief Summary of Nouriel Roubini's Latest Views
-
- As of November 11, he says "the US will experience
its most severe recession since WW II, much worse and longer and deeper
than even (in) 1974 - 75 and 1980 - 82." It'll last through 2009
and cause a "cumulative GDP drop of over 4%." Unemployment will
likely reach 9%. The US consumer is debt burdened, saving less and faltering:
"this will be the worst consumer recession in decades."
-
- A V-shaped recovery "is out the window." In
prospect is either a U- shaped 18 - 24 months recession or a worse multi-year
L-shaped one similar to what Japan experienced in the 1990s. Economist
Michael Hudson sees an L-shaped depression ahead, more severe than what
Roubini forecasts who doesn't rule out something worse than he imagines.
-
- As a result, president-elect Obama "will inherit
an economic and financial mess worse than anything the US has faced in
decades:" the worst recession in 50 years;" the worst financial
and banking crisis since the 1930s; a massive fiscal deficit; a huge current
account one; "a financial system that is in a severe crisis and
where deleveraging is still occurring at a very rapid pace," thus
making the credit crunch worse; a household sector in disarray with millions
insolvent and forclosures rising; the risk of serious deflation; a liquidity
trap for the Fed as well; and "the risk of a severe debt deflation
as the real value of nominal liabilities will rise given price deflation
while the value of financial assets is still plunging."
-
- Worse still, this is happening globally, even in mighty
China that could see its market peak 12% growth rate plunge to 6% for
a "hard landing." Emerging economies will be very hard hit,
and advanced ones "will face stag-deflation (stagnation/recession
and deflation)."
-
- In countries like the US, Japan and possibly others,
interest rates may reach zero with serious potential consequences if it
happens. "Zero-bound on interest rates implies the risk of a liquidity
trap where money and bonds become perfectly substitutable, where real
interest rates become high and rising thus further pushing down aggregate
demand, and where money fund returns cannot even cover their management
costs."
-
- Deflation also affects debt. At nominal values it will
rise and thus increase its real burden. As for monetary policy, no matter
how aggressive it gets, it will be "pushing on a string given the
glut of global aggregate supply relative to demand (plus) a very severe
credit crunch."
-
- With this in mind, projected 2009 earnings are "delusional"
and will have to be lowered sharply. As a result, view equity rallies
as sucker rally bear traps, and Roubini has a cartoon to explain them:
-
- -- top graphic: broker saying "I've got a stock
here that could really EXCEL"....really excel someone asks?..another
asks "EXCEL?"...still another thinks "SELL," then
everyone yells "SELL;"
-
- -- bottom graphic: everyone yelling "SELL"....one
voice saying "This is madness! I can't take anymore, goodbye!"
Good bye, someone asks? Buy? - asks another, and then everyone yells BUY!!
-
- Michel Chossudovsky, Ellen Brown and others explain what's
really going on. It's not pretty or what Wall Street wants investors to
know. That markets are heavily manipulated. Speculation drives them up
and down, and very visible (insider) hands profit hugely in either direction.
-
- Chossodovsky: "With foreknowledge and inside information,
a collapse in market values constitutes a lucrative and money- spinning
opportunity, for a select category of powerful speculators who have the
ability to manipulate the market in the appropriate direction at the appropriate
price" - and he explains the various ways how.
-
- Brown on the "Plunge Protection Team (PPT): it's
"the group set up under President Reagan to maintain market 'stability
(profitable instability also) by manipulating markets behind the scenes."
-
- In other words, financial markets are rigged. "Free"
ones don't exist except in the mind's eye of the innocent. They represent
no collective wisdom other than the speculators who manipulate it for
profit.
-
- Brown: "In a rigged pseudo-capitalist economy, investors
are easily separated from their money because they expect the market to
follow 'free market principles' based on 'supply and demand.' They are
seduced into 'pump and dump schemes" and fleeced.
