Saturday, January 21, 2012

What is the Solution to the Global Debt Crisis?

*******
IMF warns of threat to global economies posed by austerity drives
International Monetary Fund and 10 other economic bodies make 'call to action' to boost growth and curb protectionism
Larry Elliott, The Guardian
Friday 20 January 2012
http://www.guardian.co.uk/business/2012/jan/20/austerity-warning-international-monetary-fund
The leaders of the International Monetary Fund, the World Bank and the World Trade Organisation on Friday issued a warning about the economic and social risks of austerity programmes in a "call to action" designed to boost growth and fight protectionism.
Expressing concern about the weakness of economic activity and rising unemployment, the IMF's Christine Lagarde, the World Bank's Robert Zoellick and the WTO's Pascal Lamy joined the heads of eight other multilateral and regional institutions in calling for policies to create jobs, tackle inequality and green the global economy.
"The world faces significant and urgent challenges that weigh heavily on prospects for future growth and on the cohesion of our societies," said the statement by the global issues group of the World Economic Forum. It was published ahead of the forum's annual meeting in Davos next week, amid concerns that 2012 will see the global economy flirt with recession as a result of the eurozone crisis.
"Our shared objective is the strengthening of growth, employment and the quality of life in every part of the world," said the statement. "But entering 2012, we worry about: decelerating global growth and rising uncertainty; high unemployment, especially youth unemployment, with all its negative economic and social consequences; potential resort to inward-looking protectionist policies."
In addition to Lagarde, Zoellick and Lamy, the signatories were Mark Carney of the Financial Stability Board, Margaret Chan of the World Health Organization, Angel Gurría of the Organisation for Economic Co-operation and Development, Donald Kaberuka of the African Development Bank, Haruhiko Kuroda of the Asian Development Bank, Luis Alberto Moreno of the Inter-American Development Bank, Josette Sheeran of the United Nations World Food Programme, and Juan Somavia of the International Labour Organisation. The forum said it was the first time the heads of the world's major institutions had come together in such a way.
Reflecting the IMF's concern about over-aggressive deficit reduction programmes, the joint statement said governments should "manage fiscal consolidation to promote rather than reduce prospects for growth and employment. It should be applied in a socially responsible manner."
The 11-strong group said it wanted to see a comprehensive action plan that could be agreed and implemented at the meeting of the G20 gathering of developed and developing nations in Mexico in June.
"We call on leaders to devote the necessary political energy to deliver concrete actions to exit the crisis and boost growth. Every country, working through its regional economic organisations and development banks and through the international financial and UN institutions, has a role to play."
While acknowledging that the global economy faced severe challenges, the action plan said momentum could be regained by increasing spending on infrastructure and by "beginning to realise the promise of a greener economy". To do so, the world would need an open trading system, resilient cross-border finance, sustainable government finances, determined and coordinated structural reforms and measures to address inequalities in all countries.
In the short term, the 11 leaders said the two most important challenges were to solve the sovereign debt and banking crisis and to restart growth. It urged the implementation of new, tougher regulations for finance and the rapid recapitalisation of banks where necessary.
With more than 200 million people currently unemployed around the world, the call to action said policymakers should "address youth and long-term unemployment to provide decent work prospects, along with country-specific structural reforms that are fairly implemented to achieve faster growth. Through dialogue, labour market reforms can be agreed that can both raise employment levels and ease fiscal adjustment."
It added: "Boosting jobs and investing in human capital is the most promising way of tackling inequality. We support the work of the ILO and others in assisting governments to examine realistic policy options, including cost-effective social policies to cushion the most vulnerable from adversity. Investment should target skills and education and thus equip people for the future.
"Rising inequality calls for heightened consideration of more inclusive models of growth. We must deliver tangible improvements in material living standards and greater social cohesion."
The call for action urged governments to resist the temptation to resort to trade barriers in an attempt to safeguard jobs. "Countries must reaffirm that none will resort to growth-destroying protectionism and demonstrate that trade restrictions introduced in response to the economic crisis will be rolled back."
