Global Economic Crisis

In addition to the $750 billion TARP program to bailout banks and Wall Street that was approved last October by Congress, untold trillions of dollars have been provided or promised to the financial industry by Treasury and the Federal Reserve, off the books of the official budget. A most recent estimate puts this figure up to $13 trillion, nearly equal the entire GDP of the United States. The official national debt of the U.S. now tops $11 trillion, and may surpass the GDP within two years. In addition, state, county and local governments across the country are sinking into an ocean of red ink. In effect, the entire credit worthiness of the United States has become the “lender of last resort” for the “too big to fail” entities. The financial elites of America are no doubt uncorking their champagne bottles, as their privileged excesses are held whole through the ultimate backstop; the indebtedness of not only the current generation of Americans, but also their children and perhaps even their grandchildren. It appears that the oligarchs are so devoid of historical understanding, they fail to recognize that this subsidization of their Wall Street empire of credit default swaps and gargantuan compensation packages can only be sustained if the United States can forever go into debt. And in order to believe that the U.S. is ultimately “too big to fail,” they have to be equally ignorant of basic mathematics, the ultimate irony for the supposed magicians of high finance.

But what if a point is reached when the rest of the world is no longer willing to lend its scarce capital to the United States, and subsidize its Wall Street bailouts and extravagant military industrial complex? No doubt, the oligarchs would then use their political muscle to enact higher taxation on middle income Americans. This may come in the form of higher consumption taxes; however, a growing possibility is the hidden tax of inflation. A dirty secret that is increasingly being discussed by economists in quiet corners is that there is no way the United States can possibly pay for the servicing of its massive, expanding national debt without resorting to inflation.

What the financial and political elites have not analyzed are the consequences for America’s social cohesion and viability should the nation’s exploding debt burst beyond the point of containment. For unlike AIG, Citigroup and Goldman Sachs, the United States does not have the option of calling upon others to rescue it from its own excesses, with the justification being that it is “too big to fail.”

It strikes me that most Americans, not only the financial elites but across the nation’s social fabric, have a distorted image of how their country fits in with the rest of the world amid the Global Economic Crisis. In a chilling parallel to our times, Amalrik writes about the paralysis of isolation as a factor that would eventually bring about the collapse of the Soviet Union. In 1970 he wrote, “This isolation has created for all—from the bureaucratic elite to the lowest social levels—an almost surrealistic picture of the world and of their place in it. Yet the longer this state of affairs helps to perpetuate the status quo, the more rapid and decisive will be its collapse when confrontation with reality becomes inevitable.”

A young Muslim woman, Noor Khan was a descendant of Tipu Sultan, the last Mogul Emperor of Southern India. After her family relocated to France, she studied at the Sorbonne, and became a musician and author of children’s books. A petite and fragile woman, she was brought up in the Sufi tradition of pacifism, and by all accounts was as gentle and kindly a soul as could be. When the Nazis invaded and occupied France in 1940, Ms. Khan and her family escaped to England.

Though a pacifist, Noor was deeply affected by the occupation of her adopted homeland, and the anti-Semitic bestiality of the Nazis. She became convinced that it was her duty to fight the Nazis, even at the cost of her own life. She volunteered for service with the Special Operations Executive of British intelligence, where she was trained as a radio operator. In 1943 she was flown into France, where for four months she was the principal radio liaison between the French Resistance and the SOE, until she was betrayed to the Nazis. In November 1943 she was transported to the notorious Pforzheim prison in Germany, where she endured ten months of sheer hell.

Physically and psychologically, Noor Khan was subjected to the ultimate form of Cheney’s “enhanced interrogation techniques.” The Gestapo was determined to break her, and compel her to reveal every piece of vital information she possessed. To begin with, Noor Khan was placed in solitary confinement on a starvation diet, chained hand and foot, and frequently denied even a scrap of clothing. She was subjected to barbaric beatings and water torture, and that was only the beginning. Survivors of Pforzheim recall often hearing her cries of agony, as Noor was subjected to all the refinements created by man’s capacity for inventive inhumanity. The Nazis would subject their most recalcitrant security prisoners to having their bodies suspended until their joints were dislocated, piercing and burning their flesh, ripping out fingernails and crushing the digits of their hands. Female prisoners, in particular, were subjected to electric shocks being applied to the most sensitive regions of their bodies. What Noor endured during those ten months at Pforzheim can scarcely be imagined. It must have been beyond human endurance. Yet this cultured, delicate woman endured the unendurable. She never broke. Noor Khan would not even reveal to the Nazis her true identity. Finally, her captors admitted defeat and sent Noor to her final destination on earth, Dachau concentration camp.

