Category Archives: Empire

End of an Era: Wall Street Caving In

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“Sept. 14 (Bloomberg) — A group of banks including Bank of America, CitiGroup and JPMorgan Chase & Co. are putting up $70 billion for a borrowing fund aimed at providing liquidity… Each participating financial firm will provide $7 billion to establish the fund and have the ability to borrow up to a third of the total. Other banks include Barclays Plc, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co. and UBS AG. The pool could expand as other companies join.

Now, let’s get this straight. Ten banks put up $7 billion for a total of $70 billion. Because any bank can withdraw up to $23.3 billion, if three banks take $23.3 billion each, there will be nothing left for the others. Am I missing something?

There is nothing wrong with the plan, per se. The flaw lies in the flawed character of the participants. These are investment banks and if investment banks can exploit a situation, they will do so. That’s what investment banks do for a living, they exploit situations for their own advantage in order to maximize profits.

Last year when two Bear Stearns highly leveraged funds were in danger of failing, Bear Stearns came to the “rescue” of one of its funds and lent it more capital, albeit with the caveat that Bear now had first claim on the fund’s assets. Then, when the fund collapsed shortly thereafter Bear Stearns exercised its now first-in-line rights to all the assets.

Since self-serving behavior is common among investment bankers, it will be interesting to see how the bankers’ $70 billion fund will fare. After the first withdrawal, there may be a “bank run” on the remaining assets by the remaining banks—a real life version of what will be “the Banker’s Dilemma”.

A FRACTIONAL RESERVE SAFETY NET

The investment banks’ $70 billion liquidity fund is predicated on much the same premise that fractional reserve banking is based. While it is understood there may not be enough in the fund to cover all needs, it is assumed that not everyone one will need their funds at the same time.

This thinking/sic assumption is the basis of today’s fractional reserve banking system; because, as in the banker’s “liquidity plan”, there is not enough money in US banks in the event of significant withdrawals by savers.

There is $6.84 trillion on deposit in US banks; but US banks have only $273.7 billion cash on hand. The banks cannot possibly pay back depositors all their money as only 4 % of depositors’ funds are actually available. The rest has been loaned out, i.e. to real estate developers, etc.

The safety net of both bankers and depositors may prove inadequate in the days ahead. Be forewarned….”

 

More by Darryl Schoon.

Their Man in Africa: Chinese Checkered in Zimbabwe

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And what’s the real deal behind the unrelenting bad press for Robert Mugabe, President of Zimbabwe? (Not that we are Mugabe fans here, but anyone who gets trashed regularly in the mainline…sorry…stream media invites lively curiosity, if not outright solicitousness from us). Well, here’s what:

“In April 2007 the chairman of China’s top political advisory body, Jia Qinglin, head of the National Committee of the Chinese Peoples’ Political Consultative Conference, flew to Harare to meet with Mugabe. It was a follow-up to the 2006 Beijing China-Africa Cooperation Summit where the Chinese government invited the heads of more than 40 African states to discuss relations. Africa has become a diplomatic and economic priority for China and its economy.

At that time, Beijing got an open invitation to help develop dormant mines in the country. The deputy speaker of Zimbabwe’s parliament called for more Chinese investment in the country’s mining sector, according to China’s Xinhua news agency. Zimbabwe’s mining laws were changed to allow the government to reallocate mining claims that were not being exploited.

Mining generates half of Zimbabwe’s export revenue. It is the only sector in the country that still has foreign investors after the collapse of the main agricultural sector. Western companies with mining claims in Zimbabwe were not exploiting them. “We would appeal to the Chinese government to come in full force to exploit these minerals,” Zimbabwean Deputy Parliamentary Speaker, Kumbirai Kangai said to the official Xinhua.

Kangai assured potential Chinese investors that they would not expose themselves to legal action if they took over claims held by Western companies.

A few months after, in December 2007, Chinese company, Sinosteel Corporation, acquired 67 percent stake in Zimbabwe’s leading ferrochrome producer and exporter Zimasco Holdings.Zimasco Holdings is the fifth largest high carbonated ferrochrome producer in the world. It used to produce 210,000 tons of high-carbon ferrochrome per year, nearly all of it along the mineral-rich Great Dyke, accounting for 4 percent of global ferrochrome production.

