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Recovery or Collapse? Bet on Collapse

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This article cross-posted from Paul Craig Roberts


The US financial system and, probably, the financial system of Europe, like the police, no longer serves a useful social purpose.

In the US the police have proven themselves to be a greater threat to public safety than private sector criminals. I just googled "police brutality" and up came 183,000,000 results. (For two recent brutal assaults, one deadly, by police on hapless individuals, see here and here.)

The cost to society of the private financial system is even higher. Writing in CounterPunch (May 18), Rob Urie reports that two years ago Andrew Haldane, executive Director for Financial Stability at the Bank of England (the UK's version of the Federal Reserve) said that the financial crisis, now four years old, will in the end cost the world economy between $60 trillion and $200 trillion in lost GDP. If Urie's report is correct, this is an astonishing admission from a member of the ruling elite.

Try to get your mind around these figures. The US GDP, the largest in the world, is about 15 trillion. What Haldane is telling us is that the financial crisis will end up costing the world lost real income between 4 and 13 times the size of the current Gross Domestic Product of the United States. This could turn out to be an optimistic forecast.

In the end, the financial crisis could destroy Western civilization.

Even if Urie's report, or Haldane's calculation, is incorrect, the obvious large economic loss from the financial crisis is still unprecedented. The enormous cost of the financial crisis has one single source -- financial deregulation. Financial deregulation is likely to prove to be the mistake that destroys Western civilization. While we quake in our boots from fear of "Muslim terrorists," it is financial deregulation that is destroying us, with help from jobs offshoring. Keep in mind that Haldane is a member of the ruling elite, not a critic of the system like myself, Gerald Celente, Michael Hudson, Pam Martins, and Nomi Prins. (This is not meant to be an exhaustive list of critics.)

Financial deregulation has had dangerous and adverse consequences. Deregulation permitted financial concentration that produced "banks too big to fail," thus requiring the general public to absorb the costs of the banks' mistakes and reckless gambling.

Deregulation permitted banks to leverage a small amount of capital with enormous debt in order to maximize return on equity, thereby maximizing the instability of the financial system and the cost to society of the banks' bad bets.

Deregulation allowed financial institutions to sweep aside the position limits on speculators and to dominate commodity markets, turning them into a gambling casino and driving up the prices of energy and food.

Deregulation permits financial institutions to sell naked shorts, which means to sell a company's stock or gold and silver bullion that the seller does not possess into the market in order to drive down the price.

The informed reader can add more items to this list.

The dollar in its role as world reserve currency is the source of Washington's power. It allows Washington to control the international payments system and to exclude from the financial system those countries that do not do Washington's bidding. It allows Washington to print money with which to pay its bills and to purchase the cooperation of foreign governments or to fund opposition within those countries whose governments Washington is unable to purchase, such as Iran, Russia, and China. If the dollar was not the world reserve currency and actually reflected its true depreciated value from the mounting US debt and running of the printing press, Washington's power would be dramatically curtailed.

The US dollar has come close to its demise several times recently. In 2011, the dollar's value fell as low as 72 Swiss cents. Investors seeking safety for the value of their money flooded into Swiss francs, pushing the value of the franc so high that Switzerland's exports began to suffer. The Swiss government responded to the inflow of dollars and euros seeking refuge in the franc by declaring that it would in the future print new francs to offset the inflows of foreign currency in order to prevent the rise in the value of the franc. In other words, currency flight from the US and Europe forced the Swiss to inflate in order to prevent the continuous rise in the exchange value of the Swiss currency.

Prior to the sovereign debt crisis in Europe, the dollar was also faced with a run-up in the value of the euro as foreign central banks and OPEC members shifted their reserves into euros from dollars. The euro was on its way to becoming an alternative reserve currency. However, Goldman Sachs, whose former employees dominate the US Treasury and financial regulatory agencies and also the European Central Bank and governments of Italy and, indirectly, Greece, helped the Greek government to disguise its true deficit, thus deceiving the private European banks who were purchasing the bonds of the Greek government. Once the European sovereign debt crisis was launched, Washington had an interest in keeping it going, as it sends holders of euros fleeing into "safe" dollars, thus boosting the exchange value of the dollar, despite the enormous rise in Washington's own debt and the doubling of the US money supply.

Last year gold and silver were rapidly rising in price (measured in US dollars), with gold hitting $1,900 an ounce and on its way to $2,000 when suddenly short sales began dominating the bullion markets. The naked shorts of gold and silver bullion succeeded in driving the price of gold down $350 per ounce from its peak. Many informed observers believe that the reason Washington has not prosecuted the banksters for their known financial crimes is that the banksters serve as an auxiliary to Washington by protecting the value of the dollar by shorting bullion and rival currencies.

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http://www.paulcraigroberts.org/

Dr. Roberts was Assistant Secretary of the US Treasury for Economic Policy in the Reagan Administration. He was associate editor and columnist with the Wall Street Journal, columnist for Business Week and the Scripps Howard News Service. He is a contributing editor to Gerald Celente's Trends Journal. He has had numerous university appointments. His book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is available here. His latest book,  How America Was Lost, has just been released and can be ordered here.

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I don't know about Western civilization collapsing... by Ernie Messerschmidt on Sunday, May 20, 2012 at 11:49:27 PM
Very informative OpEd Mr. Roberts.   The... by Tom Madison on Monday, May 21, 2012 at 12:13:06 AM
when it is "lost"?... by Michael David Morrissey on Monday, May 21, 2012 at 1:46:15 AM
other phantom interest bearing assets with the int... by bogi666 on Monday, May 21, 2012 at 3:51:42 AM
Money is created out of thin air, really nothing m... by ProgressiveBum on Monday, May 21, 2012 at 3:53:13 PM
But if none of these "losses" are real, why are pe... by Michael David Morrissey on Tuesday, May 22, 2012 at 2:27:50 AM
I am not sure if you had ever seen the movie ' Ho... by Mark Sashine on Tuesday, May 22, 2012 at 8:22:41 AM
I have not seen the movie or been able to find it.... by Michael David Morrissey on Tuesday, May 22, 2012 at 9:54:37 AM
Mr Morrissey this won't answer your questions on t... by crispy on Thursday, May 24, 2012 at 3:15:34 AM
financed, which exist only in cyberspace, that pro... by bogi666 on Friday, May 25, 2012 at 12:26:24 PM
Not a damn thing it would appear. I'd like to thin... by James Tennier on Monday, May 21, 2012 at 6:09:02 PM
I found two points particularly interesting:1. The... by Jack Flanders on Monday, May 21, 2012 at 11:18:03 PM
They were not but like AIG, goldman Sachs, The one... by crispy on Thursday, May 24, 2012 at 3:23:09 AM