*******
Spiralling Debt and the Fracture of the European Monetary System
by Bob Chapman
Global Research, January 18, 2012
European politicians, bureaucrats, bankers and assorted other lose more and more credibility each day as we are inundated each day with more lies and deliberate misdirection regarding the course of financial events within the European Union.
The key to solving the debt crisis is Germany. The Greek debt crisis is worse today than it was two years ago. 65% of Germans want out of the euro zone and the euro and want to return to the Deutschemark, but for more than two years their political representatives have denied them that. Finally breaks in the political armor are beginning to appear. All efforts to fix the Greek problem have been futile. If the Federal Reserve hadn’t stepped into the breach a couple of weeks ago who could guess where things would be now.
The CDU, Christian Democratic Union, Mrs. Merkel’s party is in serious trouble because she has operated in opposition to her own constituency in trying to keep the euro afloat, at the expense of her fellow Germans. That was duly reflected in the election this past year. In spite of banks having $1 trillion at their disposal those funds will last a year or so unless fractional banking is employed. Policymakers continue to convene, but continue to come up with little concrete policy. As we said in this publication more than two years ago and on Greek radio, television and in editorials that the only solution for Greece was default, a return to the drachma and for the Greeks to solve their problems on their own. Greek debt is unpayable and Greeks do not believe they should be responsible for it. Bankers and politicians caused these problems, not the man and woman on the street. This latest infusion of funds by the Fed should carry European banks this year through the trauma of Greece and perhaps others leaving the euro. The Ponzi scheme widens and deepens.
This past week we heard from the CDU deputy floor leader Michael Fuchs and Bavarian sister party member the CSU, which is where the real conservatives hail from, that member states are unable to commit to necessary reforms. They should begin on the opportunity to leave. Mrs. Merkel and Mr. Sarkozy said they would insure that no country leaves the euro. Pressures are building to allow Greece to leave the euro by voters and eventually that won’t be denied. As you can see, just as in many other countries, the leadership controlled by others from behind the scenes and those leaders do just the opposite of what the voters want.
For more than two years Greece has been in the debt limelight along with Portugal and Ireland. Spain and Italy are next in line. Their bond offerings are increasing as they prepare to roll debt. Spain doesn’t have any trouble selling bonds having sold double what it needed last week and about 1/3rd of its annual needs. They sold $12.7 billion of $45.6 needed on the year; all told Spain needs $75 billion.
Italy needs $226 billion. Next month is a big one for Italy as April is for Spain. The credit lines now available to the 523 banks should cover any problems all the sovereigns have, but all they have done is put off the inevitable and solved next to nothing.
The ECB, loaded with a trillion-swap line from the Fed has lent out $842 billion of which 70% has been redeposited at the ECB. Laughably ECB president Draghi says he sees stabilization and is ready to act on quantitative easing.
German and French politicians are talking about their transaction tax, but the voters do not like it at all. Almost all the politicians are saying, yes a tax, but for all of the EU. This is what the Illuminists have been pushing for over the past 15 years. Only they want it to be a worldwide tax.
The current appointed Greek President will submit a new law to Parliament that could force dissenting minorities into accepting a bond swap deal. This was a trial balloon and the government denies such double-dealing.
Turning away from the Continent and England we’ll take a partial look at what is going on in America. About 65% to 70% of Americans know something is wrong, but they do not understand what unless they start getting informed on the Internet or talk radio. No matter how diligently they listen to mainline media they get very little of the truth, because the media is totally controlled and has been for many years. those who run that media would like watchers and listeners to learn nothing at all via disinformation and misdirection. That is 95% truth on inconsequential issues and 5% propaganda.
The American people are in debt up to their eyeballs, a majority gets their funds from government, millions are on extended unemployment and nearly 50 million are on food stamps. If that entire largess were not available you would be witnessing 1932-33 all over again.
