"The problem with today's system is that the world is run by monetary systems, not by national credit systems. . . . [Y]ou don't want a monetary system to run the world. You want sovereign nation-states to have their own credit systems, which is the system of their currency. . . . [T]he possibility of productive, non-inflationary credit creation by the state, which is firmly stated in the US Constitution, was excluded by Maastricht [the Treaty of the European Union] as a method of determining economic and financial policy."
The world company acquires assets by preventing governments from issuing their own currencies and credit. Money is created instead by banks as loans at interest. The debts inexorably grow, since more money is always owed back than was created in the original loans. (For more on this, see here.) If currencies are not allowed to expand to meet increased costs and growth, the inevitable result is a wave of bankruptcies, foreclosures, and sales of assets at firesale prices. Sales to whom? To the "world company."
Battle of the Titans
If that was the plan behind the market assaults on August 4 and August 8, however, it evidently failed. What turned the market around, according to Der Spiegel, was the European Central Bank, which saved the day by embarking on a program of buying Spanish and Italian bonds . Sidestepping the Maastricht Treaty, the ECB said it would engage in the equivalent of "quantitative easing," purchasing bonds with money created with accounting entries on its books. It had done this earlier with Greek and Irish sovereign debt but had resisted doing it with Spanish and Italian bonds, which were much larger obligations. On Tuesday, August 16, the ECB announced that it was engaging in a record $32 billion bond-buying spree in an attempt to appease the markets and save the Eurozone from collapse.
Federal Reserve Chairman Ben Bernanke was also expected to come through with another round of quantitative easing, but his speech on August 9 made no mention of QE3. As blogger Jesse Livermore summarized the market's response:
". . . [T]he markets sold off rather rapidly as no announcement was made about QE3. . . . It wasn't until . . . the last 75 min of market activity [that] the DJIA gained 639 pts to close at a day high of 11,242. That begs the question, where did that injection of capital come from? The President's Working Group on Financial Markets? Or did the "policy tools" to promote price stability by any chance include the next round of Quantitative Easing unannounced?
"Was that QE3 Incognito, Ben?"
Titanic Battle or Insider Trading?
There could be another explanation for the suspicious downgrade that was announced despite the fact that the government had just made major concessions to avoid default, and despite the embarrassing revelation that S&P's figures were off by $2 trillion. On August 12, MSN.Money reported that the downgrade "wasn't much of a surprise":
"Wall Street had heard a rumor early on that the downgrade was coming. News sites reported the rumor all day.
"Unless it was all a huge coincidence, it's likely that someone in the know leaked the information. The questions are who and whether the leak led to early insider trading."
The Daily Mail had the story of someone placing an $850 million bet in the futures market on the prospects of a US debt downgrade:
"The latest bet was made on July
21 on trades of 5,370 ten-year Treasury futures and 3,100 Treasury bond
futures, reported ETF Daily News.
"Now the investor's gamble seems to have paid off after Standard and Poor's
issued a credit rating downgrade from AAA to AA+ last Friday.
"Whoever it is stands to earn a 1,000 per cent return on their money, with the
expectation that interest rates will be going up after the downgrade."
The Securities Exchange Commission announced on August 8 that it is investigating the downgrade. According to the Financial Times, the move is part of a preliminary examination into potential insider trading.
Whatever was going on in the market in the first two weeks of August, it was unprecedented, unnatural, and bears close observation.
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