On September 13, 1944, in front of other prisoners who witnessed her final hours, Noor Khan was stripped naked and then savagely beaten by SS guards at Dachau. A pistol was pointed at her head. Before the trigger was pulled, Noor’s last word ever to be uttered was overheard: “Liberty.”

The life of Noor Inayat Khan does not prove that torture does not work. What her martyrdom does demonstrate is that torture is only effective when all understanding of the concept of liberty is lost to a nation.

Complicating the economic problems in the UK is its disastrous banking crisis, which rivals that of the United States. Much of Britain’s banking sector is insolvent, prompting a costly bailout by Gordon Brown’s government. With plunging tax revenues due to the nation’s economic contraction, the UK has been forced to borrow vast amounts of money to cover the cost of subsidizing the nation’s zombie banks. The combination of bank bailouts and stimulus spending has created staggering budgetary deficits, prompting the governor of the Bank of England, Mervyn King, to warn that further government indebtedness threatens the long-term stability of the UK’s finances.

The IMF actually challenged the official UK government estimate on the cost of taxpayer funded bank bailouts, presented in Darling’s budget at 60 billion pounds. When the IMF issued its own cost estimate of 200 billion pounds, Gordon Brown and his team went ballistic, forcing the International Monetary Fund to lower is projection to an earlier figure of “only” 130 billion pounds, still more than double the official UK estimate. However, strong-arming the IMF cannot alter the fact that the national debt of the UK is climbing at an astronomical rate. Alistair Darling is projecting that the UK will need to borrow more than $500 billion during the next two years, a sum that exceeds the cumulative borrowing of all previous British governments since the creation of the Bank of England more than three centuries ago, according to the leader of the official opposition, David Cameron.

The UK economy has been transformed, in effect, into a candle burning at both ends. Insolvent banks are consuming taxpayer funds at a rate that is intergenerational while the domestic economy tanks and unemployment soars .In the meantime, the national debt is exploding. Deflation is raging now, while the specter of hyperinflation hovers around the corner, as eroding financial fundamentals cripple the value of Britain’s currency. Amid the acute economic and financial crisis afflicting the UK, the nation’s political establishment offers only rosy projections. Tony Blair may have been called George W. Bush’s lap dog, but Gordon Brown is proving to be his economic disciple.

For More Information on “Global Economic Forecast 2010-2015” please go to the homepage of our website, http://www.globaleconomiccrisis.com

A few weeks before these antics a more sober assessment of America’s banking health was delivered at the National Press Club in Washington by Dr. Martin D. Weiss, the head of Weiss Research, a global investment research firm. Previously, Weiss had accurately forecast the demise of Bear Stearns and the implosion of the U.S. investment-banking sector. However, at the National Press Club he offered a more chilling prediction: 1,568 U.S. banks and thrifts risk failure. Included in that number are several of the largest American banks, including J.P. Morgan Chase, Goldman Sachs, Citigroup, Wells Fargo, Sun Trust Bank and HSBC Bank USA. The numbers and depth of the banking problem highlighted by Dr. Weiss are far larger and much more ominous than has been portrayed by the Federal Reserve, Treasury Department and FDIC. He backed up his dire analysis with documentation and precise mathematical modeling. For example, he refers to the government’s justification for a hideously expensive taxpayer bailout of AIG, based on the firm’s exposure to the fragile investment vehicles known as Credit Default Swaps, or CDS. The policymakers maintain that AIG’s $2 trillion in CDS exposure represented an unacceptable systemic risk, meaning AIG was “too big to fail.” However, Weiss points out that Citigroup alone holds a portfolio of $2.9 trillion in Credit Default Swaps, while J.P. Morgan Chase possesses a staggering $9.2 trillion of these toxic instruments, about five times the exposure that led AIG to demand that the government rescue it, or see the global financial system implode.

The essential point Dr. Weiss made at his press conference is that the degree of exposure U.S. banks have to a variety of toxic assets is beyond what the U.S. government and, by extension, the American taxpayer is financially capable of rescuing. Continued bailouts of insolvent banking institutions will not repair a broken financial order, but may very well cripple the overall economy.

Earlier, NYU economics professor Nouriel Roubini had already gone on record as declaring that much of the U.S. banking sector was functionally insolvent, and that bailing out zombie financial institutions would only replicate the Japanese “lost decade” of the 1990s, when Tokyo’s preference for keeping alive insolvent banks instead of closing them down led to a prolonged L-shaped recession. Roubini and other critics of both Bush and Obama administration policies on bank bailouts have looked to the Swedish model for resolving a profound banking crisis, which involved temporary short-term nationalization, closing down insolvent banks, while those banks that can be salvaged are cleaned up of their toxic assets, recapitalized and then sold back to the private sector. “You have to take them over and you have to split them up into three or four national banks, rather than having a humongous monster that is too big to fail,” Nouriel Roubini has argued.

