FINAL LOOTING OF AMERICA BY OUTLAWS IN DC
By: Devvy/NewsWithViews.com/October 16, 2008
 

Outlaw is defined as: a person, group, or thing excluded from the benefits and protection of the law. Americans who care about freedom and liberty have known for a long time that Congress has simply become a lawless group of political animals who care nothing for the supreme law of the land. For decades they have turned a blind eye to other outlaws operating on their behalf: non elected officials in the various cabinets and agencies who have been destroying a free market system and the Bill of Rights. The list is so long, it would fill ten columns.

For weeks, Americans have been in agony over the financial meltdown millions of us knew was coming, we just didn't know when the numbers would catch up to the lies. The timing played just right with the normally scheduled adjournment of Congress for the year. For over a week, the massive ACORN vote fraud scandal has exposed what millions of us have known for a long time: our elections are being stolen by corruption. Corporate media has concentrated on voter registration cards, but continues to ignore the massive fraud via electronic machines and scanners; short video. The timing of the ACORN scandal plays right into the hands of the shadow government. Too little, too late with the "big day" looming. Another night of serious boob tube commentators analyzing a hoax.

The unconstitutional, immoral invasion of Iraq and Afghanistan continues because the number one issue with Americans today is how will they put food on the table tomorrow? Obama has come out with more ideas to tax you into poverty. McCain is promoting his ideas about keeping the income tax alive and well with more unconstitutional hair brained ideas; his latest idiocy carries a price tag of $52 billion dollars. Yesterday, Sarah Palin, shouted at a rally, "We will balance the budget in our first term." What hogwash.

Obama's so-called proposals will simply drive the final stake through the heart of the middle class. His so called economic plan, redistribution of wealth, is raw communism. Obama's ideas to "stabilize" the economy is the classic goo sold by snake oil salesmen. Obama and McCain deliberately stay away from any mention of abolishing the IRS and the privately owned, unconstitutional Federal Reserve Banking System. What both of these political animals are doing is shameful and sadly, too many Americans who have little or no understanding of the markets and fiat currency are buying it out of desperation.

Or, they aren't buying it, but will hold their nose and vote for no one. Translated, that means they will cast their vote for McCain to keep Obama out and visa versa. By doing so, the individual votes for no one. Those who believe what Obama is selling have no understanding of constitutional government, economics nor do they care whether Obama is legally eligible to run for the presidency. Never mind Obama is little better than a thug out of Chicago in an expensive suit, living in a $1.3 million dollar house, who has spent his adult life around despicable people like the Rev. Jeremiah Wright and Bill Ayers. Hell, I don't care - just give me health care! McCain is little better with his mob connections, limited intelligence, steadfast support of endless wars, the illegals invasion and his worst crime: selling out our POW/MIAs to rot in commie prison camps until they die in a foreign land, forgotten by the American people.

Americans who have taken the time to understand the monetary system in this country and how this massive meltdown was fostered and dropped like bomb into America's households, also realize that the so-called bail out or rescue plan hasn't worked and will not work. We know that the $700bn bail out was a fake, which by the way has now turned into $2.3 TRILLION pieces of worthless paper being passed off as "dollars" with no end in sight. The mission by those who own Congress wanted the complete take over of our financial system and institutions as they work it into a global nightmare. The fait accompli is almost completed.

What has been done the past ten days is so horrific, most of us have been stunned at the hubris and outright commandeering of America's private lending institutions, the outright stealing from the American people to reward incompetence and likely criminal behavior. There is no money to pay for all these "rescues." Paper the country with confetti or cut up newspapers because that's the "worth" of what's being handed out like candy at Halloween.

Not only did a majority of Congress participate in giving Paulson, Bush and Bernanke authority to begin the final looting of America, Pelosi and her band of bandits are proposing to slap even more debt on our backs:

October 8, 2008: "House Speaker Nancy Pelosi said the nation needs a $150 billion economic stimulus package that "can't wait," and Congress may need to return this year. "We have some harsh decisions to make. Some of them can't wait until January," she told media in Denver today. "What we can't wait for is a stimulus package," she said. "We may have to go back into session before the next Congress."

Would someone ask this nitwit where she's going to get $150 billion dollars when the people's treasury is overdrawn $10.3 TRILLION as I write this column, plus the off sheet debts of social security and Medicare in the doubt digit TRILLIONS. More hot checks as Americans sink further into debt to the U.S. government for the inept and criminal behavior of the U.S. Congress. But, wait! Pelosi now wants $300 billion to stimulate a corpse that's already gone to the morgue.

There are several things that would immediately stimulate the economy and put Americans on the road to putting food on the table and keeping their heads above water. Other than Congressman Ron Paul, not a single member of Congress will do what has to be done; note the same bills can be introduced with the new number for the new session. It goes without saying the current Congress will not get it done before the fake elections next month.

Get rid of the withholding taxing scheme. Please take the time to read this column of mine over the weekend and make it available to family and friends.

Congressman Ron Paul has introduced legislation twice to get this done; here and here. Of course, there has been no support from his party or the Democrats who care so much about "Main Street."

Pass H.R. 3664 to stop federal income and payroll roll taxes for our service workers in America. See. Dr. Paul's statement here.

Pass H.R. 2755 and begin the systematic elimination of the Federal Reserve Banking System. Return to honest monetary policy in a responsible and timely manner.

These meetings going on in Washington, DC, spell death for this country economically and for our sovereignty. The final looting is going on as the big money boys save their backsides. The only thing that will be left is a dead carcass and if you think that's hyperbole, you will be mistaken.

The Quadrillion Dollar Powder Keg Waiting To Blow

"It is this powder keg that has everyone trembling with fear and foreboding, because the inevitable losses will be catastrophic, with losses which may exceed the entire world's GDP, thus obliterating the balance sheets of every major Wall Street commercial bank, including the Fed itself, while virtually every major bank and financial institution in nations throughout the world join them on the receiving end of a destructive juggernaut of loss, insolvency, failure and bankruptcy. In the aftermath, most will be nationalized. All of Western Civilization is about to become a smoldering collection of fascist police states.

"The entire world financial system is headed for oblivion, and there is nothing on earth that can stop it. All they can do currently is try to delay and hide the destruction so that they can continue to milk their Ponzi system dry, ripping off the sheople in one final orgy of fraud and profligacy before the government and financial system are merged into an all-powerful super-entity that will rule all non-insider institutions with an iron fist. Frankly, from what we have seen lately, we are already there. The final step to nationalization of our financial system will be little more than a formality. Their intention is to take total control, to make markets do whatever pleases them, thus creating their own reality.

"The Paulson Ponzi Plunder Plan is the first installment of their final attempt to bankrupt the sheople, who they hope to beat into submission by hyper-inflating and Weimarizing them with bailout after bailout, ad nauseam, knowing full well that these bailouts are futile and useless."

