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This ain’t your mama’s economy! February 1, 2014

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A new Civil War…Mixed with “REVOLUTION” April 10, 2010

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As nations of the world are thrown into a debt crisis, the likes of which have never been seen before, harsh fiscal ‘austerity’ measures will be undertaken in a flawed attempt to service the debts. The result will be the elimination of the middle class. When the middle class is absorbed into the labour class – the lower class – and lose their social, political, and economic foundations, they will riot, rebel, and revolt.

Ratings Agency Predicts Civil Unrest

Moody’s is a major ratings agency, which performs financial research and analysis on governments and commercial entities and ranks the credit-worthiness of borrowers. On March 15, Moody’s warned that the US, the UK, Germany, France, and Spain “are all at risk of soaring debt costs and will have to implement austerity plans that threaten ‘social cohesion’.” Further, Moody’s warned that such ‘austerity’ measures increase the potential for ‘social unrest’:

“Growth alone will not resolve an increasingly complicated debt equation. Preserving debt affordability at levels consistent with AAA ratings will invariably require fiscal adjustments of a magnitude that, in some cases, will test social cohesion,” said Pierre Cailleteau, the chief author.

“We are not talking about revolution, but the severity of the crisis will force governments to make painful choices that expose weaknesses in society,” he said.[1]

In other words, due to the massive debt levels of western nations taken on to save the banks from the crisis they caused, the people must now pay through a reduction of their standards of living. Naturally, social unrest would follow.

This has not been the first or only warning of “social unrest” in the west, and it certainly won’t be the last.

The Economic Crisis and Civil Unrest

At the onset of the economic crisis, these warnings were numerous. While many will claim that since we have moved on since the fall of 2008, these warnings are no longer valid. However, considering that the western world is on the verge of a far greater economic crisis that will spread over the next few years, from Greece to America, a great global debt depression, these warnings should be reviewed with an eye on the near future.

In December of 2008, in the midst of the worst period of the crisis of 2008, the IMF issued a warning to government’s of the west to “step up action to stem the global economic crisis or risk delaying a recovery and sparking violent unrest on the streets.”[2] However, governments did not stem or stop the economic crisis, they simply delayed the eventual and inevitable crisis to come, the debt crisis. In fact, the actions governments took to “stem” the economic crisis, or delay it, more accurately, have, in actuality, exacerbated the compound effects that the crisis will ultimately have. In short, bailing out the banks has created a condition in which an inevitable debt crisis will become far greater in scope and devastation than had they simply allowed the banks to fail.

Even the Bank for International Settlements (BIS), the most prestigious financial institution in the world – the central bank to the world’s central banks – has warned that the bailouts have put the global economy in potentially far greater peril. The BIS warned that, “The scope and magnitude of the bank rescue packages also meant that significant risks had been transferred onto government balance sheets.”[3]

The head of the IMF warned that, “violent protests could break out in countries worldwide if the financial system was not restructured to benefit everyone rather than a small elite.”[4] However, he is disingenuous in his statements, as he and the institution he represents are key players in that “small elite” that benefit from the global financial system; this is the very system he serves.

In late December of 2008, “A U.S. Army War College report warn[ed] an economic crisis in the United States could lead to massive civil unrest and the need to call on the military to restore order.” The report stated:

Widespread civil violence inside the United States would force the defense establishment to reorient priorities … to defend basic domestic order and human security.[5]

Further revealed in the news release was the information that, “Pentagon officials said as many as 20,000 Soldiers under the U.S. Northern Command (NORTHCOM) will be trained within the next three years to work with civilian law enforcement in homeland security.”[6]

Europe in Social Crisis

In January of 2009, it was reported that Eastern Europe was expected to experience a “dangerous popular backlash on the streets” over the spring in response to the economic crisis:

Hit increasingly hard by the financial crisis, countries such as Bulgaria, Romania and the Baltic states face deep political destabilisation and social strife, as well as an increase in racial tension.

Last week protesters were tear-gassed as they threw rocks at police outside parliament in Vilnius, capital of Lithuania, in a protest against an austerity package including tax rises and benefit cuts.[7]

In January of 2009, Latvia experienced the largest protests since the mass rallies against Soviet rule in the late 1980s, with the protests eventually turning into riots. Similar “outbursts of civil unrest” spread across the “periphery of Europe.”[8]

This should be taken as a much larger warning, as the nations of Eastern Europe are forced into fiscal ‘austerity’ measures before they spread through the western world. Just as throughout the 1980s and the 1990s, countries of the ‘global south’, which signed Structural Adjustment Programs (SAPs) with the IMF and World Bank, were forced to undertake neoliberal reforms and harsh fiscal austerity measures. The people of these nations rioted and rebelled, in what was cynically referred to as “IMF riots”. What our nations have done abroad, in the name of ‘aid’ but in the intent of empire, is now coming home. The west will undergo its very own “IMF riots”.

