30 Fed won't pay US foreign debt, but squeezes 3rd World debtors - Michael Hudson

(1) Fed won't pay US foreign debt, but squeezes 3rd World debtors - Michael Hudson
(2) World Currency coin unveiled at G8
(3) Banks Own the US Government - Dean Baker
(4) Goldman Sachs rigging the stock market
(5) China's $ reserves reach $2 trillion - Brad Setser
(6) China to use foreign exchange reserves for overseas expansion and acquisitions
(7) Unemployment in Europe rising rapidly
(8) IMF plans to inject $250 billion into members' forex reserves

(1) Fed won't pay US foreign debt, but squeezes 3rd World debtors - Michael Hudson

(interviewed by Ross Ashcroft)

The Renegade Economist goes to New York to hear Dr. Michael Hudson’s views on the state of the US Economy.

posted July 24, 2009

{see the video}
http://renegadeeconomist.com/headline/renegade-economist-special-dr-michael-hudson.html

RA: We are in the twilight zone. We've just had a bit of deadcat bounce, some of the bailouts have had some effect, people would argue. What's your view?

MH: What you call a deadcat bounce is really a "short squeeze". The pessimists have stopped short, because they believed they could buy them at a lower price, and in fact once the Government gave money to the banks to pay the Hedge Funds to bail them out, they began to buy the stocks, squeezing the short-sellers, and so a lot of money lost their shirts when the stocks were actually going up.They had to buy the stocks to cover it. What people call the "recovery", in the Dow Jones Industrial Average, is the new industry for the post-Industrial society - and that's banking. Citibank, Chase Manhattan, the banks and Financial Sector are now the industrial stocks. When Citibank shares fell below $1 a share, they de-listed Citibank, so you don't have that huge run-up. If you're going to give $12 billion to a Financial Sector, and add to the balance sheet, of course the stocks are going to go up. This $12 billion is worth something, and so people say, "OK, the Government's given us $12 billion as a nice gift". It'll have to tax the rest of the country, the rest of the country will go go bankrupt, and at a point the stores will empty out again, but meanwhile all this money has made the banks soar - double in value, triple, quadruple in price, that's what created the stock market run-up. This is not a Free Market - this is a Government bailout.

RA: ... Give me an inkling - just a shard of hope.

MH: This is Wall St, where all the rest of the wealth of America is transferred. Wall St doesn't really produce wealth, but it does transfer it, from one party to another.

RA: How?

MH: Well, in the source of securitizing. Any flow of income can be turned into a mortgage, into a security, into a stock or bond, and paid out, and it's all transferred from Mutual Funds here. Every day the entire national income of America, every single day, passes through - an equivalent amount passes through - the New York clearing-house, through Wall St, so most transactions - 500 to 1 is the volume of financial transactions relative to spending on goods and services.

RA: You talk about the End of Capitalism - now everybody's talking about it. - or the New Capitalism. What's your take on it?

MH: I think the word they're using here is post-Industrial. And what they mean "post-Industrial" is the Financial Sector, and it's easier if you think of that as a lapse back into the pre-Capitalist economy, back into neo-Feudalism, back into Debt Peonage, and back into something that is de-Industrialized. I don't think it's going forward, when you talk about de-Industrializing America. I think it's going backward, to the pre-Industrial society, when the Landlords and the Bankers ran Europe in the Middle Ages. And that looks like what they're doing again.

AH: My question is how is it possible for a secondary industry, or a tertiary industry i.e. the Financial Sector, to run a country? We might have all this new-fangled jargon, but the point is, unless you're producing stuff, unless you're making stuff, what're you doing?

MH: You're getting the rest of the country in debt to yourself. You're getting the cities to stop taxing property, and instead borrowing money and issuing bonds, and people are buying the bonds, for which they have to tax labor, they have to tax industry. By not taxing real estate, which is the largest sector of the American economy - 60% is real estate - by not taxing that, you're forcing the whole tax burden to fall on industry and labor, and that's what's pricing America out of world markets, and that's why we have a trade deficit these days.

RA: Sustainable?