October 13, 2008: "The General Accounting Office (GAO) has issued a sobering picture of the future economic condition of the United States, a scenario where a full economic collapse is inevitable, with the only remaining questions being "how and when the nation's current imprudent and unsustainable path will end." The faster the US begins to address this problem the easier it will be to correct it, says the GAO report. The present course of the "ship of state" is to ignore warnings that "economic icebergs lie ahead," a course which will result in unprecedented tax increases (37–78%). (Emphasis mine)

"The 14-page GAO report, which reveals a disconnect between politicians and economic reality (and can be read online), is written in government-speak and is more easily understood when translated into plain language."

The trickle down of these horrific events will really begin to be felt not only for retailers during the Christmas season, but look out early in 2009. We will see the fruits of the treachery and treason underway right now. Before then we will see states go closer to bankruptcy, if not complete bankruptcy. With people's credit dried up, retail will suffer, charities will suffer --- especially food banks. I went to a meeting the other night in my small town. The churches and food banks are desperate for donations to feed people who are going hungry. As people tighten their pennies, the first to go will be entertainment and non-essentials; tens of thousands of jobs. Crime will increase as people become more desperate. The shadow government is anticipating societal breakdown as Americans fall further and further behind in their obligations and can't even pay the power company to keep the heat on:

October 13, 2008, Chicago: "On the brink of the cold-weather months, more than 56,000 natural-gas customers in the Chicago area remain disconnected for lack of payment. That's up 36% from last year, putting pressure on utilities and local officials to get disconnected households back online before winter begins in earnest."

Tampa, Florida: "Power companies in the bay area say they're disconnecting more people because those folks aren't paying their electric bills. The numbers are up substantially. The Tampa Electric division of TECO says disconnections because of non-payment went up 19 percent in the first half of this year, compared to last year. Progress Energy says statewide, they're up 13 percent. For Progress Energy, that's about 20,000 customers a month in Florida....Jerrie Smith has stretched her fixed income right to its limit. "I've had to make the choice and the sacrifice to whether I buy my heart medication [or] pay the electric bill, pay the water bill. And it hurts," she said, sitting on the doorstep in front of the home she rents in Tampa."

Two things that need to get done

One: A money bill for the states. Dr. Edwin Vieira's scholarly tome, Pieces of Eight, which everyone wants and is out of print, should be ready within a few weeks to obtain via the Internet. In this blueprint for financial rebuilding, Edwin lays out how the states must set up a system or they will go down. You can get a general idea of what this involves from the first attempt in New Hampshire (click here). The minute the states go into session in January, 2009, people must demand they take this action. While Edwin has written many columns on fiat currency, I hope you will take the time to read this one because he really explains the problem, along with the solution.

Two. I have written many columns devoted to the constitutional militia and why our survival depends on it. Empty bellies make for angry mobs and Americans are angry. Not just angry, but the rage is building. The situation is getting incendiary and the state legislators in this country had better wake the hell up and understand what they're facing is very real. Americans are enraged over Congress giving we the people the finger, handing over the sweat of our labor, our retirement and our future to "save" private corporations and make sure their banking buddies get theirs before the bubble bursts.

Dr. Edwin Vieira has laid out the history and the plan for revitalizing "the Militia of the several States." There are already many legal militias throughout the states, but, we need a couple of states like Montana, Utah or Wyoming to get a bill passed and signed into law. Not only does the Second Amendment require it, but as Edwin writes: "By bringing the issue of revitalizing "the Militia of the several States" to State Legislatures, patriots could also provide their fellow Americans with a much-needed education. Millions upon millions of Americans are members of "the Militia of the several States". But how many are aware of that fact, or of the vital role the Constitution expects the Militia—that is, common Americans--to play in "homeland security"? Heated legislative battles would open eyes and minds on these matters."

I urge every gun owner in this country to get Edwin's book, 'Constitutional Homeland Security: A Call for Americans to Revitalize the Militia of the Several States. Volume I, The Nation in Arms.' Read his columns on the militia. If you don't have time to read them, I've put a couple key ones on audio; click here. This is a top priority when the state legislatures open their new sessions in January; earlier this year I sent a half dozen copies to state legislators in different states. No one wants to see civil unrest, although the shadow government wants it to subdue the people and put the fear of paramilitarized law enforcement and active military into the American landscape. Only we the people are going to save this country, not mother government under a police state. This will not happen with the same players in Congress and the state legislatures. Vote out every incumbent in Congress except Ron Paul. Go read the web site of your state rep and senator. Look at their voting record and if they don't stand on the right side of the issues plaguing this nation, vote them out and spread the word.

This weekend, go rent the movie, The Patriot. Appreciate what we have and the blood that was spilled to give us the right to oust bad public servants and live as a free people. Remember: Silence is surrender.

Must watch short videos:

1 - Martial law & military dictatorship in America - NSPD 51
2 - The ghost of Thomas Paine and the second revolution (short video)

Important Links:

1 - Officials: Financial crisis can lead to violence
2 - As Jobs Vanish and Prices Rise, Food Stamp Use Nears Record
3 - The Next Derivatives Bloodbath: Insurance and Auto Makers
4 - Just stop paying your mortgage
5 - Sickness Unto Debt The Treasury bailout will only exacerbate red ink and inflation
6 - Chicago mayor to shut down government for six days
7 - Smaller Banks Resist Federal Cash Infusions
8 - Will Lehman bankruptcy drop a $400 billion shoe on October 21st?
9 - WaMu Insiders Claim Execs Ignored Warnings, Encouraged Reckless Lending

Returning to a limited form of Republican government

1 - Why an income tax is not necessary to fund the federal goverment Text or Audio
2 - Taxation: The right argument

http://www.newswithviews.com/Devvy/kidd403.htm

© 2008 - Devvy Kidd - All Rights Reserved

Devvy Kidd authored the booklets, Why A Bankrupt America and Blind Loyalty; 2 million copies sold. Devvy appears on radio shows all over the country, ran for Congress and is a highly sought after public speaker. Devvy belongs to no organization.

She left the Republican Party in 1996 and has been an independent voter ever since. Devvy isn't left, right or in the middle; she is a constitutionalist who believes in the supreme law of the land, not some political party. Her web site (www.devvy.com) contains a tremendous amount of information, solutions and a vast Reading Room.

Devvy's website: www.devvy.com

Before you send Devvy e-mail, please take the time to check the FAQ section on her web site. It is filled with answers to frequently asked questions and links to reliable research sources.

E-mail is: devvyk@earthlink.net

Frosty Wooldridge possesses a unique view of the world, cultures and families in that he has bicycled around the globe 100,000 miles, on six continents and six times across the United States in the past 30 years. His published books include: "HANDBOOK FOR TOURING BICYCLISTS" ; “STRIKE THREE! TAKE YOUR BASE”; “IMMIGRATION’S UNARMED INVASION: DEADLY CONSEQUENCES”; “MOTORCYCLE ADVENTURE TO ALASKA: INTO THE WIND—A TEEN NOVEL”; “BICYCLING AROUND THE WORLD: TIRE TRACKS FOR YOUR IMAGINATION”; “AN EXTREME ENCOUNTER: ANTARCTIA.” His next book: “TILTING THE STATUE OF LIBERTY INTO A SWAMP.” He lives in Denver, Colorado.