The fears of civil unrest, however, were not confined simply to the periphery of Europe. In January of 2009, a massive French strike was taking place, as “teachers, television employees, postal workers, students and masses of other public-sector workers” were expressing discontent with the handling of the economic crisis; as “A depression triggered in America is being played out in Europe with increasing violence, and other forms of social unrest are spreading.”[9]

By late January, France was “paralysed by a wave of strike action, the boulevards of Paris resembling a debris-strewn battlefield.” Yet, the ‘credit crunch’ had hit harder in Eastern Europe and the civil unrest was greater, as these countries had abandoned Communism some twenty years prior only to be crushed under the “free market” of Capitalism, leading many to feel betrayed: “Europe’s time of troubles is gathering depth and scale. Governments are trembling. Revolt is in the air.”[10]

Olivier Besancenot, the leader of France’s extreme left “is hoping the strike will be the first step towards another French revolution as the recession bites and protests multiply across Europe’s second largest economy.” He told the Financial Times that, “We want the established powers to be blown apart,” and that, “We are going to reinvent and re-establish the anticapitalist project.”[11]

In January of 2009, Iceland’s government collapsed due to the pressures from the economic crisis, and amidst a storm of Icelanders protesting in anger against the political class. As the Times reported, “it is a sign of things to come: a new age of rebellion.” An economist at the London School of Economics warned that we could expect large-scale civil unrest beginning in March to May of 2009:

It will be caused by the rise of general awareness throughout Europe, America and Asia that hundreds of millions of people in rich and poor countries are experiencing rapidly falling consumption standards; that the crisis is getting worse not better; and that it has escaped the control of public authorities, national and international.[12]

In February of 2009, the Guardian reported that police in Britain were preparing for a “summer of rage” as “victims of the economic downturn take to the streets to demonstrate against financial institutions.” Police officials warned “that middle-class individuals who would never have considered joining demonstrations may now seek to vent their anger through protests this year.”[13]

In March, it was reported that “top secret contingency plans” had been drawn up to counter the threat posed by a possible “summer of discontent,” which “has led to the ­extraordinary step of the Army being put on ­standby.” The report revealed that, “What worries emergency planners most is that the middle classes, now struggling to cope with unemployment and repossessions, may take to the streets with the disenfranchised.”[14]

As the G20 met in London in early April 2009, mass protests took place, resulting in violence, “with a band of demonstrators close to the Bank of England storming a Royal Bank of Scotland branch, and baton-wielding police charging a sit-down protest by students.” While the majority of protests were peaceful, “some bloody skirmishes broke out as police tried to keep thousands of people in containment pens surrounding the Bank of England.”[15] Protests further broke out into riots as a Royal Bank of Scotland office was looted.[16] The following day, a man collapsed and died in central London during the protests shortly after having been assaulted by riot police.[17]

On May 1, 2009, major protests and riots broke out in Germany, Greece, Turkey, France and Austria, fuelled by economic tensions:

Police in Berlin arrested 57 people while around 50 officers were hurt as young demonstrators threw bottles and rocks and set fire to cars and rubbish bins. There were also clashes in Hamburg, where anti-capitalist protesters attacked a bank.

In Turkey, masked protesters threw stones and petrol bombs at police, smashing banks and supermarket windows in its biggest city, Istanbul. Security forces fired tear gas and water cannon at hundreds of rioters and more than a hundred were arrested with dozens more hurt. There were also scattered skirmishes with police in the capital, Ankara, where 150,000 people marched.[18]

There were further protests and riots that broke out in Russia, Italy, Spain, and some politicians were even discussing the threat of revolution.[19]

As a debt crisis began spreading throughout Europe in Greece, Portugal, and Spain, social unrest followed suit. Riots and protests increasingly took place in Greece, showing signs of things to come to all other western nations, which will sooner or later have to face the harsh reality of their odious debts.[20]

Is Civil Unrest Coming to America?