-
- In today's market climate, trusting in Adam Smith's "invisible
hand" is a very hazardous exercise. Brown again: "The market
today is indeed controlled by an invisible hand, but it is not necessarily
serving the interests of small investors."
-
- Paul Krugman on A Possible Depression
-
- He doesn't expect one, but he's worried at a time when
we're "well into the realm of what (he calls) depression economics."
He means "a state of affairs like that of the 1930s in which the
usual tools of economic policy - above all, the Federal Reserve's ability
to pump up the economy by cutting interest rates - have lost all traction.
When depression economics prevails, the usual rules of economic policy
no longer apply: virtue becomes vice, caution is risky and prudence is
folly."
-
- He cites one piece of macro data, among many others,
as an example - new unemployment insurance claims (mentioned above) that
are high, rising, but not unusual in recessionary times. Standard policy
is to cut the fed funds rate, but today doing it is "meaningless."
It's officially at 1%, but it's "averaged less than 0.3 percent in
recent days," so there's nothing left to cut.
-
- Krugman suggests a huge $600 billion stimulus package,
but even that could fall far short, especially if it causes as much destabilization
as the Paulson bailout schemes - designed to wreck the economy, not heal
it, so powerful interests can grow more powerful and do it with taxpayer
dollars.
-
- New Programs for Old Add Up to Same Old, Same Old
-
- Shifting focus to bailing out consumers was covered above
and explained as a way to help companies, not households. It's more Bush
administration deception that will continue seamlessly under Obama, and
just look at his major Wall Street contributors for proof. He fully supports
aiding them at a time one observer calls the Treasury "privatized,"
and it's no secret that it's being looted.
-
- Then there's (supposed) mortgage aid for beleaguered
homeowners that falls way short of helping them. Quite the opposite in
fact. The newly announced plan is more old than new and only to keep
under water owners from deserting their properties and renting. The idea
is for lower rates, extended loan terms, lower payments, and adding unpaid
balances to principal. It's called negative amortization - when monthly
payments are less than the full interest amount due. The interest accrues
and principal balances increase, only putting off an eventual day of reckoning
for a later time when prices of homes will be lower and owners even less
able to afford them.
-
- In others words, the solution is worse than the problem.
It will sink owners more under water than at present, delay their defaulting
for a later time, turn owners into levered renters, drive them deeper
into debt, ensure continued foreclosures for many years to come, and end
the dream of home ownership for millions. It will also discourage millions
more from wanting one.
-
- And there's more to this ugly plan. There's a catch.
It focuses on loans Fannie and Freddie own or guarantee. They dominate
half the mortgage market and have about 20% of delinquent loans, so far.
Even FDIC chairman, Sheila Bair, is critical saying the plan "falls
short of what is needed to achieve wide-scale modifications of distressed
mortgages." She wants some TARP money for "fixing the front-end
problem: too many unaffordable home loans," but what's needed is
an entirely new plan.
-
- One designed to work. With affordable monthly payments,
principal balances reduced, and lenders required to eat losses on deceptive
loans they never should have made in the first place. The proposed plan
is designed to fail, and it's typical of how Washington operates. It was
announced by the Federal Housing Finance Agency (FHFA), the same one that
seized Fannie and Freddie in September.
-
- On November 13, FDIC officials unveiled their own plan
that improves on FHFA's but not enough. It's only for 1.5 million homeowners
facing foreclosure in 2009. Its cost is an estimated $24.4 billion, and
even so Henry Paulson opposes it because it taps a small portion of his
TARP money.
-
- Borrowers who've missed at least two monthly payments
will be eligible for a reduced amount - at no more than 31% of their
monthly income compared to the 28% of the pre-tax amount lenders once
deemed affordable.
-
- In exchange, mortgage companies will be guaranteed that
if borrowers fall behind on their payments and they lose money, Washington
will cover half of their loss in most cases. The plan's estimated cost
is based on the assumption that only one in three borrowers with modified
payments will be unable to make them. Currently, nearly half of borrowers
under such plans default, so it's doubtful FDIC's plan will work, especially
with home prices still falling and likely to bottom well below current
values.