His latest book. ‘IMMIGRATION’S UNARMED INVASION—DEADLY CONSEQUENCES.’

Website: www.FrostyWooldridge.com

E:Mail: frostyw@juno.com

YOU ARE ALL, LAZY PITIFUL UNWORTHY COWARDS, IF...
By Andrew C. Wallace/NewsWithViews.com/October 15, 2008
 

You do not spend all of your time until after the elections to defeat the Traitors in Congress who voted to unconstitutionally bailout their corporate benefactors who caused the Meltdown.

1- If you defeat the dirty rotten scumbags in Congress, you can impeach and prosecute their fellow travelers in all branches and levels of government so that average Americans can get justice..

2- Our Constitution and Laws are being violated by government officials who continue to pass unconstitutional laws, by definition these officials are rogues, traitors and usurpers with no legitimate authority.

3- Unless you defeat them with the rule of law using Nov. 4th elections, while we still have some sovereignty, the traitors will use force of arms to subjugate you because they will correctly assume you to be worthless, cowardly and ignorant.

4- You have a choice, defeat them now with the vote, or you will be forced to defend yourself later in a bloody civil war.

5- The criminal cabal of power elites, corporations, trust funds, government officials and mainstream media have effectively destroyed our economy our constitutional rights and the foundation for every benefit we have taken for granted.

6- It will not be easy, but if we can defeat these venal traitors at the polls, we have the people to rebuild our great country. But, if you don’t have the courage to get out the vote to defeat them, you and yours can expect to die homeless, hungry and in pain as slaves, because you don’t have the courage to do anything else .

7- We have only the resources to support our own people, we can no longer subsidize cheap labor for corporations. Borders must be secured, illegals deported and the ten visa programs for workers ended. So called free trade and all agreements and treaties that reduce our sovereignty must be ended.

8- The unconstitutional Federal Reserve bank which is owned by private banks and caused the great depression and now this greatest of all depressions must be terminated. This country did very well by following dictates of constitution regarding money and commerce, and must do so again.

9- It is imperative everyone know that both political parties are controlled by the same socialist criminal cabal, and that our presidential election is a fraud between their two preselected candidates. One is an arrogant lying communist who hates rednecks like me who clings to his religion and guns, while resenting illegals for taking their jobs. The other candidate is an arrogant lying fascist who could be elected in a landslide if he did right, and repudiated Amnesty, Free Trade and the bail out. I cannot vote for either. Both of them proclaim that they will give amnesty to illegals, continue NAFTA and other free trade deals and continue bailouts, all to benefit corporations and themselves at our expense. Both are economic idiots who do not know that socialism never works.

10- Since 40% of the unemployment of Black males is due to foreign born (NBEA Study), why do most of the Black and Democrat politicians support illegals? Answer, corporate money. There is no difference between these politicians and the blacks who sold their own people into slavery in the first place.

Following are the names of scumbags in the House and Senate who voted for the unconstitutional bailout for their corporate paymasters who caused the problem by their greed. You must do everything within the rule of law to defeat them. You may use this part as a flyer. For more details see my last article.

Yea House Votes:

Abercrombie
Ackerman
Alexander
Allen
Andrews
Arcuri
Baca
Bachus
Baird
Baldwin
Barrett (SC)
Bean
Berkley
Berman
Berry
Biggert
Bishop (GA)
Bishop (NY)
Blunt
Boren
Boswell
Boucher
Boustany
Boyd (FL)
Brady (PA)
Brady (TX)
Braley (IA)
Brown (SC)
Brown, Corrine
Buchanan
Calvert
Camp (MI)
Campbell (CA)
Cannon
Cantor
Capps Boehner
Bonner
Bono Mack
Boozman
Capuano
Cardoza
Carnahan
Carson
Castle
Clarke
Cleaver
Clyburn
Coble
Cohen
Cole (OK)
Conaway
Cooper
Costa
Cramer
Crenshaw
Crowley
Cubin
Cuellar
Cummings
Davis (AL)
Davis (CA)
Davis (IL)
Davis, Tom
DeGette
DeLauro
Dent
Dicks
Dingell
Donnelly
Doyle
Dreier
Edwards (MD)
Edwards (TX)
Ehlers
Ellison
Ellsworth
Emanuel
Emerson
Engel
Eshoo
Etheridge
Everett
Fallin
Farr
Fattah
Ferguson
Fossella
Foster
Frank (MA)
Frelinghuysen
Gerlach
Giffords
Gilchrest
Gonzalez
Gordon
Granger
Green, Al
Gutierrez
Hall (NY)
Hare
Harman
Hastings (FL)
Herger
Higgins
Hinojosa
Hirono
Hobson
Hoekstra
Holt
Honda
Hooley
Hoyer
Inglis (SC)
Israel
Jackson (IL)
Jackson-Lee (TX)
Johnson, E. B.
Kanjorski
Kennedy
Kildee
Kilpatrick
Kind
King (NY)
Kirk
Klein (FL)
Kline (MN)
Knollenberg
Kuhl (NY)
LaHood
Langevin
Larsen (WA)
Larson (CT)
Lee
Levin
Lewis (CA)
Lewis (GA)
Lewis (KY)
Loebsack
Lofgren, Zoe
Lowey
Lungren, Daniel E.
Mahoney (FL)
Maloney (NY)
Markey
Marshall
Matsui
McCarthy (NY)
McCollum (MN)
McCrery
McGovern
McHugh
McKeon
McNerney
McNulty
Meek (FL)
Meeks (NY)
Melancon
Miller (NC)
Miller, Gary
Miller, George
Mitchell
Mollohan
Moore (KS)
Moore (WI)
Moran (VA)
Murphy (CT)
Murphy, Patrick
Murtha
Myrick
Nadler
Neal (MA)
Oberstar
Obey
Olver
Ortiz
Pallone
Pascrell
Pastor
Pelosi
Perlmutter
Peterson (PA)
Pickering
Pomeroy
Porter
Price (NC)
Pryce (OH)
Putnam
Radanovich
Rahall
Ramstad
Rangel
Regula
Reyes
Reynolds
Richardson
Rogers (AL)
Rogers (KY)
Ros-Lehtinen
Ross
Ruppersberger
Rush
Ryan (OH)
Ryan (WI)
Sarbanes
Saxton
Schakowsky
Schiff
Schmidt
Schwartz
Scott (GA)
Sessions
Sestak
Shadegg
Shays
Shuster
Simpson
Sires
Skelton
Slaughter
Smith (TX)
Smith (WA)
Snyder
Solis
Souder
Space
Speier
Spratt
Sullivan
Sutton
Tancredo
Tanner
Tauscher
Terry
Thompson (CA)
Thornberry
Tiberi
Tierney
Towns
Tsongas
Upton
Van Hollen
Velázquez
Walden (OR)
Walsh (NY)
Wamp
Wasserman Schultz
Waters
Watson Woolsey
Watt
Waxman
Weiner
Welch (VT)
Weldon (FL)
Weller
Wexler
Wilson (NM)
Wilson (OH)
Wilson (SC)
Wolf
Yarmuth

