The True Greek Crisis

Everything we hear about the crisis in the EU, it seems that the whole situation is a result of the “problems” in Greece, and to a lesser degree Spain, Portugal, and Italy.  French president Sarkozy and Germany’s chancellor Merkel can’t agree on how to “bailout” Greece.  IMF and the ECB threaten to withhold funding for Greece if they don’t continue to enforce more and more austerity programs.  Greek 1 year bond rate is 117%!

If you followed just MSM you would think the Greeks were the most stupid businessmen and politicians, and there is considerable support that these elements of Greece certainly contributed to the current situation.  After joining the EU, there was wheeling and dealing with total disregard for the future and now they are in a real pickle.  Some in the EU are calling for the dissolution of the Greek government and absorbing the region into other EU member nations!

However, in historical perspective, one could also argue that Greece was setup for this fall. Closer examination suggests a reality that is very different than the “picture” being painted for us to consume.  Let’s examine some facts.

The Lazy Greek Meme

Greece is a land of ancient myth. But more recent myths have made Greeks cringe when foreigners start asking questions.

Greeks are lazy. They don’t work. They’re profligates who are taking down Europe. The caricature has become so common that a recent TV commercial in Slovakia used it to sell beer, drawing a contrast between the virtuous Slovak and the paunchy Greek indulging himself on a beach.

Most foreigners know Greece from holidays spent lolling on its beaches and drifting around its magical ruins. You could easily take it for granted that everybody here is just chilling out. They aren’t. The Greek labor force, comprising 5 million souls, works the second highest number of hours per year on average among countries in the Organization for Economic Development (OECD), right after South Korea. Greeks work 42 hours per week, while the industrious Germans toil just 36.

The average Greek worker earns a bit over $1,000 a month. Private sector employees are the most underpaid in the EU. Even before the harsh austerity measures imposed by the EU and the IMF, the Greeks had already cut the real average wages in the private sector to 1984 levels. This week the Greek parliament is expected to vote on measures that would place 30,000 public sector workers in a “labor reserve” at slashed pay – up to 40 percent.

Greeks retire a bit later than the European average. And the average pension, $990, is less than that of Ireland, Spain, Belgium, and the Netherlands. Thirty percent of the labor force works with zero Social Security or protections, while in the rest of the EU only 5-10 percent of workers are in this precarious situation.

The reality is simple, though rarely admitted –The “bailout” of Greece is really a bailout of big European banks. A game of smoke and mirrors leads us to think that Greek indolence led to financial ruin. The Greeks have done some things wrong, to be sure. But it was a dangerous mix of stupid economic theories and high-flying finance, fueled by a corrupt government, and that combination exploded the economy. If all this sounds sickeningly familiar, it should. We’re witnessing Round 2 of the Great Global Shakedown by the banks.

The Greeks got socked in WWII and then creamed again by a brutal civil war (1946–1949), in which American military aid to the Greek governmental army ensured the defeat of the Greek Communist Party.  After WWII, the Truman Doctrine and the Marshall Plan determined relations between the U.S. and Europe. The economic recovery of Germany—designed to benefit American multinationals like IBM, Ford and General Motors – was a high priority. (Watch a fascinating lecture by economist Joseph Halevi here.) Greece mattered to the U.S. as a strategic barrier against the USSR in the Cold War, so it decided to support Greece with economic and military aid, fearing that another communist domino would fall.

Meanwhile, a resurgent Greek Left began to demand fair labor practices and human rights. It was duly answered with brutal repression. Executions and exile were common. In 1967, the army, backed by the CIA, overthrew the government in a Cold War right-wing military coup. The new government, known as the Regime of the Colonels, engaged in stupid military adventures like a disastrous attempt to annex Cyprus, which led to its collapse in 1974. But the Greeks maintained a ridiculously oversized army and navy, underwritten by the U.S., to keep those Russians at bay. When the Cold War ended, the Russians were no longer a threat to the U.S., and, accordingly, financial support for Greece was drawn down.

