America's Financial Crisis

[gmd]

Re: America's Financial Crisis

I think when the xmas numbers come out in Jan '09, we will have open discussion of a depression. That will be on big hangover even before the new Emperor is crowned.

[jgk3]

Re: America's Financial Crisis

Would you look at that? Starbucks' profits fall by 97%! This is serious stuff folks. This is a company that expanded relentlessly during the Greenspan-Bush artificial boom. And now during the bust, it hits the wall. I wonder if they will survive the depression.

http://biz.yahoo.com/ap/081110/earns...ucks.html?.v=6

That is pretty amazing. Number Two and Dr. Evil must be going ballistic right now.

[Armenian]

Re: America's Financial Crisis

With the defeat of nationalism in Europe on the horizon and the ominous rise of Bolshevik power in the works, the Bretton Woods conference towards the end of the Second World War was, in a sense, the 'genesis' of the global financial system we have lived under for the past sixty somewhat years. It was during this conference that the World Bank and its affiliate the International Monetary Fund, who are essentially Uncle Sam's very own money lending shops (think blackmail and bribery), were created. Now that this attempt at turning the entire world into one vast natural resource for the US has begun to fail, a new approach, a reevaluation of the system, is currently in process...

Armenian

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How Bretton Woods reshaped the world

In the summer of 1944, delegates from 44 countries met in the midst of World War II to reshape the world's international financial system. The location of the meeting - in the plush Mount Washington Hotel in rural Bretton Woods, New Hampshire - was designed to ensure that the delegates would have no distractions, and no pressure from lobbyists or Congressmen, as they worked on their plans for post-war reconstruction. The meeting was born out of the determination by US President Franklin D Roosevelt and UK Prime Minister Winston Churchill to ensure post-war prosperity through economic co-operation, avoiding the economic conflicts between countries in the 1930s that they believed contributed to the drift to war.

We have had to perform at one and the same time the tasks appropriate to the economist, to the financier, to the politician, to the journalist, to the propagandist, to the lawyer, to the statesman-even, I think, to the prophet and to the soothsayer - John Maynard Keynes

The principal negotiators at the meeting were the US, represented by the US Treasury's Harry Dexter White, and the UK's John Maynard Keynes, who was serving as UK Treasury adviser despite declining health. And chairing the proceedings was Henry Morgenthau, the US Treasury Secretary, from the only country that was likely to emerge from the war with a strengthened economy. President Roosevelt told the conference: "The economic health of every country is a proper matter of concern to all its neighbours, near and distant."

Fixed exchange rates

The meeting was part of the process led by the US to create a new international world order based on the rule of law, which also led to the creation of the United Nations and the strengthening of other international organisations. The delegates focused on two key issues: how to establish a stable system of exchange rates, and how to pay for rebuilding the war-damaged economies of Europe. And they established two international organisations to deal with these problems. The International Monetary Fund was set up to enforce a set of fixed exchange rates that were linked to the dollar. Countries in balance of payments difficulties could receive short-term help from the IMF to avoid devaluation, and it could sanction changes in exchange rates when necessary. The World Bank (officially the International Bank for Reconstruction and Development) was set up to make long-term loans "facilitating the investment of capital for productive purposes, including the restoration of economies destroyed or disrupted by war [and] the reconversion of productive facilities to peacetime needs".

Post-war prosperity

A third organisation, the International Trade Organisation, designed to encourage free trade, was still-born when the US refused to ratify its charter in 1947 - although tariff reductions were pursued through the Gatt treaty later. However, more ambitious proposals from the UK's John Maynard Keynes to set up a world central bank which could issue its own currency (which he called bancor) were rejected by the US. Keynes hoped a new bank could help reflate the world economy by expanding the money supply. He also wanted the cost of adjustment shared between countries with trade surpluses and deficits, so that countries with big surpluses would have to revalue their currencies, as well as deficit countries being forced to devalue. Instead, the Bretton Woods system gave the US currency - which was linked to gold - the dominant position in the world economy and allowed the US to run a trade deficit without having to devalue. And the US, which contributed the most money to both institutions, also gained the most voting rights, giving it a veto over major policy decisions.

Marshall Plan

The establishment of a rules-based system of international finance helped restore confidence in the world economy and led to an extraordinary boom in the post-war years. The US also helped the European recovery by contributing additional funds through the Marshall Plan when the World Bank's efforts proved inadequate. World trade among developed countries grew rapidly in the 1950s and 1960s, boosting world output and raising the standard of living, especially in Europe and Japan. The US, still by far the richest country in the world, was happy to provide export markets for its allies, and sent dollars abroad through military and civilian aid which helped lubricate the wheels of commerce. Meanwhile, the focus of the World Bank gradually shifted to helping developing countries with the establishment of its special low-interest loan arm, IDA.

Breakdown of Bretton Woods

However, by the 1970s, the US currency was under pressure from a combination of factors, including the cost of the Vietnam war and the growing trade deficit. In 1971, the US under President Nixon unilaterally went off the gold standard and devalued the dollar, a move ratified by the Smithsonian Agreement later that year. This led to the abandonment of fixed exchange rates and the introduction of floating rates, where the value of all the main currencies was determined by market trading. Attempts to forge a new Bretton Woods agreement on currencies in the 1970s failed, although the IMF still retained its role of helping countries cope with major currency crises - including Britain in 1976. The breakdown of Bretton Woods had two consequences. On the one hand, it led European countries to begin seriously considering closer monetary co-operation, which ultimately led to the creation of the euro in 1999. And it led to the creation of the G7, the informal group of the world's leading economies, which helped to coordinate currency adjustment in the Plaza and Louvre Accords in the 1980s.