MH: Obviously not - only sustainable until other countries say,"We don't want to give you our exports for pieces of paper". America gives the world pieces of paper, it gets exports, it gets ownership of their industry, and their stocks and bonds, and it gets military bases, and other countries are now saying, "Enough!"

RA: The big talk, whilst the property market was booming, was "It'll never crash", because of the Supply and Demand argument. Talk me through the Supply and Demand argument.

MH: Well, if you have a business cycle, and the Demand goes down, and he Supply remains fixed, so you have a Land market that's fixed, you have exponential growth in Credit, that means that the growth in Credit, over a fixed land area, increases the price of property, but if there's nobody to rent it out, there's something left out of the equation - the economy.

RA: So when we talk about the Confidence - it's got nothing to do with that, has it?

MH: People are broke, Confidence is just how much they have to spend. ... The economy is not about psychology, it's about Finance, and it's about Real Estate, and it's about Real Estate Financing. And if people are psychological, what they're talking about is the price they have to pay for where they live - what's their mortgage, what's their property price - that's what Psychology's really all about, it doesn't have to do with Confidence. They're afraid of losing their jobs, and they know that they're getting cut back, and Chase have just raised the Penalty Rate on Credit cards, I'm told, to 33% - that does not make you confident. That makes you frightened, and you stop buying. And if you stop buying, nobody's renting out the stores.

RA: How do we get Urban Renewal, Michael?

MH: You have to change the Tax policy, to make cities more prosperous, instead of more parasitic and siphoning off all the gains and turning it over to the landlords to pay to the banks to interest - to get the mortgage to buy the property - to clean up. So if the Finance, Insurance and Real Estate Sector is not an Industrial growth, they say it's a post-Industrial economy, and it's just a lapse back into a neo-Feudal economy, and into Debt-peonage.

RA: This is your old stomping ground.

MH: Yes, this is Chase Manhattan, where I used to work as their Balance of Payments economist on the 9th floor. Two cellars down, in the sub-basement, is where the employees eat ; the executives eat on the 60th floor. So Wall St 's organized very much like the Las Vegas casinos: the high-rollers are on the top floors, the public at large is on the ground floor here - the high rollers is where it counts.

Right across the street is the Federal Reserve of New York - that's where Europe has its Gold holdings. It doesn't hold its Gold in Europe - Germany, France, England have them here, because they just thought they'd let the United States shift around their Gold, nobody's really asked for it back, and they're beginning to get a little worried, because the Federal Reserve is on Liberty St., and people joke the word for "liberty" originally - "hamardi" in Sumerian - meant "debt-cancellation". And the Federal Reserve, instead of being for debt-cancellation and liberty from debt, means, "Let's get the rest of the economy in debt, and infringe upon the liberty of other countries". So, it's a sort of Orwellian name for Liberty St., when the Federal Reserve holds the rest of the world in bondage to itself, when the United States acts as a creditor to Third World countries - while itself being the biggest debtor in the world, owing $4 trillion to foreign Central Banks, that it never intends to pay - it insists that foreign countries increase their taxes, cut back their public spending, sell off their public domain, sell off their railroad systems and their road systems, in order to pay the debts - and that's done right there from the Federal Reserve - to force other countries to pay the bonds that are held by Chase Manhattan, and its brethren on Wall St., a block away, where we just came from.

RA: So,"Do what I say, not what I do".

MH: That's right.

RA: Coming back to this {Chase building} - it reflects society does it not - the underclass at the bottom - they pay - the elite at the top, or supposed elite at the top - they don't pay - and then you've got the worker bees, which is the middle class in the middle, who continue to suffer but keep servicing the loans. It's perfect, isn't it?

MH: That's how it works.

(2) World Currency coin unveiled at G8

{don't blame Medvedev: he's not the one behind this, but just honest or naive enough to show the public what the elite plan - Peter M.}

Russian President shows reporters example of "united future world currency"

by Paul Joseph Watson

Global Research, July 11, 2009
Prison Planet - 2009-07-10

http://www.globalresearch.ca/index.php?context=va&aid=14326

In a highly symbolic moment at the G8 summit in Italy today, Russian President Dmitry Medvedev unveiled to reporters a coin representing a "united future world currency".