Through the ’80s and most of the ’90s, the Greeks economy faltered, and the Greeks had to pay super-high interest rates when they borrowed money. The government, mired in bureaucracy, mismanaged things badly. Taxes were not collected. Bitter class conflicts emerged. Horribly high unemployment persisted.

But in 1992, something called the Maasticht Treaty brought hope, getting the ball rolling for the creation of the euro. Unfortunately, the idea of the euro was kind of a fairy tale promoted by European elites (minus the British). Some tried to sound warnings of an epic screwup. Wouldn’t the lack of a shared language, common culture, and big central government be a problem? Paul Krugman notes that European number crunchers who wanted the euro weren’t above fudging results to make the plan look good. The fairy dusters won, and in 1999, the euro became official. In 2000, Greece joined the game.

One fairy tale held that once countries adopted the euro, they wouldn’t default. They would limit their deficits. Every country would become like Germany, where debt was highly secure. Yay! Greek debt, Irish debt and Spanish debt began to trade as if they were super-safe German or French debt. Countries like Greece that had been considered dicey investment became overconfident. The European Central Bank would take care of inflation, they thought. And surely no one could go bankrupt. The Greeks, once forced to pay high interest rates (as high as 18 percent in 1994), could now borrow at low interest. The conservative Greek government went on a reckless borrowing spree and the banks went on a reckless lending spree. Big European banks were delighted to lend them money; more than a few also helped the Greeks hide evidence that all was not well.

Many of these big banks knew perfectly well as early as 2005 that the Greeks wouldn’t be able to pay the money back. But so what? Banks love a little thing called moral hazard – where you know your risky behavior is not going to be punished because somebody out there is going to pay for it. That’s what they counted on with Greece, and accordingly kept the rivers of money flowing.

The Greek government borrowed boatloads for the 2004 Olympics, which cost twice as much as projected. Magician-bankers at Goldman Sachs obligingly helped it disguise the debt — we’re talking billions — with clever little financial instruments called derivatives. The public hadn’t a clue what was going on. All the southern countries on the euro continued to borrow heavily, spend heavily, and for a while, they boomed until the boom as the financial markets collapsed in 2008.

God of the Winds

TSHTF in 2008. Everybody looked around and said, “Who the hell is going to pay off these debts?” The banks saw big money heading out the door. According to the bible of neoliberal economics, this can’t happen. Human beings and societies are one thing. But banks must be saved at all costs.

When the Greek government changed hands in October 2009, the books were opened and it became obvious that there was a much bigger deficit than anyone thought. Investors ran for the hills. Interest rates shot up. In November, just three months before the Greeks became the epicenter of the European economic crisis, the wizards of Wall Street were back on the scene in Athens, trying to peddle more deals that would allow debt to magically vanish. The New York Times summed up the banks’ role in the crisis:

“As in the American subprime crisis and the implosion of the American International Group, financial derivatives played a role in the run-up of Greek debt. Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks enabled politicians to mask additional borrowing in Greece, Italy and possibly elsewhere.

“In dozens of deals across the Continent, banks provided cash upfront in return for government payments in the future, with those liabilities then left off the books. Greece, for example, traded away the rights to airport fees and lottery proceeds in years to come…Some of the Greek deals were named after figures in Greek mythology. One of them, for instance, was called Aeolos, after the god of the winds.”

With evil financial winds gaining hurricane force, it became clear that Greece would need a whole lot of money if the bankers were going to get paid back. They jumped on the austerity train to nowhere– chasing their tails by making draconian cuts, which only increased their deficits, and then having to ask the EU for more money. Public workers were fired to pay the banks. Pensions were slashed to pay the banks. But there still wasn’t enough money to pay the banks.

If you’re a country that has your own sovereign currency – like the U.S. – then you have some options in this situation. You can do monetary expansion to head off deflation, for example, and devalue your currency. But once Greece went on the euro, it say good-bye to such options. So it cut, and cut, and cut, and now it’s going bankrupt anyway. The country is mired in falling income, rising deficits, and sinks even further. It’s in the Herbert Hoover death spiral.

