Recovery or Collapse? Bet on Collapse
The US financial system and, probably, the financial system of
Europe, like the police, no longer serves a useful social purpose.
The cost to society of the private financial system is even higher.
Writing in CounterPunch (May 18), Rob Urie reports that two years ago
Andrew Haldane, executive Director for Financial Stability at the Bank
of England (the UK’s version of the Federal Reserve) said that the
financial crisis, now four years old, will in the end cost the world
economy between $60 trillion and $200 trillion in lost GDP. If Urie’s
report is correct, this is an astonishing admission from a member of the
ruling elite.
http://www.counterpunch.org/2012/05/18/the-true-costs-of-bank-crises/print
Try to get your mind around these figures. The US GDP, the largest in
the world, is about 15 trillion. What Haldane is telling us is that the
financial crisis will end up costing the world lost real income between 4
and 13 times the size of the current Gross Domestic Product of the
United States. This could turn out to be an optimistic forecast.
In the end, the financial crisis could destroy Western civilization.
Even if Urie’s report, or Haldane’s calculation, is incorrect, the
obvious large economic loss from the financial crisis is still
unprecedented. The enormous cost of the financial crisis has one single
source — financial deregulation. Financial deregulation is likely to prove
to be the mistake that destroys Western civilization. While we quake in
our boots from fear of “Muslim terrorists,” it is financial
deregulation that is destroying us, with help from jobs offshoring.
Keep in mind that Haldane is a member of the ruling elite, not a critic
of the system like myself, Gerald Celente, Michael Hudson, Pam Martins,
and Nomi Prins. (This is not meant to be an exhaustive list of
critics.)
Financial deregulation has had dangerous and adverse consequences.
Deregulation permitted financial concentration that produced “banks too
big to fail,” thus requiring the general public to absorb the costs of
the banks’ mistakes and reckless gambling.
Deregulation permitted banks to leverage a small amount of capital
with enormous debt in order to maximize return on equity, thereby
maximizing the instability of the financial system and the cost to
society of the banks’ bad bets.
Deregulation allowed financial institutions to sweep aside the
position limits on speculators and to dominate commodity markets,
turning them into a gambling casino and driving up the prices of energy
and food.
The informed reader can add more items to this list.
The dollar in its role as world reserve currency is the source of
Washington’s power. It allows Washington to control the international
payments system and to exclude from the financial system those countries
that do not do Washington’s bidding. It allows Washington to print
money with which to pay its bills and to purchase the cooperation of
foreign governments or to fund opposition within those countries whose
governments Washington is unable to purchase, such as Iran, Russia, and
China. If the dollar was not the world reserve currency and actually
reflected its true depreciated value from the mounting US debt and
running of the printing press, Washington’s power would be dramatically
curtailed.
The US dollar has come close to its demise several times recently.
In 2011 the dollar’s value fell as low as 72 Swiss cents. Investors
seeking safety for the value of their money flooded into Swiss francs,
pushing the value of the franc so high that Switzerland’s exports began
to suffer. The Swiss government responded to the inflow of dollars and
euros seeking refuge in the franc by declaring that it would in the
future print new francs to offset the inflows of foreign currency in
order to prevent the rise in the value of the franc. In other words,
currency flight from the US and Europe forced the Swiss to inflate in
order to prevent the continuous rise in the exchange value of the Swiss
currency.
Prior to the sovereign debt crisis in Europe, the dollar was also
faced with a run-up in the value of the euro as foreign central banks
and OPEC members shifted their reserves into euros from dollars. The
euro was on its way to becoming an alternative reserve currency.
However, Goldman Sachs, whose former employees dominate the US Treasury
and financial regulatory agencies and also the European Central Bank and
governments of Italy and, indirectly, Greece, helped the Greek
government to disguise its true deficit, thus deceiving the private
European banks who were purchasing the bonds of the Greek government.
Once the European sovereign debt crisis was launched, Washington had an
interest in keeping it going, as it sends holders of euros fleeing into
“safe” dollars, thus boosting the exchange value of the dollar, despite
the enormous rise in Washington’s own debt and the doubling of the US
money supply.
Last year gold and silver were rapidly rising in price (measured in
US dollars), with gold hitting $1,900 an ounce and on its way to $2,000
when suddenly short sales began dominating the bullion markets. The
naked shorts of gold and silver bullion succeeded in driving the price
of gold down $350 per ounce from its peak. Many informed observers
believe that the reason Washington has not prosecuted the banksters for
their known financial crimes is that the banksters serve as an auxiliary
to Washington by protecting the value of the dollar by shorting bullion
and rival currencies.