"We are discussing both the use of other national currencies, including the ruble, as a reserve currency, as well as supranational currencies," the Russian leader said at a news conference.

However, those who have downplayed the formulation of a world currency by dismissing it as merely a progression of SDR's (Special Drawing Rights) and not something that would physically be used by citizens in a system of world government, were contradicted when Medvedev clearly outlined that the new currency would be "used for payment" by citizens as a "united future world currency".

"This is a symbol of our unity and our desire to settle such issues jointly," Medvedev said.

"Here it is," Medvedev told reporters today in L'Aquila, Italy, after a summit of the Group of Eight nations. "You can see it and touch it," reports Bloomberg.

The question of a supranational currency "concerns everyone now, even the mints," Medvedev said. The test coin "means they're getting ready. I think it's a good sign that we understand how interdependent we are."

Medvedev explained that the coin had been minted in Belgium and bears the words "unity in diversity". An RIA Novosti report noted that the coin represented an example of a "possible global currency".

China and Russia have repeatedly called for a new global currency to replace the dollar.

When confronted about plans to supplant the dollar with a new global currency, both Federal Reserve chairman Ben Bernanke and Treasury Secretary Timothy Geithner denied that such an agenda existed.

However, just days after he told a Congressional hearing that there were no plans to move towards a global currency, Geithner sought to please the elitist CFR by assuring them that he was "open" to the notion of a new global currency system.

The scandal-ridden and highly secretive Bank For International Settlements, considered to be the world's top central banking power hub, released a policy paper in 2006 that called for the end of national currencies in favor of a global model of currency formats.

The global currency would be a key central plank of a future system of world government. Earlier this week, Pope Benedict called for a "world political authority" to manage the global economy.

(3) Banks Own the US Government - Dean Baker

From: ERA <hermann@picknowl.com.au> Date: 08.07.2009 10:32 AM

There are smart ways to raise money and regulate the market, but Wall Street is working to kill any meaningful financial reform

by Dean Baker

Published on Wednesday, July 1, 2009 by The Guardian/UK

http://www.guardian.co.uk/commentisfree/cifamerica/2009/jun/30/congress-financial-reform-banks

Last month, when the US Congress failed to pass a bankruptcy reform measure that would have allowed home mortgages to be modified in bankruptcy, senator Dick Durbin succinctly commented: "The banks own the place." That seems pretty clear.

After all, it was the banks' greed that fed the housing bubble with loony loans that were guaranteed to go bad. Of course the finance guys also made a fortune guaranteeing the loans that were guaranteed to go bad (ie AIG), and when everything went bust, the taxpayers got handed the bill. The cost of the bailout will certainly be in the hundreds of billions, if not more than $1tn when it is all over.

More importantly, we are looking at the most severe economic downturn since the Great Depression. The cumulative lost output over the years 2008-2012 will almost certainly exceed $5tn. That comes to more than $60,000 for an average family of four. This is the price that we are paying for the bankers' greed, coupled with incredible incompetence and/or corruption from our regulators.

Under these circumstances, it would be reasonable to think that the bankers would be keeping a low profile for a while. That's not the way it works in Washington. The banks are aggressively pushing their case in Congress and
Obama administration. Not only are we not going to see bankruptcy reform, but any financial reform package that gets through Congress will probably contain enough loopholes that it will be almost useless.

In this political environment, the poor might get empathy, but Wall Street gets money, and lots of it. Even when the issue is global warming Wall Street has its hand out. The fees on trading carbon permits could run into the hundreds of billions of dollars in coming decades. A simple carbon tax would have been far more efficient, but efficiency is not the most important value when it comes to making Wall Street richer.

This is why it was so encouraging to see congressman Peter DeFazio's proposal to tax trades in oil options and futures. DeFazio proposed a tax of 0.02% on trades in oil futures and options as a way to make up a shortfall in the federal government's highway trust fund. This tax could raise billions of dollars each year in revenue and make speculation in the oil market a more dangerous affair.