Senators:

Alphabetical by Senator Name

Akaka (D-HI), Yea
Alexander (R-TN), Yea
Baucus (D-MT), Yea
Bayh (D-IN), Yea
Bennett (R-UT), Yea
Biden (D-DE), Yea
Bingaman (D-NM), Yea
Bond (R-MO), Yea
Boxer (D-CA), Yea
Brown (D-OH), Yea
Burr (R-NC), Yea
Byrd (D-WV), Yea
Cardin (D-MD), Yea
Carper (D-DE), Yea
Casey (D-PA), Yea
Chambliss (R-GA), Yea
Clinton (D-NY), Yea
Coburn (R-OK), Yea
Coleman (R-MN), Yea
Collins (R-ME), Yea
Conrad (D-ND), Yea
Corker (R-TN), Yea
Cornyn (R-TX), Yea
Craig (R-ID), Yea
Domenici (R-NM), Yea
Dodd (D-CT), Yea
Durbin (D-IL), Yea
Ensign (R-NV), Yea
Feinstein (D-CA), Yea
Graham (R-SC), Yea
Grassley (R-IA), Yea
Gregg (R-NH), Yea
Hagel (R-NE), Yea
Harkin (D-IA), Yea
Hatch (R-UT), Yea
Hutchison (R-TX), Yea
Inouye (D-HI), Yea
Isakson (R-GA), Yea
Kennedy (D-MA), Not Voting
Kerry (D-MA), Yea
Klobuchar (D-MN), Yea
Kohl (D-WI), Yea
Kyl (R-AZ), Yea
Lautenberg (D-NJ), Yea
Leahy (D-VT), Yea
Levin (D-MI), Yea
Lieberman (ID-CT), Yea
Lincoln (D-AR), Yea
Lugar (R-IN), Yea
Martinez (R-FL), Yea
McCain (R-AZ), Yea
McCaskill (D-MO), Yea
Menendez (D-NJ), Yea

McConnell (R-KY), Yea
Mikulski (D-MD), Yea
Murkowski (R-AK), Yea
Murray (D-WA), Yea
Nelson (D-NE), Yea
Obama (D-IL), Yea
Pryor (D-AR), Yea
Reed (D-RI), Yea
Reid (D-NV), Yea
Rockefeller (D-WV), Yea
Salazar (D-CO), Yea
Sanders (I-VT), Nay
Schumer (D-NY), Yea
Smith (R-OR), Yea
Snowe (R-ME), Yea
Specter (R-PA), Yea
Stevens (R-AK), Yea
Sununu (R-NH), Yea
Thune (R-SD), Yea
Voinovich (R-OH), Yea
Warner (R-VA), Yea
Webb (D-VA), Yea
Whitehouse (D-RI), Yea

http://www.newswithviews.com/Wallace/andrew115.htm

© 2008 Andrew Wallace - All Rights Reserved

Andrew C. Wallace is a former Kentucky State Trooper, Kentucky Native, Korean War Veteran, Commercial Pilot in Alaska, University of Kentucky Undergraduate in Business, Four years of Graduate School in Economics and Marketing at University of Kentucky and University of Iowa., Assistant Professor, Thirty years as Director of Marketing Firm developing and implementing national Marketing programs for manufacturers and now retired doing research and writing.

E-Mail: natlmktg@gte.net

 Financial Hurricane Batters World Capitalism
System Failure and the Need for Revolution
by Raymond Lotta/Global Research/October 15, 2008

The most serious financial crisis since the Great Depression shows no sign of letting up. The financial edifice of U.S. imperialism is in danger of crumbling.

The U.S. ruling class is confronting what Federal Reserve chairman Ben Bernanke describes as a crisis of “historic proportions”—and is hurriedly cobbling together desperate measures to prevent wholesale collapse. Three of the largest independent investment banks on Wall Street have ceased to exist since April. The government had to assume a major stake in the American International Group (AIG), the world’s largest insurer, to prevent it from collapsing. Now the U.S. Treasury is considering taking ownership positions in major U.S. banks.

This crisis is amplifying internationally. Western Europe is facing large bank failures and governments are engineering their own bailouts. The Russian stock market has intermittently suspended operations. Financial markets in Asia have nose-dived. Mexico’s economy is wobbling, as its exports shrink.

Two things stand out about this crisis. First, there is the ferocity of its global shocks and the speed with which it has spread. Second, unlike the debt and financial crises of the last 30 years, which were largely centered in the Third World, this crisis initially exploded in the U.S., the world’s leading capitalist economy, and is focused in the financial centers of world capitalism.

U.S.-led finance, which plays a dominant and shaping role in the global capitalist order, has taken a huge body blow. This will have enormous repercussions, not just for the stability of the world capitalist system but for power shifts and rivalries within it.

Many progressive commentators have put the blame for this crisis on fraud and greed, or on lax regulation. All of which are certainly in play. But these explanations do not get to the essence of what is happening, to the cause of the problem. This crisis is the outcome of the fundamental workings of the capitalist system.

The analysis that follows is framed by these core points:

There is an essential relationship between the vast enlargement of the financial sector in the U.S., and the general phenomenon of financialization, and the deepening globalization of capitalist production of the last 15 years. And central to this dynamic has been the relationship between U.S. imperialism and China.
Through the course of this growth and expansion, severe imbalances have built up between the financial system—and its expectation of future profits—and the accumulation of capital, that is, the structures and actual production and reinvestment of profit based on the exploitation of wage-labor.
A “dirty little secret” of this crisis is the enormous weight of militarization of the U.S. economy.
This crisis is a concentrated expression of the anarchy of capitalist production—the fact that production is not carried out according to any conscious, rational plan at the society-wide level, much less at the international level.

Background to Crisis

In the early 2000s, in the aftermath of the collapse of high-tech stocks, the U.S. Federal Reserve Bank sought to stimulate lending and growth. It lowered interest rates and pumped funds into the banking system. Banks had access to cheap and plentiful credit. And through deceit and aggressive marketing, they pushed mortgages on people. The Federal Reserve continued to inject low-cost funds into the banking system—helping to prop up loans and to fuel a long-term speculative housing bubble.

Banks sold these mortgages to investment banks. The investment banks in turn bundled these loans together with other loans, created complex financial products, and sold them to large investors—in the U.S. and in other parts of the world, especially Western Europe. These mortgage-backed securities, as they are called, circulated in financial markets and became the basis for other loans. The ultimate collateral for this chain of borrowing and lending was the original mortgage loans. So when housing prices fell, and as growing numbers of mortgage holders found themselves unable to pay back housing loans, much of this original collateral became nearly worthless.