What happens if Greece exits the EU on its own or by the German boot?
What happens if the other EU members reject German Chancellor Merkel’s
austerity, as the new president of France promised to do? If Europe
breaks apart, do more investors flee to the doomed US dollar?
Will a dollar bubble become the largest bubble in economic history?
When the dollar goes, interest rates will escalate, and bond prices
will collapse. Everyone who sought safety in US Treasuries will be wiped
out.
We should all be aware that such outcomes are not part of the public debate.
Recently Bill Moyers interviewed Simon Johnson, formerly chief
economist of the International Monetary Fund and currently professor at
MIT. It turns out that deregulation, which abolished the separation of
investment banks from commercial banks, permitted Jamie Dimon’s
JPMorganChase to gamble with federally insured deposits.
http://www.informationclearinghouse.info/article31356.htm Despite this, Moyers reports that Republicans remain determined to kill the weak Dodd-Frank law and restore full deregulation.
Simon Johnson says: “I think it [deregulation] is a recipe for
disaster.” The problem is, Johnson says, that correct economic policy is
blocked by the enormous donations banks make to political campaigns.
This means Wall Street’s attitudes and faulty risk models will result in
an even bigger financial crisis than the one from which we are still
suffering. And it will happen prior to recovery from the current
crisis.
Johnson warns that the Republicans will distract everyone from the
real crisis by concocting another “crisis” over the debt ceiling.
Johnson says that “a few people, particularly in and around the
financial system, have become too powerful. They were allowed to take a
lot of risk, and they did massive damage to the economy — more than
eight million jobs lost. We’re still struggling to get back anywhere
close to employment levels where we were before 2008. And they’ve done
massive damage to the budget. This damage to the budget is long lasting;
it undermines the budget when we need it to be stronger because the
society is aging. We need to support Social Security and support
Medicare on a fair basis. We need to restore and rebuild revenue,
revenue that was absolutely devastated by the financial crisis. People
need to understand the link between what the banks did and the budget.
And too many people fail to do that.”
Consequently, Johnson says, the banksters continue to receive mega-benefits while imposing enormous social costs on society.
Few Americans and no Washington policymakers understand the dire
situation. They are too busy hyping a non-existent recovery and the next
war. Statistician John Williams reports that when correctly measured as
a cost of living indicator, which the CPI no longer is, the current
inflation rate in the US is 5 to 7 percentage points higher than the
officially reported rate, as every consumer knows. The unemployment
rate falls because, and only because, people unable to find jobs drop
out of the labor force and are no longer counted as unemployed. Every
informed person knows that the official inflation and unemployment rates
are fictions; yet, the presstitute media continue to report the rates
with a straight face as fact.
The way the government has rigged the measure of unemployment, it is
possible for the US to have a zero rate of unemployment and not a single
person employed or in the work force.
The way the government has the measure of inflation rigged, it is
possible for your living standing to fall while the government reports
that you are better off.
Financial deregulation raises the returns from speculative schemes
above the returns from productive activity. The highly leveraged debt
and derivatives that gave us the financial crisis have nothing to do
with financing businesses. The banks are not only risking their
customers’ deposits on gambling bets but also jeopardizing the country’s
financial stability and economic future.
With an eye on the approaching dollar crisis, which will wreck the
international financial system, the presidents of China, Russia, Brazil,
South Africa, and the prime minister of India met last month to discuss
forming a new bank that would shield their economies and commerce from
mistakes made by Washington and the European Union. The five countries,
known as the BRICS, intend to settle their trade with one another in
their own currencies and cease relying on the dollar. The fact that
Russia, the two Asian giants, and the largest economies in Africa and
South America are leaving the dollar’s orbit sends a powerful message of
lack of confidence in Washington’s handling of financial matters.
It is ironic that the outcome of financial deregulation in the US is
the opposite of what its free market advocates promised. In place of
highly competitive financial firms that live or die by their wits alone
without government intervention, we have unprecedented financial
concentration. Massive banks, “too big to fail,” now send their
multi-trillion dollar losses to Washington to be paid by heavily
indebted US taxpayers whose real incomes have not risen in 20 years.
The banksters take home fortunes in annual bonuses for their success in
socializing the “free market” banks’ losses and privatizing profits to
the point of not even paying income taxes.
In the US free market economists unleashed avarice and permitted it
to run amuck. Will the disastrous consequences discredit capitalism to
the extent that the Soviet collapse discredited socialism?
Will Western civilization itself survive the financial tsunami that deregulated Wall Street has produced?
Ironic, isn’t it, that the United States, the home of the
“indispensable people,” stands before us as the likely candidate whose
government will be responsible for the collapse of the West.