Zimasco has also the world’s second largest reserves of chrome, after South Africa. It was formerly owned by Union Carbide Corporation, now part of Dow Chemicals Corp.

Oh, oh! Alarm bells went ringing in London and in Washington at that news….”

More by the straight-talking Bill Engdahl.

Global Games: The Ugly Face of Inflation

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“Ugly math
On her way to the market, Lingani explained the ugly math: A year ago, she could feed her entire family a nutritious meal of meat and vegetables and peanut sauce for about 75 cents. But now the family gets much lower-quality food for twice the price.

She said the cost of six pounds of cornmeal has risen from 75 cents to $1.50. A kilogram — 2.2 pounds — of rice cost 60 cents last year and costs a little more than $1 now. Other basics such as salt and cooking oil have also doubled in price.

Fuel costs have more than doubled for trucks that haul food to landlocked Burkina Faso, helping keep food prices high.

Beef or goat meat is now so expensive — about $1.20 for a tiny portion — that the family has given up meat completely, eating cheap dried fish instead. Rather than seasoning their sauces with vegetables and peanuts, they now use the tough leaves of baobab trees, the gnarly giants that flourish here in the dry lands south of the Sahara.

To soften the sour taste of the leaves, Lingani mixes in potash, a paste made by boiling down water strained through ashes from wood fires.

“In the past, our money would last the whole month. We might even have some left over,” Lingani said. “But now as soon as it arrives, we spend it.”

Dinner happens only if there is a bit of food left over from lunch. Even then, she said, there is rarely enough left for women.

“When the children ask for food, we have to give it to them,” she said. “We’re mothers.”

Thus the Washington Post on some of the weakest victims of food price inflation, poor mothers in Burkina Faso in Africa, where energy prices have doubled recently.

Comment:

Meanwhile, over in Zimbabwe, suffering from 2.2 million percent inflation, the 100 million…oops, billion... dollar note has just been injected into the national blood stream, for a little extra sugar high. That’s following on the heels of the 10 million dollar note this January and then in swift succession, the 100 million, 250 million, 5 billion, 25 billion and 50 billion notes, according to this report from AFP. Even then, economists say the inflation rate is grossly underreported.

And back here in the USA, GHQ, Globalization, the picture isn’t pretty either.

There are of course the poor. They may be always with us, as the Good Book says, but rarely in such numbers…..and rarer yet for such reasons – adjustable rate mortgages.

But the middle-class too is scrambling, raiding their IRA’s to pay the bills. That is, if they’ve managed to get them. And organic farmers who used to have to fight off insects and birds now have a new plague to deal with – diesel thieves who work round the clock to siphon of gas they can sell for half price to local truckers.

Too bad, trying to solve the energy problem seems only to have added..er…fuel to the crisis. A confidential World Bank Report tells us that about 75 percent of the 140 percent price rise between 2002 and 2008 was driven by the diversion of agriculture to biofuels….

If you got rich in the ethanol scam, try sleeping soundly on that number.

 

Justin Raimondo On Iran’s Weapons of Mass Distortion

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“Are we really supposed to take the alleged Iranian “threat” – which Barack Obama deems “the greatest strategic challenge to the United States in the region in a generation” – seriously? Not unless Photoshop is reclassified as a “weapon of mass destruction.”

Nice piece by Antiwar’s fiery Justin Raimondo on Iran’s recent threat…

Financial Follies: Between the Buck and the Bubble

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“If the Fed raises rates to prevent a sell off in dollars, they’ll crush the highly indebted and already struggling populace and, in so doing, unleash a serious economic crisis. But if the Fed keeps rates where they are, or even lowers them, they’ll trigger a dollar sell-off and unleash a serious economic crisis.

Either way, the story ends the same: a serious economic crisis.

At this point, our bet remains that the Feds will go to default mode which means cranking up the printing presses into the red zone, letting the dollar move ever closer to its intrinsic value: zero. That they’ll follow this route is suggested by two inputs. First, a depreciating dollar means a reduction in the trillions of dollars in obligations now owed by the U.S. government. And, secondly, foreign holders don’t vote.

