In his speech, Trichet, president of the European Central Bank, acknowledges the role of the G20 in using the financial crisis to mandate developing countries’ “full integration into the institutions of global governance.” Since the enormous EU bailout of Greece, the article below from May makes even more sense now.
May 2, 2010
Secretive Group of International Bankers to form a World Government?
ECB President tells insiders that secretive group of international bankers — responsible to no nation state — will become the primary engine of world government.
In a speech before the elitist Council on Foreign Relations organization in New York earlier this week, President of the European Central Bank Jean-Claude Trichet called for the imposition of global governance to be bossed by the G20 and the corrupt Bank of International Settlements in the name of safeguarding the global economy.
In an address entitled “Global Governance Today,” Trichet proclaims how the elite need to impose “a set of rules, institutions, informal groupings and cooperation mechanisms that we call “global governance.”
During the course of the speech, Trichet uses the term “global governance” well over a dozen times, outlining how “global governance is of the essence” to avoid another financial crisis.
Section one of Trichet’s speech is entitled, “Why we need global governance,” and from then on he constantly invokes the economic downturn as a justification for empowering secretive, undemocratic and corrupt global institutions with the power to rule the world.
Highlights of Trichet’s speech can be viewed below via the official Council on Foreign Relations.
A full transcript of the speech was also carried by the Bank for International Settlements (BIS), an international organization of central banks that has constantly lobbied for a centralized global currency to replace that of nation states. Trichet praises the BIS as being “ahead of the curve” in dealing with the financial crisis during the speech.
- The primary outfit that will boss the institutions of global governance, according to Trichet, is the Global Economy Meeting (GEM), which regularly meets at the BIS headquarters in Basel.
- This group, states Trichet, “has become the prime group for global governance among central banks.” The GEM is basically a policy steering committee under the umbrella of the Bank for International Settlements.
- The BIS is a branch of the of the Bretton-Woods International Financial architecture and closely allied with the Bilderberg Group. It is controlled by an inner elite that represents all the world’s major central banking institutions. John Maynard Keynes, perhaps the most influential economist of all time, wanted it closed down, as it was used to launder money for the Nazis during World War II.
The bank wields power through its control of vast amounts of global currencies. The BIS controls no less than 7% of the world’s available foreign exchange funds, as well as owning 712 tons of gold bullion.
“By controlling foreign exchange currency, plus gold, the BIS can go a long way toward determining the economic conditions in any given country,” writes Doug Casey. “Remember that the next time Ben Bernanke or European Central Bank President Jean-Claude Trichet announces an interest rate hike. You can bet it didn’t happen without the concurrence of the BIS Board.”The BIS is basically a huge slush fund for global government through which secret transfers of wealth from citizens are surreptitiously handed to the IMF.
“For example, U.S. taxpayer monies can be passed through BIS to the IMF and from there anywhere. In essence, the BIS launders the money, since there is no specific accounting of where particular deposits came from and where they went,” writes Casey.The Bank of International Settlements is responsible to no national government whatsoever. Trichet’s acknowledgment that an offshoot of the corrupt BIS will boss the main engine global government is a startling revelation, and emphasizes once again that world government is inherently undemocratic and dictatorial in nature.
“The bank was a major player promoting the adoption of the euro as Europe’s common currency. There are rumors that its next project is persuading the U.S., Canada and Mexico to switch to a similar regional money, perhaps to be called the “amero,” and it’s logical to assume the bank’s ultimate goal is a single world currency. That would simplify transactions and really solidify the bank’s control of the planetary economy,” adds Casey.
The fact that Trichet unveiled this new approach in the march towards global governance before an audience of CFR insiders is fully appropriate.
The Council on Foreign Relations comprises of influential elitists and powerbrokers from all sectors of government, business, academia and the media. It is the public face of the more secretive Bilderberg Group. The CFR only recruits members sympathetic to its agenda for global government and the elimination of U.S. sovereignty.
The scope of the CFR’s mission was best encapsulated by former Deputy Secretary of State under Clinton and CFR luminary Strobe Talbott, who told Time Magazine in July 1992,
“In the next century, nations as we know it will be obsolete; all states will recognize a single, global authority. National sovereignty wasn’t such a great idea after all.”As we have emphasized, the global elite have already announced the birth of world government and who will run it. People expecting the UN to be at the helm have been distracted as the G20, alongside the BIS, was being empowered with the tools through which global governance is being coordinated.
In his speech, Trichet acknowledges the role of the G20 in using the financial crisis to mandate developing countries’ “full integration into the institutions of global governance.”
“The G20 has been effective in addressing the global crisis. We are now at the stage where this forum is making the transition from acting in a crisis resolution mode to contributing to crisis prevention,” said Trichet.In other words, the elite exploited the financial crisis in order to allow the G20 to pose as saviors and consequently empower itself to impose global governance regulations on nation states in the name of avoiding another economic crisis.
As EU President Herman Van Rompuy stated during his speech in Brussels, 2009 marked the first official year of world government powers being directly exercised to control the economies of nation states.
“2009 is also the first year of global governance, with the establishment of the G20 in the middle of the financial crisis. The climate conference in Copenhagen is another step towards the global management of our planet,” said Van Rompuy.
A global currency and “a global central bank would be a disaster,” says financial guru Bob Chapman, editor of the International Forecaster. “It means the acceptance of world slavery.” Chapman also pointed out that the present international monetary system was being deliberately destroyed precisely to bring about a global currency like the bancor. “It’s just not fiscal and monetary policy. It is every facet of your life that these elitists want to control.” And they’re moving rapidly toward that goal. In addition to printing money, the emerging global central bank and its affiliates are already usurping other powers traditionally exercised at the national level. CFR insider Jeffrey Garten calls for the new planetary central bank to be the lead regulator of all sorts of financial institutions, monitor risks, push national authorities to modify their policies, coordinate national stimulus programs, orchestrate a global-stimulus plan, force taxpayers around the world to bail out companies, and even act as a bankruptcy court. A lot of that is already coming into being, but as the new monetary order develops, the agenda will only accelerate. And as if all that wasn’t bad enough, there is no accountability for this newly empowered IMF. While the IMF has articles of association and some governance rules, the true power structure behind it is the G20, which is “completely unaccountable.” - Alex Newman, The Emerging Global Fed, The New American, September 16, 2010
The Associated Press
October 10, 2010
Global finance leaders failed Saturday to resolve deep differences that threaten the outbreak of a full-blown currency war.
Various nations are seeking to devalue their currencies as a way to boost exports and jobs during hard economic times. The concern is that such efforts could trigger a repeat of the trade wars that contributed to the Great Depression of the 1930s as country after country raises projectionist barriers to imported goods.
The International Monetary Fund wrapped up two days of talks with a communique that pledged to "deepen" its work in the area of currency movements, including conducting studies on the issue.
The communique essentially papered-over sharp differences on currency policies between China and the United States.
The Obama administration, facing November elections where high U.S. unemployment will be a top issue, has been ratcheting up pressure on China to move more quickly to allow its currency to rise in value against the dollar.
American manufacturers contend the Chinese yuan is undervalued by as much as 40 percent and this has cost millions of U.S. manufacturing jobs by making Chinese goods cheaper in the United States and U.S. products more expensive in China.