In February of 2009, Obama’s intelligence chief, Dennis Blair, the Director of National Intelligence, told the Senate Intelligence Committee that the economic crisis has become the greatest threat to U.S. national security:

I’d like to begin with the global economic crisis, because it already looms as the most serious one in decades, if not in centuries … Economic crises increase the risk of regime-threatening instability if they are prolonged for a one- or two-year period… And instability can loosen the fragile hold that many developing countries have on law and order, which can spill out in dangerous ways into the international community.[21]

What this means, is that economic crises (“if they are prolonged for a one or two year period”) pose a major threat to the established powers – the governing and economic powers – in the form of social unrest and rebellion (“regime-threatening instability”). The colonial possessions – Africa, South America, and Asia – will experience the worst of the economic conditions, which “can loosen the fragile hold that many developing countries have.” This can then come back to the western nations and imperial powers themselves, as the riots and rebellion will spread home, but also as they may lose control of their colonial possessions – eliminating western elites from a position of power internationally, and acquiescence domestically: The rebellion and discontent in the ‘Third World’ “can spill out in dangerous ways into the international community.”

In the same month, the highest-ranking general in the United States, “Adm. Michael Mullen, chairman of the Joint Chiefs of Staff, ranks the financial crisis as a higher priority and greater risk to security than current wars in Iraq and Afghanistan.” He explained, “It’s a global crisis. And as that impacts security issues, or feeds greater instability, I think it will impact on our national security in ways that we quite haven’t figured out yet.”[22] Rest assured, they’ve figured it out, but they don’t want to tell you.

Again, in the same month, the head of the World Trade Organization (WTO) warned that, “The global economic crisis could trigger political unrest equal to that seen during the 1930s.” He elaborated, “The crisis today is spreading even faster (than the Great Depression) and affects more countries at the same time.”[23]

In February of 2009, renowned economic historian and Harvard professor, Niall Ferguson, predicted a “prolonged financial hardship, even civil war, before the ‘Great Recession’ ends,” and that, “The global crisis is far from over, [it] has only just begun, and Canada is no exception,” he said while at a speaking event in Canada. He explained, “Policy makers and forecasters who see a recovery next year are probably lying to boost public confidence,” while, “the crisis will eventually provoke political conflict.” He further explained:

There will be blood, in the sense that a crisis of this magnitude is bound to increase political as well as economic [conflict]. It is bound to destabilize some countries. It will cause civil wars to break out, that have been dormant. It will topple governments that were moderate and bring in governments that are extreme. These things are pretty predictable.[24]

Even in May of 2009, the head of the World Bank warned that, “the global economic crisis could lead to serious social upheaval,” as “there is a risk of a serious human and social crisis with very serious political implications.”[25]

Zbigniew Brzezinski, former National Security Adviser, co-founder of the Trilateral Commission and a key architect of ‘globalization’ warned in February of 2009 that, “There’s going to be growing conflict between the classes and if people are unemployed and really hurting, hell, there could be even riots!”[26]

In early May 2009, the New York Times reported on the results of a major poll, suggesting, “A solid majority of people in the major Western democracies expect a rise in political extremism in their countries as a result of the economic crisis.” Of those surveyed, 53% in Italy and the United States said they expected extremism is “certain to happen” or “probable” in the next three years. That percentage increases to 65% in Britain and Germany, and is at 60% in France and Spain.[27]

Over the summer of 2009, the major nations of the west and their corporate media machines promoted and propagandized the notion of an ‘economic recovery’, allowing dissent to quell, spending to increase, stock market speculation to accelerate, and people’s fears and concerns to subside. It was a massive organized propaganda effort, and it had major successes for a while. However, in the New Year, this illusion is largely being derided for what it is, a fantasy. With the slow but steady erosion of this economic illusion, fears of riots, rebellion and revolution return.

On March 1, 2010, Nation of Islam leader Louis Farrakhan warned President Obama about civil unrest, saying:

When we can’t feed our families what do you tell us? Thou shalt not steal? When survival is the first law of nature? What are you going to do when black people and poor people erupt in the streets of America? It’s coming! Will you use the federal troops, Mr. President, against the poor?[28]

A March 8 article in the Wall Street Journal speculated about the discontent among the American people in regards to the economy, suggesting that it is “likely” that the economy has “bottomed” and that it will simply “trudge along” until November. However, the author suggested that given all the growing discontent in a variety of areas, it wouldn’t be surprising to see some civil unrest:

Now, contrary to what you may read in the New York Times or the Huffington Post, the ugliness could come from anywhere – the Left, the Center or the Right. Almost everyone in America thinks they’ve been betrayed.[29]

Clearly, the possibility and inevitability of riots in the United States, and in fact in many western nations becomes increasingly apparent. The middle classes will likely become the most angered and mobilized populace, having their social foundations pulled out from under them, and with that, they are overcome with a ‘failure of expectations’ for their political and economic clout. With no social foundations on which to stand, a class cannot reach high in the political and economic ladder, nationally or internationally.