According to the International Monetary Fund, the global financial and economic crisis has already created more than $4 trillion in credit losses due to toxic assets. If nothing else, the IMF estimate on the scale of the economic and financial disaster thus far should compel the Washington political establishment to face the painful yet necessary truths regarding America’s precarious situation. However, it appears that fantasy is preferred over reality within the corridors of power.

The procrastination of policymakers in Washington in facing dark reality, and preference to avoid any public takeover of troubled banking institutions while simultaneously subsidizing these financial dead men walking with almost unlimited taxpayer funds, at the same time maintaining the fiction, as Timothy Geithner has just done, that all is basically fine with the “vast majority” of U.S. banks, is to insure the inevitability of a systemic banking collapse in the United States. The conglomeration of reckless, greed-induced banking practices by the oligarchs of finance and inept, reality-denying policymakers is sending much of the American banking sector on a Wagnerian death ride into a financial apocalypse. Many of the U.S. banks are in fact doomed to fail, and no contrived stress test or Geithner speech can alter that outcome. And that isn’t even the worst part. For when mass banking failures occur in the United States and overseas, a global economic depression will be an irreversible outcome.

Now we are in 2009, with the subprime mortgage securities debacle having been the underlying cause of the state of insolvency afflicting America’s largest banks. The U.S. government, including Congress, Treasury and the Fed, have injected or issued backstop guarantees to the tune of $13 trillion, in a frantic effort aimed at keeping these zombie financial institutions artificially alive. Yet, in this truly global economic and financial crisis, events in other parts of the world may render mute and futile all the trillions of dollars the U.S. is borrowing to save the American and global financial system. As in 1931, it may well be the Austrian banking sector that is the final nail in the coffin of the current globalized financial order.

With the fall of communism, former East Bloc European states were encouraged to borrow heavily by their Western brethren, with Austrian banks leading the way. Governments in Eastern Europe borrowed massively to finance the modernization of their industries, with the goal of providing lower-cost industrial goods and commodities to consumers throughout Western Europe. In addition, consumers in Eastern Europe were encouraged to borrow money in Euro currency at low interest rates for homes and consumer durables. When the Global Economic Crisis hit Europe, demand destruction afflicted the highly leveraged new industrial plants in Eastern Europe. In addition, the consumers who unwisely borrowed money from Western banks in Euros were devastated by the collapse of their home currencies. A new housing crisis has arisen in lands as diverse as Hungary, Bulgaria and Romania.

The non-performing assets on the balance sheets of European banks are enormous, and have affected many countries throughout the Eurozone. However, in terms of percentage of toxic assets to GDP, no European state is in as precarious a state as Austria. More than $250 billion in bad assets are poisoning the balance sheets of Austrian banks, a sum equal to more than 62% of the nation’s GDP. By way of comparison, if the admittedly shaky U.S. banks held toxic assets in the same ratio to GDP, this would equal $8.7 trillion dollars in bad assets. If America’s banking disaster was on the same scale as Austria’s, it would require a dozen TARP programs to cover the holes on the balance sheets.

Is another Credit-Anstalt catastrophe in the works? The macroeconomic data emerging from Europe looks increasingly gloomy. In addition, the European Union is proving to be both disunited and uncoordinated in facing up to mounting evidence of a financial avalanche that may bury the Union and everything else with it, including the common currency. Policymakers throughout Europe are arguing over Eastern European stabilization funds, protectionism versus “free trade,” and other issues, both real and distractions, while the financial underpinning of the entire European economic system is ablaze.

Just as Iceland was the first nation to become nationally insolvent due to bank failures stemming from the Global Economic Crisis, Austria may be fated to endure a similar disastrous outcome. Should Austria’s banks fail as spectacularly as did the Credit-Anstalt back in 1931, the impact on the world’s financial and economic order will be at least as catastrophic and likely much worse. It is indeed timely for Paul Krugman to state the obvious regarding the looming Austrian banking crisis, irrespective of the indignation pouring out of Vienna.

Will 2009 prove to be 1931 redux? The indicators favor the pessimists far more than the optimists. Nobel Prize winning economist Paul Krugman has issued a sober warning, which hopefully will not be drowned out by the hyperbole of reality-denying European politicians.

Global trade is the engine that drives the Singapore economy. The tiny nation has a vast manufacturing sector, which includes electronics, petrochemicals and engineering. With its small population, Singapore must export the products it manufactures. That export trade has led Singapore to being the fourth largest port in the world. The Global Economic Crisis, however, has sent international trade into a tailspin. All major exporters are hurting badly; Singapore is bleeding.

In the first quarter of 2009, Singapore’s GDP contracted at a catastrophic rate of 11.5%, much worse than expected. In March, non-petroleum exports declined by 17%, the eleventh consecutive monthly decline. Unemployment is rising while business confidence is plummeting. The once busy port of Singapore is now almost quiescent, a reflection not only of Singapore’s decline but also a window on how severely global trade has been impacted by the worldwide recession.