China has allowed its currency, the yuan, to rise in value by about 2.3 percent since announcing in June that it would introduce a more flexible exchange rate. Most of that increase has come in recent weeks after the Obama administration began taking a more hardline approach and the U.S. House passed tough legislation to impose economic sanctions on countries found to be manipulating their currencies.
Chinese officials continued to insist that their gradual approach to revaluing their currency was best, and that faster movements risked destabilizing the Chinese economy.
Various other nations, including Japan, Brazil and South Korea, also have taken steps to keep their currencies weaker in an effort to increase their exports. And in the United States, expectations of further monetary easing by the Federal Reserve have driven the dollar down significantly against the euro and other major currencies.
Egyptian Finance Minister Youssef Boutros-Ghali told reporters Saturday at a concluding news conference that there were "a number of points of friction" at the meetings. But he said it was a significant achievement that all countries recognized the central role the IMF should play in trying to resolve currency conflicts.
IMF Managing Director Dominique Strauss-Kahn said he did not view the outcome of the discussions as a failure. He said they set the stage for further progress at the upcoming summit of leaders of the Group of 20 nations in November in Seoul and at future IMF meetings.
Strauss-Kahn said the G-20 countries remained committed to the goals they established a year ago of achieving more balanced global growth and that this will require changes in currency policies.
The G-20 includes traditional economic powers such as the United States and Europe along with fast-growing economies such as China, Brazil and India.
"I am not disappointed," Strauss-Kahn told reporters about the outcome of the two days of talks.Strauss-Kahn acknowledged that significant differences also remained on the question of reforming the IMF by giving China and other fast-growing economic powers greater voting rights and representation on the IMF board. The G-20 leaders are supposed to endorse a deal on IMF reform at their November summit.
Treasury Secretary Timothy Geithner on Wednesday raised the possibility that awarding greater power to China in the IMF should be linked to an increased willingness of that country to reform its currency system.
Strauss-Kahn told reporters Saturday that this comment was not a form of blackmail but rather acknowledgment that as countries grow more important economically, they must bear greater responsibility for the proper functioning of the global economy.
But Oxfam, an international aid group, criticized Geithner's comments.
"The currency war cannot be used to hold IMF reform hostage," said Oxfam spokesperson Pamela Gomez. "The IMF can't do its job unless emerging economies are at the table."In his comments to the IMF's policy-setting panel on Saturday, Geithner said that the IMF must begin to speak more forcefully about how countries manage their currencies.
The IMF's concluding statement did pledge to work for "stronger and evenhanded surveillance to uncover vulnerabilities in large advanced economies." Strauss-Kahn said he would personally participate in the annual economic reviews of the world's five or six largest economies, a group that would include the United States and China.
But private economists were not impressed with the IMF's new commitments on surveillance.
"The IMF ratcheted up the focus on exchange rate surveillance a few years ago and then eased off under pressure from China," said Eswar Prasad, a trade professor at Cornell University. "Now it is back to reasserting what should have been a core part of its surveillance mandate all along."While the United States has been leading the charge against China, some other countries voiced their support during the IMF-World Bank meetings.
Olli Rehn, the economic commissioner for the 27-nation European Union, told the IMF committee that it was important that China start "to implement soon a more flexible exchange rate regime."
Canadian Finance Minister James Flaherty told reporters that the global economy would be the loser if nations followed "beggar-thy-neighbor" currency policies that invited retaliation by other nations.
But French Finance Minister Christine Lagarde said Saturday that a successful resolution of the currency dispute with China would require a cooling of over-heated rhetoric about currency wars.
"In a war, there is always a loser and in this situation there must not be a loser," she said.She said that France, which will serve as leader for the G-20 in 2011, plans a major focus on developing reforms to the international currency system.
"This present window of opportunity, during which a truly peaceful and interdependent world order might be built, will not be open for too long—we are on the verge of a global transformation. All we need is the right major crisis and the nations will accept the New World Order." - David Rockefeller, September 23, 1994
"It cannot happen without U.S. participation, as we are the most significant single component. Yes, there will be a New World Order, and it will force the United States to change its perceptions." - Henry Kissinger, World Affairs Council Press Conference, April 19, 1994
We shall have World Government, whether or not we like it. The only question is whether World Government will be achieved by conquest or consent. - James Paul Warburg, Before the U.S. Senate, February 17, 1950
January 21, 2011
Last year was an absolutely fascinating time for world currency markets. The yen, the dollar and the euro all took their turns in the spotlight. Each experienced wild swings at various times, but the overall theme that we saw was that faith in paper currencies is dying. The biggest reason for this is the horrific sovereign debt crisis that has swept the globe.
The United States, Japan and a whole host of European nations are all drowning in debt. The U.S. and Japan are both steamrolling toward insolvency, and several European nations would have already defaulted on their debts if they had not been bailed out.
So which of the major currencies of the world is going to crash first? Will one (or more) of the big currencies fall before the end of 2011? Once one major currency collapses will the rest start to fall like dominoes? The truth is that the world has never seen a sovereign debt crisis of this magnitude in all of human history. Almost the entire globe is drowning in a sea of red ink and it has brought us right to the brink of financial disaster.
So which of the currencies of the world is going to be the first to come crashing down? Well, let's take a quick look at the yen, the euro and the dollar....
Japan has the 3rd biggest economy in the world, but they are also deeply swamped in debt. At well over 200%, the Japanese government has the biggest debt to GDP ratio of all of the major industrialized nations. In fact, it is estimated that this massive pile of Japanese government debt amounts to approximately 7.5 million yen for every person living in the entire nation of Japan.
So why hasn't Japan defaulted yet? Well, a big reason is because Japan has one of the highest personal savings rates on the entire globe, and Japanese citizens have been more than happy to gobble up huge amounts of Japanese government debt at very, very low interest rates.
However, Standard & Poor's has warned that they may have to slash Japan's credit rating if the debt gets much bigger, and once confidence starts to falter Japan is going to have to start paying higher interest rates.
At some point Japan is going to be facing a financial meltdown, but for the moment they are hanging in there.
Several large European nations would have already defaulted on their debts if they had not been bailed out last year. Greece, Portugal, Ireland, Italy, Belgium and Spain are all on very shaky ground right now. Several of them have already had their credit ratings slashed.
Bond yields all over Europe have been absolutely soaring in recent months. It is getting really expensive for many of these nations to take on new debt. Interest rates on 10-year Greek bonds went from 6 percent up to 13 percent in just a single month at one point in 2010. In fact, even some of the nations that aren't in the most danger are even feeling the pain. For example, the cost of insuring French debt hit a new record high on December 20th.
Right now there are all kinds of rumblings that more European nations are going to need bailouts very soon. Professor Willem Buiter, the chief economist at Citibank, is warning that quite a few EU nations could financially collapse in the next few months if they are not rapidly bailed out....
"The market is not going to wait until March for the EU authorities to get their act together. We could have several sovereign states and banks going under. They are being far too casual."
So where is all of this bailout money coming from? Well, a lot of it is coming from Germany and a significant amount of it is actually coming from the United States.
But will wealthy nations such as Germany be willing to pour hundreds of billions of euros into these financial black holes indefinitely?
Are the Germans going to accept a situation where they are permanently bailing out the "weak sisters" all over the rest of the continent?
Already some prominent politicians in Europe are calling for the European "bailout fund" to be doubled in size to about 2 trillion dollars. Other analysts believe that it is going to take at least 4 or 5 trillion dollars to properly bail out all of the European nations that need it.