As documented in Part 2 of this series, the middle class, for the past few decades, has been a class living on debt, consuming on debt, surviving on debt and existing only in theory. As nations collapse into a global debt crisis, the middle classes and the college students will be plunged into a world which they have seldom known: poverty. As documented in Part 1 of this series, the global social systems of poverty, race and war are inextricably interrelated and dependent on one another. As the middle class is absorbed into the global poverty class – the labour class – our nations in the west vastly expand their hegemony over the world’s resources and key strategic points, rapidly accelerating military involvement in every region of the world. As war expands, poverty grows, and racial issues are exacerbated; thus, the government asserts a totalitarian system of control.

Will the Middle Class Become Revolutionary?

In 2007, a British Defence Ministry report was released assessing global trends in the world over the next 30 years. The report stated assuredly that, “During the next 30 years, every aspect of human life will change at an unprecedented rate, throwing up new features, challenges and opportunities.”[30] In regards to ‘globalization,’ the report states:

A key feature of globalization will be the continuing internationalization of markets for goods, services and labour, which will integrate geographically dispersed sets of customers and suppliers.  This will be an engine for accelerating economic growth, but will also be a source of risk, as local markets become increasingly exposed to destabilizing fluctuations in the wider global economy… Also, there will continue to be winners and losers in a global economy led by market forces, especially so in the field of labour, which will be subject to particularly ruthless laws of supply and demand.[31]

Another major focus of the report is in the area of “Global Inequality,” of which the report states, over the next 30 years:

[T]he gap between rich and poor will probably increase and absolute poverty will remain a global challenge… Disparities in wealth and advantage will therefore become more obvious, with their associated grievances and resentments, even among the growing numbers of people who are likely to be materially more prosperous than their parents and grandparents.  Absolute poverty and comparative disadvantage will fuel perceptions of injustice among those whose expectations are not met, increasing tension and instability, both within and between societies and resulting in expressions of violence such as disorder, criminality, terrorism and insurgency. They may also lead to the resurgence of not only anti-capitalist ideologies, possibly linked to religious, anarchist or nihilist movements, but also to populism and the revival of Marxism.[32]

The report states quite emphatically that there is a great potential for a revolution coming from the middle class:

The middle classes could become a revolutionary class, taking the role envisaged for the proletariat by Marx.  The globalization of labour markets and reducing levels of national welfare provision and employment could reduce peoples’ attachment to particular states.  The growing gap between themselves and a small number of highly visible super-rich individuals might fuel disillusion with meritocracy, while the growing urban under-classes are likely to pose an increasing threat to social order and stability, as the burden of acquired debt and the failure of pension provision begins to bite.  Faced by these twin challenges, the world’s middle-classes might unite, using access to knowledge, resources and skills to shape transnational processes in their own class interest.[33]

Is Revolution the Right Way Forward?

As the world has already experienced the greatest transfer of wealth in human history, the greatest social transformation in world history is soon to follow. The middle classes of the west, long the foundations upon which the consumer capitalist system was based, are about to be radically reorganized and integrated into the global labour class. As this process commences and accelerates, the middle classes will begin to protest, riot, rebel, and possibly revolt.

We must ask ourselves: Is this the right way forward?

History is nothing but an example that when revolution takes place, it can quickly and effectively be hijacked by militant and extremist elements, often resulting in a situation worse than that prior to the revolution. Often, these elements themselves are co-opted by the ruling elite, ensuring that whatever regime rises in the ashes of the old, no matter how militant or radical, it will continue to serve and expand the entrenched interests of elites. This is the worst-case scenario of revolution, and with history as a guide, it is also a common occurrence. To understand the nature of co-opted revolutions and entrenched elites, one need only look at the revolutions in France and Russia.[34]

While the righteous indignation and anger of the western middle class population, and in fact, the global population as a whole, is entirely justified, there is an extreme danger in the possibilities of how such a revolutionary class may act. It is imperative to not take violent action, as it would merely be playing directly into the hands of states and global institutions that have been preparing for this eventuality for some time. Nations are becoming ‘Homeland Security States’, setting up surveillance societies, increasing the role of the military in domestic issues and policing, expanding the police state apparatus and militarizing society in general. Democracy is in decline; it is a dying idea. Nation states are increasingly tossing aside even the remaining vestiges of a democratic façade and preparing for a new totalitarianism to arise, in conjunction with the rise of a ‘new capitalism’.

