FedUpUSA

Archive for November 10th, 2011

An Italian radio program’s story about Iceland’s on-going revolution is a stunning example of how little our media tells us about the rest of the world. Americans may remember that at the start of the 2008 financial crisis, Iceland literally went bankrupt.  The reasons were mentioned only in passing, and since then, this little-known member of the European Union fell back into oblivion.

As one European country after another fails or risks failing, imperiling the Euro, with repercussions for the entire world, the last thing the powers that be want is for Iceland to become an example. Here’s why:

Five years of a pure neo-liberal regime had made Iceland, (population 320 thousand, no army), one of the richest countries in the world. In 2003 all the country’s banks were privatized, and in an effort to attract foreign investors, they offered on-line banking whose minimal costs allowed them to offer relatively high rates of return. The accounts, called IceSave, attracted many English and Dutch small investors.  But as investments grew, so did the banks’ foreign debt.  In 2003 Iceland’s debt was equal to 200 times its GNP, but in 2007, it was 900 percent.  The 2008 world financial crisis was the coup de grace. The three main Icelandic banks, Landbanki, Kapthing and Glitnir, went belly up and were nationalized, while the Kroner lost 85% of its value with respect to the Euro.  At the end of the year Iceland declared bankruptcy.

Contrary to what could be expected, the crisis resulted in Icelanders recovering their sovereign rights, through a process of direct participatory democracy that eventually led to a new Constitution.  But only after much pain.

Geir Haarde, the Prime Minister of a Social Democratic coalition government, negotiated a two million one hundred thousand dollar loan, to which the Nordic countries added another two and a half million. But the foreign financial community pressured Iceland to impose drastic measures.  The FMI and the European Union wanted to take over its debt, claiming this was the only way for the country to pay back Holland and Great Britain, who had promised to reimburse their citizens.

Protests and riots continued, eventually forcing the government to resign. Elections were brought forward to April 2009, resulting in a left-wing coalition which condemned the neoliberal economic system, but immediately gave in to its demands that Iceland pay off a total of three and a half million Euros.  This required each Icelandic citizen to pay 100 Euros a month (or about $130) for fifteen years, at 5.5% interest, to pay off a debt incurred by private parties vis a vis other private parties. It was the straw that broke the reindeer’s back.

What happened next was extraordinary. The belief that citizens had to pay for the mistakes of a financial monopoly, that an entire nation must be taxed to pay off private debts was shattered, transforming the relationship between citizens and their political institutions and eventually driving Iceland’s leaders to the side of their constituents. The Head of State, Olafur Ragnar Grimsson, refused to ratify the law that would have made Iceland’s citizens responsible for its bankers’ debts, and accepted calls for a referendum.

Of course the international community only increased the pressure on Iceland. Great Britain and Holland threatened dire reprisals that would isolate the country.  As Icelanders went to vote, foreign bankers threatened to block any aid from the IMF.  The British government threatened to freeze Icelander savings and checking accounts. As Grimsson said: “We were told that if we refused the international community’s conditions, we would become the Cuba of the North.  But if we had accepted, we would have become the Haiti of the North.” (How many times have I written that when Cubans see the dire state of their neighbor, Haiti, they count themselves lucky.)

In the March 2010 referendum, 93% voted against repayment of the debt.  The IMF immediately froze its loan.  But the revolution (though not televised in the United States), would not be intimidated. With the support of a furious citizenry, the government launched civil and penal investigations into those responsible for the financial crisis.  Interpol put out an international arrest warrant for the ex-president of Kaupthing, Sigurdur Einarsson, as the other bankers implicated in the crash fled the country.

But Icelanders didn’t stop there: they decided to draft a new constitution that would free the country from the exaggerated power of international finance and virtual money.  (The one in use had been written when Iceland gained its independence from Denmark, in 1918, the only difference with the Danish constitution being that the word ‘president’ replaced the word ‘king’.)

To write the new constitution, the people of Iceland elected twenty-five citizens from among 522 adults not belonging to any political party but recommended by at least thirty citizens. This document was not the work of a handful of politicians, but was written on the internet. The constituent’s meetings are streamed on-line, and citizens can send their comments and suggestions, witnessing the document as it takes shape. The constitution that eventually emerges from this participatory democratic process will be submitted to parliament for approval after the next elections.