In any event, the truth is that the situation is really, really bad. If at some point the bailouts stop, the defaults are going to begin.
The United States has the biggest national debt of all. The 14 trillion dollar threshold has just been crossed, and the national debt is now less than 300 billion dollars away from the 14.294 trillion dollar debt ceiling. If the U.S. Congress does not raise the debt ceiling, the U.S. government will shortly begin to default on its debts. Of course everyone fully expects that the U.S. Congress will indeed raise the debt ceiling just like they have every time before.
However, U.S. politicians are not going to be able to keep kicking the can down the road forever. Today the U.S. national debt is more than 14 times larger than it was just 30 years ago. Everyone around the world is beginning to realize that this debt is not even close to sustainable. Investors are beginning to become more hesitant about loaning the United States money. The Federal Reserve has been forced to step in and "buy" more and more of the debt the U.S. government is issuing.
Yields on U.S. Treasuries have been moving up in recent months and this could eventually become a huge problem.
Well, the sad truth is that the U.S. government has been increasingly using short-term debt.
At this point, the average maturity of U.S. government bonds has fallen to 4.4 years. The is the lowest figure of all the major industrialized nations. That means that the U.S. government must constantly roll over massive amounts of debt.
As a point of comparison, UK government debt has an average maturity of approximately 13 years. That obviously gives them a lot more breathing room.
For the United States, the situation could become incredibly dire if interest rates start to go up.
If interest rates on U.S. government debt reach an average of 7 percent, interest payments on the debt would gobble up approximately 45 percent of the tax revenue that the U.S. government takes in each year.
Yes, at that point the game would be over.
But what the United States has going for it that the European nations do not is that the United States can just have the Federal Reserve keep printing currency. Unfortunately for the nations involved in the euro, they do not have that option.
That is why an increasing number of analysts believe that it will be the euro that will crash and burn first.
But only time will tell.
There are even many that believe that authorities at the highest level actually want the dollar, euro and yen to fail.
Well, many of the same individuals and groups that brought us NAFTA, the WTO, the IMF, the OECD and the World Bank believe that it would be absolutely wonderful for humanity if we could all have a single, united global currency. The "chaos" produced by the fall of our existing global currencies could provide the perfect "opportunity" to provide the grand "solution" that they have been hoping to introduce all along.
All over the world top politicians and financiers have been very open about the fact that a world currency is coming. In fact, men like George Soros are openly talking about these things. The United Nations has been publicly calling for the U.S. dollar to be replaced with a new global currency for some time now. Just this week Chinese President Hu Jintao stated that "the current international currency system is the product of the past."
So will the American people just sit back and accept it when their dollars are replaced with a new global currency?
Well, sadly, when things go badly most Americans seem to be willing to accept just about anything if it will mean that things will go back to "normal". When the global economy falls to pieces, and there already lots of signs that we are on the verge of such a collapse, will the American people be willing to say goodbye to the dollar if politicians from both major political parties tell them that the new global currency is the "answer" to our problems?
Hopefully the American people will wake up and will realize that "globalism" is rapidly wiping away almost everything that it means to be an "American". Now even many of our children and teens are primarily identifying themselves as "citizens of the world" rather than "citizens of the United States".
Even if the U.S. dollar does collapse, it is absolutely imperative that we continue to have our own national currency. The U.S. Constitution does not make any provision for any sort of "world currency". If we allow the globalists to push a truly global currency down our throats it will be another giant step towards the creation of a totalitarian one world system.
So what do you think about all of this? Please feel free to leave a comment with your thoughts below....Sunshine Profits
Most of the developed nations including the United States, Japan, and a number of European countries have unsustainable debt. The US and Japan, for example, are heading towards insolvency. Meanwhile, the only reason why several countries in the EU haven't defaulted is the bail-out by stronger EU members.
This year presents more challenges for the world's major currencies. While the markets are not as nervous at this point, problems remain just beneath the surface. The truth is that the world has not seen a sovereign debt crisis of the magnitude seen last year. With much of the developed world on the red, this has brought the market at the brink of disaster. We'll analyze some of the major currencies in this article including the yen, the euro, and the dollar. Developments in China regarding the yuan will also be discussed.
It was all over the news in the later part of 2010. Several weaker members of the Eurozone would have defaulted already if they weren't helped out by stronger members. As it stands right now, Greece, Portugal, Spain, Italy, Ireland, and Belgium are on shaky grounds. A number of countries have had their credit rating slashed, resulting to soaring bond yields that are unsustainable. Taking on new debt has become very expensive.
Greece, the country who was most at risk of default at one point in 2010, saw their yields go up from 6 percent to 13 percent in a single month. Even countries that are not in danger are feeling the effects of the crisis. For instance, the French debt hit a record high on December 20.
Right now, there are rumblings that more European countries may need bailouts to stay afloat. According to Professor Willem Buiter, a chief economist at Citibank, a few EU countries can face financial collapse in the next few months. "The market is not going to wait until March for the EU authorities to get their act together…they are being far too casual."
Where did the bailout money come from? A lot of it comes from Germany but most people don't realize that a significant portion actually came from the United States. But the real question is, are these countries willing to pour in more money to nations on the verge of default? For the German public, they want bailout to weaker neighbors to stop. There are other reasons why continuous bailouts will not work.
Right now, some politicians in Europe are asking for the European "bailout fund" to be doubled to $2 trillion. There are analysts who think that it will require $4 to 5 trillion to help all European nations that need it. Even a country as wealthy as Germany cannot give away billions of euros to its neighbors indefinitely. When the bailout to financial black holes stop, the defaults are likely to begin.
Let's look at the short-term chart (courtesy of http://stockcharts.com) for euro:
In the Euro Index chart this week, there are a number of bearish signals which can lead to bullish sentiment for the USD index. We have observed that the right shoulder of the bearish formation was invalidated by the buying that occurred at the beginning of this week. However, the price then moved to the rising dashed ling, invalidating the breakout. As a result, the head-and-shoulder formation is still underway, which has bearish implications for the following weeks.
Still, that formation alone doesn't mean that euro will be the first major currency to crash. There are also other candidates…
Although Japan has the third largest economy, they are swamped with debt. The Japanese government has the highest debt to GDP ratio at 200% of all major industrialized countries. It is estimated that with this amount of debt, every person living in Japan right now owes around 7.5 million yen. Any other country would have defaulted. The main reason why Japan hasn't yet is the high amount of personal savings rate of its citizens. The Japanese citizens are buying massive amounts of government debt at very low interest rates.
Despite this, the debt level is worrying. Standard & Poor has said they will slash the country's credit rating if the debt gets any bigger. If confidence starts to falter, Japan has to pay significantly higher interest rates. At some point, Japan will have to face the threat of a meltdown unless drastic actions are taken.
No one can argue that the United States is indeed in trouble. It has the largest national debt of all. With its national debt at $14 trillion, it is just $300 billion away from the $14.294 debt ceiling. If Congress fails to raise the debt ceiling, the US government will begin to default. While everyone fully expects this to be increased, the US cannot continue raising this threshold forever.
The US national debt is now 14 times higher than 30 years ago. Everyone is realizing that this level of debt is not sustainable. The Federal Reserve has already stepped in and "bought" more debt for the US government. Treasury yields have been moving up, potentially starting a massive problem in the future. This is mainly because the United States is increasingly relying on short-term debt.