Violent action and riots by the people of these nations will only result in a harsh and brutal closing of society, as the state clamps down on the people and installs an oppressive form of governance. This is a trend and process of which the people should not help speed along. Violent acts will result in violent oppression. While peaceful opposition may itself be oppressed and even violently repressed by the state apparatus, the notion of a clamp down on peaceful protesters is likely to increase dissatisfaction with the ruling powers, increase support for the protesters, and may ultimately speed up the process of a truly new change in governance. It’s difficult to demonize peaceful action.

While people will surely be in the streets, seeking to expand their social, political, and economic rights, we must undertake as a global society, a rapid and extensive expansion of our mental and intellectual rights and responsibilities. We cannot take to the streets without taking on the challenges of our minds. This cannot alone be a physical change in governance that people seek – not simply a political revolution – this must be coupled and driven by an intellectual revolution. What is required is a new Enlightenment, a new Renaissance. While the Enlightenment and Renaissance were western movements of thinking and social change, the new global Enlightenment must be a truly transnational and worldwide revolution in thinking.

Western Civilization has failed. It will continue to insist upon its own dominance, but it is a failure in regards to addressing the interests of all human civilization. Elites like to think that they are in absolute control and are all-powerful; this is not the case. For every action, there is an equal and opposite reaction. Take, for example, the integration of North America into a regional bloc like that of the European Union, an entirely elite-driven project of which the people largely know little or nothing about. Elites seek to force the people of this region to increasingly identify themselves as ‘North American’, just as elites in Europe increasingly push for a ‘European’ identity as opposed to a national identity. While the intended purpose of this social reorganization is to more easily control people, it has the effect of uniting some of these people in opposition to these elite-driven projects. Thus, those they seek to unite in order to control, are then united in opposition to their very control.

As the ‘globalization project’ of constructing a ‘new world order’ expands, built upon the concepts of global governance, elites will inadvertently unite the people of the world in opposition to their power-project. This is the intellectual well that must be tapped as soon as possible. Ideas for a truly new world, a true human ‘civilization’ – a “Humane Civilization” – must be constructed from ideas originating in all regions of the world, from all peoples, of all religions, races, ethnicities, social groups and standings. If we are to make human civilization work, it must work for all of humanity.

This will require a global “revolution in thinking”, which must precede any direct political action. The global social, political, and economic system must be deconstructed and built anew. The people of the world do not want war, it is the leaders – the powerful – who decide to go to war, and they are never the ones to fight them. War is a crime against humanity, a crime of poverty, of discrimination, of hate. The social, political and economic foundations of war must be dismantled. Socially constructed divides between people – such as race and ethnicity – must be dismantled and done away with. All people must be treated as people; racial and gender inequality is a crime against humanity itself.

Poverty is the greatest crime against humanity the world has ever known. Any society that permits such gross inequalities and absolute poverty, which calls itself ‘civilized’, is only an aberration of the word, itself. As Dr. Martin Luther King, Jr. stated:

I am convinced that if we are to get on the right side of the world revolution, we as a nation must undergo a radical revolution of values. We must rapidly begin the shift from a “thing-oriented” society to a “person-oriented” society. When machines and computers, profit motives and property rights are considered more important than people, the giant triplets of racism, materialism, and militarism are incapable of being conquered.[35]

Andrew Gavin Marshall writer for Global Resaerch

WATCHOUT PEOPLE ! THE BANKERS ARE LURKING… February 23, 2010

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The people have been lulled into a false sense of safety under the rouse of a perceived economic recovery. Unfortunately, what the majority of people think does not make it so, especially when the people making the key decisions think and act to the contrary. The sovereign debt crises that have been unfolding in the past couple years and more recently in Greece, are canaries in the coal mine for the rest of Western civilization. The crisis threatens to spread to Spain, Portugal and Ireland; like dominoes, one country after another will collapse into a debt and currency crisis, all the way to America.

In October 2008, the mainstream media and politicians of the Western world were warning of an impending depression if actions were not taken to quickly prevent this. The problem was that this crisis had been a long-time coming, and whats worse, is that the actions governments took did not address any of the core, systemic issues and problems with the global economy; they merely set out to save the banking industry from collapse. To do this, governments around the world implemented massive stimulus and bailout packages, plunging their countries deeper into debt to save the banks from themselves, while charging it to people of the world.