The logic is very simple. For someone using these markets to hedge, the tax will be inconsequential. For example, a farmer that hedges a $400,000 wheat crop will pay $80 when selling a future. Similarly, airlines that hedge by buying oil futures will barely notice the higher cost. In fact, because trading costs have fallen so much in recent decades, a tax at this level would just be raising costs back to their levels of two decades ago, a point at which there was already a very vibrant futures and options market.

However, even a modest tax will make life much more difficult for speculators. Many of them expect to make quick short-term gains, often buying and selling the same day. For these traders, an increase in transactions costs of 0.02% would be a burden.

Of course, a modest tax will not drive the speculators out of the market altogether, it is just likely to reduce the volume of speculation. For this reason, even a modest tax can still raise an enormous amount of money in a market where tens of trillions of dollars of derivatives changes hands each year.

This tax can best be thought of as a tax on gambling. Gambling is heavily taxed in every state that allows it. DeFazio's bill is effectively a tax on gambling in the oil markets. It will not stop it, but it would discourage it, and in the process raise a huge amount of money that could go to productive purposes.

The bill faces an enormous uphill struggle in Congress. As Durbin said, the banks own the place, and they are not going to just step aside and let Congress impose a tax on such a lucrative business. But, it is important that people know about the DeFazio bill. First, DeFazio deserves a place on the honour roll for standing up to Wall Street.

Also, it is important for the public to know that there is a relatively low-cost way to make up the shortfall in the highway trust fund. When Congress raises some other tax and/or cuts a useful programme, people should know that there was a better alternative. It just didn't happen because, as we know, the banks own the place.
 ##

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer ( www.conservativenannystate.org) and the more recently published Plunder and Blunder: The Rise and Fall of The Bubble Economy. He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues. You can find it at the American Prospect's web site.
C 2009 Guardian News and Media Limited.

(4) Goldman Sachs rigging the stock market

From: SHUT_Them_DOWN! - Yes_WE_CAN! <autodelete66@yahoo.com> Date: 10.07.2009 03:00 PM

Influence is all in the bag for 'Government Sachs'

http://www.nypost.com/img/cols/johncrudele.jpg

July 9, 2009

WHEN I last wrote about Goldman Sachs in late March the most politically-connected and luckiest firm on Wall Street was in the middle of rigging the stock market -- again.

"Something smells fishy in the market. And the aroma seems to be coming from Goldman Sachs," is the way I put it in that March 28 column.

Well, a lot has changed in just the past few weeks. And I'd like to put it all together for you, and for the rest of the media should it choose to follow what is shaping up to be the most incredible financial story ever.

Back in March I noted that the rally occurring in the stock market had the indisputable fingerprints of Goldman all over it. There were numbers to back it up.

Despite the fact that regular investors seemed to be pulling their money out of the market or -- at best -- investing conservatively, stock prices were zooming. The reason was simple: Big investors were pouring money into equities.

And Goldman Sachs was the biggest of the big.

According to the New York Stock Exchange figures for the week of April 13 that I quoted, Goldman executed twice as many big trades -- called "program" trades by the industry -- as any other firm. And, the bulk of the 1.234 billion shares bought by Goldman that week were paid for with the firm's own money.

Of course, Goldman would have to be mighty confident that stock prices were going up to risk so much of its own capital. Or, perhaps, it knew stocks would be rising.

This was the time, remember, when banks were trying to recapitalize by selling shares to the public. Goldman, you'll also recall, had turned itself into a bank holding company so it could take $10 billion in government money under the Troubled Asset Relief Program.

Goldman also sold billions worth of new stock to the public while all this was happening.

How much harder would it have been for banks to sell stock to nervous investors if the market was swooning rather than booming? Goldman's sudden and inexplicable optimism about stocks was incredibly opportune for the banking industry in general, for Goldman in particular and -- here's where the conspiracy starts to unfold -- for the government.

It's tough, however, to do what needs to be done to rescue the market when pesky journalists and annoying bloggers are looking over your shoulder.

So a couple weeks ago the NYSE suddenly announced that brokerage firms would no longer have to report their program trades. The new rule takes effect next week.

Convenient!