This whole process is an obscene example of how under this capitalist system something as basic as human shelter becomes a financial instrument and object of speculation. This has led to a situation today where 1 in 6 U.S. homeowners owe more on a mortgage than their home is worth; where 1 in every 65 households in California is in some phase of foreclosure; and where a disproportionate number of Black and Latino families who have been victimized by predatory lending have experienced incredible losses of what little wealth they had.1

AIG had made enormous profits internationally by selling insurance to investors who held many of these mortgage-backed securities. These investors would be repaid by AIG, in the event that the loans that were bundled into these financial packages they had purchased were defaulted on—could not be paid back. But by mid-September, AIG could neither cover massive loan damage nor borrow sufficient funds on the financial markets to keep itself afloat. AIG was so interconnected with other major financial players that if the company went under, it would likely have taken others down.

In the face of mounting financial crisis, the imperialist state intervened. It acted as the representative of capital and as the guardian of the interests of capital. The U.S. ruling class was faced with a two-fold danger: mounting losses and bankruptcies in the financial sector; and the choking up of lending channels, which could send the economy into a rapid downward spiral.

The government basically took over AIG. And on September 19, the Treasury Secretary Henry Paulson announced a $700 billion bailout. The essence of the rescue package was that the government would buy the troubled mortgage-backed securities sloshing about in the financial system and through this get lending going again. But the announced bailout did not unblock credit markets or calm stock markets. Nor has it restored international confidence in the U.S. economy.

Taking a Step Back

This crisis broke out in the banking system. Its more immediate trigger was the popping of a speculative real estate bubble, cascading losses in the financial sector, and the inability of stricken financial institutions to raise capital and the unwillingness of others to lend capital.

At a deeper level, this crisis is the outcome of a particular trajectory of world capitalist growth.

There has been a massive new wave of globalization. One of the most significant features of world growth and expansion of the last 15 years has been the deepening integration of the world capitalist economy. This is happening both on the level of production and trade—like the parts that go into a computer being manufactured in different parts of the world; and in the case of an iPod being totally manufactured in China. And it is happening on the level of finance—where banks operate globally and are more tightly interlinked with one another through chains of borrowing and lending and even, as in the case of AIG, insuring risks of lending.

This new wave of globalization has involved direct productive and financial investments abroad. It has involved the expansion of outsourcing and subcontracting. And central to all of this has been the fuller integration of export producing countries of the Third World into the world capitalist market—and the forging of a globally-integrated, cheap-labor manufacturing economy.2

40 percent of the imports coming into the U.S. are accounted for by U.S. transnational corporations—and this does not even include the subcontracting done by companies like Walmart. 30 percent of U.S. corporate profits are generated overseas. China, which has evolved into the high-profit workshop/sweatshop for international capitalism, has been at the epicenter of this recent surge of globalization.3

From the standpoint of the needs of profitable globalization, various elements of deregulation—for instance, the lifting of barriers to rapid shifts and transfers of capital—were functional. This is why both Republicans and Democrats have promoted deregulation. Indeed, the Clinton administration in the 1990s played a decisive deregulating role. It negotiated so-called free-trade agreements with Third World countries and helped to loosen strictures on U.S. banking and telecommunications.

The trajectory of capitalist growth of the last 15 years has also involved heightened financialization. On this platform of more globalized production and exploitation, the financial services sector in the advanced capitalist countries mushroomed.

On a turbo-charged global playing field of ever-more mobile and massive flows of investment capital—where the stakes of winning and losing are enormous—capital requires all kinds of risk management. Investment banks and other financial institutions provide such financial services to “hedge” against interest rate variations, currency fluctuations, and other sources of volatility and loss. At the same time, financial activities became a greater source of short-term and speculative profits. In an intensely competitive atmosphere for financial market share, investment banks were creating ever-more complex and exotic financial products. Global financial assets increased from $12 trillion in 1980 to nearly $200 trillion in 2007, far outstripping the growth of world output or the expansion of trade.4

Growth in the advanced capitalist countries over the last 15 years became increasingly finance-led and credit-driven. The U.S. has been at the epicenter of this process of heightened financialization. By 2005, the manufacturing sector of the U.S. economy had fallen to 12 percent of the U.S. gross domestic product (the production of goods and services), while the financial services sector made up of finance, insurance, and real estate had grown to 20 percent. In 1982, the financial sector’s share of total corporate profits was just over 5 percent; in 2007, the financial share of corporate profits had skyrocketed to 40 percent!5

Contradictions of Development

These interrelated processes of globalization and financialization ultimately led to unsustainable imbalances and instabilities. The dynamics that fueled growth have generated new barriers to profitable accumulation of capital. Strengths have turned into vulnerabilities.

These include:

Bloating of the financial sector relative to the productive base.
Huge run-up of debt and U.S. trade and government deficits in the U.S. necessitating massive and uninterrupted inflows of capital from around the world, with the central banks of Japan and increasingly China holding huge amounts of U.S. Treasury debt.
Billions upon billions of dollars of paper assets that cannot be transformed into real, productive and material, assets.
U.S. consumption and borrowing stimulating China’s growth but China’s breakneck manufacturing growth further fueling U.S. trade deficits and intensifying competitive pressures throughout the world economy.
The expansion of credit spurring growth but heightening global financial fragility.

We are seeing things turn into their opposites. Financial institutions attempted to reduce risk and to profit from risk by dispersing more varied financial instruments over a wider field of investors internationally. But this process has drawn investors, these very institutions, and now governments into a vortex of vulnerability and crisis. The heightened globalization of production and markets, the closer intertwining of economies, has created conditions for faster and even more extensive ripple effects of crisis throughout the world.

A Knot of Contradictions

A strategic concern of the U.S. ruling class is the international strength of the dollar. The dollar is the world’s leading currency for settling transactions, clearing debts, and holding foreign exchange reserves (trade and investment earnings that become part of the reserves of foreign central banks). The dollar has been a linchpin of U.S. global supremacy and of the whole current global economic order.

The dollar is also an investible commodity—major currencies are bought and sold and traded on international currency markets. The value of the dollar rises and falls in relation to other currencies, and in response to international political and economic trends and developments. If foreign central banks and investors were to significantly shift away from dollar holdings, this could set off a global monetary crisis and/or strengthen the position of rival currencies (like the euro) and rival powers.

These are uncharted waters for U.S. policymakers: in the scale and complexity of the crisis…in the magnitude of the rescue operations required to prevent financial breakdown…and in the rapidity with which this crisis is unfolding. A Harvard research economist put it this way: “like the sorcerer’s apprentice, we have created things we do not understand and cannot easily control.”6

U.S. imperialism has limited maneuvering room. The U.S. is already the largest debtor country in the world. It is waging costly wars for greater empire in Iraq and Afghanistan. And both John McCain and Barack Obama are committed to America’s global “war on terror”—the umbrella under which the U.S. is waging these wars for empire.

U.S. imperialism has attempted to parlay its superior military strength into a new world order and to lock in its global supremacy for decades to come. Defense and defense-related spending totaled more than $1 trillion in fiscal 2008.7 And military-related production and research have long been deeply embedded in the U.S. economy. The whole imperialist system rests on the domination of vast swaths of the globe through savage force, with the U.S. military colossus playing a special role. The costs of forcibly preserving and extending the U.S. empire is one of the dirty little secrets of the dynamics of this crisis that scarcely gets talked about.