As in America and other major economies that have been decimated by the Global Economic Crisis, Singapore has its share of overly optimistic economists, analysts and media pundits who are trying to spin the bad news into glimmers of hope. Some have even suggested that the severity of the country’s Q1 economic statistics are “proof” that the recession has hit bottom and will soon begin to ease. However, such appalling macroeconomic data cannot wear a happy face under any circumstance; it is irrefutable proof that the synchronized global recession now shattering the worldwide economy is unprecedented in its depth and reach. I think the elder statesman of Singapore, former Prime Minister Lee Kuan Yew, was more aligned with reality when he recently suggested that it will take at least six years before Singapore recovers from the effects of the Global Economic Crisis.

Amid all the horrific economic news, Singapore can boast of an advantage denied the deficit-driven economies of Europe and the United States. During the good times, the Island nation prudently set aside substantial foreign exchange reserves. Even with a recent $20 billion stimulus package, Singapore still maintains a reserve fund of $170 billion. This will provide flexibility for policymakers to address the immediate ramifications of the severe economic contraction now occurring in their country. Nevertheless, there can be no doubt that once prosperous Singapore is facing many years of economic and financial hardship that will severely test the country’s capacity for entrepreneurial innovation and hard work.

If a nation that has been as prudent and fiscally responsible as Singapore is enduring a free fall meltdown in vital areas of its economy, what about the United States, which is also undergoing a significant economic contraction, but with a massive debt load instead of sizeable reserves?

For More Information on “Global Economic Forecast 2010-2015” please go to the homepage of our website, http://www.globaleconomiccrisis.com

If Goldman Sachs were not the recipient of AIG pass through money in the last quarter of 2008, it is clear that this firm would be facing the serious prospect of liquidation. It is therefore somewhat odd that after a catastrophic last quarter, the firm can gleefully announce a return to profitability in Q1 of 2009. To set the record straight, Goldman Sachs should come clean on any funds it received from U.S. taxpayers, passed through AIG, in the first quarter of 2009, and provide a precise accounting on how those payments affected their Q1 bottom line. Absent this transparency, Congress should demand full disclosure on any continuing payments to Goldman Sachs through the corporate corpse called AIG. In the final analysis, if it transpires that AIG payments are what is keeping Goldman Sachs alive, then the Obama administration should explain why General Motors and Chrysler should not be wards of the state, while Goldman Sachs is anointed as the nation’s unofficial welfare queen.

With expenditures of 55 billion euros and revenues falling below 35 billion euros, Ireland is facing the daunting paradox confronting a growing host of nations, including the United States. The politicians maintain they cannot implement draconian spending cuts in the face of severe human hardships being created by the Global Economic Crisis. Yet, mathematical realities may constrict the ability of political leaders to infinitely borrow money in order to maintain high structural deficits. With the rating agencies having made their move, the ability of Ireland to finance its deficits through the largess of the global credit market will become increasingly more problematic. It appears that the IMF may be the ultimate lender of last resort for Ireland, and that kind of assistance will impose costs of its own.

The economic catastrophe facing Ireland will cause sorrows that cannot be suppressed by a pint of Guiness. Nothing less than national insolvency threatens this once robust economy. And lest the United States pretend that the economic collapse now underway in Ireland is irrelevant to its own situation, the elements that have brought down the “Celtic Tiger” are almost identical to those now eating away at the very foundation of the U.S. economy.

For More Information on “Global Economic Forecast 2010-2015” please go to the homepage of our website, http://www.globaleconomiccrisis.com

It was only back in January that the IMF had estimated that toxic assets tied to the United States stood at $2.2 billion, while NYU professor of economics Nouriel Roubini provided a more sobering analysis that placed a figure of $3.6 trillion regarding toxic garbage sitting on global balance sheets, half that figure being directly tied to U.S. financial institutions. The revised IMF numbers, in my view, tell us two things: 1. The erosion in asset values across the world is accelerating and 2. No

At a time when the United States in sinking deeper in debt amid a devastating economic crisis, does a bloated military budget that requires Chinese loans to finance represent a true enhancement of U.S. national security? There should be much more serious and critical discussion involving the scope, size and vast increase in the outlays for military spending. Ultimately, it is America’s economic viability that is the bedrock of her national security. Appropriating funding for the Pentagon that exceeds the nation’s capacity or willingness to pay is not, in the long-term, a sound direction for safeguarding America’s security. To maintain the status quo is to proclaim that the United States can borrow money indefinitely from China, using those funds to pay for gold-plated military programs to protect us from that same creditor. It is also a path leading to national bankruptcy.