Financial globalisation

On the other hand, the end of the Bretton Woods system unleashed two decades of financial globalisation, encouraged by the deregulation not just of currency markets, but also of rules about banking and investment. This led to increased flows of private money to rich and poor countries alike, which helped boost growth but also created greater instability. The rapid reversal of such private sector flows when currencies were threatened with devaluation was the central cause of the Asian financial crisis in 1997-98, which spread to Russia and eventually Argentina. The resources of the IMF proved inadequate to compensate for the run on their currencies, and the adjustment proved painful, with sharp falls in GDP. Since then, many Asian countries, including China, have accumulated large currency reserves to insulate themselves against future crises, avoiding the need to call on the IMF.

New global rules

The latest world financial crisis, which has hit the richest countries hardest, has renewed calls for a new global framework of financial regulation. But the task this time will be far more complex, with the proliferation of financial instruments and the fact that there is no longer one country that dominates the world economy in the way the US did after World War II. And the political impetus for co-operation is less compelling today than it was in 1944, after a decade of war and depression. Any new agreement would have to recognise the power of the rising economies, such as China and India, and reshape the institutions created more than half a century ago. Such changes are not likely to be either quick or easy.

Source: http://news.bbc.co.uk/2/hi/business/7725157.stm

[Armenian]

Re: America's Financial Crisis

The international summit held in Washington DC over the weekend was perhaps the year's biggest news development, yet it received very little coverage by the main-stream news media in the US. The representatives of the world's twenty largest economies converged onto Washington DC to discuss the serious financial crisis plaguing the world; Russian president addressed the Council on Foreign Relations... Yet there has been scant news coverage of this important event. I wonder why...

Armenian

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World leaders pledge action to reform financial system

G20 agree action plan to revive global economy: http://www.youtube.com/watch?v=Rj4XSa_tvV8

Expectations low for G20 summit: http://www.youtube.com/watch?v=txGPLxR9ACA

What can we expect from G20 summit?: http://www.youtube.com/watch?v=PPE_PDG3wl4

World leaders pledged at a summit in Washington to restore global economic growth and start work on reforming financial regulation. Leaders of the G20 nations, which account for 90% of the world's economy, agreed at Saturday's summit to reform the World Bank and International Monetary Fund to improve their effectiveness in helping emerging economies through the credit crunch. Although leaders hailed progress at the talks, concrete agreements will have to wait until a follow-up summit, scheduled for April 2009, likely to be held in London. A joint summit communique said: "We are determined to enhance our cooperation and work together to restore global growth and achieve needed reforms in the world's financial systems." "We must lay the foundation for reform to help to ensure that a global crisis, such as this one, does not happen again. After the talks, World Bank President Robert Zoellick said: "What matters now are the follow-up actions." French President Nicolas Sarkozy stressed that the vast and complex issues discussed at the summit "cannot be resolved in three weeks," but welcomed the U.S. approach to the crisis, saying: "The U.S. administration has accepted to move on subjects where historically all U.S. administrations refused to move." "Never before have Anglo-Saxons agreed to subject rating agencies to oversight and regulation," he said. Acknowledging failings in global financial regulation, the G20 statement said: "Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions." President George W. Bush, who leaves office in January, said the participants had agreed to modernize financial regulation, making markets more "transparent and accountable." The outgoing leader hailed the summit as "very successful." President-elect Barack Obama's transition team released a statement saying the future leader was ready to work with other G20 countries to tackle the credit crisis when he takes office. He called the summit "an important opportunity to seek a coordinated response to the global financial crisis."

Source: http://en.rian.ru/world/20081116/118338623.html

Medvedev proposes reform of global finance system

Medvedev goes to Washington: http://www.youtube.com/watch?v=ewm-MsLmB84

Medvedev warns against unilateralism: http://www.youtube.com/watch?v=ltGC_YbK8ek

Russian President Dmitry Medvedev called on Saturday for the reorganization of the global financial system, including the establishment of an international regulatory commission, a presidential aide said. "To make the process of reform as effective as possible, the president suggested the creation of an international commission of independent, influential experts - financial gurus," Arkady Dvorkovich told journalists at the G20 summit in Washington. He said the first part of the summit had been completed, with 14 people, including Medvedev, having had their say. "The key aspects he [Medvedev] drew attention to were that as regards the reasons for the financial crisis, no analogies with the past would work. This is not the Great Depression ... it's a global crisis of the 21st century," Dvorkovich said. The presidential aide said Medvedev emphasized that the present structure of the global financial security is inadequate, and that new financial institutions are needed to meet present demands. "The system of the international financial architecture will have to be rebuilt to make it open, fair, efficient and legitimate," Dvorkovich said. Medvedev also told the meeting that Russia supported the declaration due to be adopted at the end of the summit. "We back the declaration - it shows most of the problems. It takes into account all that worries us now," Medvedev told G20 leaders. Dvorkovich also told journalists that the leaders had not reached an agreement on transforming the G20 into a wider forum. "There are as yet no plans to transform the forum of finance ministers and central bank heads into a regular forum of leaders of the G20 countries," he said. The aide said this meant that the G20 should be where questions of reforming the global financial structures are decided, while the Group of Eight leading industrial countries should remain the forum for issues of world security. Dvorkovich also said the Russian president had called on G20 summit participants to help the world's poorest countries overcome the financial crisis. "It is important to work together to provide all the countries most affected by the crisis, the poorest countries, with resources through the IMF and other international and regional organizations," the aide said, adding that all the summit participants were united on the issue. Dvorkovich said the next G20 summit would be held not later than April 30, 2009. "After the first half of the summit, there is consent that global problems demand global solutions. The participants expressed the readiness to hold the next summit not later than April 30 next year," he said. The G20 comprises 19 of the world's largest economies plus the European Union.