Here an important dialectic comes into play. “U.S. military dominance,” writes Kenneth Rogoff, former chief economist for the International Monetary Fund, “has been one of the linchpins of the dollar.”8 But this military dominance and the wars the U.S. is waging have increasingly come to depend on the steady inflow of foreign capital into the U.S. (to the tune of $3 billion a day). For this to continue requires that the U.S. economy and dollar remain stable. This is a major contradiction for U.S. imperialism.

U.S. imperialism is facing new competitive challenges and the emergence of potential rival constellations of imperial and big powers—vying for market shares, control over energy resources, and geopolitical position.

Emergency Capitalism

People are losing their homes. Retirement savings plans since the middle of 2007 have lost 20 percent of their value with the stock market sinking. Funding for vitally needed social programs and services at state and local levels is being pinched by the financial crisis and economic slowdown. In much of the Third World, food prices soared over the last year, this is partly related to financial speculation, and hunger has spread.9

While the futures of millions are in jeopardy, what is the paramount concern of those at the top of the pyramid of economic and political power? It is the protection of a financial system that sits atop a global system of exploitation; it is the rescue of the owners and investor beneficiaries of that system.

This is not “socialism for the rich” or a bailout for the people. It’s emergency capitalism for the capitalist class: injections of funds and guarantees, government takeovers, cost-cutting, selective liquidations, restructuring of regulations; and it’s more brutal capitalism for everyone else: austerity, more intense international exploitation, and more misery for people throughout the world.

The official story line is that this crisis issues from particular flaws and malpractices that can be corrected: “excessive greed,” “Wall Street irresponsibility,” “outdated” or “ unenforced regulations.”

The truth is that this crisis has deep structural causes in the very nature of the system—in the quest for profit, not the satisfaction of human need, and in the anarchic workings of world capitalism.

We are seeing how the means through which capitalism expands and “innovates” have led to new barriers and to gales of “creative destruction”—with trillions of dollars of asset values destroyed in the market turmoil. Through these convulsions, the imperialists seek to wrench new freedom, promoting further consolidation and monopolization. Bank of America absorbs the giant investment bank Merrill Lynch. Lehman Brothers is forced into liquidation.

Whoever wins the presidential election will be inheriting a battered financial system and huge government deficits. This will not be an era of expanded social spending, but one of more direct government intervention in financial markets and cutbacks in social spending.

A Status Report

This rolling and intensifying financial crisis serves as a profile and status report on capitalism in the 21st century:

A once-thriving subprime mortgage market…had been linked to the ability of U.S. financial institutions to market securities to European banks and of the U.S. Treasury to draw in export earnings from China…earnings generated in sweatshops…tied into subcontracting networks of Western corporations….

Real estate markets tank…. The “smart money” looks for “safe places” to shift its capital…. Some of it heads for commodity futures like rice…. So food prices spiral upward in response to the investment stratagems of people who know and care nothing about food needs and food production…. In countries like Haiti, women who can no longer afford basic staples are feeding their children mud-cakes….

A French bank, with its assets plunging in value, and the chain of global capitalist finance snapping all over, now finds itself with “non-performing loans”…. It must “improve its balance sheet” and faces pressures to reduce or eliminate trade credits to a country in Africa that depends on imports for food, and where people already spend 50 percent of their incomes for food.

Despite staggering advances in technology and human knowledge, despite the fact that the development of human society has brought humanity to a historic threshold where it is now possible not only to overcome scarcity and exploitation but also to forge social arrangements where human beings can truly flourish—despite all of this potential, social and economic life are under painful duress and the ecosystems of the planet gravely threatened. It is not for lack of resources or knowledge.

All of what has been described in this article is the result of the relations and domination of capital, the result of the workings of a system driven by vicious competition and the blind accumulation of profit based on exploitation—and backed by massive military force.

In the heartland of capitalism, there is financial meltdown. In the Third World, millions are already suffering the ravages of a global food crisis. This system is a horror and a failure. Is it necessary for humanity to live this way?

The October 10 edition of The Washington Post carried an article with the title and question “The End to American Capitalism?” In forums and in the media, leading bourgeois policymakers and analysts have discussed whether this crisis, careening beyond control and threatening greater economic calamity, suggests that there is something fundamentally amiss about capitalism. And the emphatic answer given is the same: “the system may not be working optimally, but there is no alternative, only gradations and variations of capitalism.”

But there is another way. It is possible to take hold of the productive resources of society and to develop and deploy them in a rational, planned, and society-wide way to meet human need and to safeguard the planet. It is possible to establish a radically different kind of state power and to create a society and institutions that unleash people’s creativity and that promote initiative and diversity in an atmosphere that brings out human community.

The question of socialism, of communism, of revolution could not be more relevant…and more urgent.

To be clear, revolution is not a catchword for lots of new things or lots of change. Revolution has very specific meaning: the people getting rid of the system; depriving the old ruling class of their political-economic-military power; and creating a new power with new aims and objectives and the means to enforce those aims and objectives.

As serious as this crisis is, with all the havoc it is wreaking, the system will not automatically collapse of its own weight and disorder. Absent revolution, capitalism will put itself back together—in its own image and at unimaginable social cost.

And for all the agony that crisis inflicts, this will not automatically and spontaneously translate into progressive, radical, and revolutionary sentiment and consciousness. Other forces are in the field doing ideological and political work: reactionary populists like Lou Dobbs (“blame the foreigners and illegal immigrants”) and Sarah Palin whipping up a social base for religio-fascism. The Obama candidacy is channeling disenchantment and the thirst for change right back into the political system’s suffocating embrace (“change we can believe in” is nothing other than change acceptable to the powers that be).

This is a highly fraught situation. Things can change very quickly. The system is revealing much about its basic nature. Bigger jolts may come and outrage may suddenly grow and give rise to resistance from all kinds of quarters. We have to grasp the potential of the situation. We have to be out there bringing forward understanding and bringing forward a vision of a liberatory world. We have to rise to new political and ideological challenges in the belly of the beast.


ENDNOTES

1. Data from James R. Hagerty and Ruth Simon, “Housing Pain Gauge: Nearly 1 in 6 Owners ‘Under Water,’” Wall Street Journal, October 8, 2008; RealtyTrac, “Foreclosure Activity Up 14 Percent in Second Quarter,” Realtytrac.com, July 25, 2008. A study published earlier this year estimates the total loss of wealth suffered by Black, Latino, and other minority households on account of bank subprime-lending of the last eight years to be the greatest loss of wealth for people of color in modern U.S. history (United for a Fair Economy, Foreclosed: State of the Dream 2008).

2. Among informative studies of the origins and development of a globally integrated cheap labor manufacturing economy, see Michel Chossudovsky, The Globalization of Poverty and the New World Order (Quebec: Center for Research on Globalization, 2003); and on globalized manufacturing in relation to financialization, see William Millberg, “Shifting Sources and Uses of Profits: Sustaining US Financialization with Global Value Chains,” Economy and Society, Vol. 37, No. 3 (August 2008), pp. 420-451.