Average maturity for US government bonds is now 4.4 years. As a comparison, the maturity of UK government debt is around 13 years. The situation can be dire if interest rates continue to climb. But there is one thing going for the United States: The Federal Reserve. It can keep on printing money and because the dollar is a global reserve currency, there is demand for it. But this can change quickly - and the consequences will be seen all around the Globe.
China is increasing its gold and silver reserves in line with its plan to globalize the yuan. The report published by the Economic Information Daily, the People's Bank of China - the country's central bank - is chalking up plans to buy gold and silver reserves when the prices are down.
A number of analysts predict that the Chinese yuan might overtake the US dollar as the global currency in a few years; one of them is global commodities expert Jim Rogers. He believes that the Chinese yuan will eventually dominate the currency market. China is already the largest producer of gold.
Last year, officials have announced that they will increase reserves to the tune of 10,000 tons over the next decade; the country's reserves currently stands at 1,200 tons. Chinese central bank adviser Xia Bin has confirmed that China must increase its gold and silver reserves. According to the report, "increasing gold reserve at the time of prices dip is the strategy of internationalizing the yuan."
There were rumors that the People's Bank of China will bid for IMF gold reserves but this did not happen in 2010. The main reason may be that bullion prices climbed by 30% last year aided by the depreciation of the US dollar against other major currencies, the European debt crisis, and strong demand from India due to festivals and other occasions. The investment appeal of precious metals also surged as investors sought to protect their wealth in an uncertain environment.
In essence, what China wants to happen is to stabilize its currency. By making the yuan internationally tradable, its dependence on the dollar will be dramatically reduced. Hwang Il Doo of the Korean Exchange Bank Futures Co. said that while "the report is a positive factor for gold prices in the mid-and-long term", it won't have an "immediate impact on prices as gold's gain has more to do with the unrest in Egypt at the moment."
Concerns about the stability of currencies have improved the appeal of a united global currency. The same groups and individuals who thought up the WTO, IMF, OECD, and World Bank believe that the uncertainty produced by shaky world economy presents the perfect "opportunity" to introduce a world currency. Chinese President Hu Jintao has said that the "current international system is the product of the past."
Whether this comes to fruition or not remains to be seen. The United States has the most to lose if this happens. Certainly, American policymakers will certainly try to find a remedy. However, the problem is, the country might eventually be too deep in debt to do something about it.
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By Ellen Brown
The following is an excerpt of a chapter by Ellen Brown from the new book by Global Research Publishers, "The Global Economic Crisis: The Great Depression of the XXI Century."
By acting together to fulfill these pledges we will bring the world economy out of recession and prevent a crisis like this from recurring in the future. We are committed to take all necessary actions to restore the normal flow of credit through the financial system and ensure the soundness of systemically important institutions, implementing our policies in line with the agreed G20 framework for restoring lending and repairing the financial sector. We have agreed to support a general SDR allocation which will inject $250bn into the world economy and increase global liquidity.– G20 Communiqué, London, April 2, 2009
Towards a New Global Currency?
Is the Group of Twenty Countries (G20) envisaging the creation of a Global Central bank? Who or what would serve as this global central bank, cloaked with the power to issue the global currency and police monetary policy for all humanity? When the world’s central bankers met in Washington in September 2008 at the height of the financial meltdown, they discussed what body might be in a position to serve in that awesome and fearful role. A former governor of the Bank of England stated:
The answer might already be staring us in the face, in the form of the Bank for International Settlements (BIS)... The IMF tends to couch its warnings about economic problems in very diplomatic language, but the BIS is more independent and much better placed to deal with this if it is given the power to do so.
And if the vision of a global currency outside government control was not enough to set off conspiracy theorists, putting the BIS in charge of it surely would be. The BIS has been scandal-ridden ever since it was branded with pro-Nazi leanings in the 1930s. Founded in Basel, Switzerland, in 1930, the BIS has been called “the most exclusive, secretive, and powerful supranational club in the world.” Charles Higham wrote in his book Trading with the Enemy that by the late 1930s, the BIS had assumed an openly pro-Nazi bias, a theme that was expanded on in a BBC Timewatch film titled “Banking with Hitler” broadcast in 1998. In 1944, the American government backed a resolution at the Bretton Woods Conference calling for the liquidation of the BIS, following Czech accusations that it was laundering gold stolen by the Nazis from occupied Europe; but the central bankers succeeded in quietly snuffing out the American resolution.
In Tragedy and Hope: A History of the World in Our Time (1966), Dr. Carroll Quigley revealed the key role played in global finance by the BIS behind the scenes. Dr. Quigley was Professor of History at Georgetown University, where he was President Bill Clinton’s mentor. He was also an insider, groomed by the powerful clique he called “the international bankers.” His credibility is heightened by the fact that he actually espoused their goals. Quigley wrote:
I know of the operations of this network because I have studied it for twenty years and was permitted for two years, in the early 1960’s, to examine its papers and secret records. I have no aversion to it or to most of its aims and have, for much of my life, been close to it and to many of its instruments... In general my chief difference of opinion is that it wishes to remain unknown, and I believe its role in history is significant enough to be known...
The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations.
The key to their success, said Quigley, was that the international bankers would control and manipulate the money system of a nation while letting it appear to be controlled by the government.
The statement echoed one made in the 18th century by the patriarch of what became the most powerful banking dynasty in the world. Mayer Amschel Bauer Rothschild is quoted as saying in 1791: “Allow me to issue and control a nation’s currency, and I care not who makes its laws.” Mayer’s five sons were sent to the major capitals of Europe – London, Paris, Vienna, Berlin and Naples – with the mission of establishing a banking system that would be outside government control. The economic and political systems of nations would be controlled not by citizens but by bankers, for the benefit of bankers.
Eventually, a privately-owned “central bank” was established in nearly every country. This central banking system has now gained control over the economies of the world. Central banks have the authority to print money in their respective countries, and it is from these banks that governments must borrow money to pay their debts and fund their operations. The result is a global economy in which not only industry but government itself runs on “credit” (or debt) created by a banking monopoly headed by a network of private central banks. At the top of this network is the BIS, the “central bank of central banks” in Basel.
Behind the Curtain
For many years the BIS kept a very low profile, operating behind the scenes in an abandoned hotel. It was here that decisions were reached to devalue or defend currencies, fix the price of gold, regulate offshore banking, and raise or lower short-term interest rates. In 1977, however, the BIS gave up its anonymity in exchange for more efficient headquarters. The new building has been described as “an eighteen story-high circular skyscraper that rises above the medieval city like some misplaced nuclear reactor.” It quickly became known as the “Tower of Basel.” Today the BIS has governmental immunity, pays no taxes, and has its own private police force. It is, as Mayer Rothschild envisioned, above the law.
The BIS is now composed of 55 member nations, but the club that meets regularly in Basel is a much smaller group; and even within it, there is a hierarchy. In a 1983 article in Harper’s Magazine called “Ruling the World of Money,” Edward Jay Epstein wrote that where the real business gets done is in “a sort of inner club made up of the half dozen or so powerful central bankers who find themselves more or less in the same monetary boat” – those from Germany, the United States, Switzerland, Italy, Japan and England. Epstein said:
The prime value, which also seems to demarcate the inner club from the rest of the BIS members, is the firm belief that central banks should act independently of their home governments... A second and closely related belief of the inner club is that politicians should not be trusted to decide the fate of the international monetary system.
