[R-G] U.S. pulls the plug on the world

[Suzanne de Kuyper]

The U.S. may well have deliberately prompted a shakeout of assets and the
flight to the dollar.  The EU poses a danger to US empire moves.  As do U.S.
debts.  Read Jean-Claude Paye, "Global War on Liberty" from the french "La
fin de L'Etat de droit".
Suzanne de Kuyper



On Sat, Nov 1, 2008 at 9:23 PM, Sid Shniad <shniad at sfu.ca> wrote:

>
>   http://www.russiatoday.com/Crisis/news/32493
>   Russia Today October 27, 2008
>   Crisis Chronicle
>   U.S. pulls the plug on the world
>   The U.S. administration has prompted a huge surge in the U.S. dollar,
>   which may help refinance its financial sector. The cost is a currency
>   whirlwind that threatens the collapse not just of banks and companies
>   but entire countries.
>   In the past week the financial crisis, which began in banking and
>   spread to stocks, has careered into the currency markets. The U.S.
>   actively decided back in September 2008 to shut down the investment
>   banks that lend to the biggest professional investors. This has caused
>   those investors to sell anything and everything and to settle their
>   trades.
>   The result was a whirlwind of liquidation. Korean won, Turkish lira,
>   Brazilian real, British pounds and commodities from oil and metals,
>   all were sucked into the downdraft.
>   Like a speeding truck heading home, dollar investors left a vacuum in
>   their wake, a vortex of dust, where there had been steadily growing
>   emerging market economies.
>   And you thought the U.S. authorities were doing their best to prop up
>   asset prices? As the economic lights go out and the U.S.
>   administration fumbles in the dark, maybe it's accidentally cut off
>   the hand that feeds it.
>   Or has it deliberately prompted a shakeout of asset values and a
>   flight to the dollar? On October 3 the $US 700 billion bailout of
>   banks' bad bets was signed into law, after U.S. Treasury Secretary
>   Henry Paulson assured U.S. Congress it was the only way to avoid
>   financial Armageddon. The stated aim was to support asset prices.
>   But on September 22, with less publicity, Morgan Stanley and Goldman
>   Sachs gave up their investment bank status, which had allowed them to
>   borrow and lend much more than traditional banking companies. That was
>   just seven days after another investment bank, Lehman Brothers, filed
>   for bankruptcy protection.
>   These prime brokers, or investment banks, provided the loans that
>   allowed America's professional investors to hunt worldwide in search
>   of ever-bigger game. While U.S. investors earned profits, foreign
>   countries benefited from U.S. investment in their bank, retail and
>   property sectors.
>   All this dates back to September 2004, when the U.S. Securities and
>   Exchange Commission gave in to pleading from the big five investment
>   banks, who wanted to borrow more heavily against reserves that served
>   to cushion against losses. This allowed them to raise their leverage
>   up to 20, 30 or 40 times, in other words, to borrow $US 30 against
>   every dollar of assets and lend it on.
>   They certainly lent it! For mortgage-backed securities, collateralised
>   debt obligations, credit default swaps and dangerous stuff with even
>   safer sounding names.
>   Read more here.
>   The banks were Merrill Lynch and Bear Stearns along with Morgan
>   Stanley, Lehman Brothers and Goldman Sachs headed at the time by Henry
>   Paulson.
>   Treasury Secretary Paulson knows very well who lends to the hedge
>   funds, how shutting down the prime broker system would force them to
>   liquidate their trading strategies and cause a broad sell-off of all
>   kinds of assets.
>   But what was he, along with the administration, trying to achieve? As
>   professional investors dump foreign currencies and pile the dollars
>   into that homeward bound truck, they're pushing up the U.S. currency.
>   The U.S. needs its currency to be strong. The U.S. is a debtor nation,
>   spending more than it earns, dependent on foreign loans. Foreigners
>   like the Chinese are financing the bailout of U.S. banks.
>   If the dollar were to crash in this environment the U.S., reliant as
>   it is on borrowing, would struggle to raise the debt funding it needs
>   to buy its way out of this crisis.
>   You would expect the dollar to fall as one state after another tips
>   into recession and for gold to rise in times of uncertainty. Instead
>   the reverse is happening.
>   Gold was approaching $US 700 in the last week of October, down from
>   about $US 1200 just months before. It's a big leap to suggest the U.S.
>   may be shorting gold as a way of supporting the dollar, but causing
>   distressed hedge funds to sell gold amounts to the same thing.
>   There are other arguments for the rampant dollar. Some people argue
>   that the U.S. entered this financial crisis earlier than other
>   countries, that its housing market has been falling since 2006, and
>   that the U.S. will recover before other countries. Traders may be
>   anticipating interest rate cuts in the UK and Eurozone, while in the
>   U.S. rates have less far to fall.
>   Companies are certainly buying dollars in order to pay off their
>   debts. However, none of this explains the role of the U.S.
>   administration in driving down asset prices.
>   I have argued before that governments should focus on supporting the
>   real economy, on saving jobs and less on bailing out the banks. It is
>   certainly not the job of governments to support asset prices at a
>   particular level and certainly not to spend $US 700 billion buying
>   them off their banking chums.
>   Maybe Paulson's seen the light but, in that case, may the U.S.
>   taxpayers have their $US 700 billion back please?
>   Mark Gay, RT
> _______________________________________________
> Rad-Green mailing list
> Rad-Green at lists.econ.utah.edu
> To change your options or unsubscribe go to:
> http://lists.econ.utah.edu/mailman/listinfo/rad-green
>