Then an uproar of stock market speculation followed, as money was pumped into the stocks, but not the real economy. This recovery has been nothing but a complete and utter illusion, and within the next two years, the illusion will likely come to a complete collapse.

The governments gave the banks a blank check, charged it to the public, and now its time to pay; through drastic tax increases, social spending cuts, privatization of state industries and services, dismantling of any protective tariffs and trade regulations, and raising interest rates. The effect that this will have is to rapidly accelerate, both in the speed and volume, the unemployment rate, globally. The stock market would crash to record lows, where governments would be forced to freeze them altogether.

When the crisis is over, the middle classes of the western world will have been liquidated of their economic, political and social status. The global economy will have gone through the greatest consolidation of industry and banking in world history leading to a system in which only a few corporations and banks control the global economy and its resources; governments will have lost that right. The people of the western world will be treated by the financial oligarchs as they have treated the global South and in particular, Africa; they will remove our social structures and foundations so that we become entirely subservient to their dominance over the economic and political structures of our society.

This is where we stand today, and is the road on which we travel.

The western world has been plundered into poverty, a process long underway, but with the unfolding of the crisis, will be rapidly accelerated. As our societies collapse in on themselves, the governments will protect the banks and multinationals. When the people go out into the streets, as they invariably do and will, the government will not come to their aid, but will come with police and military forces to crush the protests and oppress the people. The social foundations will collapse with the economy, and the state will clamp down to prevent the people from constructing a new one.

The road to recovery is far from here. When the crisis has come to an end, the world we know will have changed dramatically. No one ever grows up in the world they were born into; everything is always changing. Now is no exception. The only difference is, that we are about to go through the most rapid changes the world has seen thus far.

Americans have no idea ! November 23, 2008

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“The Winter of 2008-2009 will prove to be the winter of global economic discontent that marks the rejection of the flawed ideology that unregulated global financial markets promote financial innovation, market efficiency, unhampered growth and endless prosperity while mitigating risk by spreading it system wide.” Economists Paul Davidson and Henry C.K. Liu “Open Letter to World Leaders attending the November 15 White House Summit on Financial Markets and the World Economy”

The global economy is being sucked into a black hole and most why. The whole problem can be narrowed down to two words; “structured finance”.I’ll explain in detail…interested, comment on what you just read.I really would like to hear from those interested to know what’s in the tank for americans for 2008-2009.

Global financial Meltdown in 90 days October 30, 2008

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In this 28th edition of the GEAB, LEAP/E2020 has decided to launch a new global systemic crisis alert. Indeed our researchers anticipate that, before next summer 2009, the US government will default and be prevented to pay back its creditors (holders of US Treasury Bonds, of Fanny May and Freddy Mac shares, etc.).
Of course such a bankruptcy will provoke some very negative outcome for all USD-denominated asset holders. According to our team, the period that will then begin should be conducive to the setting up of a « new Dollar » to remedy the problem of default and of induced massive capital drain from the US. The process will result from the following five factors studied in detail further in this GEAB:

• The recent upward trend of the US Dollar is a direct and temporary consequence of the collapse of stock markets

• Thanks to its recent “political baptism”, the Euro becomes a credible “safe haven” value and therefore provides a  “crisis” alternative to the US dollar

• The US public debt is now swelling uncontrollably

• The ongoing collapse of US real economy prevents from finding an alternative solution to the country’s defaulting

• “Strong inflation or hyper-inflation in the US in 2009?”, that is the only question.

Studying the case of Iceland can give an idea of the upcoming stages of the crisis. That is what our team has been doing ever since the beginning of 2006. This country indeed provides a good illustration of what the US and the UK should be expecting. It can be considered – and that is what most Icelandic people do today – that the collapse of Iceland’s financial system came from the fact that it was disproportionate to the size of the country’s economy.


 
Inflation in Iceland – 2003-2008 – Source Central Bank of Iceland
Financially speaking, Iceland thought of itself as UK (1), in the same way as, financially speaking, UK thought of itself as the US and the US thought of themselves as the entire world. It is therefore quite useful to study the case of Iceland (2) in order to understand the course of events that London and Washington will follow in the next 12 months (3).

What we see today is a double historical phenomenon:

. on the one hand, since September 2008 (as anticipated in the February 2008 edition of the GEAB – N°22), the whole planet has become aware that a global systemic crisis is unfolding, characterised by the collapse of the US financial system and its contagion to the rest of the world.