So, we are calibrating our investments toward a serious economic slowdown, but with high inflation. Some people would call that Stagflation. But given the severity of both sides of that formula, the situation may be better described in terms of Scorched Earth. Or, because people seem to find concepts ending in “flation” handy, Stag-flagration.

Businesses and personal net worth will be devastated at the same time that costs run out of control.

How to Play It?

Our strongest recommendation is to position your portfolio in anticipation of higher inflation and, in time, a turnaround in interest rates. The latter is because interest rates, which are still near a 50-year low, can only go up as the inflation rises to the point of banner headlines (at which point, the government is hoping, the economic downturn will have moderated).

In fact, we think the move towards higher interest rates is a trend that will surprise many, but, once it gets going in earnest (and corporate bond yields are already on the rise) last for at least the next several years.

In terms of other investments, it’s worth noting that in the last major bull market for tangibles, back in the 1970s, oil was the best performing investment, followed by gold, U.S. coins, silver and stamps….”

That’s David Galland, from Casey Research.

Comment:

The buck is doing its old see-sawing on the edge of apocalypse, but having fallen off the cliff over the last year, we still feel inclined to temper our despair with numbers. Here’s an interesting piece that differs from Galland on the dollar:

“The point is that the dollar has been in a negative trend for almost exactly 7 years with the closing peak registered on July 5th of 2001. In the mean time the CRB Index has risen by more than 2 1/2 times. To get to a bottom for the dollar we needed to see some sort of peak in ocean freight rates and a bottom for stocks such as AMGN. The charts on this page make a somewhat tentative case that a trend back towards a sustainably stronger dollar has already begun although quite clearly the DXY will have to rise well above its moving average lines to mark the turn. There are encouraging signs for the dollar which suggest downward pressure on the commodity the theme but it is still much too early to mark this one as paid…”

Kevin Klombies at Inter-Market Relationship.

The New Exit-Empire Tax….

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“The primary purpose of the Heroes Earnings Assistance and Relief Tax Act of 2008 is to provide a range of tax breaks for veterans. But the law also imposes the first-ever “exit tax” on even moderately wealthy expatriates. I predicted Congress could pass an exit tax bill like this over a year ago, and now it has.

Once President Bush signs this bill, the law will require future expatriates to pay a tax on all unrealized gains of their worldwide estate, including most offshore trusts. And the tax applies not only to former U.S. citizens, but also to long-term green card holders who have resided in the United States for at least eight of the 15 years before they expatriate. (Fortunately, long-term residents can “opt out” of the exit tax, as I’ll explain in a moment.)

How are you supposed to pay the tax without selling your assets? That’s your problem – not the IRS’s – although the bill permits deferral in certain circumstances….”

From The Sovereign Society.

The Red Tape Chronicles on ID Theft

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“Like arriving home to see a broken window, Holli knew something was wrong when she pulled up the statement from her new 401(k) account and saw a stranger’s name there. Under her name and account information, she found a second name: Paulino Rodriguez. But was it an accident, random vandalism or a serious crime? She opened the virtual door to her account and sorted through the broken glass. Her worst fears would soon be confirmed.

After some frantic research, Holli pieced together part of the story. Rodriguez, the 401(k) Web site revealed, lived in Escondido, Calif., about 90 minutes south of Holli’s home in Fountain Valley. He was a restaurant worker in an Escondido Burger King. This was no prank — though Holli would soon feel like several government agencies, corporations and a criminal were having fun at her expense. She was a victim of something experts call Social Security number-only identity theft, generally committed by immigrants who don’t have the necessary credentials to work legally in the U.S….”

More at MSNBC’s The Red Tape Chronicles.

Comment: 

When people get treated like numbers, the numbers get gamed. More evidence that large, polyglot states are inherently unworkable.

Secretary Gates Announces New Key-log Pact: Cyber-War Without End, Amen…

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“With that in mind, Secretary of Defense Robert Gates recently gave two sharp-edged speeches, one at Maxwell-Gunter Air Force Base, the other at West Point, each expressing his frustration with the slowness of the armed services to adapt to a counterinsurgency planet and to plan for the next war.