Debt increases everywhere. The Federal Reserve has become a veritable fountain of money. There is no question the credit-based monetary system will be played out to the end, and even with reports such as the Greek failure and NYC money center legacy banks and getting hit for billions in losses the system will still hang on as the Fed takes on more and more debt to keep the system afloat. In this process of so-called monetary stability we see endless zero interest rates. Sovereign debt is being downgraded on a wholesale basis. Debt rollover is being accomplished with the aid of the Fed, which loans (swaps) $1 trillion with the ECB, which lends it out to banks and then they use those borrowed funds to purchase sovereign debt. The central banks know that perpetual credit creation is unsustainable, but they do it anyway because they have no alternative.
About 2% of analysts and economists, commentators and newsletter writers predicted what we see today. None of these prognosticators were mainstream, because in that mainstream if you deviate you are out of a job and or banned from CNBC and Bloomberg. We foresaw the housing crash in late 2004, only one economist saw it 8 months later, Gary Shilling. In the political sphere only Ron Paul saw this coming.
While writing about the many facets, intricacies and all the political intrigue that accompanies European and sovereign banking the bottom line is they are simply broke having lent at 30 times assets. The Fed’s latest game to keep the banks afloat will last about a year, perhaps 1-1/2 years. Then they will have more unmanageable debt and no way to pay it back and the European economics will have had a near death experience being putted back again from the recessionary edge.
The bankers in the US, UK and Europe all know this is not a short-term problem, but a systemic long-term problem and they know the system has to be purged to fix the problem. They do not want to do that because they will lose the seat of power, the control of the world banking system. These characters remind us of chickens running around after having their heads cut off. On January 16, 2012 we received an announcement that the January 20th meeting to solve these problems of financial Europe has been called off. Not for a week, but by the end of February. The reason is they have no solutions. They just saw credit ratings plunge, including France, which has another downgrade in the works. Those in power on the Continent are hanging on for dear life, as is England. All these problems are covering up the problems in the US of a similar nature. They are all insolvent and have been for the past four years. In addition to unpayable debt the six weak countries are still in a growing trade deficit position. The acceptance of failure is impossible for those in control in front of and behind the scenes, because banking is their key power over everything. There is no sense fiddling with all the figures because Greece, Portugal and Ireland are buried and Belgium, Spain and Italy are approaching their level, along with France. All the solutions are stopgaps and they won’t work.
The experts are trying to tell us the system will be saved. If Greece defaults and leaves the euro it is the beginning of the end for the euro and perhaps the EU. Everyone is sitting on each others losses. As we explained years ago the world’s power elite have been on a fools errand for many years. Looting the world and controlling it wasn’t enough enslaving it was something they just had to do. As a result they are bringing their own system down with the hope of ultimate total control. The problem for them is that today too many people know what they are up too, worldwide, and in the end no matter what the outcome they will lose.
*******
Global Systemic Economic Crisis - 2012: The Year of the World’s Great Geopolitical Swing
Global Research, January 18, 2012
Global Europe Anticipation Bulletin (GEAB) no. 61 - 2012-02-16
This GEAB issue makes it six years that the LEAP/E2020 team have shared their anticipations with their subscribers and readers of their public briefing on the development of the global systemic crisis each month. And, for the first time, in the January issue which presents a summary of our anticipations for the year to come, our team anticipates a year which will not result solely in a worsening of the world crisis but which will also be characterized by the emergence of the first constructive elements of the “world after the crisis” to use Franck Biancheri’s phrase from his book « The World Crisis: The Path to the World Afterwards ».
According to LEAP/E2020, 2012 will in fact be the year of the world’s great geopolitical swing: a phenomenon which will without any doubt be the bearer of serious difficulties for most of the planet but which will also allow the emergence of geopolitical conditions favourable to an improvement of the situation in the years to come. Contrary to the previous years, 2012 will not be a “wasted” year, stuck in the “world before the crisis”, through lack of audacity, initiative and imagination on the part of the world’s leaders and because of people’s great passivity since the beginning of the crisis.
