- Washington DC --- The second wave of the world economic
depression is coming soon. Larry Summers, the economics czar of the Wall
Street puppet regime currently in power in Washington, recently confessed
to the Financial Times in an unguarded moment: "I don't think the
worst is over ...." A few weeks earlier, Jacques Attali, who served
in the 1980s as the main economics adviser to French President Mitterrand,
told an audience at the International Economic and Financial Forum (FIEF)
in Paris that the world might well soon face a "planetary Weimar"
in the form of a hyperinflationary depression similar to the German events
of 1922 to 1923.
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- During the last world economic depression, the first
wave came in the form of the famous New York Stock market crash of October
1929. But this was only the beginning, and hardly the main event. The
world depression of the 1930s was made irreversible by the British bankruptcy
of September 1931, when the Bank of England ceased gold payment. At that
time, the vast majority of international trade was financed by pounds sterling
bills of exchange drawn on London. When the British Pound began to float
through a series of competitive devaluations, the lack of a stable reserve
currency -- and not the US Hawley- Smoot tariff -- strangled world trade,
thus making that depression as severe as it was. British default in turn
undermined the US banking system, setting the stage for the banking panic
which ravaged the United States in 1932 and 1933, to the point that not
a single bank in the country was still operating by the time Franklin D.
Roosevelt assumed the presidency in March of 1933. The United States would
almost certainly have been lashed by additional waves of depression had
it not been for the banking triage implemented by the Roosevelt administration
during the bank holiday, and for other New Deal measures which succeeded
in mitigating the Depression. Other countries, notably Germany, went into
a permanent depression which was expressed in a series of military campaigns
which aimed at the economic looting of the other countries of Europe. Whatever
the ideological fanatics of the discredited Austria and Chicago schools
of economic analysis may claim, there is no automatic business cycle capable
of lifting the modern world out of serious economic disintegration. The
depression will end when adequate New Deal style policies are implemented,
and not before, as I show in my new book, the second edition of Surviving
the Cataclysm.
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- TODAY: BETWEEN 1929 AND 1931
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- Today, therefore, we are so to speak in the trough between
the October 1929 wave (which corresponds to the derivatives crisis and
banking panic of 2008) in the September 1931 wave, which this time around
is highly likely to take the form of a hyperinflationary dollar crisis,
or in other words a hyper stagflation and depression of the world economy
radiating out from Wall Street and the City of London. What then might
be the leading characteristics of the next wave of the current world economic
breakdown crisis?
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- The next wave is likely to involve a worldwide dollar
panic. Using ballpark figures, we can say that there are about $4 to $5
trillion sloshing around the world in the form of hot money, U.S. Treasury
securities, Euro dollars, and various forms of zeno-dollars. Japan has
about a trillion, China almost $2 trillion, and so forth. It is naturally
very unwise for a developing country like China to hold so many dollars
rather than using them to purchase needed infrastructure and capital goods,
and the Chinese leaders are now very uncomfortable with their own foolish
decision, which was of course taken under heavy US pressure. But the point
is that this $4.5 trillion overhang is by its very nature exceedingly unstable.
Every country that holds large sums of dollars or US treasury bonds is
nervously eyeing every other such country to see if they show signs of
bolting for the exit. Up to now, so far as we know, no large holder of
dollars has attempted to reduce its exposure to the battered greenback
by dumping these dollars on the international market. If anyone did so,
would cause a true universal financial panic which would create chaos and
mayhem not just in the United States and Great Britain, but in the vast
areas of the rest of the world as well. This is concretely how hyperinflation
could now very well arise: if one or more US creditor nations attempts
to abruptly lighten up on dollars, the value of the US currency could undergo
a catastrophic collapse, and that would spell runaway hyperinflation on
the US domestic front.
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- WORLD DOLLAR PANIC IMMINENT?