Wall Street and Washington have been playing footsie for decades.

Back in the late 1980s, President Reagan determined that the stock market was so vital to the country that he signed an executive order creating the President's Working Group on Financial Markets. What the president wanted from this group was unclear, but the precipitous drop in stock prices in 1987 and 1989 had made everyone nervous.

Soon afterward, Robert Heller, a former Federal Reserve governor, came right out and proposed what the president was probably thinking -- the stock market should be rigged in times of impending disaster. But instead of going through all the trouble of buying actual stock, like firms do in program trades, Heller suggested a shortcut -- the purchase of stock index futures contracts.

From that point on everyone suspected that Washington would jump in to calm the stock market whenever the waters got rough.

Goldman has so many top executives who've moved into government that the company is now not-so-affectionately called Government Sachs.

Hank Paulson, the incompetent Treasury secretary during the last Bush Administration, was a former chairman of Goldman. Paulson almost slipped about the cozy relationship Washington had with Wall Street when he was being interviewed on TV and blurted out that it was part of his job to speak frequently with "market participants."

No, it's not.

Was he tipping information to Goldman during these conversations, like interest rate decisions? Was Goldman some sort of ex-officio government conduit?

The clincher came last week in the most bizarre and unexpected twist to this unpredictable decades-long tale.

Federal prosecutors accused a guy named Sergey Aleynikov of stealing proprietary "black box" computer codes from Goldman. The agent in charge of the case said the following in court: "The bank (Goldman) has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate the market in unfair ways." What was Goldman doing with a program that could "ma nipulate the market in unfair ways"?

The answer: It was using it to manipulate the market.

john.crudele@nypost.com

(5) China's $ reserves reach $2 trillion - Brad Setser
http://blogs.cfr.org/setser/2009/07/22/two-trillion-and-counting-%e2%80%a6/#more-5958

Two trillion and counting …

Posted on Wednesday, July 22nd, 2009

By bsetser

China's latest surge in reserves – a surge that look its total holdings over two trillion dollars – didn't really register in the financial media. China's first trillion was a big story. The second trillion, not so much. It generated a few news stories and blog posts, but not the kind of big feature stories that accompanied China's first trillion.*

The second trillion though came remarkably fast. It took a few millennium for China to get its first $1 trillion in reserves (Ok, more like a decade … ). The second trillion took less than three years. Reserves topped $1 trillion in late 2006. They topped $2 trillion in April 2009.

The second trillion would have taken even less time if China hadn't shifted about $200 billion into the PBoC's other foreign asset and another $100 billion or so to the CIC (after netting out the funds that flowed back into the PBoC when the CIC bought SAFE's stakes in the Chinese state banks). If all of China's foreign assets are counted, China's foreign portfolio likely topped $ 2 trillion back in June 2008.

But there is another milestone that China is fast approaching — one that should be a big story. On current trends – and, to be sure, a lot could change, especially if China is serious about using its reserves to fuel the outward expansion of Chinese state firms, especially those state firms bidding for the world's commodity supply – China's holdings of Treasuries should top $ 1 trillion in about a year.

Chinese purchases of Treasuries, after taking account of China's likely purchases through London, are once again growing in line with China's reserve growth. Look at a chart of China's total holdings of US assets.** Its Treasury holdings picked up in May.

(6) China to use foreign exchange reserves for overseas expansion and acquisitions

China to deploy foreign reserves

From: geab@leap2020.eu Date: 23.07.2009 01:08 PM

Financial Times

Beijing will use its foreign exchange reserves, the largest in the world, to support and accelerate overseas expansion and acquisitions by Chinese companies, Wen Jiabao, the country's premier, said in comments published on Tuesday.

(7) Unemployment in Europe rising rapidly

From: geab@leap2020.eu Date: 23.07.2009 01:08 PM

http://www.nrc.nl/international/article2307196.ece/new_high_in_unemployment_worse_to_come

New high in unemployment; worse to come

Published: 22 July 2009 12:23 | Changed: 22 July 2009 17:29

NRC Handelsblad By our news staff

Unemployment is rising rapidly in the Netherlands, new figures from the national statistics bureau showed on Tuesday. In June alone, 16,000 people lost their job, 5,000 more than in previous months.