Some readers will remember that Iceland’s ninth century agrarian collapse was featured in Jared Diamond’s book by the same name. Today, that country is recovering from its financial collapse in ways just the opposite of those generally considered unavoidable, as confirmed yesterday by the new head of the IMF, Christine Lagarde to Fareed Zakaria. The people of Greece have been told that the privatization of their public sector is the only solution.  And those of Italy, Spain and Portugal are facing the same threat.

They should look to Iceland. Refusing to bow to foreign interests, that small country stated loud and clear that the people are sovereign.     

That’s why it is not in the news anymore.

Deena Stryker is an American writer that has lived in six different countries, is fluent in four languages and a published writer in three. She looks at the big picture from a systems and spiritual point of view.  SACSIS

Another day of lies has dawned on the markets.

After being up close to 2% the market is now bleeding again with the S&P threatening to negative and the Nasdaq down into red territory.

The culprit?  The continuation of lies.

Roughly 20% of Italian debt is held by French banks.  And they, of course, are almost-certainly marking that debt to fantasy prices.

Apple is getting cored as the claimed “we’ll be on top of the world forever” crap is turning out to be more than a bit vapid.  Green Mountain got destroyed last night with allegations of “aggressive accounting” (or worse) being thrown around for some time; they had an inadequate response on their call last night and detonated.

The entire damn world is full of Ponzi and nobody is facing reality.  If we don’t cut this crap out the rout you saw yesterday is going to look like a Girl Scout picnic.

There is nothing — literally nothing in the form of leadership showing up from anywhere in any of the international leadership.  The French 10 year yield is now spiking and the spread against Bunds has widened by 12% today.

The ECB appears to have been playing “aggressive buyer” but this will not work.  It can’t work.  You cannot solve a debt problem with more credit; you must stop the excessive spending!

Last night I saw the most outrageous display of political bullshit and pandering I’ve been witness to in decades.  The Rethuglicans simply cannot bring themselves to speak the truth.  While I heard “excessive spending” a few times nobody is talking about nor will they talk about where it’s coming from — the large budget items and the only ones that matter are all entitlements and defense!

Go ahead and argue with the facts if you want but you’re a buffoon if you do.  The fact of the matter is that Social Security, Defense, Unemployment/Welfare/Etc, Medicare, Medicaid, Interest and Health and Human Services are fully 3/4 of the federal budget.

We’re well over a trillion in the hole meaning that you could cut everything from that point downward in that chart to zero and the budget would not be balanced.

There is no solution that does not involve addressing the “Big Five”: Social Security, Defense, Unemployment/Welfare, Medicare and Medicaid. 

Period.

Now you can dislike this all you want but you can’t change it.  Nor can you argue that cutting Defense along will make a material impact on the whole or bring us “balance.”  How much would you cute defense by?  Let’s say 50% – about $350 billion worth.  That’s nice; we’re still more than a trillion in the hole!

Put a different way those “big five” plus interest consume all of the tax revenues that the government takes in.

Deal with facts folks.  I don’t care if you like them or not; that’s not material.  We call them facts for that reason; it is immaterial if you find the facts savory or distasteful — they just are.

I have seen nothing from any of the Republican Candidates that have made sense in this regard.  Not even Ron Paul, who said he’d cut $1 trillion — but he didn’t say how and someone needs to ask him that before they blow him again with claims that he has a real solution, because the above chart makes clear that if you were to cut $1 trillion from the budget you’d have to basically zero everything other than entitlements were you to cut defense in half to achieve his numbers.  What he’s put forward in public (in the form of “block grants”) are lies since all that does is shift spending and thus taxing demands from one place to another.  This is raw douchebaggery and those who support this crap without calling it out as what it is are blind partisans.

Bald claims such as anything counted in “block grants” must be deemed knowing and intentional lies when put against the above chart because they are.  Cost-shifts from the federal government to the states are not reductions in spending – they’re simply a shift of where taxation has to happen from one place to another and thus are also dishonest.

We are watching the spiral downward in Europe as they simply will not accept that the government cannot spend that which the people will not fund with current tax revenues.  This reality is coming here ladies and gentlemen in the very near future and we can either face it or we will suffer a ruinous financial collapse.