Meanwhile, members of the EU are flipping out. Contributions to the bailout agreed to in July are supposed to be proportional to a country’s economic status, and thus the Germans have the biggest chunk to fork over. They are not keen on the notion of doing so in order for the Greek and French banks to get paid. Hey, they’re thinking, wouldn’t it be cheaper to recapitalize our own banks directly? The French are really flipping out, because after the Greek banks, their banks are holding the biggest hordes of Greek debt. They’re worried about their credit ratings. The bailout decision has been postponed until mid-November so everybody can fight it out.

With the major banks holding all of these Greek derivatives, is it any wonder that BoA and JPMC are now trying to foist these toxic assets onto the American Taxpayers by transferring these assets into their banking arms so the loses would be covered under the FDIC!

No matter how this turns out, two facts will remain unchanged.  First, Greek debt will be the start of the whole house of cards collapsing, that was the EU and the Euro.  Secondly, Greeks will pay the price of cozying up to greedy bankers for decades.

Chinese Yuan; A new world reserve currency? , China making its moves.

From the currency war front, we are watching the major assault on the dollar.  We have anticipated this move for several months now and it appears the major push by China has now been launched.  The first signals was China NOT buying all of the US T-Bills at the last few auctions. Then they shifted their paper buying to the Euro bills.   Now according to Graham Sharkey, only a mere twelve days into the New Year (2011) and China has already set the wheels in motion to use their most powerful weapon, the Yuan, in order to combat inflation. This may well be the first decision of many that will result in the Yuan being phased in as the new world reserve currency.

A stronger exchange rate will be the tool that China will use in order to tame their inflationary problems at present. The biggest increases being felt as a result of inflation at this time are; the Chinese housing market, which was most dramatically affected in the southern industrial hub of Guangzhou, where home prices soared by 38 percent in the past year.  Another sector heavily affected was Chinese groceries, with the cost of some foods increasing by 50 percent.

In an attempt to address the loose lending policies being adopted by Chinese banks, China’s government have ordered their banks to increase the amount of money that each bank holds in reserves with a reduction in the availability of lending.  The strengthening Yuan will essentially result in two ways; 1, their imports will become substantially cheaper. 2, their exports will be more expensive.

This is a move that the US have not wanted the Chinese to take as most of the consumer goods that are stocking up US stores are Chinese-made products and the longer the Chinese allowed their currency to be held at a relatively low-level (compared to its purchasing power potential) the longer the shopaholics’ in America could continue to buy their products at a price that they could afford (or a level that they could get credit for).  So, with the world outside China continually devaluing their currencies and China increasing theirs who is going to pick up the export market? And how do they intend to do this?

Before hand, the countries that were importing goods from China were benefiting from a manipulated Yuan price which gave the illusion of cheap imports. But now, that is not an option. The only way that I can see that will enable countries to bridge the export gap will be, further devaluation of their paper currency, which as any respecting economist knows is only an extremely short-term solution (if it can even be called that) and will only result in long-term high inflation for that economy.

This currency policy decision by the Chinese government will help to add to the increasing confidence in the Yuan as a world reserve currency contender to replace the failure that is, the US Dollar.  Aside from the measures taken to combat inflation in China, there have been many other recent events that all point to the strengthening of the Yuan and the growing popularity of the currency.

In the last two weeks, the World Bank issued their very first Yuan bonds; they will release the amount of 500 million Yuan, which is around $70 million in US Dollars. The bank has said that, these actions are an act of confidence in the Renminbi and will give investors around the globe the opportunity to diversify and help the exposure of the Yuan in global markets. The bonds were offered from January 14th, 2010 and will mature after two years in 2013.

In July of last year (2010) China began allowing cross-border exchange with the renminbi, however, there were caps on exactly how much currency was allowed to be exchanged. That was the closest China had come to allowing the renminbi to be a top currency on a global scale, until now.

Now marks the beginning of the renminbi being allowed to be traded in the U.S, China have identified that the global economy has become too reliant on the Dollar and wants to provide an opportunity to move away from that.  China have already implemented strategies that will allow for sustained appreciation for the Yuan against the US Dollar, a prediction in the rate of appreciation was projected at 6% in 2011 by Robert Minikin, who is a currency strategist at Standard Chartered based in Hong Kong.