-
- Nonetheless, leading congressional Democrats are supportive,
and Senate Banking Committee chairman, Chris Dodd, said he'll introduce
legislation to let bankruptcy courts modify mortgage loans. It's something
consumer advocates want badly and the banking industry strongly opposes.
It remains to be seen what kind of new law passes (if any), and despite
expressing support for one during his campaign, rest assured that Obama
will do nothing to harm his core constituency - his powerful Wall Street
backers.
-
- He'll likely let banks set their own terms for their
own benefit to the detriment of homeowners. The way it usually works in
the end. Further, arrangements announced, in place or planned can't stop
foreclosures from rising. Increasing unemployment will intensify the
problem. Many borrowers overstated their incomes and can't even handle
reduced payments. Others were speculators on second homes and don't qualify.
-
- In addition, home prices keep falling with no end of
it in sight. Growing millions of owners are under water owing far more
than their properties are worth and assuring many will default and simply
rent - for less than they're now paying.
-
- Further, securitizing mortgages complicates who owns
them. Except for Fannie and Freddie, they're not your local bank or S
& L in most cases, but foreign investors, hedge funds, and all sorts
of other non-traditional mortgage paper holders. Usually ones homeowners
can't meet with face-to-face, and if they could would be rebuffed. "Servicers"
won't modify loan terms because doing so lowers their value for investors
and likely would invite lawsuits.
-
- It's another wrinkle in a complicated situation with
homeowners at the bottom of the food chain being squeezed, short of major
government help not forthcoming or likely in the new year. For them and
most others, trouble is baked in their cake that they're now being force-fed
to eat.
-
- In greater portions after the Office of the Comptroller
of the Currency refused to let lenders forgive large amounts of credit
card debt. As much as 40% for consumers who don't qualify for existing
repayment plans.
-
- A rare financial industry and Consumer Federation of
America alliance asked the Treasury Department for help on October 29
for very logical reasons. Consumers need it as well as credit card lenders
for a way to mitigate growing losses - by assuming small in lieu of total
ones and getting extended write-off periods.
-
- But consider how over-indebted individuals may react
if they're smart. Why pay anything when it's simpler to default and walk
away. For those strapped enough, it's what growing numbers are choosing
and the reason lenders like JP Morgan Chase, Citigroup, and Bank of America
(already reeling from bad mortgage debt) are concerned enough to seek
relief.
-
- Instead, they should be held accountable for their fraud.
For destroying savings, pensions, and for growing millions their homes
and futures. For charging usurious interest and late charges on credit
card balances. For gaming the system for decades but now out of their
food source. Instead of help, have them give back and make it on their
own, or step aside, be nationalized, and turn them into a public utility,
on a level playing field, to serve the greater good for everyone.
-
- Their due reward for what Paul Craig Roberts calls "unregulated
banksters and Wall Street criminals, greedy CEOs, and a no-think economics
profession (for having) destroyed America's economy," and
- now wanting to be saved from their own transgressions.
Rebalance the tax code instead, make it progressive, and soak the rich,
not the poor. It was the original idea in the first place at a time low
income earners paid nothing. Today they're overburdened, overtaxed, out
of work, and out of hope during the most serious disruption in our history.
-
- They're not offered part of the latest bank handout that's
little more than naked theft on top of all of it earlier. This time with
another $140 billion windfall that was in a September 30 Treasury Department
memo. According to tax experts, it overstepped its authority by overturning
section 382 of a 1986 law curtailing the outlandish corporate gaming of
the tax system. It nets Wells Fargo $25 billion for its Wachovia takeover
and PNC bank $5.1 billion in acquiring National City. Future acquisitions
will enjoy similar benefits with taxpayers getting the bill.