We had qualified 2011 as the “ruthless year” because it was going to shatter the illusions of all those who thought that the crisis was under control and that they were going to be able to go back to their “private deals” as in the past. And 2011 was ruthless for many political leaders, the financial sector, investors, Western debts, world growth, the US economy and for the absence of Euroland governance. Those who believed themselves untouchable or a permanent fixture suddenly discovered that the crisis saved nothing or no-one. This trend will, of course, continue in 2012 because the crisis does not respect the Gregorian calendar either. The last “untouchables” will experience it: the United States, the United Kingdom, the Dollar, T-Bonds, Russian and Chinese leaders,… (1) But 2012 will also see, especially in the second half, the forces and players assert themselves who in 2013 and the following years will enable the beginning of the rebuilding a new international system, reflecting the expectations and power struggles of the XXIst century and no longer those of the middle of the XXth century. Therein, 2012 will well be the year of the great swing between yesterday’s and tomorrow’s world. A year of transition, it will mix the worst (2) and the best. But in so doing, for our team, it nevertheless constitutes the first constructive year since 2006 (3).
Incidentally, in this issue we present the 35 developments/subjects, which are equally recommendations, which we anticipate will mark 2012: 20 developments rising and 15 subjects falling. This list can thus be of great practical help to the GEAB reader to prepare for the coming year. Reducing the time wasted reading articles on subjects which are already secondary in terms of impact on the course of the events or, on the contrary, taking the time to look further into developments which tomorrow will be at the core of coming developments, not to be taken by surprise by the major developments of the coming year, that’s what we want this 2012 list of 35 “Up and Down” to be used for. For six years, with a success rate of between 75% and 85%, this annual anticipation is thus a particularly practical decision-making aid for the twelve months to come.
In addition in this issue, our team gives an in-depth analysis of the nature and consequences of a possible QE3 which the US Federal Reserve might launch in 2012 (4). Hoped for by some, dreaded by others, QE3 is generally presented as the ultimate weapon to save the US economy and financial system which, contrary to the dominating chatter of these last weeks, continues to deteriorate (5). Whether the FED launches out with QE3 or not, QE3 will be without any doubt the major financial event of 2012 whose consequences will mark the world financial and monetary system definitively. This GEAB issue will enable you to have a precise idea on the subject.
*******
*******
Change in Primary Dealer Treasury Holdings by Maturity (12/2010 – 10/2011) (in grey: Bills less than one year/in red: Coupons less than 3 years/in green 3 to 6 years/in mauve: 6 to 11 years) – Source: Zerohedge, 10/2011
And QE3 will play a determining role in the world’s great geopolitical swing in 2012 because this year will, in particular, see the last attempts of the world’s dominant powers of before-the-crisis to maintain their global power, whether it be in strategic, economic or financial matters. When we use the term “last” we want to stress that after 2012 their power will be weakened too much to still be able to claim maintaining this privileged situation. The recent S&P downgrade of the majority of the Euroland countries is a typical example of these last chance attempts: pushed by Wall Street and the City, and because of their insatiable financing needs (6), the United States and United Kingdom have arrived at the point of engaging in open financial warfare with their last allies, the Europeans. It’s geopolitical suicide because this attitude obliges Euroland to reinforce and integrate still more and whilst dissociating itself from the United States and United Kingdom; whilst the vast majority of the Eurozone leaders and the populations have finally understood that there really was a transatlantic and cross-Channel war being conducted against them (7). LEAP/E2020 will present its anticipations on this subject - “Europe 2012-2016” - in the next GEAB issue which will appear on the 15th February, 2012.
*******
*******
Western debt distribution (2011) (in light blue: non-financial sector debt/in green: financial sector debt/ in orange: public debt/in dark blue: household debt) – Sources: Haver analytics / Morgan Stanley, 01/2012
On another agenda, the attempts to create a “little cold war” with China or setting a trap for Iran on the question of free movement in the Strait of Hormuz arise from the same reaction (8). We’ll return to that in more in detail in this issue.