Those on the other side of the issue often ask “but won’t we collapse anyway if we do the right thing?” 

The answer is no.  The raw damage cannot be avoided but there are mitigating steps we can take in tax policy, immigration policy, trade policy, energy policy and reform of the medical and banking industries that will help.  They will not make the pain go away and they will not stop the damage from occurring but they can prevent the damage from being catastrophic.

The problem is that in order to do any of them we have to stop pretending that this is all someone else’s problem, that Medicare will be “as promised” for everyone 50 and older and that the government can continue to run on that chart above while we’re going to “make a serious dent in the deficit.” The truth is that we are refusing to actually reduce spending (not cut from a “baseline increase”) in those five major programs.

We either act now or the choices will be made for us.

What we are all watching unfold right now is a complete and total financial nightmare for Italy.  Italian bond yields are soaring to incredibly dangerous levels, and now the yield curve for Italian bonds is turning upside down.  So what does that mean?  Normally, government debt securities that have a longer maturity pay a higher interest rate.  There is typically more risk when you hold a bond for an extended period of time, so investors normally demand a higher return for holding debt over longer time periods.  But when investors feel as though a major economic downturn or a substantial financial crisis is coming, the yield on short-term bonds will often rise above the yield for long-term bonds.  This happened to Greece, to Ireland and to Portugal and all three of them ended up needing bailouts.  Now it is happening to Italy and Spain may follow shortly, but the EU cannot afford to bail out either of them.  An inverted yield curve is a major red flag.  Unfortunately, there does not seem to be much hope that there is going to be a solution to this European debt crisis any time soon.

We are witnessing a crisis of confidence in the European financial system.  All over Europe bond yields went soaring today.  When I finished my article about the financial crisis in Italy on Tuesday night, the yield on 10 year Italian bonds was at 6.7 percent.  I awoke today to learn that it had risen to 7.2 percent.

But even more importantly, the yield on 5 year Italian bonds is now sitting at about 7.5 percent, and the yield on 2 year Italian bonds is about 7.2 percent.

The yield curve for Italian bonds is in the process of turning upside down.

If you want to see a frightening chart, just look at this chart that shows what has happened to 2 year Italian bonds recently.

Do phrases like “heading straight up” and “going through the roof” come to mind?

This comes despite rampant Italian bond buying by the European Central Bank.  CNBC is reporting that the European Central Bank was aggressively buying up 2 year Italian bonds and 10 year Italian bonds on Wednesday.

So what does it say when even open market manipulation by the European Central Bank is not working?

Of course some in the financial community are saying that the European Central Bank is not going far enough.  Some prominent financial professionals are even calling on the European Central Bank to buy up a trillion euros worth of European bonds in order to soothe the markets.

Part of the reason why Italian bond yields rose so much on Wednesday was that London clearing house LCH Clearnet raised margin requirements on Italian government bonds.

But that doesn’t explain why bond yields all over Europe were soaring.

The reality is that bond yields for Spain, Belgium, Austria and France also skyrocketed on Wednesday.

This is a crisis that is rapidly engulfing all of Europe.

But at this point, bond yields in Europe are still way too low.  European leaders shattered confidence when they announced that they were going to ask private Greek bondholders to take a 50% haircut.  So now rational investors have got to be asking themselves why they would want to hold any sovereign European debt at all.

There is no way in the world that any rational investor should invest in European bonds at these levels.

Are you kidding me?

If there is a very good chance that private bondholders will be forced to take huge haircuts on these bonds at some point in the future then they should be demanding much, much higher returns than this.

But if bond yields continue to go up in Europe, we are going to quickly come to a moment of very great crisis.

The following is what Rod Smyth of Riverfront Investment Group recently told his clients about the situation that is unfolding in Italy….

“In our view, 7% is a ‘tipping point’ for any large debt-laden country and is the level at which Greece, Portugal and Ireland were forced to accept assistance”

Other analysts are speaking of a “point of no return”.  For example, check out what a report that was just released by Barclays Capital had to say….

“At this point, Italy may be beyond the point of no return. While reform may be necessary, we doubt that Italian economic reforms alone will be sufficient to rehabilitate the Italian credit and eliminate the possibility of a debilitating confidence crisis that could overwhelm the positive effects of a reform agenda, however well conceived and implemented.”