Source: http://en.rian.ru/russia/20081115/118335777.html

Russia's Medvedev speaks on foreign policy in Washington

Medvedev's speech at US Council on Foreign Relations: http://www.youtube.com/watch?v=0ss_LzlxjUA

Russia will respond to the U.S. missile defense plans for Europe if the U.S. steps are unacceptable for Moscow, President Dmitry Medvedev said Sunday. "We would act only in response and only if the [U.S. missile defense] program continues in a variant unacceptable for us," Medvedev said after the G20 economic summit, while speaking to the Council on Foreign Relations in Washington. Washington recently said it had provided new proposals to ease Russia's concerns over the planned deployment of 10 U.S. interceptor missiles in Poland and a tracking radar in the Czech Republic, which the George Bush administration has said are needed to counter possible attacks from "rogue" states such as Iran. Russia, which says the missile defense system is a threat to its national security, has indicated it will not address the U.S. proposals until after president-elect Barack Obama is inaugurated as U.S. president in January. Medvedev announced last week the possible deployment of Iskander-M short-range missile systems in the country's Kaliningrad exclave, sandwiched between Poland and Lithuania on the Baltic Sea. However, the Russian leader said in an interview with France's Figaro newspaper published on Thursday that, "We could reconsider this response if the new U.S. administration is ready to once again review and analyze all the consequences of its decisions to deploy the missiles and radar facilities." Medvedev also told the council that Russia hopes relations with the U.S. will improve under Obama. Medvedev proposed on Sunday creating a forum uniting European countries, international organizations and NATO to discuss possible threats to security. Speaking about Russia's tense relations with Georgia, Medvedev told the council that his country is ready to deal with Georgia but not with the Mikheil Saakashvili regime. "We are ready to build relations with Georgia but not with the current regime," the Russian leader said. In early August, Russia fought a brief war with Georgia over South Ossetia after Georgian forces attacked the republic in an attempt to bring it back under central control. On August 26, Russia recognized South Ossetia and Abkhazia, the other Georgian breakaway republic, as independent states. Abkhazia and South Ossetia broke away from Georgia following the collapse of the Soviet Union in the early 1990s amid armed conflicts that claimed thousands of lives.

Source: http://en.rian.ru/world/20081116/118337082.html

Russian national debt lowest of all G20 countries

Russian President Dmitry Medvedev can look around the summit table on Saturday knowing his government has less debt than any other G20 country, according to the Guardian newspaper. The British paper put Russia's debt at $76 billion - less than 1% of the United States' $8.4 trillion. As a percentage of gross domestic product, Moscow's situation is not quite as rosy, but President George Bush would probably take a national debt running at 6% rather than 60% of GDP. But by that measure, Japan may be in even worse shape - its $7.45 trillion public debt is more than 1 1/2 times the country's GDP. But Japan has spent so much of the last decade or so in economic difficulties that maybe the country has grown used to it. Things could hardly be more different in Britain, where a decade of almost uninterrupted growth has come to a grinding halt. But the $1.2 trillion debt is still less than half of GDP. The other three European members of the G8 are in even worse shape. They all owe more than half their GDP. Italy, with the lowest GDP of the three, has the highest debt according to the Guardian, at $2.19 trillion. Next is Germany with $2.07 trillion, followed by France at $1.63 trillion. Of the so-called BRIC countries, China's $580 billion debt is hardly daunting at less than a fifth of GDP, while Brazil's $590 billion is still less than half its GDP. India, on the other hand, is up there with the United States with a public debt of $637 billion totaling more than 60% of its 2007 GDP. Down the bottom of the Guardian chart with Russia are Saudi Arabia, owing $91 billion, and South Africa, with a debt of $88 billion.

Source: http://en.rian.ru/business/20081115/118335408.html

[Anonymouse]

Re: America's Financial Crisis

This is what has been metaphorically called "Bretton-Woods II". LOLz.

[truAnatolian]

Re: America's Financial Crisis

One day there will be an Armenian president sitting at that table.

[Armanen]

Re: America's Financial Crisis

On G-20 and GM: Economics, Politics and Social Stability
November 17, 2008

By George Friedman

The G-20 met last Saturday. Afterward, the group issued a meaningless statement and decided to meet again in March 2009, or perhaps later. Clearly, the urgency of October is gone. First, the perception of imminent collapse is past. Politicians are superb seismographs for detecting impending disaster, and these politicians did not act as if they were running out of time. Second, the United States will have a new president in March, and nothing can be done until he defines his policy.

Given the sense in Europe that this financial crisis marked the end of U.S. economic supremacy, it is ironic that the Europeans are waiting on the Americans. One would think they would be using their newfound ascendancy to define the new international system. But the fact is that for all the shouting, little has changed in the international order. The crisis has receded sufficiently that nothing more needs to be done immediately beyond “cooperation,” and nothing can be done until the United States defines what will be done. We feel that our view that the international system received fatal blows Aug. 8, when Russia and Georgia went to war, and Oct. 11, when the G-7 meeting ended without a single integrated solution, remains unchallenged. Now, it is every country for itself.

From Financial Crisis to Cyclical Recession
The financial crisis has been mitigated, if not solved. The problem now is that we are in a cyclical recession, and that every country is trying to figure out how to cope with the recession. Unlike the past two recessions, this one is more global than local. But unlike the 1970s, when recession was global, this one is not accompanied by soaring inflation and interest rates.