The reason that there hasn’t been a replacement of the US Dollar as the world reserve currency as of yet is the fact that there was no currency that was ready to take on that mantle, however, given the performance of the Yuan in the last two years, it has shown its power and reliance as a solid currency, not only that, but China have also helped their cause by not relying on a paper, fiat currency but actually using the strengthening Yuan in which to buy up gold and other major assets, something that every single country in the so-called ‘advanced’ world has not done.  All of these factors are now helping to shape the Yuan into tomorrow’s new world reserve currency and once this transformation occurs, it really will spell the end for the down but not yet out, Dollar.

What to watch now is the so-called “summit meeting between President Obama and Hu Jintao of China this week.  In preparation for that meeting, President Hu Jintao said Sunday the international currency system was “a product of the past,” but it would be a long time before the yuan is accepted as an international currency.

Hu’s comments, which came ahead of a state visit to Washington on Wednesday, reflected the continuing tensions over the dollar’s role as the major reserve currency in the aftermath of the US financial crisis in 2008.

“The current international currency system is the product of the past,” Hu said in written answers to questions posed by The Wall Street Journal and the Washington Post.  Highlighting the dollar’s importance to global trade, Hu implicitly criticized the Federal Reserve’s recent decision to pump 600 billion dollars into the US economy, a move criticized as weakening the dollar at the expense of other countries’ exports.

“The monetary policy of the United States has a major impact on global liquidity and capital flows and therefore, the liquidity of the US dollar should be kept at a reasonable and stable level,” Hu said.

China’s own currency, the yuan or renminbi (RMB), is also expected to be a bone of contention in Hu’s talks with Obama, with the United States complaining that it is artificially overvalued to boost Chinese exports.  Asked about the view that appreciation of the yuan would curb inflation in China, Hu suggested that was too simplistic a formula.  “Changes in exchange rate are a result of multiple factors, including the balance of international payment and market supply and demand,” he said.  “In this sense, inflation can hardly be the main factor in determining the exchange rate policy,” he said.

At the same time, Hu signalled no imminent move away from the dollar as a reserve currency, saying it would be a long time before the yuan, or renminbi (RMB), is widely accepted as an international currency.  “China has made important contribution to the world economy in terms of total economic output and trade, and the RMB has played a role in the world economic development,” he said.  “But making the RMB an international currency will be a fairly long process.”

Nevertheless, Hu noted that China has launched pilot programs using the yuan, or renminbi, in settlements of international trade and investment transactions.  “They fit in well with market demand as evidenced by the rapidly expanding scale of these transactions,” he said.

As we have chronicled in this blog, these moves are demonstrating how short the fuse really is on the Dollar remaining the world’s transactional currency.  With the European Central Bank(ECB) denying the crisis of the Euro and the US simply printing more money to cover the mess in the financial markets in the US, it is just a matter of time before China drops the hammer and we will be living in a very new economic paradigm.  Watching the currency transaction markets, it seems it is a lot closer than anyone is admitting publically.

The Holidays Are Not So Rosy in Europe

This is the final update from the currency war front for this year.  For my many readers in Europe, I am sad to say it will not be considered a good year by any stretch.  However, as we have been warning in this series of articles, 2011 looks more like the year the Euro was assassinated.   As we commented in previous articles, the banksters mode of operation now is to break sovereign funds and they are doing a great job at achieving those goals and they are doing it right out in the open in front of us all.  Here’s how it works.  First you force the sovereign to accept severe austerity programs, including raiding pension funds using the IMF and ECB, then you require them to accept “bailout money” and then you use the rating agencies(who you own and control) to downgrade the sovereign’s bonds.  Think I am wrong?  Then read the following with what I just said in mind.