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- We need to recall that the value of a modern currency
is not determined inside the country, but rather on the international foreign
exchange markets. This is where the fatal vulnerability of the US dollar
is located. In the ruined form of the Bretton Woods system which has prevailed
for almost 40 years since Nixon's colossal historical vandalism of August
15, 1971, the US has emerged as the only country with a permanent license
to finance imports by simply printing more of its own currency and sending
those banknotes overseas. Every other country has to manufacture and export
something that others want to buy in order to earn the necessary foreign
exchange to pay for its own imports. The US license to print has made
this country the buyer of last resort and the dumping ground for the unsold
junk of the world, leading in the process to high permanent unemployment
here. There are many signs that this inherently unworkable arrangement
has now reached the breaking point.
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- INTERNATIONAL CURRENCY RELATIONS, NOT MONEY SUPPLY, ARE
THE KEY
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- Ms. Ellen Brown, who apparently supports the doctrines
of the social credit movement of the 1930s, has recently argued that deflation
is now on the agenda, and that hyperinflation can be ruled out. She bases
this analysis on the fact that the private credit markets in this country
have largely collapsed, and on the contention that the M1 and M2 money
parameters have either declined or increased only slightly. But all of
this is beside the point. The Federal Reserve and the Treasury have so
far provided almost $13 trillion of new loans to banks, insurance companies,
credit card companies, and other purely financial institutions. This is
being done in an effort to bailout the $1.5 quadrillion world derivatives
bubble, of which something like two thirds or more, meaning one quadrillion
dollars, can be located inside the dollar zone. The world depression started
when this derivatives bubble went into reverse leverage, meaning that super
losses instead of super profits were generated at the apex of the speculative
pyramid, as seen in the case of $3 trillion AIG hedge fund located in London.
The Obama regime is engaged in an hysterical attempt to restart derivatives
production in the form of securitization, i.e. the creation of more and
better asset backed securities derivatives. At the same time, the Obama
regime has cynically and deliberately driven the Detroit automakers into
bankruptcy, destroying hundreds of thousands of the few remaining industrial
jobs here in the United States. This means that US industrial production
continues in drastic decline. The mere mention of production reminds us
that the assorted Austrian, Chicago, and social credit schools are predominantly
or exclusively concerned with money and banking, and pay little or no attention
to industrial, agricultural, and infrastructural production, meaning of
course that they neglect the creation of those tangible physical use values,
capital goods, and related forms of real wealth upon which human existence
depends. With bailouts increasing and all forms of commodity production
declining, we have the classic situation of far too much money chasing
too few goods. Internal pressure towards hyperinflation comes from the
fact that the bailout and public debt lending, on top of the bloated, fictitious,
and exponentially growing mass of kited derivatives, are all charges which
must be added to the prices of commodity production. Add this to the more
important factor of looming dollar panic in the international exchanges,
and the preponderance of the evidence points towards hyperinflation. Helicopter
Ben Bernanke got his name from his famous recipe of throwing bales of dollars
out of helicopters onto the lawns of bankers to stimulate the economy out
of a depression, and this reminds us that the profile of the Anglo-American
financial leadership from Gordon Brown, Alistair Darling, and Mervyn King
to Summers, Geithner, and Bernanke is decidedly hyperinflationary. Ms.
Brown's belief that hyperinflation is impossible is therefore mistaken.
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- The German 1923 hyperinflation was generated internationally,
not within Germany, as a campaign of economic warfare by Britain and France
against theior defeated rival. Germany had signed the Rapallo agreements
with Soviet Russia, creating an economic combination which was more than
a match for the Anglo-French. To abort the potential of Rapallo by creating
chaos in the German economy, the Anglo-French systematically destroyed
the value of the German Reichsmark on the international exchanges, taking
advantage of the Versailles reparations system and the French occupation
of the industrialized Ruhr area. The mark went down every day when the
London exchange rate was announced. Today, it is the enormous international
dollar overhang which threatens to annihilate the US greenback.