All recessions have different dynamics, but all have one thing in common: They impose punishment and discipline on economies run wild. This is happening around the world.

China, for example, faces a serious problem. China is an export-oriented economy whose primary market is the United States. As the United States goes into recession, demand for Chinese goods declines. Chinese businesses have always operated on very tight — sometimes invisible — profit margins designed to emphasize cash flow and to pay off debts to banks. As U.S. demand contracts, many Chinese firms find themselves in untenable positions, without room to decrease prices, lacking operating reserves and insufficiently capitalized. Recessions are designed to cull the weak from the herd, and a huge swath of the Chinese economy is ripe for the culling.

If the world were all about economics, culling is what the Chinese would do. But the world is more complex than that. A culling would lead to massive unemployment. Many Chinese employees live on Third World wages; indeed, the vast majority of Chinese have incomes of less than $1,000 a year. To them, unemployment doesn’t mean problems with their 401k. It means malnutrition and desperation — neither of which is unknown in 20th century Chinese history, including the Communist period. The Chinese government is rightly worried about the social and political consequences of rational economic policies: They might work in the long run, but only if you live that long.

Economic Restructuring vs. Stability
The Chinese have therefore prepared a massive stimulus package that is more of a development program to make up for declining U.S. demand. It aims to keep businesses from failing and spilling millions of angry and hungry workers into the street. For the Chinese, the economic problem creates a much larger and more serious issue. It is also an issue that must be solved quickly, and the amount of time needed outstrips the amount of time available.

This is not only a Chinese problem. Wherever there is an economic downturn, politicians must decide whether society — and their own political futures — can withstand the rigors recessions impose. Recessions occur when, as is inevitable, inefficiencies and irrationalities build up in the financial and economic system. The resulting economic downturn imposes a harsh discipline that destroys the inefficient, encourages everyone to become more efficient, and opens the doors to new businesses using new technologies and business models. The year 2001 smashed the technology sector in the United States, opening the door for Google Inc.

The business cycle works well, but the human costs can be daunting. The collapse of inefficient businesses leaves workers without jobs, investors without money and society less stable than before. The pain needed to rectify China’s economy would be enormous, with devastating consequences for hundreds of millions of Chinese, and probably would lead to social chaos. Beijing is prepared to accept a high degree of economic inefficiency to avoid, or at least postpone, the reckoning. The reckoning always comes, but for most of us, later is better than sooner. Economic rationality takes a back seat to social necessity and political common sense.

Every country in the world is looking inward at the impact of the recession on its economy and measuring its resources. Countries are deciding whether they have the ability to prop up business that should fail, what the social consequences of business failure would be, and whether they should try to use their resources to avoid the immediate pain of recession. This is why the G-20 ended in meaningless platitudes.

Each country is also trying to answer the question of how much pain it — and its regime — can endure. The more pain imposed, the healthier countries will emerge economically — unless of course the pain kills them. Ultimately, the rationality of economics and the reality of society frequently diverge.

Recession and the U.S. Auto Industry
For the United States, this choice has been posed in stark terms with regard to the dilemma of whether the U.S. government should use its resources to rescue the American auto industry. The American auto industry was once the centerpiece of the U.S. economy. That hasn’t been true for a generation, as other industries and services have supplanted it and other countries’ auto industries have surpassed it. Nevertheless, the U.S. auto industry remains important. It might drain the U.S. economy by losing vast amounts of money and destroying the equity held by its investors, but it employs large numbers of people. Perhaps more important, it purchases supplies from literally thousands of U.S. companies.

There can be endless discussions of why the U.S. auto industry is in such trouble. The answer lies not in one place but in many, from the decisions and makeup of management to the unions that control much of the workforce, and from the cost structure inherent in producing cars in the American economy to a simple systemic inability to produce outstanding vehicles. There might be varying degrees of truth to all or some of this, but the fact remains that each of the U.S. carmakers is on the verge of financial collapse.

This is what recessions are supposed to do. As in China and everywhere else, recessions reveal weak businesses and destroy them, freeing up resources for new enterprises. This recession has hit the auto industry hard, and it is unlikely that it is going to survive. The ultimate reason is the same one that destroyed the U.S. steel industry a generation ago: Given U.S. cost structures, producing commodity products is best left to countries with lower wage rates, while more expensive U.S. labor is deployed in more specialized products requiring greater expertise. Thus, there is still steel production in the United States, but it is specialty steel production, not commodity steel. Similarly, there will be specialty auto production in the United States, but commodity auto production will come from other countries. < /p>

That sounds easy, but the transition actually will be a bloodletting. Current employees of both the automakers and suppliers will be devastated. Institutions that have lent money to the automakers will suffer massive or total losses. Pensioners might lose pensions and health care benefits, and an entire region of the United States — the industrial Midwest — will be devastated. Something stronger will grow eventually, but not in time for many of the current employees, shareholders and creditors.

Here the economic answer, cull, meets the social answer, stabilize. Policymakers have a decision to make. If the automakers fail now, their drain on the economy will end; the pain will be shorter, if more intense; and new industries would emerge more quickly. But though their drain on the economy would end, the impact of the automakers’ failure on the economy would be seismic. Unemployment would surge, as would bankruptcies of many auto suppliers. Defaults on loans would hit the credit markets. In the Midwest, home prices would plummet and foreclosures would skyrocket. And heaven only knows what the impact on equity markets would be.