In 1974, the Basel Committee on Banking Supervision was created by the central bank Governors of the Group of 10 nations (now expanded to twenty). The BIS provides the twelve-member Secretariat for the Committee. The Committee, in turn, sets the rules for banking globally, including capital requirements and reserve controls. In a 2003 article titled “The Bank for International Settlements Calls for Global Currency,” Joan Veon wrote:
The BIS is where all of the world’s central banks meet to analyze the global economy and determine what course of action they will take next to put more money in their pockets, since they control the amount of money in circulation and how much interest they are going to charge governments and banks for borrowing from them...
When you understand that the BIS pulls the strings of the world’s monetary system, you then understand that they have the ability to create a financial boom or bust in a country. If that country is not doing what the money lenders want, then all they have to do is sell its currency.
The Controversial Basel Accords
The power of the BIS to make or break economies was demonstrated in 1988, when it issued a Basel Accord raising bank capital requirements from six percent to eight percent. By then, Japan had emerged as the world’s largest creditor; but Japan’s banks were less well capitalized than other major international banks. Raising the capital requirement forced them to cut back on lending, creating a recession in Japan like that suffered in the U.S. today. Property prices fell and loans went into default as the security for them shriveled up. A downward spiral followed, ending with the total bankruptcy of the banks. The banks had to be nationalized, although that word was not used in order to avoid criticism.
Among other “collateral damage” produced by the Basel Accords was a spate of suicides among Indian farmers unable to get loans. The BIS capital adequacy standards required loans to private borrowers to be “risk-weighted,” with the degree of risk determined by private rating agencies; farmers and small business owners could not afford the agencies’ fees. Banks therefore assigned one hundred percent risk to the loans, and then resisted extending credit to these “high-risk” borrowers because more capital was required to cover the loans. When the conscience of the nation was aroused by the Indian suicides, the government, lamenting the neglect of farmers by commercial banks, established a policy of ending the “financial exclusion” of the weak; but this step had little real effect on lending practices, due largely to the strictures imposed by the BIS from abroad.
Economist Henry C K Liu has analyzed how the Basel Accords have forced national banking systems “to march to the same tune, designed to serve the needs of highly sophisticated global financial markets, regardless of the developmental needs of their national economies.” He wrote:
National banking systems are suddenly thrown into the rigid arms of the Basel Capital Accord sponsored by the Bank of International Settlement (BIS), or to face the penalty of usurious risk premium in securing international interbank loans... National policies suddenly are subjected to profit incentives of private financial institutions, all members of a hierarchical system controlled and directed from the money center banks in New York. The result is to force national banking systems to privatize...
BIS regulations serve only the single purpose of strengthening the international private banking system, even at the peril of national economies... The IMF and the international banks regulated by the BIS are a team: the international banks lend recklessly to borrowers in emerging economies to create a foreign currency debt crisis, the IMF arrives as a carrier of monetary virus in the name of sound monetary policy, then the international banks come as vulture investors in the name of financial rescue to acquire national banks deemed capital inadequate and insolvent by the BIS.
Ironically, noted Liu, developing countries with their own natural resources did not actually need the foreign investment that trapped them in debt to outsiders: "Applying the State Theory of Money [which assumes that a sovereign nation has the power to issue its own money], any government can fund with its own currency all its domestic developmental needs to maintain full employment without inflation."
When governments fall into the trap of accepting loans in foreign currencies, however, they become “debtor nations” subject to IMF and BIS regulation. They are forced to divert their production to exports, just to earn the foreign currency necessary to pay the interest on their loans. National banks deemed “capital inadequate” have to deal with strictures comparable to the “conditionalities” imposed by the IMF on debtor nations: “escalating capital requirement, loan write-offs and liquidation, and restructuring through selloffs, layoffs, downsizing, cost-cutting and freeze on capital spending.” Liu wrote:
Reversing the logic that a sound banking system should lead to full employment and developmental growth, BIS regulations demand high unemployment and developmental degradation in national economies as the fair price for a sound global private banking system.
The Last Domino to Fall
While banks in developing nations were being penalized for falling short of the BIS capital requirements, large international banks managed to skirt the rules, although they actually carried enormous risk because of their derivative exposure. The mega-banks took advantage of a loophole that allowed for lower charges against capital for “off-balance sheet activities.” The banks got loans off their balance sheets by bundling them into securities and selling them off to investors, after separating the risk of default out from the loans and selling it off to yet other investors, using a form of derivative known as “credit default swaps.”
It was evidently not in the game plan, however, that U.S. banks should escape the regulatory net indefinitely. Complaints about the loopholes in Basel I prompted a new set of rules called Basel II, which based capital requirements for market risk on a “Value-at-Risk” accounting standard. The new rules were established in 2004, but they were not levied on U.S. banks until November 2007, the month after the Dow passed 14 000 to reach its all-time high. On November 1, 2007, the Office of the Controller of the Currency “approved a final rule implementing advanced approaches of the Basel II Capital Accord.” On November 15, 2007, the Financial Accounting Standards Board or FASB, a private organization that sets U.S. accounting rules for the private sector, adopted FAS 157, the rule called “mark-to-market accounting.” The effect on U.S. banks was similar to that of Basel I on Japanese banks: they have been struggling to survive ever since.
The mark-to-market rule requires banks to adjust the value of their marketable securities to the “market price” of the security. The rule has theoretical merit, but the problem is timing: it was imposed ex post facto, after the banks already had the hard-to-market assets on their books. Lenders that had been considered sufficiently well capitalized to make new loans suddenly found they were insolvent; at least, they would have been if they had tried to sell their assets, an assumption required by the new rule. Financial analyst John Berlau complained in October 2008:
Despite the credit crunch being described as the spread of the ‘American flu,’ the mark-to-market rules that are spreading it were hatched [as] part of the Basel II international rules for financial institutions. It’s just that the U.S. jumped into the really icy water last November when our Securities and Exchange Commission and bank regulators implemented FASB’s Financial Accounting Standard 157, which makes healthy banks and financial firms take a ‘loss’ in the capital they can lend even if a loan on their books is still performing, even when the ‘market price’ [of] an illiquid asset is that of the last fire sale by a highly leveraged bank. Late last month, similar rules went into effect in the European Union, playing a similar role in accelerating financial failures...
The crisis is often called a ‘market failure,’ and the term ‘mark-to-market’ seems to reinforce that. But the mark-to-market rules are profoundly anti-market and hinder the free-market function of price discovery... In this case, the accounting rules fail to allow the market players to hold on to an asset if they don’t like what the market is currently fetching, an important market action that affects price discovery in areas from agriculture to antiques.
Imposing the mark-to-market rule on U.S. banks caused an instant credit freeze, which proceeded to take down the economies not only of the U.S. but of countries worldwide. In early April 2009, the mark-to-market rule was finally softened by the FASB; but critics said the modification did not go far enough, and it was done in response to pressure from politicians and bankers, not out of any fundamental change of heart or policies by the BIS or the FASB. Indeed, the BIS was warned as early as 2001 that its Basel II proposal was “procyclical,” meaning that in a downturn it would only serve to make matters worse. In a formal response to a Request for Comments by the Basel Committee for Banking Supervision, a group of economists stated:
Value-at-Risk can destabilize an economy and induce crashes when they would not otherwise occur... Perhaps our most serious concern is that these proposals, taken altogether, will enhance both the procyclicality of regulation and the susceptibility of the financial system to systemic crises, thus negating the central purpose of the whole exercise. Reconsider before it is too late.