Source: The Economic Collapse

What in the world is happening over in Europe?  Well, it is actually quite simple.  We are witnessing the slow motion collapse of the euro and of the European financial system.  At this point, many analysts are convinced that a full-blown financial implosion in Europe has become inevitable.  Ireland, Spain, Portugal, Italy, France and Belgium are all drowning in an ocean of unsustainable debt.  Meanwhile, Germany and the few other “healthy” members of the EU continue to try to keep all of the balls in the air by bailing everyone out.  But can Germany keep bailing the rest of the EU out indefinitely?  Are the German people going to continue to be willing to hand out gigantic sacks of cash to fix the problems of other EU nations?  The Irish were just bailed out, but their problems are far from over.  There are rumors that Greece will soon need another bailout.  Spain, Portugal, Italy and France have all entered crisis territory.  At the same time, there are a whole host of nations in eastern Europe that are also on the verge of financial collapse.  So is there any hope that a major sovereign debt crisis can be averted at this point?

One would like to think that there is always hope, but each month things just seem to keep getting worse.  Confidence in European government debt continues to plummet.  The yield on 10-year Irish bonds is up to 8.97%.  The yield on 10-year Greek bonds is up to an astounding 12.01%.  The cost of insuring French debt hit a new record high on December 20th.

Bond ratings all over Europe are being slashed or are being threatened with being slashed.  For example, Moody’s Investors Service recently cut Ireland’s bond rating by five levels.  Now there is talk that Spain, Belgium and even France could soon all have their debt significantly downgraded as well. But if the borrowing costs for these troubled nations keep going up, that is just going to add to their financial problems and swell their budget deficits.  In turn, larger budget deficits will cause investors to lose even more confidence.

So how far are we away from a major crisis point? Professor Willem Buiter, the chief economist at Citibank, is warning that quite a few EU nations could financially collapse in the next few months if they are not quickly bailed out….

“The market is not going to wait until March for the EU authorities to get their act together. We could have several sovereign states and banks going under. They are being far too casual.”

Many analysts are even calling for some of these troubled nations to stop using the euro for a while so that they can recover.  In fact, Andrew Bosomworth, the head of portfolio management for Pimco in Europe says that Greece, Ireland and Portugal must all quit the euro at least for a little while if they expect to survive….

“Greece, Ireland and Portugal cannot get back on their feet without either their own currency or large transfer payments.”

Sadly, most Americans don’t realize just how bad the situation in Europe is becoming.  This is truly a historic crisis that is unfolding, just as we predicted it would and just in the manner we predicted it would.

However, since the euro seems at this point to be a “exploit accompli”, the next target is the US Dollar and not necessarily treasury bonds at first.  There are so many state and local governments on the verge of bankruptcy.  This makes the municipal bond market the next “soft” target.  Indeed, a bloodbath in the municipal bond market has already started.

The reason for delay the assault on treasury bonds is the effects that could happen that would careen out of the control of the banksters.  For example, if rates on U.S. government debt eventually hit 8 or 12 percent it will literally be financial Armageddon in this country.  The U.S. government has piled up the biggest mountain of debt in the history of the world, and if we continue piling up debt at the pace that we are, then it will only be a matter of time before the IMF is demanding that we implement our own “austerity measures”.

Many readers recently have commented that I may be over reacting and in fact there are positive things happening in both the economies of the US and Europe.  I do not deny these facts.  However, they are simply dwarfed in scale by these facts.  This blog simply aggregates the facts and from those FACTS draws conclusion as to what might happen next.  I do not gain any pleasure or profit for my efforts, I am simply reporting in detail and opining what may happen next.  I really don’t like what I see happening next.  I believe we may be very close to sound the alarm for general quarters, if you get my drift.

See you next year.

Further Posts from the Currency Warfront

The assault on the EU and the Euro is in full force now.  It was nearly a year ago that I predicted that some of the final fronts in the Great Economic War was the assault on pension funds and the profound effects the fallout from those raids would have on the general population.  Nearly every major G20 member nation is now in full on raids of their pension funds as we speak.  We can expect several million causalities, mostly the elderly and most vulnerable citizens, or as the PTBs say “culling of the herd has begun”.