In the U.S. case, the healthful purgative of a recession could potentially put the patient in a coma. Few if any believe the U.S. auto industry can survive in its current form. But there is an emerging consensus in Washington that the auto industry must not be allowed to fail now. The argument for spending money on the auto industry is not to save it, but to postpone its failure until a less devastating and inconvenient time. In other words, fearing the social and political consequences of a recession working itself through to its logical conclusion, Washington — like Beijing — wants to spend money it probably won’t recover to postpone the failure. Indeed, governments around the world are considering what failures to tolerate, what failures to postpone, and how much to spend on the latter. General Motors is merely the American case in point.

The Recession in Context
The people arguing for postponement aren’t foolish. The financial system is still working its way through a massive crisis that had little to do with the auto industry. Some traction appears to be occurring; certainly there was no crisis atmosphere at the G-20 meeting. The economy is in recession, but in spite of the inevitable claims that we have never seen anything like this one before, we have. There is always some variable that swings to an extreme — this time, it is consumer spending — but we are still well within the framework of recent recessions.

Consider the equity markets, which we regard as a long-term measure of the market’s evaluation of the state of the economy. In January 2000, the S&P 500 peaked at 1,455. This was the top of the market. In July 2002, 18 months later, the S&P bottomed out at 935. Over the next five years it rose to 1,519 in July 2007, the height for this cycle. It fell from this point until Nov. 12, 2008, when it closed at 852.30. This past Friday, it was at 873.29.

We do not know what the market will do in the future. There are people much smarter than we are who claim to know that. What we do know is what it has done. And what it has done this time — so far — is almost exactly what it did last time, except that in 2000-2002 it took 18 months to do it, while this time it was done in about 16 and a half months (assuming it bottomed out Nov. 12). But even if the market didn’t bottom out then, and it falls to 775, for example, it will have lost 50 percent of its value from the peak. This would be more than in 2000-2002, but not unprecedented.

The point we are making here is that if we regard the equity markets as a long-term seismograph of the economy, then so far, despite all the storm and stress, the markets — and therefore the economy — remain within the general pattern of the 2000-2002 market at the 2001 recession. That recession certainly was unpleasant, what with the devastation of the tech sector, but the economy survived. At the same time, however, it is clear that things are balanced on a knife’s edge. Another hundred points’ fall on the S&P, and the markets will be telling us that the world is in a very different place indeed.

A massive bankruptcy in the automotive sector could certainly set the stage for an economic renaissance in the next generation. But at this particular moment in time (it’s no coincidence that the crisis in the U.S. automotive industry comes as we enter a recession), a wave of bankruptcies would dramatically deepen the recession. This probably would be reflected by the destruction of trillions more in net worth in the equity markets.

There is a powerful counterargument to bailing out the U.S. auto industry. This argument holds that the auto industry is a drain on the U.S. economy, that it will never be globally competitive, and that if it is dragged back from the edge, no one will then say it is time to push it to the edge and over. The next time it will be on the brink will be during the next recession, and the same argument to save it will be used. In due course, the United States, like China, will be so terrified of the social and political consequences of business failure that it will maintain Chinese-like state owned enterprises, full of employees and generation-old plants and business models. Clearly, short-run solutions can easily become long-term albatrosses.

[...]

[Armanen]

Re: America's Financial Crisis

The only possible solution would be a bailout followed by a Washington-administered restructuring of the auto industry. This causes us to imagine a collaboration between the auto industry’s current management and Washington administrators that would finally put Detroit on a path to where it can compete with Toyota. Frankly, the mind boggles at this. But boggle though we might, hitting the economy with another massive financial default, a wave of bankruptcies, massive unemployment surges and another blow to housing prices boggles our mind even more.

The geopolitical problem confronting the world at the moment is that it has been forced to offer massive support to the global financial system with sovereign wealth — e.g., via taxes and currency printing presses. The world might just have squeaked through that crisis. Now, the world is in an inevitable recession and businesses are on the brink of failure. A wave of massive business failures on top of the financial crisis might well move the global system to a very different place. Therefore, each nation, by itself and indifferent to others, is in the process of figuring out how to postpone these failures to a more opportune time — or to never. This will build in long-term inefficiencies to the global economy, but right now everyone will be quite content with that.

Thus the financial crisis became a recession, and the recession triggered bankruptcies. And because no one wants bankruptcies right now, everyone who can is using taxpayer dollars to protect the taxpayer from the consequences of mismanagement. And the last thing any one cared about was the G-20 concept for the future of the economic system.

[Armenian]

Re: America's Financial Crisis

The G-20 Economic Summit Won’t Change the "Financial Crime Scene"

By Richard C. Cook

The G20 is meeting today in Washington , D.C. , to discuss the world financial crisis, its causes, and what can be done about it. But this won’t help the people of the U.S. who have been victimized by their own financial system. The stated objectives are to find ways to stabilize and reduce speculation in the financial markets and make financial transactions more transparent, more efficient, and more international in scope. But this is also a revolt by the nations of the world against over-reliance on the U.S. dollar as the world’s reserve currency. What we are likely to see over time is a multi-currency regime that includes the Euro and one or more Asian currencies as well. But the conference will not address the real causes of why the world is heading into a global recession or why the U.S. economy in particular is in such dire straits. Nor will the meeting lresult in redress of the staggering level of bankers’ criminality abetted by the U.S. government in the creation of the financial bubbles whose collapse is underway. The real problem is that the world is locked into a debt-based financial system run by the world’s banks, where the only way currency can be entered into circulation is through lending. It’s been massive amounts of completely irresponsible lending which have leveraged the bubbles against much smaller amounts of tangible value.