The great swing of 2012 is also that of the people. Because 2012 will be also the year of people’s anger. It’s the year when the people will massively enter on the global systemic crisis’ stage. 2011 has been a “warm-up lap” where the pioneers tested methods and strategies. In 2012, the people will assert themselves as the forces at the origin of the major swings which will mark this turning point. They will do it pro-actively because they will create the conditions of decisive political changes via elections (as it will be the case in France with the ousting of Nicolas Sarkozy (9)) or via mass demonstrations (the United States, the Arab world, the United Kingdom and Russia). And they will also do it more passively by generating fear in their leaders, obliging the latter to take a “pre-emptive” attitude to avoid a major political shock (as it will be the case in China (10) or in several European countries). In both cases, whatever the elite of the countries concerned think, it’s a constructive phenomenon because nothing important or lasting can emerge from this crisis if the people do not involve themselves (11).
The great swing of 2012 is also the accelerated collapse of the Western banks and financial institutions’ power which is a reality described in this issue, contrary to the current populist chatter which forgets that the starry sky that we look at is an image of a long-gone reality. The crisis is such a speeding-up of history that many have not yet understood that the power of the banks which they worry about is that which they had before 2008. It’s a subject with which we deal in detail in this issue. At the same time, one continues to see investors flee the stock markets and financial assets particularly in the USA (12).
*******
*******
State debt and economic output of industrialized countries (1991-2011) (in grey: GDP/in red: public debt) - Source: Spiegel, 01/2012
And the great swing is finally the arrival at maturity of the BRICS, who after five years of self-seeking and taking their bearings will, in 2012, start to have a strong and pro-active influence on international decisions (13). However, without any possible doubt, they constitute one of the essential players for the emergence of the world after the crisis; and a player who contrary to the United States and the United Kingdom knows that it’s in its interest to help Euroland get through this crisis (14).
With a Euroland stabilized and equipped with a solid governance, the end of 2012 will thus present itself as the first opportunity of founding the bases of a world whose roots won’t bury themselves in the Second World War aftermath any more. Ironically, it’s probably the Moscow G20 summit in 2013, the first to be held outside the Western camp, which will crystallize the promises of the second half of 2012.
Notes:
(1) And the European debt crisis serial until the end of the first half of 2012. The year will also be very difficult for Euroland as the scenarios prepared by OFCE show. But it will prove distinctly less difficult than the financial experts and media anticipate today because they underestimate on the one hand the progress made as regards Euroland governance which will bear fruit in second half of 2012; and on the other, the change in psychological context once the world’s attention transfers to the US and British problems. On this subject, here a new example of Euro misinformation published by MarketWatch on 01/09/2012: the columnist, David Marsh, tries to give credit to the idea that the spring 2012 French presidential election will be more bad news for the Euro by explicitly stating that François Hollande is an Eurosceptic. As everyone knows in France, François Hollande is, on the contrary, a pro-European and fiercely pro-Euro which leaves only two options relating to MarketWatch/Marsh: either they don’t know what they are talking about, or they are deliberately lying. In both cases, that throws some light on the value of the opinions of the major US financial press on the Euro and its future. Those who follow it will lose a lot of money! Still concerning Euroland, the Spiegel of 01/03/2012 offers an interesting plunge into how Merkozysme works which shows how much the two countries are definitively binding their destinies: a development which will accelerate after François Hollande’s election that won’t have, like Sarkozy, a foot in Euroland and a foot in Washington.