. on the other hand, a growing number of global players are beginning to act on their own, in reaction to the ineffectiveness of the measures advocated or implemented by the US though they are the centre of this global financial system. What happened with this first Euroland (or Eurozone summit which took place on Sunday, October 12, 2008, and whose decisions, by their scope (close to 1,700-billion EUR) and their nature (4), resulted in a regain of confidence on financial markets from all over the world, is typical of the « post-September 2008 world ».


 

Map of deposit insurances in the EU – Source AFP – 10/09/2008
Indeed there is such a thing as a « post-September 2008 world ». According to our team, it is now clear that this past month will remain in the history books of the whole planet as the month when the global systemic crisis started; even if what is really at play is its decanting phase, the last of a series of four phases of the crisis described by LEAP/E2020 as early as June 2006 (5). As always when it comes to large human groups, the perception of change among the general public only occurs when change is already far on its way.

As a matter of fact, September 2008 is the month when the « financial detonator » of the global systemic crisis exploded. According to LEAP/E2020 indeed, this second semester 2008 is the time when « the world dives into the heart of the impact phase of the global systemic crisis » (6); which means for our researchers that, at the end of this semester, the world enters the « decanting phase » of the crisis, i.e. a phase when the outcome of the shock settles down. This phase is the longest (from 3 to 10 years, according to the country) and the one affecting the largest number of people and countries. It is also the phase when the components of new global equilibriums will start to appear, two of them being already described by LEAP/E2020 in this 28th edition of the GEAB in the graphic illustrations below (7).

Therefore, as we repeated it on and on since 2006, this crisis is far more important, in terms of impact and outcome, than the 1929 crisis. Historically, we are the very first players, witnesses and/or victims of a crisis affecting the whole planet, in a situation of unprecedented interdependence of countries (resulting from twenty years of globalisation) and people (the level of urbanization – and related dependence for all the basic needs – water, food, energy… – is also unprecedented). However, the 1929 experience and all its dreadful outcome, is still vivid enough in our collective memories to hope, if citizens are vigilant and leaders clear-sighted, that we will be spared from a « remake » leading to major conflagration(s).

Europe, Russia, China, Japan,… are certainly the collective players who can make sure that the unfolding implosion of today’s world power, i.e. the United States, does not drive the planet into a disaster. Indeed, except for Gorbachev’s USSR, empires have a tendency to strive in vain to reverse the course of History when they realize their might is escaping them. It then belongs to partner-powers to channel the process peacefully, as well as it belongs to the citizens and rulers of the concerned country to be clear-sighted and face the difficult times they are about to cross.


 

 
Total borrowings of US Depository Institutions from the US Federal Reserve (01/08/1986 – 10/09/2008) – Source Federal Reserve Bank of St Louis
The « emergency repair » of international financial channels, achieved by the countries of the Eurozone at the beginning of this month of October 2008 (8), should not hide three fundamental facts:

• The “repair” was necessary to curb the panic that threatened to squander the entire global financial system in just a few weeks, but what it heals temporarily is merely a symptom. It has just bought a bit of time, two to three months maximum, as the global recession and the collapse of the US economy (the table above shows the staggering increase of US banks’ borrowings from the Fed) will speed up and create new tensions in the economic, social and political fields, that must be anticipated and coped with as soon as next month (as soon as the “financial packages” have been implemented)

• The huge financial means allocated worldwide for « emergency rescues » of the global financial system, though they were necessary to put back in order the system of credit, are lost for the real economy when it is on the verge of facing a global recession

• The « emergency repair » results in further marginalization, and therefore weakening, for the United States, because it sets up processes that are contrary to those advocated by Washington for the allocation of the Hank Paulson’s and Ben Bernanke’s 700-billion USD TARP: bank recapitalisation by governments (a decision Hank Paulson has now come to follow) and interbank loan guarantees (in fact Euroland governments substitute to credit insurers, a mostly American industry at the centre of global finance since decades). These trends turn more and more decision-making relays and financial flows away from the United-States when because of the explosion of their public (9) and private debt they need them more than ever; not to mention pensions going up in smoke (10).

The last aspect shows how, in the coming months, solutions to the crisis and to its various sequences (financial, economic, social and political) will increasingly diverge: what is good for the rest of the world will not be good for the United States (11), and now, Euroland in the first place, the rest of the world seems determined to make its own choices.