The GDP of the entire world is $55 trillion. This is dwarfed by speculative lending in the derivatives markets of ten times that amount--$525-$550 trillion. No nation has clean hands in this travesty. The governments of the world and the central banks have allowed it to come into being. Within the U.S. , reliance on money-creation through bank lending has been the problem since the creation of the Federal Reserve System in 1913. At that point the U.S. monetary system was privatized. The case has been the same with all the other nations which have private banking systems that control their central banks. The granddaddy is the Bank of England which dates from 1694. The creation of the Federal Reserve System marked the start of a century of world war. This is hardly a coincidence. Indeed, the central banking system encourages wars and lives off them, because it is war and the threat of war that is most profitable to a system where the more money governments borrow the more profits the banks make. All this started with World War I, which was largely financed by the British, French, German, and the U.S. banks. Events have continued in that vein through today, where the nations of the world are armed to the teeth and global finance capitalism tries to increase its control everywhere to the detriment of workers, national economies, and the environment.

To try to fix the crisis through bailing out the system, we are now seeing in the U.S. and Europe levels of government borrowing that have not been experienced since World War II. The purpose is to recapitalize a financial system that has destroyed itself through its own greed and folly. But all this does is defer the bill to future generations who have to pay the enormous compounded interest charges this borrowing entails. Interest on the national debt in the 2009 federal budget is over $500 billion. Every man, woman, and child in the nation is a victim of this crime. The situation is so bad that many people believe the U.S. may even be in danger of defaulting on its gigantic national debt sometime in 2009. Meanwhile, the failed financial system is dragging down the world’s producing economy with it, and the bailouts won’t change that situation. Combined with the financial crash has been a collapse in consumer “demand.” In other words, consumers, who are maxed out on their credit, no longer can borrow enough to keep the wheels of the economy turning. But the reason they must borrow for consumption is that earnings are not sufficient for people to buy what they need to live. This is why in the U.S. there has been an outcry, including with the Obama campaign, for new government job-creation programs. Every day there is another proposal by progressives for new government spending, which, of course, will have to be financed by even more government debt.

So when are we going to learn how to introduce purchasing power without debt? How did we ever come to believe that the only way to create money is through a bank inventing it out of thin air? In the past few weeks we have had a number of Nobel-prize winning economists chip in with their suggestions of what to do, but none have addressed the obvious question of what the alternatives may be to bankers’ debt-based currency. If we look at history, we see other ways governments have used their powers to create money. Indeed, until the Federal Reserve Act of 1913, the U.S. was a kind of laboratory of alternative methods of money-creation. If we go back to colonial days, the American colonies used a variety of means to introduce currency into circulation. In Virginia , plantation owners received tobacco certificates when they deposited their product at public warehouses. The certificates then circulated as currency. In Pennsylvania the government ran a land bank which paid cash to land-owners for liens on property. The interest paid for the costs of government without any taxation of citizens.

In Massachusetts, Pennsylvania, and elsewhere, governments spent paper money directly into circulation. The money received value by then being accepted by those governments, after it circulated within the economy, in payment of taxes. Other forms of currency were Spanish dollars, Indian wampum, and IOUs. There was also a flourishing barter trade. The system worked. By 1764, the American colonies formed one of the most prosperous trading regions on the planet. When asked why, Benjamin Franklin said it was because of colonial scrip—i.e., their paper money. When the British Parliament outlawed it through the Currency Act of 1764, an economic depression followed. It was the underlying cause of the Revolutionary War. During that war, the Continental Congress issued the famous Continental Currency. What likely caused that money to inflate was extensive British counterfeiting, not being used to excess by our national government. Once the nation became independent, a U.S. mint was founded so individuals could bring in gold or silver and have it stamped into coinage free of charge. New discoveries as with the California and Yukon gold rushes or better methods of extraction from ores resulted in economic booms. From then until coinage lost its value after the Federal Reserve System was established, precious metals were a major part of the U.S. monetary system that included not only coinage but also gold and silver certificates.

[...]

What has happened during the Bush administration has been the greatest crime against the public interest in U.S. history. Its effects are only starting to be evident. Of course in the face of so many disasters, the credit markets have imploded, and governments don’t know what to do except recapitalize and restructure them but without taking action to address the deep systemic problems with the producing economy. And while the Europeans may have blown the whistle on U.S. excesses through the G20 meeting, this country still faces disaster. Yes, Wall Street is killing Main Street , and no one has come up with an answer except suggestions for the bailouts and some New Deal-type programs in an environment that is much worse even than in the 1930s. For one thing, most of what we consume today is produced abroad. For another, family farming has been ruined. In a pinch, our nation could no longer even feed itself. But the amazing thing is how easy it would be to salvage the situation if the government took the simple step of treating credit as what it really is—a public utility like clean air, water, or electricity, not the private property of the banking system. In fact the banking system and the politicians they own have stolen and abused this fundamental piece of the social commons. Banks have no legal right to work against the public interest. Every single bank that has ever existed has operated under a public charter. The Constitution gives Congress—i.e., the people’s representative government—authority to regulate interstate commerce. It also gives Congress the right and responsibility to control the monetary system. So why doesn’t Congress do it? Why does Congress sit passively and stare when Federal Reserve chairmen such as Alan Greenspan or Ben Bernanke sit before them and mumble nonsense about markets and interest rates and inflation and the rest of a made-up system whose main result is to funnel the wealth of the economy upwards into the hands of the financial elite? In my writings I have advocated several measures Congress could take immediately to remedy the catastrophe we are facing:

1. Congress could authorize direct expenditure of government funds for legitimate public expenses, as was done with the Civil War-era Greenbacks. Contrary to bankers’ propaganda, the Greenbacks were not inflationary then and would not be inflationary now, because they would be backed by tangible economic production of goods and services. What has been inflationary has been the debt-based currency which, since it was introduced in 1913, has caused the dollar to lose 95 percent of its value. Greenback-type spending is contained in the proposed American Monetary Act, developed by the American Monetary Institute.