The BIS did not reconsider, however, even after seeing the devastation its regulations had caused; and that is where the conspiracy theorists came in. Why did the BIS sit idly by, they asked, as the global economy came crashing down? Was the goal to create so much economic havoc that the world would rush with relief into the waiting arms of a global economic policeman with its privately-created global currency?
 Andrew Gavin Marshall, “The Financial New World Order: Towards a Global Currency and World Government”, Global Research, http://www.globalresearch.ca/index.php?context=va&aid=13070, 6 April 2009. See also Chapter 17.
 Alfred Mendez, “The Network”, The World Central Bank: The Bank for International
 HubPages, “BIS – Bank of International Settlement: The Mother of All Central Banks”, hubpages.com, 2009.
 Carroll Quigley, Tragedy and Hope: A History of the World in Our Time, 1966.
 HubPages, “BIS – Bank of International Settlement: The Mother of All Central Banks”, hubpages.com, 2009.
 Edward Jay Epstein, “Ruling the World of Money”, Harper’s Magazine, November 1983.
 Joan Veon, “The Bank for International Settlements Calls for Global Currency”, News with Views, 26 August 2003.
 Peter Myers, “The 1988 Basle Accord – Destroyer of Japan’s Finance System”, http://www.mailstar.net/basle.html, 9 September 2008.
 Nirmal Chandra, “Is Inclusive Growth Feasible in Neoliberal India?”, networkideas.org, September 2008.
 Henry C. K. Liu, “The BIS vs National Banks”, Asia Times, http://www.atimes.com/global-econ/DE14Dj01.html, 14 May 2002.
 Comptroller of the Currency, “OCC Approves Basel II Capital Rule”, Comptroller of the Currency Release, 1 November 2007.
 Vinny Catalano, “FAS 157: Timing Is Everything”, vinnycatalano.blogspot.com, 18 March 2008.
 Bruce Wiseman, “The Financial Crisis: A look Behind the Wizard’s Curtain”, Canada Free Press, 19 March 2009.
 Ellen Brown, “Credit Where Credit Is Due”, webofdebt.com/articles/creditcrunch.php, 11 January 2009.
 John Berlau, “The International Mark-to-Market Contagion”, OpenMarket.org, 10 October 2008.
 Jon Danielsson, et al., “An Academic Response to Basel II”, LSE Financial Markets Group Special Paper Series, May 2001.
Originally Published on March 26, 2006
On March 4, 2006, I posted up the Ominous Warnings and Dire Predictions of World's Financial Experts part 1—an article that consolidated various economic warnings as stated by many of the worlds leading financial experts. The experts suggest that our economic future is not what it seems, and the US economy could be headed for disaster. Later, (on March 10th) a related article was released Warning! Fiscal Hurricane Approaching! Is Your Portfolio Secure?. This article provided several expert opinions on investment options--that they feel can help folks weather the storm ahead. Today, I found the latest release from Dudley Baker and Lorimer Wilson (the authors of the previous articles) and thought many of you would be interested in reading it: Ominous Warnings and Dire Predictions of Financial Experts, Part 2. This new article discusses US Debt, the dollar, the housing bubble, inflation, systemic banking crisis, stock market crash, depression, etc. - economicrot
Widening Global Imbalances
Rodrigo de Rato, Managing Director of the International Monetary Fund at a recent speech at the University of California at Berkeley, stated that:
“While global current account imbalances have been widening, the fact that they have been financed easily thus far seems to be inducing a sense of complacency among policy makers. I think they should be more concerned. This is not to say that the risk of a disorderly adjustment is imminent, but the problem is growing, and if a disorderly adjustment does take place, it will be very costly and disruptive to the world economy.
“The most visible aspect of the global imbalances problem is a very large deficit in the current account of the balance of payments of the United States – amounting to about 6.25% of GDP. The main problem is that in the United States savings are too low. These global imbalances could unwind quickly, and in a very disruptive way, with either an abrupt fall in the rate of consumption growth (i.e. increased savings) in the United States which is holding up the world economy or by investors abroad becoming unwilling to hold increasing amounts of U.S. financial asset, and demand higher interest rates and a depreciation of the U.S. dollar, which in turn forces U.S. domestic demand to contract.”Economic Pain
Timothy Adams, Undersecretary of Treasury for International Affairs, stated recently that,
“The world economy is dangerously imbalanced and the U.S. current account deficit is now at levels that many experts fear could trigger a run on the dollar, soaring interest rates, and global economic pain.”Severe Consequences
Robert E. Rubin, director of Citigroup Inc. and former Secretary of the Treasury; Peter Orszag, Senior Fellow at Brookings Institution; and Allen Sinai, Chief Global Economist at Decision Economics Inc., made a presentation to a joint session of the American Economic Foundation and the North American Economics and Finance Association recently. They stated that,
“The scale of the nation’s projected budgetary imbalances is now so large that the risk of severe consequences must be taken very seriously. Continued substantial deficits could cause a fundamental shift in market expectations and a related loss of confidence both at home and abroad. This, in turn, could cause investors and creditors to reallocate funds away from dollar-based investments, causing a depreciation of the exchange rate, and to demand sharply higher interest rates on U.S. government debt. The increase of interest rates, depreciation of the exchange rate, and the decline in confidence could reduce stock prices and household wealth, raise the cost of financing to business, and reduce private-sector domestic spending.”Wild Ride
Paul Kasriel, Director of Economic Research at Northern Trust and co-author of the book ‘Seven Indicators That Move markets’, has stated that,
“If foreign creditors should question our ability and willingness to repay them without resorting to the currency printing press, there could be a run on the dollar, which would lead to sharply higher U.S. interest rates, which would do great harm to household finances and the housing market, which would put a crimp in consumer spending, which would increase unemployment, which would result in a spike in mortgage defaults, which would likely cripple the banking system given that a record 61% of total bank credit is mortgage related, which would, in turn, render future Fed interest rate cuts -- expected on or about September 20th, 2006 -- less potent in reviving the economy.Category 6 Fiscal Storm
“We have the most highly leveraged economy in the postwar period and the Fed is still raising rates and in the past 30 years or so, whenever the Fed has raised interest rates, we have usually had financial accidents. Our federal government is spending like a drunken sailor so my advice is to put on your safety harness as it is going to be a wild ride. My bet is that we are going to end up on the rocks.”
Isabel V. Sawhill, Vice President and Director and Alice M. Rivlin, Senior Fellow of Economic Studies at the Brookings Institution have said that,
“The federal budget deficits pose grave risks – a category 6 fiscal storm – to the U.S. economy. The current course is simply not sustainable. Promises to the elderly, especially about medical care, cannot be kept unless taxes are raised to levels that are unprecedented or other activities of the government are slashed. Postponing such action would be reckless and short-sighted.Drastic Fall
“Massive amounts of capital have flowed in from around the world, financing much of America’s federal deficit, as well as its international (or current account) deficit. While this inflow of foreign capital has kept investment in the American economy strong it means that Americans are accumulating obligations to service these debts and repay foreigners out of their future income.