Now, there’s obviously nothing illogical about a country’s military preparing for future wars. That’s what it’s there for and every country has the right to defend itself. But it’s a different matter when you’re preparing for future “wars of choice” (which used to be called wars of aggression) — for the next war(s) on what our secretary of defense now calls the “the 21st century’s global commons.” By that, he means not just planet Earth in its entirety, but “space and cyberspace” as well. For the American military, it turns out, planning for a future “defense” of the United States means planning for planet-wide, over-the-horizon counterinsurgency. It will, of course, be done better, with a military that, as Gates put it, will no longer be “a smaller version of the Fulda Gap force.” (It was at the Fulda Gap, a German plain, that the U.S. military once expected to meet Soviet forces invading Europe in full-scale battle.)

So the secretary of defense is calling for more foreign-language training, a better “expeditionary culture,” and more nation building — you know, all that “hearts and minds” stuff. In essence, he accepts that the future of American war will, indeed, be in the Sadr Cities and Afghan backlands of the planet; or, as he says, that “the asymmetric battlefields of the 21st century” will be “the dominant combat environment in the decades to come.” And the American response will be high-tech indeed — all those unmanned aerial vehicles that he can’t stop talking about.

Gates describes our war-fighting future in this way: “What has been called the ‘Long War’ [i.e. Bush’s War on Terror, including the wars in Afghanistan and Iraq] is likely to be many years of persistent, engaged combat all around the world in differing degrees of size and intensity. This generational campaign cannot be wished away or put on a timetable. There are no exit strategies.”

“There are no exit strategies.” That’s a line to roll around on your tongue for a while. It’s a fancy way of saying that the U.S. military is likely to be in one, two, many Sadr Cities for a long time to come. This is Gates’s ultimate insight as secretary of defense, and his response is to urge the military to plan for more and better of the same. For this we give the Pentagon almost a trillion dollars a year…..”

From Tomgram.

Comment:

Please note Secy. Gates’ promise of war in cyberspace .

In 1928, there was the pact to end all war (the Kellogg-Briand Pact). And now some 80 years later, out of the mouth of the secretary of defense, we have what amounts to a declaration of perpetual war; war that reaches into cyberspace, into your computer hard drive, into your innermost thoughts……like some sordid, key-logging snoop.

Yes, dear reader, as you read this humble missive, you too have become part of the great cyber-war-of- the -worlds; you too are a cyber-trooper, cyber-civilian, cyber-POW…… or cyber-kill…. as the case may be.

Whether you realize it or not.

The new frontier of the state’s aggression (actually, it’s always-and-forever frontier) is now your mind…your thoughts…indeed the space between your thoughts, from keystroke to silent keystroke…..

Iran War Creeps Closer…

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“The US Congress, the US media, the American people, and the United Nations, are looking the other way as Cheney prepares his attack on Iran.

If only America had an independent media and an opposition party. If there were a shred of integrity left in American political life, perhaps a third act of naked aggression — a third war crime under the Nuremberg standard — by the Bush Regime could be prevented.

On March 30, the Russian News & Information Agency, Novosti, cited “a high-ranking security source: ‘The latest military intelligence data point to heightened US military preparations for both an air and ground operation against Iran.’”

According to Novosti, Russian Colonel General Leonid Ivashov said “that the Pentagon is planning to deliver a massive air strike on Iran’s military infrastructure in the near future.”

The chief of Russia’s general staff, Yuri Baluyevsky, said last November that Russia was beefing up its military in response to US aggression, but that the Russian military is not “obliged to defend the world from the evil Americans.”

On March 29, Chris Floyd cited a report by the Saudi Arabian newspaper Okaz, which was picked up by the German news service, DPA. The Saudi newspaper reported on March 22, the day following Cheney’s visit with the kingdom’s rulers, that the Saudi Shura Council is preparing “national plans to deal with any sudden nuclear and radioactive hazards that may affect the kingdom following experts’ warnings of possible attacks on Iran’s Bushehr nuclear reactors.”

And Admiral William “there will be no attack on Iran on my watch” Fallon has been removed as US chief of Central Command, thus clearing the way for Cheney’s planned attack on Iran….”

More by Paul Craig Roberts at Online Journal.

And at Counterpunch.