2. Congress could authorize a national infrastructure bank that would be self-capitalized and would lend money into existence to state and local governments at zero percent interest. Legislation for such a bank has been introduced by Congressman Dennis Kucinich.

3. Congress could authorize dividend payments to citizens as advocated by the Social Credit movement founded by Major C.H. Douglas of Great Britain decades ago as a means of monetizing the net appreciation of the producing economy. Dividends exceeding $1,000 a month could be issued from a national dividend account without recourse to taxation or borrowing. Such a concept is related to the Alaska Permanent Fund which paid over $3,200 to each state resident in 2008 and to the concept of a basic income guarantee advocated by proponents of the negative income tax in years past.

4. Congress could utilize dividend payments once they were spent, possibly in the form of vouchers for necessities of life like food and housing, to capitalize a new network of community savings banks that would provide low-cost credit to home purchasers, students, small business people, and local farms.

I worked in the U.S. Treasury Department for 21 years and learned first-hand the history and operations of public finance in the U.S. I have seen the disastrous results of the debt-based financial system and how it has driven our nation, government, and people into bankruptcy. I have also seen how these simple measures of monetary reform would be easy to implement and would begin to turn the situation around within weeks or months. All it takes is political will and a determination to challenge the death-grip the financial elite has had on our economy for a century. We can be quite certain that these vital issues will not be addressed by the summit of the G20 meeting in Washington today. If anything, these meetings are likely to render the grip of private finance on the peoples of the world even tighter than before. But sooner or later change must come. For the immediate future people could fight back by doing everything possible to get out of debt, convert their cash reserves to tangible holdings, and start their own local currency and barter systems. But for real change, a monetary revolution is required.

Source: http://www.globalresearch.ca/index.p...t=va&aid=10987

In related news:

Russia: Pushing the Ruble

Summary

Russia and its former Soviet neighbors are meeting to discuss a proposal to carry out energy transactions in rubles instead of U.S. dollars. The plan theoretically offers an economic benefit to importer states, but they might not go for it given the political strings attached.

Analysis

National bank chiefs and finance ministers from the Commonwealth of Independent States (CIS) — which includes Russia, Belarus, Moldova, Armenia, Azerbaijan, Kazakhstan, Uzbekistan, Tajikistan and Kyrgyzstan — are meeting Nov. 17 to discuss the possibility of using the Russian ruble for payment of energy deliveries from Russia. This initiative has been on the table for some time, but now Moscow is pushing the plan in order to prop up its own currency and solidify its control over other CIS countries. Currently, Russia accepts energy payments in U.S. dollars from its export customers and then converts the money to rubles. However, Russia tacks on a hefty fee for the currency conversion, making energy imports from Russia just that much more expensive. The offer on the table is to allow importers of Russian energy (at least within the CIS) to pay in rubles, which Moscow says will help eliminate that costly conversion fee for those states.

[...]

Source: http://www.stratfor.com/analysis/200..._pushing_ruble

[Armanen]

Re: America's Financial Crisis

The Financial Crisis and the G-20 Washington Summit

The Birth of the Mount

By Fidel Castro Ruz

Global Research, November 18, 2008
Cuba.cu - 2008-11-16


Bush seemed happy to have Lula sitting to his right during dinner on Friday. On the other hand, Hu Jintao, whom he respects for the enormous market in his country, the capacity to produce consumer goods at low cost and the volume of his reserves in US dollars and bonds was sitting to his left.

Medvedev, whom he offends with the threat of locating strategic radars and missiles not far from Moscow, was assigned a seat rather distant from the White House host.

The King of Saudi Arabia, a country that in a near future will produce 15 million tons of light oil at highly competitive prices was also sitting at his left, at Hu’s side.

Meanwhile, Gordon Brown, the Prime Minister of the United Kingdom and his most faithful ally in Europe, could not be seen close to him in the pictures.

Nicolas Sarkozy, who is rather disappointed at the present architecture of the financial order, was far from him looking embittered.

The President of the Spanish Government, Jose Luis Rodriguez Zapatero, a victim of Bush’s personal resentment attending the conclave in Washington, I could not even see in the television images of the dinner.

That’s how those attending the banquet were sitting.

Anyone would have thought that the following day there would be a profound debate on the thorny issue.

On Saturday morning, the press agencies were reporting on the program that would unfold at the National Building Museum in Washington, D.C. Every second was covered. There would be an analysis of the current crisis and the actions to be taken. It would start at 11:30 a.m. local time. First, there would be a photo op, or “family picture” as Bush called it, and twenty minutes later the first plenary session would start followed by a another one in the second half of the day. Everything was strictly planned, even the fine sanitary services.

The speeches and analysis would last approximately three hours and 30 minutes. Lunch would be at 3:25 local time, immediately followed by the final declaration at 5:05. One hour later, at 6:05, Bush would be leaving for Camp David to rest, have dinner and have a pleasant sleep.

Those following the event were impatient to see the day going by and trying to know how the problems of the earth and the human specie would be dealt with in such a short time. A final declaration had been announced.

The fact is that the Summit’s final declaration was worked out by previously chosen economic advisors, very much in line with neoliberal ideas, while Bush in his statements prior to the summit and after its conclusion claimed more power and more money for the International Monetary Fund, the World Bank and other world institutions under strict control of the United States and its closest allies. That country had decided to inject 700 billion dollars to bailout its banks and multinational corporations. Europe had offered an identical or even higher figure. Japan, its strongest pillar in Asia, has promised a 100 billion dollars contribution. In the case of the People’s Republic of China, which is developing increasing and convenient relations with Latin American countries, they are expecting another contribution of 100 billion dollars from its reserves.