3. Data from Milberg, “Shifting Value Chains…”

4. Jeffrey Garten, “We Need a New Global Monetary Authority,” Financial Times, September 25, 2008. On financialization as a means also to contain financial disorder and to impose profit maximizing discipline on capital, see Christopher Rude, “The Role of Financial Discipline in Imperial Strategy,” in Leo Panitch and Colin Leys, eds., Socialist Register 2005: The Empire Reloaded, London: Merlin Press, 2004.

5. Kevin Phillips, Bad Money (New York: Viking, 2008), p. 5; Robert Wade, “The First-World Debt Crisis of 2007-2010 in Global Perspective,” Challenge: The Magazine of Economic Affairs, July-August 2008, p. 33.

6. David Dapice, “Bad Spell on Wall Street,” Policyinnovations.org, January 24, 2008.

7. Leaving out the wars in Iraq and Afghanistan, defense spending has doubled since the mid-1990s. See Chalmers Johnson, “Why the US has really gone broke,” mondediplo.com (English edition), February 5, 2008.

8. Kenneth Rogoff, “America Will Need a $1,000bn Bail-Out,” Financial Times, September 17, 2008.

9. On the global food crisis, see “The Global Food Crisis and the Ravenous System of Capitalism,” Revolution #128, May 1, 2008.


Raymond Lotta is the author of America in Decline and Maoist Economics and the Revolutionary Road to Communism. He is a contributing writer to Revolution newspaper, www.revcom.us
 

Capitalism Without Capital?
By Ron Paul/Texas Straight Talk/October 15, 2008

It has been long understood that our federal government is going deeper into debt, consistently raising the debt ceiling and demonstrating no fiscal restraint. In recent years, debt ceiling increases have been placed in “must pass” legislation as a means to guarantee that Republicans as well as Democrats would vote for them when Congress was under Republican control.

We also know our nation’s “negative savings rate” reflects the habits of private citizens, showing those habits to be not tremendously different than the habits of the public sector. Yet, the signs of decline are becoming ever more apparent. So apparent, in fact, that it seems unlikely that bailouts or other gimmicks will have even short term success. More inflation, and creating moral hazard by bailing out egregious offenders, is a recipe for disaster. These activities can seem to provide some short term relief, but it seems we are now at a significant crisis point, where monetary policy gimmicks don’t provide the band-aids they did in the past.

Not only is our nation on the verge of bankruptcy, but so are its people and private institutions. We are now repeatedly hearing about businesses “needing to access the credit market to make payroll.” This is an unmistakable sign of more dire consequences ahead for the economy. If businesses must borrow just to make payroll, this is evidence of a severe undercapitalization that cannot be sustained, even for the short run.

Couple these facts with items such as the explosion of the “pay day loan” industry and the unmasking of the false sense of economic well-being is nearly complete. These pay day loan companies use preferred access to easy credit to inject cash into the hands of the working poor. They are nearly always set up in lower-income neighborhoods. These people, who are struggling to buy food and pay rent, get addicted to the credit drug. Their standard of living is only further depressed by the interest payments on these loans that make them profitable to their providers. Thus, the recipients are left even less capable of paying for items such as food and housing in the long run, without using this credit again and again.

These people are often the very ones being paid by businesses who “borrow to make payroll.” This is the dark underbelly of the fiat money, borrow and spend economy this nation has been building. As the government takes over more and more functions of the economy many see the rise of socialism as an antidote to this failure of “capitalism”. However, the fact remains that our economy has been increasingly running on debt, not capital. Capitalism does not exist without capital and debt is not, has never been and will never be a form of capital. Only now are we seeing the more dire implications of an economy without capital.

http://www.house.gov/paul/index.shtml

SOMETHING SOMEONE IN EVERY STATE MUST DO NEXT WEEK.
Jon Christian Ryter/October 15, 2008

Want to keep Obama out of the White House. I think Steve Marquis of Washington State has shown us how to bring the birth certificate issue into the headlines only days before the election. We need someone in every COUNTY in every STATE filing a lawsuit like the one Steve filed in Fall City, Washington.


In a message dated 10/15/2008 3:20:56 P.M. Eastern Daylight Time, FishnBearCottage writes:

_Click here: Citizen files Lawsuit Against demanding verification of Barack
Obama’s citizenship status_
( http://canadafreepress.com/index.php/article/5579 )


Citizen files Lawsuit Against demanding verification of Barack Obama’s citizenship status
By Online Wednesday, October 15, 2008

Steven Marquis, a resident of Fall City WA today filed suit in Washington State Superior Court against Secretary of State Sam Reed demanding verification of Barack Obama’s citizenship status.

The complaint seeks specifically that the office of the Washington Secretary of State verify and certify that Mr. Obama is or is not a “natural born” citizen by producing original or certified verifiable official documents. The lawsuit argues that this certification should take place before the election to preclude a constitutional crisis and likely civil unrest should such certification, after the election, prove that Mr. Obama was not qualified for office.

The Complaint argues that the Secretary of State has the authority and duty to not only certify the voters but also and most importantly the candidates and in so doing prevent the wholesale disenfranchisement of voters who would had had an opportunity to choose from qualified candidates had the certification preceded the election process.

At this point, Mr. Obama has not allowed independent or official access to his birth records nor supporting hospital records. The Hawaii Health Department has violated Federal law by ignoring formal Freedom of Information requests for the same. Due to the facts and numerous other allegations that would challenge Mr. Obama’s fundamental qualifications for office, a Federal lawsuit was filed and is currently being heard in District Court, Pennsylvania.


Jon Christian Ryter

AUTHOR OF:
Whatever Happened To America?
The Baffled Christian's Handbook
Prince Albert: Prophet of Utopia

Anatomy of the American Financial Crisis: How It is Turning into a Worldwide Crisis
by Prof. Rodrigue Tremblay/Global Research/ October 12, 2008
 

"The basis for optimism is sheer terror." Oscar Wilde

 [After the March 2008 Bear Stears bailout] "As more firms lost access to funding, the vicious circle of forced selling, increased volatility, and higher haircuts and margin calls that was already well advanced at the time would likely have intensified. The broader economy could hardly have remained immune from such severe financial disruptions."Ben Bernanke, Fed Chairman (March 2008)

 “In accounting 101 we learn that high yields equal high risk. We know the CEOs had an incentive to disregard this because they were getting huge bonuses.” David Hartzell, dean of the University of Delaware's business college and a former vice-president of Salomon Brothers  

“Intensifying solvency concerns about a number of the largest U.S.-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown.” Dominique Strauss-Kahn, Head of the IMF (October 11, 2008) 
 

The Bush administration's way of dealing with the ongoing financial crisis has been frantic, but probably less than adequate. In fact, tragic errors may have been made that must be remedied as quickly as possible.

