Heading for Economic Collapse: An economic train wreck approaches.
by Stephen Lendman
The late Bob Chapman predicted it years ago. So does Paul Craig Roberts . It could "destroy Western civilization," he believes. "Untenable political and financial decisions put US and European economies on a collision course with disaster. Bailouts and market manipulation delay the inevitable." A tipping point approaches. Only its timeframe is unknown.
Money power runs world economies. Wall Street and giant European banks run Western societies. "Financial deregulation converted the financial system (into) a gambling casino....," says Roberts. Zero interest rates are destroying household savings. Media scoundrels suppress ugly truths. Western governments are letting banking crooks scam the system for profits "(It)is a system that is headed for catastrophic failure," according to Roberts.
Bad news keeps getting worse. Public acknowledgement of this arrives late. Moody's June 21 downgrade of 15 major banks conceded what's been known for years. Giant Western banks are zombies. They're insolvent. Taxpayer funded bailouts alone keep them operating. Moody's warned last winter that downgrades were coming. The so-called "stress tests" suppress more than they revealed.
Ellen Brown calls the "derivatives casino....a last-ditch attempt to prop up a private pyramid scheme." It's slowly crumbling under its own weight. JPMorgan Chase is considered America's most stable bank. Brown calls it bankrupt. Evidence, she says, shows it's acknowledged $2 billion loss perhaps exceeds $30 billion.
Roberts explained that America's five largest banks hold $226 trillion in derivative bets. For example, JPMorgan's total assets approach $2 trillion. Its derivatives holdings exceed $70 trillion. Its risk capital is about $136 billion. Its "derivative bets are 516 times larger than the capital that covers the bets."
Goldman Sachs "takes the cake," says Roberts. Its $44 trillion in derivatives speculation "is covered by only $19 billion in risk capital." In other words, its bets are "2,295 times larger than" cash on hand covering them. Derivatives bets by America's five largest banks exceed US GDP over 15-fold. Corrupt politicians allowing it assure eventual economic collapse.
Banking executives are serial liars. After Moody's downgrades, Citigroup and Bank of America officials said its action failed to reflect "safeguards" in place for years. Roberts destroyed their argument. So did Brown and other independent analysts.
Moody's and other rating agencies long ago lost credibility. They failed to acknowledge the sub-prime crisis until headlines revealed it. They bogusly call toxic assets safe in return for large fees and big profits. They're called lagging, not leading indicators. They're many days and dollars short. They're part of the dirty game that scams ordinary people.
RBC Capital Markets analyst Gerard Cassidy said Moody's "action is five years too late." Stanford University Professor Anat Admati called its downgrades bad news at a time bank "balance sheets are very fragile." Credit Agricole Securities analyst Mike Mayo said "America doesn't have a coherent solution to its banking crisis. Will actions like Moody's make it safer," he asked?
Saying the jury is still out, he doubts it. He also called Thursday's downgrades "unfortunate four years after (a) crisis" that's deepening, not improving. Evidence shows troubled global banking conditions. Central bank liquidity injections alone prevent collapse. They're running their course. Each new round helps less than previous ones. Ahead they'll be ineffective at a price too great to bear.
They've bailed out banks at the expense of economic growth. Recovery is more distant than earlier. Speculators alone profited. Good times they alone enjoyed are ending. Economic data show it. The closely watched Markit Eurozone purchasing managers composite index matched May's 46 read. It showed production contracting at the steepest level since June 2009.
Its flash measure dropped from 45.1 in May to 44.8 in June. It reflected a 37-month low. Markit's chief economist, Chris Williamson, said the flash reading "rounded off the weakest quarter for three years." China's flash PMI fell to 48.1 in June. Manufacturing contracted for the eighth consecutive month. The Fed slashed 2012 and 2013 US growth. Growing numbers of companies are cutting revenue and profit estimates. Germany's ZEW confidence index plunged to -16.9 from 10.8 in May. It's the largest monthly decline since the 1998 LTCM/Russian debt default crisis.
Moreover, its Ifo business confidence index hit a two-year low, and Italy's consumer confidence plunged to its lowest level since 1996. US initial jobless claims are rising. On June 21, they reached a 2012 high. Slowdown is gaining speed. Economic underpinnings look wobbly. In June alone, about 70% of economic reports showed weakness.
The Fed's Operation Twist extension underwhelmed analysts. Officially it's called the Maturity Extension Program. It exchanges short-term debt for longer term holdings. In theory, it's to lower interest rates on 10-year Treasuries. In early June 22 trading, they stood at 1.63%, a near record low.