(2) In particular a continuation of the widespread rise in unemployment. Source: Tribune, 31/10/2011
(3) A poetic note makes it possible to illustrate our approach here, which follows on the basis of the methodology of political anticipation described in the “Manual of Political Anticipation” by Marie-Hélène Caillol, the LEAP president. What should be remembered about the winter solstice? That it marks the heart of the winter because it’s the shortest day? Or that it announces spring because from this date the days start to get longer? Both answers are correct. But the first doesn’t say much about the future except that it will continue to be dark and probably cold for a certain period of time; it’s a photograph, a motionless analysis. On the other hand, the second answer leads the gaze to a more remote future and underlines the existence of a process in action which will lead to changes in terms of the length of the day and perhaps the temperature; it’s a dynamic vision of events. Moreover, henceforth the methodology of political anticipation has its place in scientific debate since Marie-Hélène Caillol has been invited to contribute to an issue especially dedicated to Anticipation (Volume 41, Issue 1,2012) (coordinated by Professor Mihai Nadin) of the US science magazine the “International Journal of General Systems” (Francis & Taylor), a multidisciplinary periodical devoted primarily to the publication of original research contributions to system science, basic and applied. The article which resulted from this collaboration is entitled: “Political Anticipation: observing and understanding the global socio-economic trends with the objective of guiding the decision-making process”.
(4) The recent publication of the 2006 FED minutes perfectly illustrates one of our working hypotheses: the persons in charge of a complex system are generally unable to perceive the moment when it will swing in crisis or chaos. As was the case of Alan Greenspan, Timothy Geithner and associates in 2006, it’s the case of the masters of the City, Wall Street or Washington in 2012... who happen to be the same in a number of cases. Source: New York Times, 12/01/2012
(5) The US situation’s deterioration is occurring in spite of the wish to hide it by the main media and rating agencies; whilst in Euroland the situation has not deteriorated as much as these same media and agencies would like one to believe. By dropping a little time to time, the outcome is thus no longer in any doubt. As regards US economic deterioration, it’s enough to note the collapse of bank profits, of US consumption (the advertisements blaring out the holidays thus gave way to quite poor figures), continuous closings or bankruptcies of retail networks, unemployment kept at historic rates, the growing problem of paying pensions, budget collapse of the large public universities,… Sources: YahooNews, 12/01/201; Bloomberg, 12/01/2012; USAToday, 12/01/2012; CNBC, 28/12/2011; Washington Post, 27/12/2011
(6) As the table below shows, with a debt to GDP ratio of 900%, the United Kingdom is like an animal caught in a debt trap. And because of the British financial sector’s enormous weight of debt, it’s condemned to try and force Euroland to pay Greek debts by any means, etc… The Western public debt downgrade is a bazooka pointed on the heart of the Kingdom, the City. Source: Guardian, 01/01/2012
(7) All the better because there is nothing worse than being at war without knowing it as Franck Biancheri wrote on Twitter commenting on the French presidential election campaign twitter.com/Fbiancheri2012.
(8) Russia already made its choice by developing trade with Iran in Roubles and Rials, eliminating the US Dollar from transactions between the two countries. As for Europe, it is fidgeting under US pressure, but ultimately won’t make a big deal as regards an embargo because by June (a new date to make a decision), the political map will have really changed. Sources: Bloomberg, 07/01/2012; Le Monde, 09/01/2012
(9) That which, by the way, will put France in its historical “Gallic-European” relationship instead of the occidentalist anchorage which embodied the Sarkozy interlude. Source: Le Monde, 11/01/2012
(10) In China, according to LEAP/E2020, the risk of a major grassroots explosion is at the crossroads of a tense economic situation (which will be the case in 2012 - see this GEAB issue) and a public health major accident; much more than in a context of direct political reconsideration.
(11) The advert by the Egyptian Muslim brothers that they will subject the peace treaty with Israel to a referendum belongs to this same trend. Source: Haaretz, 02/01/2012
(12) Source: CNBC, 06/01/2012
(13) The Chinese leaders, for example, seem more determined than ever to follow the path which they consider the best (including the conquest of space, a symbol par excellence of leadership), rejecting external pressures. Source: Caixin, 04/01/2012; ChinaDaily, 30/12/2011; NewYork Times, 29/12/2012
(14) Source: 20Minutes/Suisse, 08/01/2012
*******