Source: Zero Hedge
“If the recent Hungarian “appropriation” of pension funds, and today’s laughable Irish bailout courtesy of domestic pension funds sourcing 20% of the “new” money was not enough to convince the world just how bankrupt the entire European experiment has become, enter France. Financial News explains how France has “seized” €36 billion worth of pension assets: “Asset managers will have the chance to get billions of euros in mandates in the next few months for the €36bn Fonds de Réserve pour les Retraites (FRR), the French reserve pension fund, after the French parliament last week passed a law to use its assets to pay off the debts of France’s welfare system. The assets have been transferred into the state’s social debt sinking fund Cades. The FRR will continue to control the assets, but as a third-party manager on behalf of Cades.” FN condemns the action as follows: “The move reflects a willingness by governments to use long-term assets to fill short-term deficits, including Ireland’s announcement last week that it would use the country’s €24bn National Pensions  Reserve Fund “to support the exchequer’s funding programme” and Hungary’s bid to claw $15bn of private pension funds back to the state system.” In other words, with the ECB still unwilling to go into full fiat printing overdrive mode, insolvent governments, France most certainly included, are resorting to whatever piggybanks they can find. Hopefully this is not a harbinger of what Tim Geithner plans to do with the trillions in various 401(k) funds on this side of the Atlantic.More from FN on how first France, and soon every other socalized pension regime, will continue to plunder a nation’s life saving to fund short-term deficits.

And elsewhere, in the UK, things in the pension arena are also starting to heat up as the country is preparing to launch an “auto enrolment” feature for workers, whereby up to 11 million will be eligible for automatic enrolment.  Trades Union Congress general secretary Brendan Barber hailed it as an “historic advance”: a minimum pension to go with the UK’s minimum wage. Pensions Minister Steve Webb confirmed last month that all employers would have to enroll staff into a company scheme. As a result, up to 11 million people will be eligible for automatic enrolment in a workplace scheme, with up to eight million of them saving for the first time. However, there is little evidence that employers are ready for it.

And judging by the Hungarian, Irish and French case studies, all monies auto deposited will soon find a new mandate: one of bidding up sovereign European bonds (More from Financial News).  Staff can opt out to avoid mandatory contributions that will eventually account for half of the minimum of 8% of salary, with employers contributing 3% of salary, and 1% coming from tax relief.

It is impossible to predict how many people might opt out, but Colin Tipping, head of institutional wholesale at asset manager BlackRock, points to an 80% take-up at US companies that have introduced auto-enrolment compared with less than half of that before the mechanism was introduced. The latest annual review of New Zealand’s national KiwiSaver scheme has an opt-out rate of 18%.

The European experience is less encouraging. Italy tried to boost private pensions saving in 2007 with reforms to the Trattamento di Fine Rapporto, a fund traditionally paid to workers on leaving an employer.  However, its policy of “silent consent”, which had the money transferred into a pension unless workers objected, saw only about a quarter participate. Tito Boeri, director of the country’s social policy reform group Fondazione Rodolfo Debenedetti, said: “It was a great opportunity to develop private pension schemes here, but to a large extent it failed.”

Our only question: how soon before the US administration takes this hint of what every proper socialist country does with funds apportioned to it by a gullible public and ends up investing trillions in the worst possible asset classes (while in Europe this obviously means sovereign bonds, in the US by and far the proceeds will be used to make further purchases of such equities as Apple, Amazon and Netflix, in whose continued successful ponziness lies the fate of a vast majority of US-based hedge funds, whose LPs may at some point, in the distant future, actually pay domestic income tax.”

And in the US there are respected individuals who are now beginning to sound the alarm, but no one is listening.  The recent upward movement of the dollar is taunted by conventional wisdom as proof against such alarmists.  However consider this article.

By Paul Craig Roberts – BLN Contributing Writer

“On Thanksgiving eve the English language China Daily and People’s Daily Online reported that Russia and China have concluded an agreement to abandon the use of the US dollar in their bilateral trade and to use their own currencies in its place. The Russians and Chinese said that they had taken this step in order to insulate their economies from the risks that have undermined their confidence in the US dollar as world reserve currency.

This is big news, especially for the news dead Thanksgiving holiday period. But I did not see it reported on Bloomberg, CNN, New York Times or anywhere in the US print or TV media. The ostrich’s head remains in the sand.  Previously, China concluded the same agreement with Brazil.