Total unemployment is now at 4.8 percent in the Netherlands, with 368,000 people out of work. The 15-24 age group has been hit especially hard, 11.4 percent of them are unemployed.

The Netherlands is still doing well compared with other European countries. The average unemployment in the European Union stands at 9.5 percent, with Spain as the outlier at 18 percent.

More people are expected to lose their jobs in the near future; the Dutch economic policy unit has estimated almost 10 percent of the workforce will be idle by the end of 2010.

Ruud Muffels, professor of socio-economics (labour market and social security) at Tilburg University, expects to reach that peak this year. "An unemployment rate of 3.5 to 4 percent means a healthy and normal labour market. In times of recession that percentage rises to 6 or 6.5, like in 2001. But in this recession, unemployment will reach 8 or 9 percent. We haven't seen that since the crisis is in the 1980s.

"I am afraid that after the summer we will no longer move in small steps, but we will see tens of thousands more unemployed each month," Muffels said.

The main reason the number will rise substantially in September is that 150,000 to 180,000 graduating students will enter the market. On top of that, the construction industry expects 50,000 jobs to disappear.

"In the Netherlands, the unemployment rate rises less quickly because it takes longer for people who lose their jobs to reach the unemployment statistics," according to Muffels. "On average about six months pass between the announcement that jobs are cut and the actual lay-offs. The formalities take time to complete: labour unions and works councils have to be consulted and social plans drafted. Moreover, employers don't like to fire people, many are postponing it until after the vacation."

(8) IMF plans to inject $250 billion into members' forex reserves

From: geab@leap2020.eu Date: 23.07.2009 01:08 PM

The International Monetary Fund executive board has endorsed a decision to inject 250 billion dollars into member nations' foreign exchange reserves, a rare move from the organisation, with nearly 100 billion dollars going to developing economies...

France 24

http://www.france24.com/en/20090720-imf-plans-inject-members-foreign-exchange-reserves-economic-crisis

 Monday 20 July 2009

AFP - The International Monetary Fund said Monday it plans to inject 250 billion dollars into member nations' foreign exchange reserves to boost liquidity amid the global economic crisis.

The IMF executive board on Friday endorsed the proposal to allocate Special Drawing Rights (SDRs) equivalent to 250 billion dollars, by far the largest general allocation in the rarely used tool, the IMF said.

"SDRs allocated to members will count toward their reserve assets, acting as a low-cost liquidity buffer for low-income countries and emerging markets and reducing the need for excessive self-insurance," it said in a statement.

An SDR is an interest-bearing IMF asset that is based on a basket of international currencies -- the dollar, yen, euro and pound -- that is calculated daily and which members can convert into other currencies.

The general increase in SDRs was part of a 1.1 trillion dollar plan agreed at the Group of 20 summit in London in early April to tackle the global financial and economic crisis.

"The SDR allocation is a key part of the fund's response to the global crisis, offering significant support to its members in these difficult times," IMF managing director Dominique Strauss-Kahn said in the statement.

The IMF board of governors is to vote on the proposal by August 7. If approved, the allocation will take effect on August 28.

The operation will increase each member country's allocation of SDRs by roughly 74 percent of its quota in the fund, which is broadly based on the member's relative size in the global economy.

A member country can choose to keep its SDRs, thereby boosting its international reserves, sell all or part of them, and convert them into other currencies to be used in transactions with other members or the fund itself.

"Some members may choose to sell part or all of their allocation to other members in exchange for hard currency -- for example, to meet balance of payments needs -- while other members may choose to buy more SDRs as a means of reallocating their reserves," the IMF said.

Nearly 100 billion dollars of the new allocation will go to emerging markets and developing countries, of which low-income countries will receive more than 18 billion dollars, the Washington-based institution said.

The proposed distribution dwarfs the total 21.4 billion SDRs (33 billion dollars) allocated in yearly installments through two previous general allocations: 9.3 billion SDRs in 1970-1972 and 12.1 billion in 1979-1981.