Where would so many dollars, euros and pound sterlings come from if not from the deep indebtedness of new generations? How can the structure of the new world economy be built on paper money, which is what is really circulating in the short run, when the country issuing it is suffering from an enormous fiscal deficit? Would it be worthwhile traveling by air to a place on the planet named Washington to meet with a President with only 60 more days left in government and signing a document previously designed to be adopted at the Washington Museum? Could the US radio, TV and press be right not to pay special attention to this old imperialist game in the much-trumpeted meeting?

What is really incredible is the final declaration adopted by consensus in the conclave. It is obviously the participants’ full acceptance of Bush’s demands made before and during the summit. Some of the attending countries had no choice but to adopt it; in their desperate struggle for development, they did not want to be isolated from the richest and most powerful and their financial institutions, which are the majority in the G20.

Bush was really euphoric as he spoke. He used demagogic phrases which mirror the final declaration.

He said: “The first decision I had to make was who was coming to the meeting. And obviously I decided that we ought to have the G20 nations, as opposed to the G8 or the G13. But once you make the decision to have the G20 then the fundamental question is, with that many nations, from six different continents, who all represent different stages of economic development, would I be possible to reach agreements, and not only agreements, would I be possible to reach agreements that were substantive? And I’m pleased to report the answer to that question was, absolutely.”

“The United States has taken some extraordinary measures. Those of you who have followed my career know that I’m a free market person –until you are told that if you don’t take decisive measures then it’s conceivable that our country could go into a depression greater than the Great Depression.”

“[…] we just started on the $700 billion fund to start getting money out to our banks.”

“[…] we all understand the need to work on pro-growth economic policies.”

“Transparency is very important so that investors and regulators are able to know the truth.”

The rest of what Bush said goes more or less along this line.

The final declaration of the summit, which takes half an hour to read in public due to its length, is clearly defined in a number of selected paragraphs:

“We, the leaders of the G20 have held a first meeting in Washington, on November 15, in the light of serious challenges to the world economy and financial markets…”

“[…] we should lay the foundations for a reform that will make this global crisis less likely to happen again in the future. Our work should be guided by the principles of the free market, free trade and investment….”

“[…] the market players sought to obtain more benefits failing to make an adequate assessment of the risks and they failed…”

“The authorities, regulators and supervisors from some developed nations did not realize or adequately warned about the risks created in the financial markets…”

“…insufficient and poorly coordinated macroeconomic policies as well as inadequate structure reforms, led to an unsustainable macroeconomic global result.”

“Many emerging economies, which have helped sustain the world economy, are increasingly suffering from the world brakes.”

“We note the important role of the IMF in response to the crisis; we salute the new short-term liquidity mechanism and urge the constant reviewing of its instruments to ensure flexibility.”

“We shall encourage the World Bank and other multilateral developing banks to use their full capacity in support of their agenda for assistance…”

“We will make sure that the IMF, the World Bank and other multilateral developing banks have the necessary resources to continue playing their role in the solution of the crisis.”

“We shall exercise a strong monitoring of the credit agencies through the development of an international code of conduct.”

“We pledge to protect the integrity of the world financial markets by reinforcing protection to the investor and the consumer.”

“We are determined to advance in the reform of the Bretton Woods institutions so that they reflect the changes in the world economy to increase their legitimacy and effectiveness.”

“We shall meet again on April 30, 2009, to examine the implementation of the principles and decisions made today.”

“We concede that these reforms will only be successful if they are based on a serious commitment to the principles of free market, including the rule of law, respect for private property, free trade and investment, efficient and competitive markets and effectively regulated financial systems.”

“We shall refrain from erecting new barriers to investment and trade in goods and services.”

“We are aware of the impact of the current crisis on the developing nations, especially on those most vulnerable.”

“We are certain that as we advance through cooperation, collaboration and multilateralism we will overcome the challenges and restore stability and prosperity to the world economy.”

This technocratic language is beyond grasp of the masses.

The empire is treated courteously; its abusive methods are not criticized.

The IMF, the World Bank and the multilateral credit organizations are praised despite the fact that they generate debts, enormous bureaucratic expenses and investments while supplying raw materials to the large multinationals which are also responsible for the crisis.

This goes on like that until the last paragraph. It’s a boring declaration full of the usual rhetoric. It doesn’t say anything. It was signed by Bush, the champion of neoliberalism, the man responsible for genocidal wars and massacres, who has invested in his bloody adventures all the money that would have sufficed to change the economic face of the world.

The document does not have a word on the absurd policy promoted by the United States of turning food into fuel; or the unequal exchange of which the Third World countries are victims; or about the useless arms race, the production and trade of weapons, the breakup of the ecological balance and the extremely serious threats to peace that bring the world to the brink of annihilation.

Only a short four-word phrase in the long document mentions the need “to face climate change.”

The declaration reflects the demand of the countries attending the conclave to meet again in April 2009, in the United Kingdom, Japan or any other country that meets the necessary requirements --nobody knows which- to examine the situation of the world finances, dreaming that the cyclical crisis with their dramatic consequences never happen again.

Now is the time for the theoreticians from the left and the right to offer their passionate or dispassionate criteria on the document.

From my point of view, the privileges of the empire were not even touched upon. Having the necessary patience to read it completely, one can see that is simply a pious appeal to the ethic of the most powerful country on earth, both technologically and militarily, in the era of economic globalization; it’s like begging the wolf not to eat up little red riding hood.

http://globalresearch.ca/index.php?context=va&aid=11019