As China has a large and growing supply of dollars from trade surpluses with which to conduct trade, China is signaling that she prefers Russian rubles and Brazilian reals to more US dollars.  The American financial press finds solace in the episodes when sovereign debt scares in the EU send the dollar up against the euro and UK pound. But these currency movements are just measures of financial players shorting troubled EU-denominated debt. They are not a measure of dollar strength.

The dollar’s role as world reserve currency is one of the main instruments of American financial hegemony. We haven’t been told how much damage Wall Street fraud has inflicted on EU financial institutions, but the EU countries no longer need the US dollar for trade between themselves as they share a common currency. Once the OPEC countries cease to hold the dollars that they are paid for oil, dollar hegemony will have faded away.

Another instrument of American financial hegemony is the IMF. Whenever a country cannot make good on its debts and pay back the American banks, in steps the IMF with an austerity package that squeezes the country’s population with higher taxes and cuts in education, medical and income support programs until the bankers get their money back.

This is now happening to Ireland and is likely to spread to Portugal, Spain, and perhaps even to France. After the American-caused financial crisis, the IMF’s role as a tool of US imperialism is less and less acceptable. The point could come when governments can no longer sell out their people for the sake of the American banks.

There are other signs that some countries are tiring of America’s irresponsible use of power. Turkey’s civilian governments have long been under the thumb of the American-influenced Turkish military. However, recently the civilian government moved against two top generals and an admiral suspected of involvement in planning a coup. The civilian government further asserted itself when the prime minister announced on Thanksgiving Day that Turkey is prepared to react to any Israeli offensive against Lebanon. Here is an American NATO ally freeing itself from American suzerainty exercised through the Turkish military. Who knows, Germany could be next.

Meanwhile in America, the sheeple remain content with, or blind to, their role as sheep to be slaughtered to feed the rich. The Obama Administration has managed to come up with a Deficit Commission whose members want to pay for the multi-trillion dollar wars that are enriching the military/security complex and the multi-trillion dollar bailouts of the financial system by reducing annual cost-of-living increases for Social Security, raising the retirement age to 69, ending the mortgage interest deduction, ending the tax deduction for employer-provided health insurance, imposing a 6.5% federal sales tax, while cutting the top tax rate for the rich. Even the Federal Reserve’s low interest rates are aimed at helping the banksters.

The low interest rates deprive retirees and those living on their savings of interest income. The low interest rates have also deprived corporate pensions of funding. To fill the gap, corporations are issuing billions of dollars in corporate bonds in order to fund their pensions. Corporate debt is increasing, but not plant and equipment that would produce earnings to service the debt. As the economy worsens, servicing the additional debt will be a problem.

In addition, America’s elderly are finding that fewer and fewer doctors will accept them as patients as a 23% cut looms in the already low Medicare payments to doctors. The American government only has resources for wars of aggression, police state intrusions, and bailouts of rich banksters. The American citizen has become a mere subject to be bled for the ruling oligarchies.

The police state attitude of the TSA toward airline travelers is a clear indication that Americans are no longer citizens with rights but subjects without rights. Perhaps the day will come when oppressed Americans will take to the streets like the French, the Greeks, the Irish, and the British.”

What is so interesting about the above OpEd is to know who Paul Craig Roberts is and what he is known for in the world.  Dr. Paul Craig Roberts is the father of Reaganomics and the former head of policy at the Department of Treasury. He is a columnist and was previously an editor for the Wall Street Journal. His latest book, “How the Economy Was Lost: The War of the Worlds,” details why America is disintegrating.

The next Wikileaks is supposedly centered on a large New York Bank.  When these documents are released, I am afraid the real backlash will start in earnest.  If Congress fails to extend unemployment benefits in the US and does so while extending the Bush tax cuts, I think we see in America what has already started in Europe.  What is so sad about this scenario is that “mob” reaction is predicted and contingencies are developed to “deal” with “those” kinds of situations.  What people should be realizing is that politicians and banksters can be prosecuted and replaced.  This should be the rebellious effort.  Make the administrative side of government work.  I can dream can’t I?

