Webster G. Tarpley
June 25, 2010
With Obama’s letter to the G-20 countries released at the end of last week, the US strategy for the upcoming Ottawa summit is clear: Obama will attempt to sabotage the meeting with a two-pronged attack designed to knock China and Germany off balance, and to prevent any urgent measures from being discussed which might roll back the exorbitant proliferation of derivatives, impose a Tobin tax on speculators, or regulate and restrain the hedge fund hyenas whose activities are ravaging the globe.
Obama, as usual, operates under a veil of dissembling and deception. His letter talks first of all in edifying terms about the priority which must be given to economic recovery and growth. He says he wants to encourage the growth of internal consumption, especially in countries with large trade surpluses, meaning China and Germany, or possibly Japan. He sheds crocodile tears about the drastic austerity policies of the type being introduced by the Merkel government in Berlin. He tells countries which have built their strategy around exports that it is unwise to rely on exports.
Much of this represents an attempt to prevent the Germans from bringing up the issues that are important to them and to the world, such as the need to restrain over-the-counter derivatives, especially the extremely toxic naked credit default swaps which Berlin has now banned in regard to government bonds denominated in euros. Obama does not want to hear about the German government’s plans for a Tobin tax on speculative turnover. He also wants to divert attention away from the European Union efforts to regulate and restrain hedge funds, which have played a prominent role in exacerbating the current world economic depression.
The other prong of Obama’s attack is his blather about the superiority of “market-based rates” for currency exchange. Obama, in effect, demands the perpetuation of the current chaos of the floating exchange rate system, which has done so much to hinder world economic development in the nearly 40 years since Nixon and Kissinger, acting under British pressure, destroyed the Bretton Woods system on August 15, 1971. In particular, Obama wants the Chinese yuan or renminbi to be driven sharply upwards. There is now a significant strike wave breaking out in China, especially at factories owned by Japanese, Taiwanese, and other foreign companies. The US knows that for every penny which the renminbi gains on the US dollar, a measurable number of Chinese export firms operating on narrow profit margins will be forced out of business and into bankruptcy, increasing unemployment and magnifying the social tensions which are already abroad in China. There is also the chance that US pressure on this point will inflame the contrasts between the elitist and populist factions inside the Chinese Communist Party. The Chinese first instinct, which was to refuse to discuss matters of sovereign economic policy at a multilateral gathering, was undoubtedly the correct one. The subsequent report that China is willing to be more flexible on its exchange rates is fine if it is meant as a smokescreen, but opens the door to great trouble if the Chinese begin to make significant concessions on this point.
During the early months of this year, the United States systematically provoked China on issues related to Google and the administration of the Internet. After that phase, there has been a relatively quiet interlude. One suspects that the US was attempting to apply a kind of aversive conditioning to Beijing, most probably with the goal of inducing the Chinese to dump large quantities of euros during the month of May. The Chinese are estimated to have 2 ½ trillion dollars worth of foreign exchange reserves, of which about one quarter is held in euros. A recent story planted in the London Financial Times by Anglo-American intelligence circles claimed that China was indeed about to dump the euro. The Chinese government agency which administers foreign exchange quickly denied this report, stressing that China regards Europe is an important area of future investment and economic cooperation.
The best guess possible at this time is that the US and the British had intended to launch a very rapid Blitzkrieg against the euro in May, with the intent of provoking a panic flight of hot money out of the joint European currency within a matter of weeks, before the end of last month. In this estimate, the German ban on naked credit default swaps and on the naked shorting of German bank stocks was partly a defensive measure against this looming Blitzkrieg, and partly a signal that Berlin intended to fight the Anglo-American predators with additional serious countermeasures. As a result, the collapse of the euro has now been halted for the moment, and this currency has exhibited greater stability over the past two weeks.
The forces of economic depression in the world economy are colossal, and they cannot be neutralized without the deleting or shredding (as Germany has begun to do) of large portions of the cancerous mass of $1.5 quadrillion of derivatives that is crushing the world economy, and without a wave of debt moratoria and debt write-offs among those nations who have destroyed their public finances by socializing the private speculative and derivatives losses of zombie banks and hedge fund hyenas. Since this is not being done by most countries, the forces of depression emanating from the black hole of world derivatives will necessarily do their destructive work in one direction or another. During the second half of 2009, the victim was the dollar. For the last several months, it has been the euro. If the euro somehow gets off the hook, the British pound sterling might be the next victim. Or, it could be the Japanese yen. This will become clear shortly.
The notorious hedge fund predator George Soros is frenetically churning out his own variations on the Anglo-American line in advance of the G-20 with a series of attacks on Germany. He does not make the ban on naked credit default swaps the issue, but bashes Berlin using other pretexts. Soros pretends to be concerned about the German austerity policies, which are admittedly ill-advised in the extreme. Soros wants brutal austerity for Greece and the southern tier, but demands deficit spending and consumerism in Germany. This is the old Carter-Mondale locomotive theory of 1977, when Germany and Japan were expected to launch vast stimulus programs to weaken their currencies and reduce their exports so as to relieve the pressure on the US dollar. In an interview with Die Zeit of Hamburg, Soros absurdly blamed the entire hedge-fund induced European crisis on the Germans, pontificating: “The German policy is a danger for Europe, it could destroy the European project.” Soros thinks that the collapse of the euro may be at hand; in fact, his hedge funds have been a key part of the speculative attack, for which he has also served as ideologue. Soros thinks that the end of the euro may be followed by a new era of European wars: “That would be tragic, because then Europe would be threatened by the sort of conflicts between states that have shaped European history.”
According to a recent speech by Soros in Berlin, current German austerity policy “is in direct conflict with the lessons learnt from the Great Depression of the 1930s and is liable to push Europe into a period of prolonged stagnation or worse…. The wide range of possibilities will weigh heavily on the financial markets. They will have to discount the prospects of deflation and inflation, default and disintegration…. In a worst case scenario that could undermine democracy and paralyze or even destroy the European Union. If that were to happen, Germany would have to bear a major share of the responsibility because as the strongest and most creditworthy country it calls the shots. By insisting on pro-cyclical policies, Germany is endangering the European Union.” Austerity is a bad thing, but it is absurd to blame Germany for the current depression, the direct cause of which was the 2008 panic in the $1.5 quadrillion derivatives bubble centered in Wall Street and the City of London.
The G-20 should ban all credit default swaps, starting with the naked ones already targeted by Germany. A bright line prohibition of collateralized debt obligations is also long overdue, as even Lloyd Blankfein of Goldman Sachs has conceded. Individual countries should generate revenue and suppress speculation by instituting a 1% Tobin tax on financial transactions, to be collected and used at the national level. Hedge funds need to be thoroughly regulated, meaning that they will cease to be hedge funds in the current sense. So far, only Germany has taken concrete steps on these issues.
Depressions like the current one do not end thanks to some mysterious business cycle or other deus ex machina. They end when destructive policies are abandoned, and effective recovery programs are set into motion. If the G-20 fails to restrict speculation, the world economic depression will continue to worsen.