As a result, the future income available to Americans will be lower than it would have been without the government deficits. Foreign borrowing also makes the United States vulnerable to the changing whims of foreign investors. There is a risk that Asian central banks, or other large purchasers of dollar securities, will lose confidence in the ability of the United States to manage its fiscal affairs prudently and shift their purchases to euros or other currencies. Such a shift could precipitate a sharp fall in the value of the dollar, which could cause a spike in interest rates, a plunge in the stock and bond markets, and possibly a severe recession. The risk of such a meltdown is unknown, but it seems foolish to run the risk in order to perpetuate large fiscal deficits, which will ultimately reduce Americans’ standard of living.”
Sebastian Edwards, the Henry Ford ll Professor of International Business Economics at UCLA’s Anderson School of Management and a research associate of the National Bureau of Economic Research and has been a consultant to the Inter-American Development Bank, the World Bank, the OECD and a number of national and international corporations, has stated that,
“The future of the U.S. current account -- and thus of the dollar -- depend on whether foreign investors will continue to add U.S. assets to their investment dollars. Any major reduction in the USA’s ability to obtain sufficient foreign financing would cause the dollar to fall by 21% to 28% during the first three years of any adjustment period, cause a deep GDP growth reduction, and push the USA into recession.”Substantial Macroeconomic Consequences
Ian Morris, Chief U.S. Economist at HSBC, has said that,
“About half the U.S. housing market may be overvalued by as much as 35-40%. When these housing bubbles begin to deflate, it is likely to have a substantial macroeconomic consequence.”Serious Collapse
Ian Shepherdson, Chief U.S. Economist for High Frequency Economics, has warned that,
“House price increases are going to slow much further dragging down expectations for future price gains and therefore raising real mortgage rates. This, in turn, will be the trigger for a serious collapse in home sales. The housing market is a bubble, and it will burst.”Economic Earthquake
Robert R. Prechter, President of Elliott Wave International and author of ‘At the Crest of the Tidal Wave’ and ‘Conquer the Crash,’ calls for “a slow motion economic earthquake that will register 11 on the financial Richter scale.
“The Great Asset Mania of recent years is in its final euphoric months and the next event will be a sharp decline of historic proportion in stock prices - the Dow should fall to below the starting point of its mania which was 777 in August 1982 and probably below 400 by no later than 2008 - resulting in a deep economic depression lasting until about 2011. If an across-the-board deflation occurs, which has a substantial probability, then real estate, commodities and all bonds issued by other than those rated AAA will fall in value as well.Giant Speculative Bubble
“That we are in the midst, and apparently near the end, of the greatest debt build-up in world history suggests that the resulting deflation and depression will be the biggest deflation in history by a huge margin. A corollary of deflation will be a soaring value for the U.S. dollar, contrary to virtually all current expectations. Credit expansion is a major reason why stocks have kept rising and the dollar has kept falling but when the bubble begins to deflate, the investment markets will go down and the dollar will start up. The period after the market crash will be the most vulnerable in terms of the potential for hyperinflation. The ultimate result will be the destruction of any value remaining in bonds and the wipe-out of all dollar-denominated paper assets.”
Ravi Batra, Professor of Economics at Southern Methodist University, in his book ‘The Crash of the Millennium’ foresees not a deflationary depression but an inflationary one. He sees:
“The giant speculative bubble that we are currently in bursting, the stock market crashing and then the U.S. dollar collapsing almost immediately followed by a rise in interest rates and plunging bond prices culminating in a depression made doubly damaging by rising inflation through the early part of this decade. In spite of the inflationary nature of the coming depression, property values will tumble in most parts of the United States. In the long run, home prices will probably continue to climb but in the short run, however, they could sink and sink hard.”Systemic Banking Crisis
Richard Duncan, a former consultant for the International Monetary Fund, current Financial Sector Specialist (Asia) at the World Bank and author of the book, ‘The Dollar Crisis’, writes that,
“The United States’ net indebtedness to the rest of the world, already at record highs, will continue to increase every year into the future until a sharp fall in the value of the dollar against the currencies of all its major trading partners puts an end to the gapping U.S. current account deficit or until the United States is so heavily indebted to the rest of the world that it become incapable of servicing the interest on its multi-trillion dollar debt.Conclusion
“In the meantime, as long as the U.S. current account deficit continues to flood the world with U.S. dollar liquidity, new asset price bubbles are likely to inflate and implode; more systemic banking crises can be expected to occur; and intensifying deflationary pressure can be anticipated as low interest rates and easy credit result in excess industrial capacity and falling prices (i.e. deflation).”
The above comments are from some of the best minds in the business and what they have said about our current financial situation and what is in store for us in the years ahead. We advise investors to listen, to learn and to recognize the need to be strategically positioned in a wide variety of assets including precious metals, mining shares and long-term warrants. Nothing like taking what the experts say to heart and investing accordingly.
Originally Published on February 27, 2006
Alan Greenspan, an 'original gold bug' and former Chairman of the Federal Reserve, is going to say "I told you so!" as soon as he feels at liberty to comment further on what he already warned us might/will happen to the economy. He will no doubt expand on what he saw as the:
a) potential for a derivative crisis - "I would suspect there are potential disasters running into … the hundreds."
b) potential drop in asset prices - "This vast increase in the market value of asset claims [stocks, bonds, houses] is in part the indirect result of investors accepting lower compensation for risk. Such an increase in market value is too often viewed by market participants as structural and permanent. But what they perceive as newly abundant liquidity can readily disappear … history has not dealt kindly with the aftermath of protracted periods of low risk premiums."
c) housing bubble - "Nearer term, the housing boom will inevitably simmer down. As part of that process, house turnover will decline from currently historic levels, while home price increases will slow and prices could even decrease. As a consequence, home equity extraction will ease and with it some of the strength in personal consumption expenditures."
d) coming crisis in Social Security - "The imbalance in the federal budgetary situation, unless addressed soon, will pose serious long-term fiscal difficulties. Our demographics - especially the retirement of the baby-boom generation beginning in just a few years - mean that the ratio of workers to retirees will fall substantially. Without corrective action, this development will put substantial pressure on our ability in coming years to provide even minimal government services while maintaining entitlement benefits at their current level, without debilitating increases in tax rates. The longer we wait before addressing these imbalances, the more wrenching the fiscal adjustment ultimately will be." "When you do the arithmetic of what the rising debt level implied by the deficits tells you and add interest costs to that ever-rising debt at ever-higher interest rates, the system becomes fiscally destabilizing. What you will end up with is a stagnant economic system."
e) oil supply risk - "The current situation reflects an increasing fear that existing reserves and productive crude oil capacity have become subject to potential geopolitical adversity. These anxieties are not frivolous given the stark realities evident in many areas of the world."
f) rising budget deficit - "Large deficits result in rising interest rates and ever-growing interest payments that augment deficits in future years. Unless that trend is reversed, at some point these deficits would cause the economy to stagnate or worse." "Monetary policy, for example, cannot ignore the potential inflationary pressures inherent in our current fiscal outlook, especially those that could rise in meeting commitments to future retirees. However, I assume that these imbalances will be resolved before stark choices again confront us and that, if they are not, the Fed would resist any temptation to monetize future fiscal deficits. We had too much experience with the dangers of inflation in the 1970s to tolerate going through another bout of dispiriting stagflation. The consequences for both future workers and retirees could be daunting."
g) rising long-term interest rates - "The fiscal issues that we face pose long-term challenges, but federal budget deficits could cause difficulties even in the near term. Rising interest rates have been advertised for so long and in so many places that anyone who hasn't appropriately hedged his position by now is desirous of losing money."
h) record-high current account deficit - "Given the already substantial accumulation of dollar-dominated debt, foreign investors, both private and official, may become less willing to absorb ever-growing claims on US residents….Net claims against residents of the United States cannot continue to increase forever in international portfolios at their recent pace…Given the size of the US current account deficit, a diminished appetite for adding to dollar balances must occur at some point. The trade deficit cannot continue to increase forever at the recent pace.
i) excessive household debt - Debt in modest quantities does enhance the rate of growth of an economy and does create higher standards of living, but in excess, creates very serious problems.
j) falling U.S. dollar - Although I doubt that the U.S. dollar will lose its status as the world's reserve currency any time soon, there are in my judgment lessons to be learned from the experience of sterling as it faded as the world's dominant currency."