-
- This also helps big banks acquire smaller ones, concentrate
more power in their hands, and head them closer to near-monopoly control
over the entire financial system. A privatized Treasury indeed - with
bipartisan support and by the new president-elect.
-
- His new Treasury secretary will maintain the status quo
or even sweeten it at a time when ordinary households are in deep distress
with little help in prospect beyond measures too inadequate to matter.
-
- According to the New York and London-based CreditSights
research firm, it's $5 trillion and counting for fraudsters and bare crumbs
for the public. At a time economies are sinking into recession, unemployment
and poverty rising, and mayor Richard Daley of this writer's Chicago warning
of "huge" layoffs to come.
-
- He compared now to the 1930s and said: "We never
experienced anything like this except (for those) people who came from
the Depression. When you have that many layoffs early (referring to the
city's and what corporate heads tell him) - and they're telling me this
is only the beginning of their layoffs - that is very frightening."
-
- Daley warned that local governments could face bankruptcy
at a time Chicago-based Challenger, Grey & Christmas outplacement
consultant reported that US job cuts reached a five-year high in their
latest numbers and are rising across the board.
-
- It's just as bad for Illinois (and other states) according
to Bloomberg. The state "is $4 billion behind in paying bills to
its suppliers of goods and services," Comptroller Dan Hynes said.
"Vendors face a 12 week delay in getting paid, and the wait may
extend to 20 weeks" as conditions deteriorate further. "The
unprecedented backlog of bills might grow to $5 billion by March. To call
this an imminent crisis is an understatement," and it's affecting
all state services. In other states as well across the country.
-
- Even the mighty New York Times is hurting. It's fallen
on hard times and may be a metaphor for the country. In 2002, its stock
price hit nearly $53 a share and is now below $7.50 (as of November 14),
down about 86%. It also owes lenders around $400 million by next May,
has a mere $46 million on hand, and it needs all of it and more for operating
expenses at a time one observer suggests that the Grey Lady may need to
change its slogan to "Less News and Less Money To Print It."
-
- Maybe none according to its publisher Arthur Sulzberger
Jr. months back at the Davos, Switzerland World Economic Forum. He said
"I really don't know whether we'll be printing The Times in five
years, and you know what? I don't care either" because the paper
is emphasizing internet news and doubled its online readership to 1.5
million.
-
- Well and good but it hasn't enough online advertising
to make up for what it's losing in print, and given today's climate, it
may run out of time to make up the shortfall and stay viable. That may
prove the epitaph for growing numbers of venerable (and now vulnerable)
American and global companies at perhaps the most challenging time in
their histories.
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- A Final Comment
-
- How did it come to this in the first place? In a word:
out-of- control excess yields even greater payback, and the only cure for
bubbles (according to noted economist Kurt Richebacher) is to prevent
them from developing.
-
- The ones now deflating are unprecedented in their size
and severity. No amount of policy making magic will easily fix them.
America and world economies face a long, painful period ahead, likely
more than at any other time in history with no clear idea what will emerge
in the end. As one observer puts it: "All we know is that nobody
knows."
-
- What's known in the shorter term is what Michel Chossudovsky
observes: "The financial crisis is deepening, with the risk of seriously
disrupting the system of international payments. (This time) is far more
serious than the Great Depression. All major sectors of the global economy
are affected (and TARP and related schemes are) not a 'solution' to the
crisis but the 'cause' of further collapse" - by design.
-
- So what long-term lessons will be learned when the dust
finally settles? According to money manager and market strategist Jeremy
Grantham: "absolutely nothing" or put another way - those who
don't heed the lessons of the past are condemned to repeat them.
-
- Policy makers won't change. "Free-market" fundamentalism
won't be tamed, and nothing in sight promises deliverance to a caring,
progressive new world. Before whatever comes out of this in the end,
plenty of pain will precede it, then past sins will repeat, and we'll
go through the whole cycle again - if we make it through this one.
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- 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.
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