But unlike Greece, Ireland and Portugal, the EU simply cannot afford to bail out Italy.

Italy’s national debt is approximately 2.7 times larger than the national debts of Greece, Ireland and Portugal put together.

Plus, as I noted earlier, Spain is heading down the exact same road as Italy.

Europe has simply piled up way, way too much debt and now they are going to pay the price.

Global financial markets are very nervous right now.  You can almost smell the panic in the air.  As a CNBC article posted on Wednesday noted, one prominent think tank actually believes that there is a 65 percent chance that we will see a “banking crisis” by the end of November….

“There is a 65 percent chance of a banking crisis between November 23-26 following a Greek default and a run on the Italian banking system, according to analysts at Exclusive Analysis, a research firm that focuses on global risks.”

Personally, I believe that particular think tank is being way too pessimistic, but this just shows how much fear is out there right now.

It seems more likely to me that the European debt crisis will really unravel once we get into 2012.  And when it does, it just won’t be a few countries that feel the pain.

For example, when Italy goes down many of their neighbors will be in a massive amount of trouble as well.  As you can see from this chart, France has massive exposure to Italian debt.

Just like we saw a few years ago, a financial crisis can be very much like a game of dominoes.  Once the financial dominoes start tumbling, it will be hard to predict where the damage will end.

Some believe that what is coming is going to be even worse than the financial nightmare of a few years ago.  For example, the following is what renowned investor Jim Rogers recently told CNBC….

“In 2002 it was bad, in 2008 it was worse and 2012 or 2013 is going to be worse still – be careful”

Rogers says that the reason the next crisis is going to be so bad is because debt levels are so much higher than they were back then….

“Last time, America quadrupled its debt. The system is much more extended now, and America cannot quadruple its debt again. Greece cannot double its debt again. The next time around is going to be much worse”

So what is the “endgame” for this crisis?

German Chancellor Angela Merkel is saying that fundamental changes are needed….

“It is time for a breakthrough to a new Europe”

So what kind of a “breakthrough” is she talking about?  Well, Merkel says that the ultimate solution to this crisis is going to require even tighter integration for Europe….

“That will mean more Europe, not less Europe”

As I have written about previously, the political and financial elite of Europe are not going to give up on the EU because of a few bumps in the road.  In fact, at some point they are likely to propose a “United States of Europe” as the ultimate solution to this crisis.

But being more like the United States is not necessarily a solution to anything.

The U.S. is 15 trillion dollars in debt and extreme poverty is spreading like wildfire in this nation.

No, the real problem is government debt and the central banks of the western world which act as perpetual debt machines.

By not objecting to central banks and demanding change, those of us living in the western world have allowed ourselves to become enslaved to gigantic mountains of debt.  Unless something dramatically changes, our children and our grandchildren will suffer under the weight of this debt for as long as they live.

Don’t we owe future generations something better than this?

The Economic Collapse

So now that Birmingham and surrounding areas are officially bankrupt, when will we see prosecutions of the banksters involved?

Jefferson County, Alabama, commissioners voted 4-1 to file the largest U.S. municipal bankruptcy after reaching an impasse over concessions with holders of $3.14 billion of bonds.

JPMorgan Chase & Co. (JPM), which arranged most of the debt to fund a sewer renovation, will likely take the biggest loss in the process, which begins with a hearing 10 a.m. local time tomorrow.

Let’s remember folks that there were actual people jailed over bribery and other improper acts — but let us also remember that not one of the prosecuted individuals was one of the major bankster employees or officers.

The debt deals also were rife with political corruption, leading the cost of the sewer project to soar as it was built during the 1990s. Former commission president and Birmingham Mayor Larry Langford, a Democrat, was convicted of accepting bribes in connection with the financing.

Two former JPMorgan bankers are fighting Securities and Exchange Commission charges that they made $8 million in undisclosed payments to friends of commissioners to secure the bank’s role in the deals. In 2009, JPMorgan agreed to a $722 million settlement with the SEC.

You get convicted of crimes if you take a bribe, but if the person giving the bribe is a bankster, the SEC comes after them and then “settles” the civil charges.

In order to receive a bribe someone must offer a bribe.  Both parties are equally culpable and must be punished equally.

WHERE ARE THE DAMNED HANDCUFFS FOR THE BANKSTERS?