It is interesting to note that at one time Greenspan was an ardent gold bug and a true believer in the gold standard as his following words attest:
"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of the insidious process."
Richard Fisher, President of the Dallas Federal Reserve, noted on Feb.6, 2006 that,
"U.S. consumer spending could suffer if the property market cools too fast but that is unlikely because of the high number of home owners with fixed rate mortgages acting as a buffer against the small fraction of those with variable rate mortgages. It is not unreasonable to think the situation is manageable, albeit worth watching closely."
Regarding the record U.S. current account deficit he said:
"Those urging the United States to rein in its spending should be equally full-throated in prodding countries with excess savings and trade surpluses to create conditions for growing their domestic demand. If they fail to do so, and the U.S. suddenly becomes more virtuous on its own, the global economy could sink into a deep funk."
Paul Volker, a former Federal Reserve Board Chairman, is on record as saying:
"I think we are skating on increasingly thin ice. On the present trajectory, the deficits and imbalances will increase. At some point, the sense of confidence in capital markets that today so benignly supports the flow of funds to the United States and the growing economy could fade. Then some event, or combination of events, could come along to disturb markets, with damaging volatility in both exchange markets and interest rates. Indeed, there is a 75% chance of a major financial disaster within the next few years."
David Dodge, Governor of the Bank of Canada, earlier this month said:
"Global imbalances, such as the record U.S. current account deficit and the ballooning surpluses in some Asian countries, are persisting and if not resolved in an orderly way, we face the threat of great disruption with periods of outright recession."
Stephen Roach, Managing Director, Chief Economist, and Director of Global Economic Analysis of Morgan Stanley, has stated that,
"America's record trade deficit means the dollar will keep falling, interest rates will rise further and U.S. consumers, in debt up to their eyeballs, will get pounded with no better than a 10% chance of avoiding economic Armageddon."
Kurt Richebacher, former Chief Economist of the Dresdner Bank, has stated that "the bubble-driven consumer-spending boom we are currently in represents artificial, unsustainable demand and further rate hikes by the Fed will prick both the carry trade bubble in bonds and the bubble in housing. A financial Apocalypse will follow. The U.S. economy will lose its chief liquidity source with disastrous effects on a wide range of asset prices.
The U.S. has such serious structural problems they preclude any possibility of a sustained economic recovery. These structural problems include a corporate profits decline, a record savings shortfall, a capital spending collapse, an unprecedented consumer borrowing and spending binge, a massive current account deficit, ravaged balance sheets and record high debt levels. Tops among them are the depression of profits and capital spending which will propel each other downward in a vicious spiral.
In addition, U.S. stocks are still overvalued. The worst part of the bear markets is still to come and it will result in the wholesale destruction of the financial wealth derived from the bubble economy.
The U.S. financial system today is a house of cards built on nothing but financial leverage, credit excess, speculation and derivatives. A recession is coming and it will prove unusually severe and long. The length and severity of recessions or depressions depend critically on the magnitude of the dislocations and imbalances that have accumulated in the economy during the preceding boom and, as such, the U.S. economy is in for a very hard landing. The excessive monetary looseness has only postponed and magnified the coming inevitable crisis.
Growing disillusionment with the U.S. economy is the trigger. The huge capital inflows have become the U.S. financial markets' single most important pillar. Take this pillar away, and those markets will instantly collapse with devastating effects for the U.S. economy, turning quickly into a savage credit crunch. The exposure of the U.S. financial markets to foreign investors and lenders has grown to such preposterous magnitude during recent years that a controlled gradual dollar devaluation no longer appears feasible. The dangers that loom on the currency front are immense. The grossly over-leveraged U.S. financial system is hostage to a strong dollar and permanent, huge capital inflows. The U.S. trade deficit and the accumulated foreign indebtedness have reached a scale that defies any possible action by central banks. The fate of the dollar is beyond any control.
Financial Train Wreck
Nouriel Roubini is Professor of Economics and International Business at New York University's Stern School of Business; Chairman of Roubini Global Economics; Research Fellow at the National Bureau of Economic Research; Research Fellow of the Centre for Economic Policy Research; Member of the Bretton Woods Committee, the Council on Foreign Relation's Roundtable on the International Economy and the Academic Advisory Committee, Fiscal Affairs Department of the International Monetary Fund; former Senior Economist for International Affairs on the Staff of the United States President's Council of Economic Advisors; and co-author of several books on the economy.
Roubini has stated that,
"If the US does not take policy steps to reduce its need for external financing, before it exhausts the world's central banks willingness to keep adding to their dollar reserves then the large, growing and unsustainable fiscal deficit and U.S. current account deficit will become twin financial train wrecks for the U.S. economy and will lead to a sharp hard landing of the dollar, a sharp increase in long term interest rates, a significant increase in the inflation rate and a sharp slowdown of the U.S. and global economy.
"A dollar crash/hard landing would be associated with a bond market rout and would have serious consequences on all other risky and overvalued assets (equities, housing, high-yield debt, emerging market debt).
"The effects in the US of higher short and long rates on the housing market, both flows of new housing and new home demand on the value of existing housing, would likely be severe.
"Oil prices will skyrocket above $100 per barrel. Then we will get a U.S. and global recession that will pale compared to the one in 1980-82.
"I am not being alarmist or unrealistic when you consider our reckless fiscal and public debt policies, the absence of adult policy supervision in Washington and the mediocre or nonexistent US economic leadership."
David Walker, Director of the U.S. General Accounting Office and Comptroller general of the United States, has stated that,
"Our projected budget deficits are not manageable without significant changes in status quo programs, policies, processes and operations and were such action implemented it would most likely adversely affect the quality of life of every American now and in the foreseeable future. The U.S. faces a demographic tsunami that will never recede."
Thanks Mr. Wilson for this Part 1 summary of what some of the best minds have said about our current financial situation and what is in store for us in the years ahead. As we understand it you are strategically positioned in a wide variety of assets including precious metals, mining shares and long-term warrants. Nothing like taking what the experts say to heart and investing accordingly.Dudley Baker is the owner/editor of Precious Metals Warrants, a market data service which provides you with the details on all mining & energy companies with warrants trading on the U. S. and Canadian Exchanges. As new warrants are listed for trading we alert you via an e-mail blast. You are provided with links to the companies' websites, links to quotes and charts, tips for placing orders and much, much more. We do not make any specific recommendations in our service. We do the work for you and provide you with the knowledge, trading tips and the confidence in placing your orders.