Further Updates from the Currency War Front

Well, folks, it’s official – mark November 22, 2010 in your calendars.  With yesterday’s $8.3 billion POMO monetization, the Fed’s official holdings of US Treasury securities now amount to $891.3 billion, which is higher than the second largest holder of US debt: China, which as of September 30 held $884 billion, and Japan, with $864 billion.  The Fed is now buying about $30 billion per week, or about $120 billion per month, for the foreseeable future and beyond, it would mean that China would need to buy a comparable amount to be in the standing. It won’t. In other words, the Ponzi operation is now complete, and the Fed’s monetization of US debt has made it not only the largest holder of such debt, but made external funding checks and balances in the guise of indirect auction bidding, irrelevant. China is now not the one having the most to lose on a DV01 basis on that day when the inevitable surge in interest rates finally happens. That honor is now strictly reserved for America’s taxpayers.

In addition, Tuesday China and Russia sent a loud message to the FED.

Source: Asia One – Su Qiang and Li Xiaokun

St. Petersburg, Russia – China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday.  Chinese experts said the move reflected closer relations between Beijing and Moscow and is not aimed at challenging the dollar, but to protect their domestic economies.

“About trade settlement, we have decided to use our own currencies,” Putin said at a joint news conference with Wen in St. Petersburg.

The two countries were accustomed to using other currencies, especially the dollar, for bilateral trade. Since the financial crisis, however, high-ranking officials on both sides began to explore other possibilities. The yuan has now started trading against the Russian rouble in the Chinese interbank market, while the renminbi will soon be allowed to trade against the rouble in Russia, Putin said.

“That has forged an important step in bilateral trade and it is a result of the consolidated financial systems of world countries,” he said.

Putin made his remarks after a meeting with Wen. They also officiated at a signing ceremony for 12 documents, including energy cooperation.  The documents covered cooperation on aviation, railroad construction, customs, protecting intellectual property, culture and a joint communique. Details of the documents have yet to be released.

Wen said Beijing is willing to boost cooperation with Moscow in Northeast Asia, Central Asia and the Asia-Pacific region, as well as in major international organizations and on mechanisms in pursuit of a “fair and reasonable new order” in international politics and the economy.

Sun Zhuangzhi, a senior researcher in Central Asian studies at the Chinese Academy of Social Sciences, said the new mode of trade settlement between China and Russia follows a global trend after the financial crisis exposed the faults of a dollar-dominated world financial system.

Pang Zhongying, who specializes in international politics at Renmin University of China, said the proposal is not challenging the dollar, but aimed at avoiding the risks the dollar represents.  Wen arrived in the northern Russian city on Monday evening for a regular meeting between Chinese and Russian heads of government.

In related news on the situation in the EU comes the grim but expected news that the Spanish 3-month bill auction failed.  The debt agency sold only €3.26bn of the €4-5bn that was offered, at average yield of 1.743% vs 0.951% prior. What people must understand is that is nearly double the interest rate.  This debt service is the back breaker to the economy.  Tensions are surely going to start boiling over on the Emerald Isle.  If Greece was a big bomb to the EU and ECB stability, and Ireland was Greece’s big brother, then the Spanish economy is their bigger brother Bubba.  These three countries WILL require further bailouts and quite frankly more than the ECB can handle.  The death of the EU is like watching a shot buffalo go down in a Sam Peckinpah movie.

Finally, back in the US, in addition to the impacts of QE2, the mortgage situation as related to the big banks is far from going away.  To put things in clear perspective, the banks bundled, and sold to investors, junk paper consisting of bundled questionable mortgages.  In most cases, those same banks kept the seconds on those mortgages.  However, now the investors do have recourse.  These bundled packages required the banks to “buy back” any equity that was in default or foreclosure.  The bottom line to this is that the top five banks, between the bad second mortgages and the default clauses on the crap they dumped on investors, are on the hook for nearly $400 Billion, which is more than the equity value of those top five banks.

In view of the fact the currency wars have unquestionably erupted, these elements represent the perfect storm.  As a side, the “fear” index on Wall Street today was the highest recorded since 1987.  These events are moving along the worst case scenario lines.  Watch very carefully.