The sudden shock that will result from the US defaulting in summer 2009 is partly due to this decoupling of decision-making processes of the world’s largest economies with regard to the US. It is predictable and can be dampened if global players start to anticipate it. As a matter of fact, it is one of the topics developed in this 28th edition of the GEAB: LEAP/E2020 hopes that the September shock has “educated” the world’s political, economic and financial policy-makers and made them understand that it is easier to act by anticipation than in a panic. It would be a pity if Euroland, Asia and oil-producing countries, as well as US citizens of course, discover one morning of summer 2009 that, after a long-week-end or bank-holiday in the US, their US T-Bonds and Dollars are only worth 10 percent of their value because a « new Dollar » has just been imposed (12).


 

Notes

(1) Iceland adopted 10 years ago all the principles of economic deregulation and « financieration » advocated and implemented in the US and UK. Reykjavik thus became some sort of a financial « Mini-Me » of London and Washington, in reference to the very Americano-British movie character Austin Powers. The three countries undertook to play the financial game of « the frog that wished to be as big as the ox

», in reference to a fable by Jean de la Fontaine with a very unhappy end for the frog.
(2) Icelandic stocks collapsed 76 percent after a few days suspension designed to « avoid » a panic! Source: MarketWatch

, 10/14/2008
(3) On this subject, let’s spend a few lines on the amount of the “financial package” announced by London, i.e. 640-billion EUR including 64-billion EUR to recapitalize banks and a further 320-billion EUR pay back those same banks’ debt (source: Financial Times, 10/09/2008). With an economy in freefall to the image of the real-estate market, with a soaring inflation, with capital-based pensions going up in smoke and a currency at the lowest,… apart from increasing the public debt and weakening even more the Sterling pound, it is difficult to imagine how the plan can « rescue » British banks. Contrary to Eurozone banks, the British financial system, exactly like its US counterpart, is at the centre of the crisis, not a collateral victim. Gordon Brown may well compare himself to Churchill and Roosevelt together (Source: Telegraph

, 10/14/2008), in his ignorance of History, he seems to forget that neither Churchill nor Roosevelt had already spent 10 years in their country’s governments when each of them had to cope with their « big crisis » (that goes for the US and the Bush administration – Paulson and Bernanke included – who all come from the problem and are certainly not part of the solution). Not to mention the fact that Churchill and Roosevelt organised summits such as Yalta or Tehran leaving the French and the Germans waiting at the door, while today it is him who waits at the door of the Euroland summit.
(4) Source: L’Express

, 10/13/2008
(5) Source: GEAB N°5

, May 15, 2006
(6) Source: GEAB N°26

, June 15, 2008
(7) LEAP/E2020 made a synthesis of its anticipations on the decanting phase of the crisis by means of a world map of the impact of the crisis based on the identification of 6 large groups of countries; and of an anticipatory schedule of the 4 financial, economic, social and political sequences over 2008-2013 for each of these regions.

(8) It is indeed the Eurozone which curbed the spiral of global panic. For weeks, the US and British initiatives followed one another without any effect. The eruption of a new collective player, the « Euroland summit », and the wide-ranging decisions it made, are a new and soothing phenomenon. It is for this very reason that Washington and London have systematically prevented such a summit from taking place ever since the Euro was launched, 6 years ago. A complete set of diplomatic gesticulation was required (preliminary meeting, pre-summit group photo,…) to make the British Prime Minister believe he was not set aside the process, when in fact there is no reason why he should take part in a Euroland Summit. In this edition of the GEAB, LEAP/E202020 comes back on the phenomenon and the long-term systemic consequences of this 1st Euroland Summit.

(9) The US financial rescue plan has already increased by 17,000 USD the debt owned by each US citizen. Source: CommodityOnline

, 10/06/2008
(10) It is indeed 2,000-billion USD of capital-based pensions which evaporated in the past few weeks in the US. Source: USAToday

, 10/08/2008
(11) At least in the short-term. Indeed our team is convinced that it is not bad at all for the American people in the medium- and long-term if the system currently prevailing in Washington and New-York is fundamentally reappraised. This system has thrust the country into dramatic problems among which dozens of millions of US citizens now struggle, as illustrated in this article by the New York Times

dated 10/11/2008.
(12) Even if it will be a minor-scale measure compared to the prospect of a US bankruptcy, those who think that it is time to invest again on financial markets may find useful to learn that the New York Stock Exchange has recently reviewed all its circuit-breaker thresholds as a result of ratings collapse. Source : NYSE/Euronext, 09/30/2008

 

 
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