The most damaging error may have been to let the global investment bank Lehman Brothers fail ($691 billion of assets at the end of 2007), on Monday September 15. This fateful date may have to be remembered in the future. This was the largest failure of an investment bank since the collapse of Drexel Burnham Lambert in 1990. In contrast, the Fed and the U.S. Treasury moved quickly in mid-March (2008) to save a similar global investment bank in distress (but half the size of Lehman), Bear Stearns, by quickly lending and guaranteeing $29 billion to the large universal J. P. Morgan Chase bank in order to absorb it. —(N.B.: Let us keep in mind that it was the collapse in June 2007 of two internal Bear Stearns hedge funds that had been heavily invested in mortgage securities that kicked off the full-fledged market panic that unfolded in August 2007, and which today has turned into a full-fledged international financial crisis).

Why was the same treatment not offered to Lehman? Possibly because of a personal lack of empathy between Treasury Secretary Henry M. Paulson Jr. (a former chief executive of rival investment bank Goldman Sacks) and Lehman's CEO Mr. Richard S. Fuld Jr., or possibly because the Bush administration wanted to make an example that all investment banks, no matter how large, could not count on being rescued by the government. The Bush administration did not even bother to appoint a trustee to supervise Lehman’s liquidation in order to make it orderly.

Such a liquidation of a large international bank, known for its worldwide interconnections and unsound banking practices, was nearly a repeat of the mistake made in letting the large Vienna-based Creditanstalt bank fail, on May 13, 1931. This was a bank that had borrowed large amount of money in London and in New York to finance its activities. Its failure created a domino effect among other international banks that had lent to each other in the international credit chain. So much so that the failure of the Creditanstalt forced them to severely tighten their lending to absorb their sudden losses.

 Seventy-seven years later, in 2008, the Bush administration's decision to let the Lehman Brothers bank fail has produced a similar ripple effect throughout the international financial system. And, perhaps more important politically, it signaled to the markets that the Bush administration was willing to let a dangerous debt deflation and an ominous credit crunch proceed. This may turn out to have been a most tragic mistake.

Indeed, Lehman's bankruptcy forced the global investment bank to quickly write down its huge portfolio of debt, a fair amount of it in derivative products. But since banks are creditors of each other, especially Lehman which dealt with large institutions, this had the consequence of spreading the American financial disease all over the world, and especially in Europe. Why? Because Lehman's London office was a huge center of sale and distribution for its more or less toxic derivative products all over Europe. Indeed, many European banks had invested in Lehman's securitized paper, and when it failed, they were left with large losses. As a consequence, they had to curtail their domestic lending and that's the reason the credit crunch is now moving to Europe.

The second mistake was to address the “liquidity problem” of American investment and mortgage banks without tackling at the same time their underlying “solvency problem”.

As we wrote right at the very beginning, on August 24, 2007, the financial crisis in the U.S. is not only a classic “liquidity problem”, when banks find themselves short of cash to pay immediate redemptions and withdrawals while their longer term loans are secure, but also and above all a “solvency problem”, because the huge losses that banks had to absorb when they wrote down the value of their toxic assets-backed securitized paper, eroded their capital base to an extent that they became de facto insolvent. Market operators saw that and they sold the banks' shares short and the price of these shares plummeted.

With many banks' solvency now in doubt, inter-bank lending has nearly stopped, and because of a 'flight to safety', the Ted spread [the difference between three-month U.S. Treasury bills yields and yields on three month eurodollar contracts, as represented by the London Inter Bank Offered Rate, called Libor] exploded, and banks cut down their lending. Credit became tight and scarce. Because banks as a whole ordinarily lend between 10 and 12 times their capital base, the most liquid money supply (M1) began to contract in real terms. Even money market funds suffered heavy losses, and a run on them was in full swing when the Treasury stepped in a month ago to offer an emergency $50 billion guarantee.

The U.S. economy may be approaching what can be called a classic “liquidity trap” situation, wherein the Fed is lowering interest rates while lending through its discount window and printing money on a high scale, however the liquid money supply figures, in real terms, are not increasing, but are rather falling. Thus, there is no immediate inflation, but the money supply is contracting as banks reduce their lending and make a rush to T-bills (their yields nearly fell to zero). The short-term result is a net deflationary effect for the overall economy and on the stock market (although the long term bond market sees inflation ahead, and long term rates are rising). —The result is stock market crashes in repetition.

In fact, this is precisely what has happened over the last few weeks, not only in the United States, but also in the U.K and in other European countries. This is a very dangerous development for the real economy, because money data in real terms are a leading indicator of the future course of the economy. Six or nine months down the road, the consequences of the credit crunch will appear in production and employment declines, because the credit crunch has the effect of placing a serious squeeze on most companies. Since the credit contraction really began in June (2008), the early part of 2009 is bound to show severe economic weakness.

On Friday, September 19 (2008), the Bush administration announced its solution to the growing banking crisis. It made public the $700 billion Paulson plan  (US Emergency Economic Stabilisation Act, EESA) that primarily focused on creating a government market for some of the bad mortgage-backed securities on the banks' books. —But this was only half of the problem. The other half of the problem was the need to stop the money supply from declining, by restoring bank credit lending and allowing companies to have access to working capital financing. The goal here is to prevent banking problems from morphing into a general contraction of consumption and capital investment plans, thus slowing down production and raising unemployment in the coming months.

For this to happen, however, banks must be allowed to find badly needed new capital. But in a time of crisis, with stock markets declining, it is doubtful that much private capital can be found. The recent association of Warren Buffett with Goldman Sachs may be more of an exception than a rule.

When private capital is not available, the government has no other choice but to inject equity (by buying the banks' preferred shares) into the national banking system, while taking steps to safeguard the public interest by obtaining common share warrants that can be resold profitably later, when the situation stabilizes.

 In conclusion, we may ask if it is possible to avoid a repetition of the U.S. Great Depression of the 1930s or the more recent Japan's protracted recession of the 1990s, both the result of a similar severe banking crisis? The answer is yes, if the vicious cycle of asset price decline, banking credit crunch and money supply contraction can be avoided, or, at the very least, stopped and reversed. —In economics, as in medicine, it is never too late to do the right thing.

Rodrigue Tremblay is professor emeritus of economics at the University of Montreal and can be reached at:
rodrigue.tremblay@ yahoo.com.

He is the author of the book 'The New American Empire'.

Visit his blog site at www.thenewamericanempire.com/blog.

Author's Website: www.thenewamericanempire.com/

Check Dr. Tremblay's coming book "The Code for Global Ethics" at:  
www.TheCodeForGlobalEthics.com/

The Next Derivatives Bloodbath: Insurance Companies and Auto Makers
by George Washington's Blog/Global Research/October 12, 2008

This essay is about future derivatives problems. But before we look to the future, let's recap what happened yesterday, to gain some perspective.

Post-Game Analysis on Lehman

As the Washington Post writes today about yesterday's auction of some $400 billion dollars in credit default swaps for Lehman:


'If we see defaults from the standpoint that protection sellers don't pay up, then we're going to have a huge problem in the market,' Telpner said. 'But we don't have any explicit evidence indicating that sellers ultimately are not going to be able to pay the amounts owed to buyers.'
And the Sunday Times writes today: