NEWS – Collapse by (interest on debt), (biodiversity loss), greed, etc

<>

<>

NEWS – Collapse by (interest on debt), (biodiversity loss),  (greed), etc

all of the above + more

{{{<> PAGE UNDER DEVELOPMENT <>}}}

There are many articles, books, audio-visuals on this subject if you just search a bit, but what makes this more critical and pertinent to our current condition, is the global inter- connectivity of the global situation.

For instance,

(1) the pegging of many “Central Bank” fiat  currencies to the petro-cycle world reserve currency known as the US dollar (created by interest on debt to enrich as limited private banking monopoly);

(2) the greater pollution and self destruction of the bio diversity of the biospheres which sustain live, caused by man’s greed (related to the same banking);

(3) the relation of it all to War for Profit (for  the banker monopoly, and the inside traders, and their servants of patronage),

(4) and what is called the push-back, and blow-back, come back.

Yet indeed, this time is different, for the global nature and inter-connectivity of the realities we face, the consequences, and the struggles.

A course of action to confront a situation begins with knowledge about that situation.

Thus search and research.

<>

<>

<>

searching, researching,

as for (by interest on debt)

see more

<>

as for (biodiversity loss),  see more

<>

<>

Some articles of interest below, for comparison and research and verification:

<>

<>

Text For Economic Collapse
A Mathematical Certainty

By Jim Kirwan
8-6-11

From New America Productions 2011
 
“There is no greater disaster that to underestimate danger. Underestimation can be fatal.
 
The Dollar Collapse will be the single largest event in human history. This will be the first event that will touch every single living person in the world. All human activity is controlled by money. Our wealth, our work, our food, our government even our relationships are affected by money.
 
No money in human history has had as much reach, in both breadth and depth as the dollar. It is the defacto world currency. All other currency collapses will pale in comparison to this “big one.” All other currency crises have been regional and there have always been other currencies for people to grasp onto. This collapse will be global and it will bring down not only the dollar but all other fiat currencies as they are fundamentally; no different.
 
The collapse of currencies will lead to the collapse of all paper assets. The repercussions to this will have incredible results worldwide. The dollar is the world’s currency. It supports the global economy in setting foreign trade; most importantly the petro-dollar trade. This fuels our corporate vampires and acquires and harvests’ the wealth of the world.
 
The corporate powers suppress real assets like natural resources and labor to provide themselves with massive profits. The fascist statists, collectivist’s model provides the money to the economy to fun an ever-increasing federal government. That government then grows larger and larger, enriching its minions, with jobs to control their fellow citizens. Finally to come full circle; the government then controls other nations through the military-industrial complex.
 
This cycle will be cut when the mathematical and inevitable collapse of the dollar occurs. In order for our debt-based money to function we must increase the DEBT every year in excess of the debt and interest accrued the year before, or we will enter a deflationary death spiral. When Debt is created, money is created. When the debt is paid-off money is destroyed. There is never enough to pay off the debt because there would be not one dollar in existence,
 
We are at a point where we either default on the debt, willingly or unwillingly or create more money or debt: To keep the cycle moving. The problem is if you understand anything about compounding interest is that we are reaching the hockey-stick-moment (on the graph that is the moment when everything goes vertical); where the more debt that is incurred the more debt that is incurred the less effective it is: And this leads us to hyper-inflation. There are only two actors needed for this hyper-inflation: The lender of last resort, or the FED, and the spender of last resort the government. These two can and will blow up the system.
 
I believe they will wait until the next crises and the whiff of deflationary depression before they fire up the printing presses. That crisis is coming very soon, at the end of the summer or fall. The money and emergency measures are worn-out. The fact that none of the underlying problems that caused the 2008 crises have been resolved: The only thing that has happened is that instead of corporate problems we now have national problems.
 
In this movie Greece will play the role of Leman Brothers and the United States will play the role of AIG. The problem is there is no where (left) to kick the can down the road: And there is no world-government to absorb the DEBT- yet. So this leads me to the top five places NOT to be when the dollar collapses.
 
Number one, Israel. This Anglo-American beachhead in the Middle-East was first conceived by the most powerful family in the world; the Rothschilds in 1917. The Balfour Declaration said that there will be a Zionist Israel , years before WWII, and the eventual establishment of Israel. Israel has not been a very good neighbor to the Muslim nations: And has always had the world’s two biggest bullies on the block at its back. When the dollar collapses the United States will have much too much on its plate, both domestically and internationally to worry about such a non-strategic piece of land. This will leave Israel very weak at a time when tensions will be high. This very thin strip of desert land will not be able to withstand the economic realities of needing to import its food and fuel or the political reality of being surrounded by Muslims.
 
Number two, Southern California, the land of fruits and nuts turns into Battlefield Los Angeles . Twenty-million people packed into an area that has no water and thus food is not good to say the least. Throw on top of the huge wealth disparities, and the proximity to a narco-state and this does not bode well. We have seen riots from Rodney King. What will happen when the dollar is destroyed and food and fuel stop coming into this area? People will get desperate and do crazy things especially when a huge proportion of its citizens are on anti-depressants. If food and fuel cannot get in, what about Prozac? At a time when people’s worlds are falling apart they lack the ability to deal with this new paradigm. If people come off these drugs too fast they will suffer psychotic breaks and you will thousands of shootings or suicides.
 
Number three, England the land of the former Big Brother and the Empire of the worldwide slave and drug trade; will suffer heavily.
 
The “Stiff upper lip” that the British Elite ingrained in to the sheeple will not work anymore, as the British population explodes. The humans character will sacrifice for a foreign enemy, but not if the enemy has always been the elite. The Anglo-American Empire may pull off another false flag to distract its population but I feel this collapse will happen before they pull it off. This will make all eyes point at the British Elite as being solely responsible for this catastrophe. We have seen massive riots for soccer-matches with Hooligans. What will happen when this island with very little food and fuel gets cut off?
 
Number 4, New York City ; another large urban area living too high on the dollar-hog. There is little doubt that all of the wealth in New York City , New Jersey , and Connecticut is derived off of Wall Street Wealth. The savings and investments of the whole nation and much of the world flows through this financial capital. As the world wakes up to the massive financial fraud; this will lead to the destruction of capital like we have never seen before (the picture is of NYC in ruins just as Berlin looked after the West bombed it into Oblivion at the end of WWII).This will have tremendous effects upon the regional economy, as people driving in Mercedes suddenly wonder where their next meal is coming from.
 
Number five, Washington D.C. The political collapse of the Federal Government will reek havoc on the hugely inflated local economy as more and more states find it necessary to assert their natural control the federal government will suddenly lose power and importance, as the whole world suffers from a global Hurricane Katrina (the city in flames).
The money that they create and spend will become worthless and government minion’s pensions will evaporate. Millions that once relied upon the ability to force others to send their money to them, will learn that the real power has always been at the most local level. Massive decentralization will be the answer to ‘Globalization Gone Mad. ‘ Local families and communities will forego spending money and power out of their communities as they will care about their next meal and keeping warm. As Ayn Rand once said: “You can ignore reality, but you cannot ignore the consequences of ignoring reality.”
 
To sum those areas that have lived highest on the hog on the dollar-paradigm will most-likely be the worst places to live, when the dollar collapses. Many of you will see this video with passing interest; but rest
assured this dollar collapse is coming!
 
It is a mathematical inevitability. We will not be as fortunate to muddle through this collapse, like we did in 2008, when it was a corporate problem.” This time around it is a national and a global problem. The global Ponzi-Scheme has run out of gas: As the demographics decline; as cheap abundant oil declines, as hegemonic power declines: This comes at a time when we reach the exponential or collapse-phase of our money.
 
The irresistible force paradox says; “what happens when an unstoppable force meets an immovable object: We are about to find out, when infinite money hits a very-finite world!”
 
http://www.youtube.com/watch?v=b3-vwYJiD8g&feature=youtu.be
 
The video was read and occasionally paraphrased from an article Written By: Silver Shield Titled: Top 5 Places NOT To Be When The Dollar Collapses; transcribed by Jim Kirwan
 

Disclaimer

<>

It Is Now Mathematically Impossible To Pay Off The U.S. National Debt

A lot of people are very upset about the rapidly increasing U.S. national debt these days and they are  demanding a solution. What they don’t realize is that there simply is not a solution under the current U.S. financial system. It is now mathematically impossible for the U.S. government to pay off the U.S. national debt. You see, the truth is that the U.S. government now owes more dollars than actually exist. If the U.S. government went out today and took every single penny from every single American bank, business and taxpayer, they still would not be able to pay off the national debt. And if they did that, obviously American society would stop functioning because nobody would have any money to buy or sell anything.

And the U.S. government would still be massively in debt.

So why doesn’t the U.S. government just fire up the printing presses and print a bunch of money to pay off the debt?

Well, for one very simple reason.

That is not the way our system works.

You see, for more dollars to enter the system, the U.S. government has to go into more debt.

The U.S. government does not issue U.S. currency – the Federal Reserve does.

The Federal Reserve is a private bank owned and operated for profit by a very powerful group of elite international bankers.

If you will pull a dollar bill out and take a look at it, you will notice that it says “Federal Reserve Note” at the top.

It belongs to the Federal Reserve.

The U.S. government cannot simply go out and create new money whenever it wants under our current system.

Instead, it must get it from the Federal Reserve.

So, when the U.S. government needs to borrow more money (which happens a lot these days) it goes over to the Federal Reserve and asks them for some more green pieces of paper called Federal Reserve Notes.

The Federal Reserve swaps these green pieces of paper for pink pieces of paper called U.S. Treasury bonds. The Federal Reserve either sells these U.S. Treasury bonds or they keep the bonds for themselves (which happens a lot these days).

So that is how the U.S. government gets more green pieces of paper called “U.S. dollars” to put into circulation. But by doing so, they get themselves into even more debt which they will owe even more interest on.

So every time the U.S. government does this, the national debt gets even bigger and the interest on that debt gets even bigger.

Are you starting to get the picture?

As you read this, the U.S. national debt is approximately 12 trillion dollars, although it is going up so rapidly that it is really hard to pin down an exact figure.

So how much money actually exists in the United States today?

Well, there are several ways to measure this.

The “M0″ money supply is the total of all physical bills and currency, plus the money on hand in bank vaults and all of the deposits those banks have at reserve banks.  As of mid-2009, the Federal Reserve said that this amount was about 908 billion dollars.

The “M1″ money supply includes all of the currency in the “M0″ money supply, along with all of the money held in checking accounts and other checkable accounts at banks, as well as all money contained in travelers’ checks.  According to the Federal Reserve, this totaled approximately 1.7 trillion dollars in December 2009, but not all of this money actually “exists” as we will see in a moment.

The “M2″ money supply includes everything in the “M1″ money supply plus most other savings accounts, money market accounts, retail money market mutual funds, and small denomination time deposits (certificates of deposit of under $100,000).  According to the Federal Reserve, this totaled approximately 8.5 trillion dollars in December 2009, but once again, not all of this money actually “exists” as we will see in a moment.

The “M3″ money supply includes everything in the “M2″ money supply plus all other CDs (large time deposits and institutional money market mutual fund balances), deposits of eurodollars and repurchase agreements.  The Federal Reserve does not keep track of M3 anymore, but according to ShadowStats.com it is currently somewhere in the neighborhood of 14 trillion dollars.  But again, not all of this “money” actually “exists” either.

So why doesn’t it exist?

It is because our financial system is based on something called fractional reserve banking.

When you go over to your local bank and deposit $100, they do not keep your $100 in the bank.  Instead, they keep only a small fraction of your money there at the bank and they lend out the rest to someone else.  Then, if that person deposits the money that was just borrowed at the same bank, that bank can loan out most of that money once again.  In this way, the amount of “money” quickly gets multiplied.  But in reality, only $100 actually exists.  The system works because we do not all run down to the bank and demand all of our money at the same time.

According to the New York Federal Reserve Bank, fractional reserve banking can be explained this way….

If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money ($100+$90+81+$72.90+…=$1,000).”

So much of the “money” out there today is basically made up out of thin air.

In fact, most banks have no reserve requirements at all on savings deposits, CDs and certain kinds of money market accounts.  Primarily, reserve requirements apply only to “transactions deposits” – essentially checking accounts.

The truth is that banks are freer today to dramatically “multiply” the amounts deposited with them than ever before.  But all of this “multiplied” money is only on paper – it doesn’t actually exist.

The point is that the broadest measures of the money supply (M2 and M3) vastly overstate how much “real money” actually exists in the system.

So if the U.S. government went out today and demanded every single dollar from all banks, businesses and individuals in the United States it would not be able to collect 14 trillion dollars (M3) or even 8.5 trillion dollars (M2) because those amounts are based on fractional reserve banking.

So the bottom line is this….

#1) If all money owned by all American banks, businesses and individuals was gathered up today and sent to the U.S. government, there would not be enough to pay off the U.S. national debt.

#2) The only way to create more money is to go into even more debt which makes the problem even worse.

You see, this is what the whole Federal Reserve System was designed to do.  It was designed to slowly drain the massive wealth of the American people and transfer it to the elite international bankers.

It is a game that is designed so that the U.S. government cannot win.  As soon as they create more money by borrowing it, the U.S. government owes more than what was created because of interest.

If you owe more money than ever was created you can never pay it back.

That means perpetual debt for as long as the system exists.

It is a system designed to force the U.S. government into ever-increasing amounts of debt because there is no escape.

We could solve this problem by shutting down the Federal Reserve and restoring the power to issue U.S. currency to the U.S. Congress (which is what the U.S. Constitution calls for).  But the politicians in Washington D.C. are not about to do that.

So unless you are willing to fundamentally change the current system, you might as well quit complaining about the U.S. national debt because it is now mathematically impossible to pay it off.

***UPDATE***

It has been suggested that the same dollar can be used to pay off debt over and over – this is theoretically true as long as the dollar remains in the system.

For example, if the U.S. government gives China a dollar to pay off a debt, there is a good chance that the U.S. government will be able to acquire that dollar again and use it to pay off another debt.

However, this is not true when debt is retired with the Federal Reserve.  In that case, money is actually removed from the system.  In fact, because of the “money multiplier”, when debt is retired with the Federal Reserve it can remove ten times that amount of money (and actually more, but let’s not get too technical) from the system.

You see, fractional reserve banking works both ways.  When $100 is introduced into the system, it can theoretically create $1000 as the example in the article above demonstrates.  However, when that $100 is removed, it can have the opposite impact.

And considering the fact that the Federal Reserve “purchased” the vast majority of new U.S. government debt last year, we have got a real mess on our hands.

Even if a way could be figured out how to pay off all the debt we owe to foreign nations (such as China, Japan, etc.) it would still be mathematically impossible to pay off the debt that we owe to the Federal Reserve which is exploding so fast that it is hard to even keep track of.

Of course we could repudiate that debt and shut down the Federal Reserve, but very few in Washington D.C. have any interest in doing that.

It has also been suggested that instead of just using dollars to pay off the U.S. national debt, we could use the assets of the U.S. government to pay it off.

That is rather extreme, but let us consider that for a moment.

That total value of all physical assets in the United States, both publicly and privately owned, is somewhere in the neighborhood of 45 to 50 trillion dollars.  Of course the idea of the U.S. government “owning” every single asset of the American people is repugnant to our entire way of life, but let’s assume that for a moment.

According to the 2008 Financial Report of the United States Government, which is an official United States government report, the total liabilities of the United States government, including future social security and medicare payments that the U.S. government is already committed to pay out, now exceed 65 TRILLION dollars.  This amount is more than the entire GDP of the whole world.

In fact, there are other authors who have written that the actual figure for the future liabilities of the U.S. government should be much higher, but let’s be conservative and go with 65 trillion for now.

So, if the U.S. government took control of all physical assets in the United States and sold them off, it could not even make enough money to pay for everything that the U.S. government is already on the hook for.

Ouch.

If you have not read the 2008 Financial Report of the United States Government, you really should.  Actually the 2009 report should be available very soon if it isn’t already.  If anyone knows if it is available, please let us know.

The truth is that the U.S. government is in much bigger financial trouble than we have been led to believe.

For example, according to the report (which remember is an official U.S. government report) the real U.S. budget deficit for 2008 was not 455 billion dollars.  It was actually 5.1 trillion dollars.

So why the difference?

The CBO’s 455 billion figure is based on cash accounting, while the 5.1 trillion figure in the 2008 Financial Report of the United States Government is based on GAAP accounting. GAAP accounting is what is used by all the major firms on Wall Street and it is regarded as a much more accurate reflection of financial reality.

So needless to say, the United States is in a financial mess of unprecedented magnitude.

So what should we do?  Does anyone have any suggestions?

***UPDATE 2***

We have received a lot of great comments on this article.  Trying to understand the U.S. financial system (even after studying it for years) can be very difficult at times.  In fact, it can almost seem like playing 3 dimensional chess.

Several readers have correctly pointed out that when the U.S. money supply is expanded by the Federal Reserve, the interest that is to be paid on that new debt is not created.

So where does the money to pay that interest come from?  Well, eventually the money supply has to be expanded some more.  But that creates even more debt.

That brings us to the next point.

Several readers have insisted that the Federal Reserve is not privately owned and that since it returns “most” of the profits it makes to the U.S. government that we should not be concerned about the debt owed to it.

The truth is that what you have with the Federal Reserve is layers of ownership.  The following was originally posted on the Federal Reserve’s website….

“The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation’s central banking system, are organized much like private corporations – possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.”

So Federal Reserve “stock” is owned by member banks.  So who owns the member banks?  Well, when you sift through additional layers of ownership, you will ultimately find that people like the Rothschilds, the Rockefellers and the Queen of England have very large ownership interests in the big banks.  But there are so many layers of ownership that they are able to disguise themselves well.

You see, these people are not stupid.  They did not become the richest people in the world by being morons.  It was the banking elite of the world who designed the Federal Reserve and it is the banking elite of the world who benefit the most from the Federal Reserve today.  In the article above when we described the Federal Reserve as “a private bank owned and operated for profit by a very powerful group of elite international bankers” we may have been oversimplifying things a bit, but it is the essence of what is going on.

In an excellent article that she did on the Federal Reserve, Ellen Brown described a number of the ways that the Federal Reserve makes money for those who own it….

The interest on bonds acquired with its newly-issued Federal Reserve Notes pays the Fed’s operating expenses plus a guaranteed 6% return to its banker shareholders. A mere 6% a year may not be considered a profit in the world of Wall Street high finance, but most businesses that manage to cover all their expenses and give their shareholders a guaranteed 6% return are considered “for profit” corporations.

In addition to this guaranteed 6%, the banks will now be getting interest from the taxpayers on their “reserves.” The basic reserve requirement set by the Federal Reserve is 10%. The website of the Federal Reserve Bank of New York explains that as money is redeposited and relent throughout the banking system, this 10% held in “reserve” can be fanned into ten times that sum in loans; that is, $10,000 in reserves becomes $100,000 in loans. Federal Reserve Statistical Release H.8 puts the total “loans and leases in bank credit” as of September 24, 2008 at $7,049 billion. Ten percent of that is $700 billion. That means we the taxpayers will be paying interest to the banks on at least $700 billion annually – this so that the banks can retain the reserves to accumulate interest on ten times that sum in loans.

The banks earn these returns from the taxpayers for the privilege of having the banks’ interests protected by an all-powerful independent private central bank, even when those interests may be opposed to the taxpayers’ — for example, when the banks use their special status as private money creators to fund speculative derivative schemes that threaten to collapse the U.S. economy. Among other special benefits, banks and other financial institutions (but not other corporations) can borrow at the low Fed funds rate of about 2%. They can then turn around and put this money into 30-year Treasury bonds at 4.5%, earning an immediate 2.5% from the taxpayers, just by virtue of their position as favored banks. A long list of banks (but not other corporations) is also now protected from the short selling that can crash the price of other stocks.

The reality is that there are a lot of ways that the Federal Reserve is a money-making tool.  Yes, they do return “some” of their profits to the U.S. government each year.  But the Federal Reserve is NOT a government agency and it DOES make profits.

So just how much money is made over there?  The truth is that we have to rely on what the Federal Reserve tells us, because they have never been subjected to a comprehensive audit by the U.S. government.

Ever.

Right now there is legislation going through Congress that would change that, and the Federal Reserve is fighting it tooth and nail.  They are warning that such an audit could cause a financial disaster.

What are they so afraid of?

Are they afraid that we might get to peek inside and see what they have been up to all these years?

If you are a history buff, then you probably know that debates about a “central bank” go all the way back to the Founding Fathers.

The European banking elite have always been determined to control our currency, and that is exactly what is happening today.

Ever since the Federal Reserve was created, there have been members of the U.S. Congress that have been trying to warn the American people about the insidious nature of this institution.

Just check out what the Honorable Louis McFadden, Chairman of the House Banking and Currency Committee had to say all the way back in the 1930s….

“Some people think that the Federal Reserve Banks are United States Government institutions. They are private monopolies which prey upon the people of these United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; and rich and predatory money lenders.”

The Federal Reserve is not the solution and it never has been.

The Federal Reserve is the problem.

Any thoughts?

<>

The Great Collapse of the US Empire

by Jeff Berwick
The Dollar Vigilante

Previously by Jeff Berwick: It’s a STASI World

The biggest story of the late 20th century was the collapse of the Soviet Union. After decades of a government controlled, centrally planned economy and outsized military expenditures the Soviet Union just one day ceased to be. Fast forward a few decades and now the biggest story about to happen in the early 21st century will be the collapse of the US empire for the exact same reasons.

The US economy has been centrally planned and manipulated by the communist fashioned central bank, the Federal Reserve, for 99 years now. But it wasn’t until August 15, 1971 that the last linkage of gold from the US dollar was removed and the US Government and the Federal Reserve were allowed to truly run rampant with their anti-capitalist economic system.

A look at US Government debt since the beginning of the 20th century tells the story:

Just like the Soviet Union the US has also bankrupted itself on offense. Sorry, they call it defense even though all they do is attack and occupy other countries. The US spends more than the rest of the world combined on its military and spends $2,374 per capita each year. The next nine closest countries in military spending per capita average $80 per annum.

Yet millions of US citizens will rise to their feet and cheer as military jets streak overhead literally burning their money in front of their eyes. “USA! USA! USA… is bankrupt”.

And, just like the Soviet Union, the US is destined to collapse. It is not an if… it’s only a when.

US CENTRIC

The collapse of the US sounds very dramatic to many people. That’s because the US has been the most dominant nation on Earth for the last century. It used to be the beacon of freedom and it attracted most of the world’s top talent and became the place to be for almost any endeavor. It was also a leader in free market economics until just a few decades ago.

But, that was then, this is now. Now, after a focused effort to indoctrinate US citizens in public schools and using the media to trick them into believing that socialism is the kindest and best form of government the results can be seen everywhere. Occupy Wall Street kids play bongos and rail against the evils of capitalism – something they have never actually seen in their lifetimes.

Meanwhile, all around the world, billions are waking up to the beauty and empowerment of capitalism. A billion people in China who are almost all of a free-market bent but who were forced down the disastrous communist road for a few decades are building a new future. In the old Soviet Union almost everyone is pro-capitalism after going through the horror of communism in the Soviet Union. Chinese people now rent helicopters to fly over properties in Canada for purchase while Russians are well known the world over for being some of the richest anywhere. In Mexico, tourism was at a record last year despite the US propaganda as Russians streamed into the freest country in North America. And dozens and dozens of other countries in Asia, Latin America and the former Soviet bloc are all on the capitalism bandwagon.

In fact, the only two significant places in the world where capitalism seems to be distinctively out of favor are the US and Western Europe.

And that’s the thing… here’s the news. They don’t matter. The population of the US is 300 million. The population of Western Europe is approximately 400 million for a total of 700 million. Just 10% of the total world’s population. It is simply insignificant.

Doug Casey is well known for having said, “Europe will mainly serve as a source of houseboys and maids for the Chinese”. And, the way the US is going, many US citizens will likely serve much the same role. A lot of the hackey sack playing drum circle Occupy Wall Street denizens will soon be drafted into the military to pay off their tens or hundreds of thousands worth of student debt and will become cannon fodder in the US Government’s next criminal war… perhaps Iran. And those who avoid that fate will likely end up waiting tables or driving taxis in Latin America or Asia as well, muttering their Marxist propaganda under their breath as they facilitate the transit of their much more productive employers.

Some believe that the collapse of the US will be the collapse of “freedom”. But if that’s the case then that war has already been lost. While there are still a few tens of millions of US citizens who have some concept of what freedom is and what free-market capitalism is, there are billions worldwide that also now know this. Freedom and capitalism will not die with the US empire. In fact, as the War on Drugs, the Federal Reserve and the TSA all die with the US empire it will become clearer to everyone that the US Government had become the biggest enemy to freedom and capitalism on Earth and will likely set off an incredible period of liberty and prosperity…once the dust settles.

The key will be to retain your assets during the collapse and that will be the trickiest part. Owning precious metals and getting a significant percentage of your assets outside of the US should be priority number one for US citizens at this time… the same way as it was for USSR citizens twenty years ago. We are releasing a Special Report entitled “Getting Your Gold Out Of Dodge” in the next 24 hours which will go in depth into detail on how to accomplish that. As well, getting a second passport has never been more important for anyone since the Jews in Germany in the late 1930s as it is for Americans today whose government is closing every door to allowing US citizens to open foreign bank and brokerage accounts. Again, TDV is focused on providing options for Western citizens who are fast becoming the new Jews. We offer a number of options for acquiring a foreign passport as cheaply and as quickly as possible at TDVPassports.com.

OPPORTUNITY IN COLLAPSE

While we personally have no interest in living in the US for the next few years as the collapse happens we do think there will be once-in-a-generation opportunities there once the dust settles. The key will be keeping your assets safe and secure until then… something that every government and central bank in the world is making increasingly difficult with each passing day.

W.G. Hill of the Invisible Investor stated, “Get your money out of the country, before your country gets the money out of you”. The details of how to do that are not taught by any government registered financial advisor but thanks to the internet you have the ability to do your own research and get access to the independent sources of information that are unattached to the current fascist corporatist system to help guide you. Take advantage of it while you can because governments have realized this and are coming after the internet next.

Reprinted with permission from The Dollar Vigilante.

April 12, 2012

Jeff Berwick [send him mail] is an anarcho-capitalist freedom fighter and Chief Editor of the libertarian, Austrian economics grounded newsletter, The Dollar Vigilante. The Dollar Vigilante focuses on strategies, investments and expatriation opportunities to survive & prosper during and after the US dollar collapse.

Copyright © 2012 The Dollar Vigilante

The Best of Jeff Berwick

<>

Financial Collapse Is At Hand
- When Is ‘Sooner Or Later’?

By Dr. Paul Craig Roberts
6-6-12
Ever since the beginning of the financial crisis and Quantitative Easing, the question has been before us:  How can the Federal Reserve maintain zero interest rates for banks and negative real interest rates for savers and bond holders when the US government is adding $1.5 trillion to the national debt every year via its budget deficits?  Not long ago the Fed announced that it was going to continue this policy for another 2 or 3 years. Indeed, the Fed is locked into the policy. Without the artificially low interest rates, the debt service on the national debt would be so large that it would raise questions about the US Treasury’s credit rating and the viability of the dollar, and the trillions of dollars in Interest Rate Swaps and other derivatives would come unglued.In other words, financial deregulation leading to Wall Street’s gambles, the US government’s decision to bail out the banks and to keep them afloat, and the Federal Reserve’s zero interest rate policy have put the economic future of the US and its currency in an untenable and dangerous position.  It will not be possible to continue to flood the bond markets with $1.5 trillion in new issues each year when the interest rate on the bonds is less than the rate of inflation. Everyone who purchases a Treasury bond is purchasing a depreciating asset. Moreover, the capital risk of investing in Treasuries is very high. The low interest rate means that the price paid for the bond is very high. A rise in interest rates, which must come sooner or later, will collapse the price of the bonds and inflict capital losses on bond holders, both domestic and foreign.The question is: when is sooner or later?  The purpose of this article is to examine that question.Let us begin by answering the question: how has such an untenable policy managed to last this long?A number of factors are contributing to the stability of the dollar and the bond market. A very important factor is the situation in Europe.  There are real problems there as well, and the financial press keeps our focus on Greece, Europe, and the euro. Will Greece exit the European Union or be kicked out?  Will the sovereign debt problem spread to Spain, Italy, and essentially everywhere except for Germany and the Netherlands?Will it be the end of the EU and the euro?  These are all very dramatic questions that keep focus off the American situation, which is probably even worse.The Treasury bond market is also helped by the fear individual investors have of the equity market, which has been turned into a gambling casino by high-frequency trading.High-frequency trading is electronic trading based on mathematical models that make the decisions. Investment firms compete on the basis of speed, capturing gains on a fraction of a penny, and perhaps holding positions for only a few seconds.  These are not long-term investors. Content with their daily earnings, they close out all positions at the end of each day.High-frequency trades now account for 70-80% of all equity trades. The result is major heartburn for traditional investors, who are leaving the equity market. They end up in Treasuries, because they are unsure of the solvency of banks who pay next to nothing for deposits, whereas 10-year Treasuries will pay about 2% nominal, which means, using the official Consumer Price Index, that they are losing 1% of their capital each year.  Using John Williams’ (<http://shadowstats.com/>shadowstats.com) correct measure of inflation, they are losing far more.  Still, the loss is about 2 percentage points less than being in a bank, and unlike banks, the Treasury can have the Federal Reserve print the money to pay off its bonds.  Therefore, bond investment at least returns the nominal amount of the investment, even if its real value is much lower. ( For a description of High-frequency trading, see:http://en.wikipedia.org/wiki/High_frequency_trading )

The presstitute financial media tells us that flight from European sovereign debt, from the doomed euro, and from the continuing real estate disaster into US Treasuries provides funding for Washington’s $1.5 trillion annual deficits. Investors influenced by the financial press might be responding in this way.  Another explanation for the stability of the Fed’s untenable policy is collusion between Washington, the Fed, and Wall Street. We will be looking at this as we progress.

Unlike Japan, whose national debt is the largest of all, Americans do not own their own public debt.  Much of US debt is owned abroad, especially by China, Japan, and OPEC, the oil exporting countries. This places the US economy in foreign hands.  If China, for example, were to find itself unduly provoked by Washington, China could dump up to $2 trillion in US dollar-dominated assets on world markets. All sorts of prices would collapse, and the Fed would have to rapidly create the money to buy up the Chinese dumping of dollar-denominated financial instruments.

The dollars printed to purchase the dumped Chinese holdings of US dollar assets  would expand the supply of dollars in currency markets and drive down the dollar exchange rate. The Fed, lacking foreign currencies with which to buy up the dollars would have to appeal for currency swaps to sovereign debt troubled Europe for euros, to Russia, surrounded by the US missile system, for rubles, to Japan, a country over its head in American commitment, for yen, in order to buy up the dollars with euros, rubles, and yen.

These currency swaps would be on the books, unredeemable and  making additional use of such swaps problematical.  In other words, even if the US government can pressure its allies and puppets to swap their harder currencies for a depreciating US currency, it would not be a repeatable process.  The components of the American Empire don’t want to be in dollars any more than do the BRICS.

However, for China, for example, to dump its dollar holdings all at once would be costly as the value of the dollar-denominated assets would decline as they dumped them. Unless China is faced with US military attack and needs to defang the aggressor, China as a rational economic actor would prefer to slowly exit the US dollar.  Neither do Japan, Europe, nor OPEC wish to destroy their own accumulated wealth from America’s trade deficits by dumping dollars, but the indications are that they all wish to exit their dollar holdings.

Unlike the US financial press, the foreigners who hold dollar assets look at the annual US budget and trade deficits, look at the sinking US economy, look at Wall Street’s uncovered gambling bets, look at the war plans of the delusional hegemon and conclude: “I’ve got to carefully get out of this.”

US banks also have a strong interest in preserving the status quo. They are holders of US Treasuries and potentially even larger holders. They can borrow from the Federal Reserve at zero interest rates and purchase 10-year Treasuries at 2%, thus earning a nominal profit of 2% to offset derivative losses. The banks can borrow dollars from the Fed for free and leverage them in derivative transactions. As Nomi Prins puts it, the US banks don’t want to trade against themselves and their free source of funding by selling their bond holdings.  Moreover, in the event of foreign flight from dollars, the Fed could boost the foreign demand for dollars by requiring foreign banks that want to operate in the US to increase their reserve amounts, which are dollar based.

I could go on, but I believe this is enough to show that even actors in the process who could terminate it have themselves a big stake in not rocking the boat and prefer to quietly and slowly sneak out of dollars before the crisis hits.  This is not possible indefinitely as the process of gradual withdrawal from the dollar would result in continuous small declines in dollar values that would end in a rush to exit, but Americans are not the only delusional people.

The very process of slowly getting out can bring the American house down. The BRICS–Brazil, the largest economy in South America, Russia, the nuclear armed and  energy independent economy on which Western Europe ( Washington’s NATO puppets) are dependent for energy, India, nuclear armed and one of Asia’s two rising giants, China, nuclear armed, Washington’s largest creditor (except for the Fed), supplier of America’s manufactured and advanced technology products, and the new bogyman for the military-security complex’s next profitable cold war, and South Africa, the largest economy in Africa–are in the process of forming a new bank. The new bank will permit the five large economies to conduct their trade without use of the US dollar.

In addition, Japan, an American puppet state since WW II, is on the verge of entering into an agreement with China in which the Japanese yen and the Chinese yuan will be directly exchanged.  The trade between the two Asian countries would be conducted in their own currencies without the use of the US dollar. This reduces the cost of foreign trade between the two countries, because it eliminates payments for foreign exchange commissions to convert from yen and yuan into dollars and back into yen and yuan.

Moreover, this official explanation for the new direct relationship avoiding the US dollar is simply diplomacy speaking.  The Japanese are hoping, like the Chinese, to get out of the practice of accumulating ever more dollars by having to park their trade surpluses in US Treasuries. The Japanese US puppet government hopes that the Washington hegemon does not require the Japanese government to nix the deal with China.

Now we have arrived at the nitty and gritty.  The small percentage of Americans who are aware and informed are puzzled why the banksters have escaped with their financial crimes without prosecution. The answer might be that the banks “too big to fail” are adjuncts of Washington and the Federal Reserve in maintaining the stability of the dollar and Treasury bond markets in the face of an untenable Fed policy.

Let us first look at how the big banks can keep the interest rates on Treasuries low, below the rate of inflation, despite the constant increase in US debt as a percent of GDP–thus preserving the Treasury’s ability to service the debt.

The imperiled banks too big to fail have a huge stake in low interest rates and the success of the Fed’s policy. The big banks are positioned to make the Fed’s policy a success.  JPMorganChase and other giant-sized banks can drive down Treasury interest rates and, thereby, drive up the prices of bonds, producing a rally, by selling Interest Rate Swaps (IRSwaps).

A financial company that sells IRSwaps is selling an agreement to pay floating interest rates for fixed interest rates. The buyer is purchasing an agreement that requires him to pay a fixed rate of interest in exchange for receiving a floating rate.

The reason for a seller to take the short side of the IRSwap, that is, to pay a floating rate for a fixed rate, is his belief that rates are going to fall. Short-selling can make the rates fall, and thus drive up the prices of Treasuries.  When this happens, as the charts at http://www.marketoracle.co.uk/Article34819.html illustrate, there is a rally in the Treasury bond market that the presstitute financial media attributes to “flight to the safe haven of the US dollar and Treasury bonds.”  In fact, the circumstantial evidence (see the charts in the link above) is that the swaps are sold by Wall Street whenever the Federal Reserve needs to prevent a rise in interest rates in order to protect its otherwise untenable policy.  The swap sales create the impression of a flight to the dollar, but no actual flight occurs. As the IRSwaps require no exchange of any principal or real asset, and are only a bet on interest rate movements, there is no limit to the volume of IRSwaps.

This apparent collusion suggests to some observers that the reason the Wall Street banksters have not been prosecuted for their crimes is that they are an essential part of the Federal Reserve’s policy to preserve the US dollar as world currency. Possibly the collusion between the Federal Reserve and the banks is organized, but it doesn’t have to be. The banks are beneficiaries of the Fed’s zero interest rate policy.  It is in the banks’ interest to support it.  Organized collusion is not required.

Let us now turn to gold and silver bullion. Based on sound analysis, Gerald Celente and other gifted seers predicted that the price of gold would be $2000 per ounce by the end of last year.  Gold and silver bullion continued during 2011 their ten-year rise, but in 2012 the price of gold and silver have been knocked down, with gold being $350 per ounce off its $1900 high.

In view of the analysis that I have presented, what is the explanation for the reversal in bullion prices?  The answer again is shorting.  Some knowledgeable people within the financial sector believe that the Federal Reserve (and perhaps also the European Central Bank) places short sales of bullion through the investment banks, guaranteeing any losses by pushing a key on the computer keyboard, as central banks can create money out of thin air.

Insiders inform me that as a tiny percent of those on the buy side of short sells actually want to take delivery on the gold or silver bullion, and are content with the financial money settlement, there is no limit to short selling of gold and silver. Short selling can actually exceed the known quantity of gold and silver.

Some who have been watching the process for years believe that government-directed short-selling has been going on for a long time. Even without government participation, banks can control the volume of paper trading in gold and profit on the swings that they create. Recently short selling is so aggressive that it not merely slows the rise in bullion prices but drives the price down.  Is this aggressiveness  a sign that the rigged system is on the verge of becoming unglued?

In other words, “our government,” which allegedly represents us, rather than the powerful private interests who elect “our government” with their multi-million dollar campaign contributions, now legitimized by the Republican Supreme Court, is doing its best to deprive us mere citizens, slaves, indentured servants, and “domestic extremists”   from protecting ourselves and our remaining wealth from the currency debauchery policy of the Federal Reserve. Naked short selling prevents the rising demand for physical bullion from raising bullion’s price.

Jeff Nielson explains another way that banks can sell bullion shorts when they own no bullion. http://www.gold-eagle.com/editorials_08/nielson102411.html  Nielson says that JP Morgan is the custodian for the largest long silver fund while being the largest short-seller of silver. Whenever the silver fund adds to its bullion holdings, JP Morgan shorts an equal amount.  The short selling offsets the rise in price that would result from the increase in demand for physical silver. Nielson also reports that bullion prices can be suppressed by raising margin requirements on those who purchase bullion with leverage.  The conclusion is that bullion markets can be manipulated just as can the Treasury bond market and interest rates.

How long can the manipulations continue?  When will the proverbial hit the fan?

If we knew precisely the date, we would be the next mega-billionaires.

Here are some of the catalysts waiting to ignite the conflagration that burns up the Treasury bond market and the US dollar:

A war, demanded by the Israeli government, with Iran, beginning with Syria, that disrupts the oil flow and thereby the stability of the Western economies or brings the US and its weak NATO puppets into armed conflict with Russia and China. The oil spikes would degrade further the US and EU economies, but Wall Street would make money on the trades.

An unfavorable economic statistic that wakes up investors as to the true state of the US economy, a statistic that the presstitute media cannot deflect.

An affront to China, whose government decides that knocking the US down a few pegs into third world status is worth a trillion dollars.

More derivate mistakes, such as JPMorganChase’s recent one, that send the US financial system again reeling and reminds us that nothing has changed.

The list is long. There is a limit to how many stupid mistakes and corrupt financial policies the rest of the world is willing to accept from the US.  When that limit is reached,  it is all over for “the world’s sole superpower” and for holders of dollar-denominated instruments.

Financial deregulation converted the financial system, which formerly served businesses and consumers, into a gambling casino where bets are not covered. These uncovered bets, together with the Fed’s zero interest rate policy, have exposed Americans’ living standard and wealth to large declines.  Retired people living on their savings and investments, IRAs and 401(k)s can earn nothing on their money and are forced to consume their capital, thereby depriving heirs of inheritance. Accumulated wealth is consumed.

As a result of jobs offshoring, the US has become an import-dependent country, dependent on foreign made manufactured goods, clothing, and shoes. When the dollar exchange rate falls, domestic US prices will rise, and US real consumption will take a big hit. Americans will consume less, and their standard of living will fall dramatically.

The serious consequences of the enormous mistakes made in Washington, on Wall Street, and in corporate offices are being held at bay by an untenable policy of low interest rates and a corrupt financial press, while debt rapidly builds. The Fed has been through this experience once before. During WW II the Federal Reserve kept interest rates low in order to aid the Treasury’s war finance by minimizing the interest burden of the war debt. The Fed kept the interest rates low by buying the debt issues. The postwar inflation that resulted led to the Federal Reserve-Treasury Accord in 1951, in which agreement was reached that the Federal Reserve would cease monetizing the debt and permit interest rates to rise.

Fed chairman Bernanke has spoken of an “exit strategy” and said that when inflation threatens, he can prevent the inflation by taking the money back out of the banking system.  However, he can do that only by selling Treasury bonds, which means interest rates would rise. A rise in interest rates would threaten the derivative structure, cause bond losses, and raise the cost of both private and public debt service. In other words, to prevent inflation from debt monetization would bring on more immediate problems than inflation. Rather than collapse the system, wouldn’t the Fed be more likely to inflate away the massive debts?

Eventually, inflation would erode the dollar’s purchasing power and use as the reserve currency, and the US government’s credit worthiness would waste away.  However, the Fed, the politicians, and the financial gangsters would prefer a crisis later rather than sooner.  Passing the sinking ship on to the next watch is preferable to going down with the ship oneself. As long as interest rate swaps can be used to boost Treasury bond prices, and as long as naked shorts of bullion can be used to keep silver and gold from rising in price, the false image of the US as a safe haven for investors can be perpetuated.

However, the $230,000,000,000,000 in derivative bets by US banks might bring its own surprises. JPMorganChase has had to admit that its recently announced derivative loss of $2 billion is more than that.  How much more remains to be seen. According to the Comptroller of the Currency the five largest banks hold 95.7% of all derivatives. The five banks holding $226 trillion in derivative bets are highly leveraged gamblers.  For example, JPMorganChase has total assets of $1.8 trillion but holds $70 trillion in derivative bets, a ratio of $39 in derivative bets for every dollar of assets. Such a bank doesn’t have to lose very many bets before it is busted.

Assets, of course, are not risk-based capital. According to the Comptroller of the Currency report, as of December 31, 2011, JPMorganChase held $70.2 trillion in derivatives and only $136 billion in risk-based capital. In other words, the bank’s derivative bets are 516 times larger than the capital that covers the bets.

It is difficult to imagine a more reckless and unstable position for a bank to place itself in, but Goldman Sachs takes the cake. That bank’s $44 trillion in derivative bets is covered by only $19 billion in risk-based capital, resulting in bets 2,295 times larger than  the capital that covers them.

Bets on interest rates comprise 81% of all derivatives. These are the derivatives that support high US Treasury bond prices despite massive increases in US debt and its monetization.

US banks’ derivative bets of $230 trillion, concentrated in five banks, are 15.3 times larger than the US GDP.  A failed political system that allows unregulated banks to place uncovered bets 15 times larger than the US economy is a system that is headed for catastrophic failure.  As the word spreads of the fantastic lack of judgment in the American political and financial systems, the catastrophe in waiting will become a reality.

Everyone wants a solution, so I will provide one. The US government should simply cancel the $230 trillion in derivative bets, declaring them null and void.  As no real  assets are involved, merely gambling on notional values, the only major effect of closing out or netting all the swaps (mostly over-the-counter contracts between counter-parties) would be to take $230 trillion of leveraged risk out of the financial system.  The financial gangsters who want to continue enjoying betting gains while the public underwrites their losses would scream and yell about the sanctity of contracts. However, a government that can murder its own citizens or throw them into dungeons without due process can abolish all the contracts it wants in the name of national security.  And most certainly, unlike the war on terror, purging the financial system of the gambling derivatives would vastly improve national security.
—-

Dr. Roberts was Assistant Secretary of the US Treasury, Associate Editor of the Wall Street Journal, columnist for Business Week, and professor of economics.  His book, Economies In Collapse, is being published in Germany this month.

Disclaimer

<>

to see size of “derivative market”

enlarge image above by a mere click

<>

08/22/2011 05:27 PM

Out of Control

The Destructive Power of the Financial Markets

Speculators are betting against the euro, banks are taking incalculable risks and the markets are in turmoil. Three years after the Lehman Brothers bankruptcy, the financial industry has become a threat to the global economy again. Governments missed the chance to regulate the industry, and another crash is just a matter of time. By SPIEGEL Staff.

The enemy looks friendly and unpretentious. With his scuffed shoes and thinning gray hair, John Taylor resembles an elderly sociology professor. Books line the dark, floor-to-ceiling wooden shelves in his office in Manhattan, alongside a bust of Theodore Roosevelt and an antique telescope.

Taylor is the chairman and CEO of FX Concepts, a hedge fund that specializes in currency speculation. It’s the largest hedge fund of its kind worldwide, which is why Taylor is held partly responsible for the crash of the euro. Critics accuse Taylor and others like him of having exacerbated the government crisis in Greece and accelerated the collapse in Ireland.

People like Taylor are “like a pack of wolves” that seeks to tear entire countries to pieces, said Swedish Finance Minister Anders Borg. For that reason, they should be fought “without mercy,” French President Nicolas Sarkozy raged. Andrew Cuomo, the former attorney general and current governor of New York, once likened short-sellers to “looters after a hurricane.”

The German tabloid newspaper Bild sharply criticized Taylor on its website, writing: “This man is betting against the euro.” If that is what he is doing, he is certainly successful. While Greece is threatened with bankruptcy, Taylor is listed among the world’s 25 highest-paid hedge fund managers.

A well-read man, Taylor likes to philosophize about the Congress of Vienna and the Treaties of Rome. But is this man really out to speculate the euro to death? And does he have Greece on his conscience?

Taylor grimaces and sighs. He was expecting these questions. “The big problem is that in some cases these politicians are looking for the easy way out and want to blame somebody else and say speculators are taking Europe apart, taking the euro down and ruining the prosperity of our country,” he says, characterizing such charges against hedge fund managers as “nonsense.” “My capital isn’t the capital of the Rothschilds,” he says, insisting that he is working with the “capital of the people,” and that his goal is to protect and increase this capital. Taylor points out that no one from any of the German pension funds that invest their money with him has ever called him on the phone to tell him not to bet against the euro.

Markets Control Politicians

Taylor’s arguments echo those of everyone in the financial industry — the executives, the bankers and the big fund managers. They all insist that they are not responsible for the crisis in the euro zone and the turbulence in the financial markets, and that their actions are purely rational and in the interest of their investors.

The truth is that the financial markets are controlling the politicians. If Sarkozy interrupts his vacation, the markets interpret his sudden return as a sign that the situation there is worse than they thought — and promptly set their sights on the country. And if there is an argument between Italian Prime Minister Silvio Berlusconi and Finance Minister Giulio Tremonti, then the markets target Italy, because they doubt that the Italian government is serious about introducing austerity measures. The markets take advantage of every weakness and every rumor to speculate against one country after the next.

In doing so, they aggravate the crisis. Once a country has become the subject of rumors and speculation, other investors become nervous. Fearing further price declines, pension funds and insurance companies also start selling stocks and bonds. In the end, fear nurtures fear and a panic ensues.

Stock markets are currently in turmoil. Even the most experienced equity traders cannot remember a time when prices fluctuated as widely from day to day — and often even within a single day — as they have in recent weeks. The German stock index, the DAX, fell by 5.8 percent last Thursday and lost another 2.2 percent the next day.

There is no calm in sight for the global economy. Sharp declines on the stock market and crises have become an everyday reality. This raises the question of why the financial markets are so erratic. They have developed into a permanent threat to the global economy. But what can be done to avert this risk?