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- The one way deflation might actually come about is if
someone like the self-professed Austrian school ideologue Ron Paul were
to take power. Ron Paul's "libertarian" alternative to Obama's
continued bailouts of Wall Street is evidently an immediate deflationary
crash, which he asserts will be followed by an automatic recovery. Ron
Paul is a modern representative of the so-called liquidationist school
to which 1920s Treasury Secretary Andrew Mellon belonged. Mellon demanded
the liquidation of stocks, bonds, real estate, and labor. German Chancellor
Heinrich Brüning, another liquidationist, savagely cut German unemployment
benefits (Ron Paul's "nanny state") at the height of the Depression,
helping to bring on the debacle of January 1933. Liquidationists tend
to be people who have money and who believe they will continue to have
money even after an all-out crash, when they will be able to buy up distressed
assets and desperate unemployed workers for rock-bottom prices and cash
in. But liquidationism obviously cannot be a solution to depression of
the entire society.
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- The recent meetings of the leaders of the expanded G-8
countries in L'Aquila, Italy were marked by a growing awareness that the
US dollar, because of the criminally irresponsible policies of the Wall
Street financiers who have dominated the Bush and Obama administrations,
can no longer play the role of the single world reserve currency. Russian
President Medvedev showed off a sort of future world coin to try to prod
the Obama regime in the direction of serious world monetary reform, which
is of course the urgent task before everyone. Naturally, finance oligarchs
like Summers, Geithner, and Bernanke want to continue to play the role
of world currency dictators, and not be forced to negotiate the end of
Anglo-American hegemonism. The world needs to go towards a new pro-growth
world monetary system in which the euro, the yen, the dollar, the ruble,
the Chinese currency, a possible Latin American monetary unit, and a possible
Arab monetary unit would all be included. It will be important to make
the transition toward such a new system as orderly as possible, since a
catastrophic collapse of the dollar in the short term would be to no one's
advantage, and would rather represent a sure path to universal ruin. World
economic growth rates under the 1944 to 1971 Bretton Woods system were
the highest in recorded history before or since. This was accomplished
through statism and dirigism in the form of narrow bands of isolation among
the currencies, combined with gold settlements of surpluses and deficits
among the nations, which provided an indispensable reality principle to
restrain the hyperinflationary tendencies of the Anglo-Americans. The
new world monetary system should include the abolition of the International
Monetary Fund and the World Bank in their current forms, since these institutions
have strangled the economic progress of the developing sector. Rather,
the goal of the new monetary system should be to restart the export of
high technology capital goods of the most modern type from Europe, Japan,
and the United States towards the impoverished countries of Africa, South
Asia, and certain parts of Latin America.
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- THE FEDERAL GOVERNMENT SHOULD STOP BORROWING AND START
LENDING
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- Here in the United States, we need to wipe out the derivatives
bubble with the help of a 1% Tobin tax or securities transfer tax, on all
speculative financial transactions, including futures, options, stocks,
bonds, commodities, foreign exchange, and so forth. A California Tobin
tax would solve the state budget crisis. The top 16 Wall St. banks are
zombie institutions that need to be seized and liquidated under Chapter
7 bankruptcy at once, with all of their derivatives going into the shredder.
Foreclosures on homes, farms, and businesses should be banned outright
for five years or for the duration of the depression, which ever lasts
longer. To provide a credit supply, the Federal Reserve should be seized
and nationalized, and used as a vehicle to issue 0% Federal credit for
productive activities only, not for speculation. To revive credit demand,
state and local governments could then take out 0% Federal loans for such
long overdue projects as the construction of 1,000 hospitals, the building
of 50,000 miles of modern maglev rail systems, and 100 fourth-generation,
high temperature, pebble bed nuclear reactors, plus the rebuilding of water
systems and the interstate highway network. Idled auto plants should be
reconverted for these purposes. Science drivers in the fields of space
exploration and colonization, high energy physics, and biomedical research
should also be fully funded in this way to provide technological modernization.
The social safety net needs to be expanded and developed, with larger
Social Security pensions for a generation whose 401(k)s and IRAs have been
largely destroyed, along with increased Medicare and Medicaid benefits
for those whose insurance companies are insolvent, like AIG and The Hartford,
which have been devastated by derivatives speculation. These are quite
simply the requirements for the maintenance of human civilization in this
part of the world. Until measures like these are carried out, the United
States and the world will continue to sink deeper into the bottomless pit
of economic depression.
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