The blizzard of dire economic and financial data from all corners of the world point to the fact that the global breakdown collapse has entered its terminal stage.
Today, Ambrose Evans-Pritchard, the mouth-piece of the Anglo-Dutch oligarchs, wrote in the Telegraph that Germany is facing its worst economic down-turn since World War II. In his blog posted in today’s Telegraph, he wrote that Britain is on the edge of bankruptcy and that he has his “fingers crossed.” Meanwhile, last night the US government moved to bail-out the world’s largest bank – CitiGroup.
Bloomberg today ran a detailed story on the US $ 7.4 trillion of American taxpayers’ money, or half the value of everything produced in the United States in the year 2007, doled out by the US Treasury and Federal Reserve System to try to rescue the bankrupt financial system since the collapse started August, 2007. The program includes $ 2.4 trillion of short-term notes to replace the commercial-paper market that has shut down; some $ 1.4 trillion from the FDIC to guarantee bank-to-bank lending which is also shut-down; a reported $ 2.8 trillion already given to financial institutions in the biggest bail-out in history; and the $ 0.8 trillion approved by the US Congress – the Trouble Assets Relief Program (TARP). According to Bloomberg, last week’s lending by the Fed was 1,900 times the weekly average for the three years before the global break-down.
On November 7th Bloomberg asked under the US Freedom of Information Act and filed a federal law-suit against the US central bank (Federal Reserve) to get the names of the banks and the collateral they pledged. But on November 18th before the US House Financial Services Committee, Ben Bernanke said, “We think that’s counterproductive.” Meanwhile, David Tobin, principal of Mission Capital Advisors LLC told Bloomberg, that to “disclose loan recipients might set off panic since if you mark to market today, the banking system is bankrupt.” “Mark to market” means adjusting the value of an asset, such as a mortgage-backed security, to reflect current prices.
Barney Frank of the US House of Representatives says he is angry because this $ 7.4 trillion is taxpayers’ money and was given to cause banks to lend, not to buy other banks, nor pay dividends, nor bonuses.
By now it should be obvious to all thinking persons that we cannot solve a debt crisis by taking on even more debt. The bail-out just transfers the losses from the books of the banks to the books of the government – thus the American taxpayer – without doing anything to increase the economy’s ability to pay that debt. But in fact, just the opposite is the case, as the physical economy is further cannibalized by the demands of the bail-out.
After 1972, a decision was taken to de-industrialize the US economy and to switch to a service/finance economy, which functions by producing less but spending more by borrowing from the rest of the world. Since 1984 Belize has been travelling on this same road, where we boast that the share of non-production increased from 42% of GDP to today’s 68%.
The City of London and Wall Street financed this expansion of debt by creating some wild series of financial instruments called SIV’s, CDO’s, Securitizations, CDS’s, in which debt was treated as assets, then used as the basis to create even more debt called assets, which resulted in a mountain of highly over-leveraged securities and derivatives bets which far exceed the debt-carrying capacity of the physical economy. In August 2007 the bubble popped, and we are now at the stage of a massive global de-flation because the collapse of the physical economy leads to falling prices.
Take your pick – steel, automobiles, petrochemicals, food grains, construction, shipping – all are in collapse at breathtaking speed. The United States, Britain, Japan, France, Germany, Russia, Brazil, South Korea are all in depression. China’s American export market is collapsing, and with it the Chinese economy. During the entire month of October not one single ton of iron ore was imported by China; no textile machinery, nor cement machinery were exported from Germany to China during the month of October. Since last Friday it is now illegal to fire workers in factories with more than forty workers in China, while Russia is considering jailing those who report bad economic news. Social stability is more important than growth or individual rights in China and Russia today.
Katanga Mining ltd has halted production of cobalt concentrate because of low prices. Copper futures fell in New York, capping the biggest weekly decline in a month on concern that the global depression will curb demand for raw materials. International Paper Co., the world’s biggest maker of corrugated packaging, will shut a Louisiana mill representing 13% of the company’s global capacity because of declining demand. Corn, soybeans, and wheat prices continue to decline as demand for bio-diesel, animal feeds and food are depressed. Wheat was at $5.18/bushel; corn at $ 3.385/bushel; soybeans at $ 8.40/bushel; cattle at $ 89.4 cents per pound and hog at 64.1 cents per pound. Paddy rice price remains strong as experts believed that the economic collapse will cause people to switch from meats to rice, which is cheaper, to fill their bellies. Raw sugar declined to 11.28 cents per pound in New York, as demand from refiners declined and demand for ethanol from sugar cane collapsed. Orange juice fell to 76.8 cents per pound. The decline in wheat prices will mean some reduction in flour prices for Belizeans, but rice prices will be harder to come down substantially in Belize as the crop now harvested was planted in June when input prices were at their highest level.
The year 2007 saw Belize import an average of Bze $ 1 billion, while we exported some $ 400 million in goods to get the foreign currency to pay for the $ 1 billion in imports, and our relatives, tourism, investments in real estate, condo, and foreign loans made up the short-fall of $ 600 million. (I am rounding off amounts.) I estimate that by the end of next year, 2009, we will only get about $ 250 million for our exports because of lower prices and less demand. The invisibles will bring in about $ 250 million as the real estate, condo, and foreign loans are shut down. This is a total of Bze $ 500 million to pay for $ 1 billion. As any thinking economist will tell you, Belize as a country must decrease its imports in line with its exports plus invisibles – cut imports by $ 500 million. This is the result of that decision in 1984 to switch from production to a service/finance based economy.
Today’s world depends upon trade, especially during this age of globalization. We in Belize depend totally upon foreign suppliers for the necessities of life. When the wheat cannot be exported because of lack of trade finance – letters of credit or bills of exchange, Belize Flour Mill cannot produce flour, the bakers (Sunny & Tan, La Popular) cannot produce bread, and the shops cannot sell bread, then people start to starve. When the price of sugar falls, then the cane farmers cannot pay for fuel, fertilizer and chemicals for their farms, and then we produce less cane and thus less raw sugar and thus less income, and then we lose machinery, land and homes. The same applies to the citrus farmers now in Belize. The collapse in prices makes it wise to abandon the citrus fields as the cost to operate is 16% higher than the prices the farmers are getting. The result is less production, and less income for the country. The consequences will be catastrophic for not only Belizeans but all human beings – death, famine, pestilence, and the breakdown of civilization itself.
The Anglo-Dutch Liberal financial system has failed, and regardless what Ambrose Evans-Pritchard says November 18th on the blog of the Telegraph, “Please, please, no more Bretton Woods monetary systems for the world ever again. They are poisonous.” Citing moves today towards capital and currency controls, he warned, “This is a slippery slope towards a dirigiste world.” This is exactly what the world needs, a dirigiste world based on the proven success of Alexander Hamilton’s American System credit system to bring about a Renaissance.