It cannot be a coincidence that the number and scope of disruptions have increased with the expansion of the financial industry. The Asian financial crisis in the 1990s was followed by the bursting of the Internet bubble at the turn of the millennium. When Lehman Brothers went bankrupt in 2008, the financial world suddenly found itself on the brink of collapse. Now that the euro is at risk, and millions of people are afraid of their currency collapsing. A number of countries, including the United States, are groaning under debt burdens that run into the trillions.

Incalculable Risk

Naturally the financial industry — all those who trade in securities, currencies, money and the products derived from them, known as derivatives — is not responsible for all the crises in the global economy. Politicians also share some of the blame, for having accumulated too much debt and given the banks too much leeway. But without the destructive power of the banks, hedge funds and other investment companies, the world would not be where it is today — at the edge of an abyss.

The financial industry grew rapidly, as did the sums of money with which its players speculated on the prices of stocks, commodities and government bonds. The products they developed to turn money into even more money became more and more complex. At the same time, the risks they were willing to accept became incalculable.

The sector’s high salaries tend to attract the best and brightest university graduates. The members of this youthful elite don’t devise new products that make people’s lives better, nor do they found new companies that further progress. Instead, these young financial wizards invest a great deal of money and effort to develop sophisticated financial products, the sole purpose of which is to generate more profit for both their employers and, ultimately, for themselves — sometimes at the expense of other market players or even their customers.

Many things that happen on Wall Street and in London’s financial district are “socially useless,” says Lord Adair Turner, chairman of Britain’s Financial Services Authority (FSA). The values that are created there are often not real or of any use to society, Turner adds. Paul Volcker, the former chairman of the US Federal Reserve, once remarked that the only truly useful financial innovation in the past 20 years is the cash machine.

Once upon a time, the sole purpose of banks was to supply the economy with money. They were service providers, sources of energy for the economy, so to speak, but nothing more. But now the financial industry has largely disconnected itself from the manufacturing economy, transforming its role from subservient to dominant in the process.

The potential upshot of this shift became evident less than three years ago. The banks had excessively foisted mortgages on Americans without paying much attention to their customers’ ability to repay these loans. They packaged the risks into new financial products and sold them on. But apparently very few people understood how these products actually worked. When the subprime bubble finally burst, it dragged down the entire financial industry with it. The major financial firms found themselves on the brink of bankruptcy and were forced to appeal to the government for help.

Lost Opportunity

The assistance was provided, but a historic opportunity was squandered in the process. None of the powerful banks was broken up, and only a few of the dangerous financial products were banned. With the central banks lending money at low rates, speculation could continue.

The financial industry recovered quickly as a result, and now it is just as powerful as it was before the crisis — and just as dangerous, for both the economy and society as a whole.

Even passionate advocates of the market economy are now questioning how an economic system that functioned so well for so long could spin dangerously out of control. In a hard-hitting opinion piece in the Daily Telegraph on July 30, British journalist Charles Moore sharply criticized the banks for keeping profits while passing on losses to taxpayers. “The banks only ‘come home’ when they have run out of our money,” he wrote. “Then our governments give them more.”

Moore asks himself whether the left, with its criticism of the capitalist system, might actually be right. The prominent German journalist Frank Schirrmacher, expounding on Moore’s commentary in the Sunday edition of the conservative Frankfurter Allgemeine Zeitung, wrote that a decade of economic policies based on loosely regulated financial markets is proving to be the “most successful” way to make the left-wing critique of free-market capitalism, which had fallen out of favor, popular again.

Western societies have seldom been more divided, and never have income disparities been as great as they are today. In no other industry can someone get rich as quickly as in the financial industry, where investment bankers divide up a large share of the profits among themselves and hedge-fund managers earn annual incomes in the millions — and sometimes even in the billions.

At the same time, the markets are constantly demanding higher returns. Those who do not meet their expectations are punished with declines in the price of their stock and higher borrowing costs. Companies, forced to adjust to these requirements, keep wages down and their workforces at a minimum.

These differences are especially glaring in London, Europe’s most important financial center. Bankers live in the lap of luxury in the city’s exclusive neighborhoods, while poor neighborhoods are home to people who have abandoned all hope. Many observers see this disparity and loss of hope as one of the causes of the recent unrest.

‘The Inability of Economists to Correctly Interpret the World’

And still, says Heiner Flassbeck, chief economist at the United Nations Conference on Trade and Development, “the time doesn’t seem ripe, and the crisis wasn’t severe enough, to grant — in defiance of the neoliberal zeitgeist — economic policy clear primacy over speculation-prone markets and to systematically restrict the financial industry to its function as a service provider to the real economy.”Flassbeck believes that the crises in the globalized economy have “a common root, namely the inability of economists to correctly interpret the world.” Because financial markets function in a completely different way from markets for goods, Flassbeck argues, they should never be left to their own devices.

Of all people, it was an academic specializing in literary studies who managed to most accurately analyze the insanity of the financial markets and the impotence of economists. With his short 2010 book “Das Gespenst des Kapitals” (“The Specter of Capital”), Joseph Vogl wrote a closet bestseller that, despite being a tough read, attracted attention far beyond the arts section of newspapers — including among economists.

His theory is that crises are not some kind of occupational hazard in the financial system. Instead, Vogl argues, it is the system itself that inevitably leads to new crises.

Vogl is sitting in his office at Berlin’s Humboldt University, where he has a view of the Berlin Cathedral. He is dressed completely in black and is chain-smoking. Black-and-white photos on the wall depict his role models from Paris in the late 1960s: the philosophers Jean-Paul Sartre, Simone de Beauvoir and, holding a megaphone, Michel Foucault.

Vogl was teaching at Princeton University when Lehman Brothers collapsed. He knew nothing about financial markets, and yet he was fascinated by the “confusing empiricism,” which had so little to do with theory.

According to economic theory, the invisible hand of the market always leads to equilibrium, as Adam Smith wrote in his classic 1776 work “The Wealth of Nations,” which Vogl refers to as the “Bible of economists.” The same theory is still taught in universities today.

Tendency Toward Excess

But the theory also tells us that today’s excesses in the financial markets should never have occurred. This leads Vogl to conjecture that “by no means does the capitalist economy behave the way it’s supposed to.”

While the theory tends to be based on the economics of a village market, completely different circumstances apply in the financial markets, where both goods and expectations are being traded, and where speculative transactions are used to hedge against other speculative transactions. Vogl describes the principle as follows: “Someone who doesn’t have a product, and neither expects to have it nor will have it, sells this product to someone who also neither expects nor wants to have it, and in reality does not receive it.”

This type of market will always have a tendency toward excess — in either direction.

Paul Woolley holds the same view, but from a different perspective. He is intimately familiar with the financial markets, after having made millions working in the London financial district. He spent four years with the deeply traditional Barings Bank, which was eventually destroyed by a minor English trader in Singapore. He later worked for the American fund manager GSO, which specializes in making very rich people even richer.

In Woolley’s experience, the idea that financial markets are efficient is erroneous. “All players in the financial markets behave rationally from their own perspective, but the outcome of this process can be disastrous for mankind,” he says.

Woolley, 71, still wears a pinstriped suit, tie and white shirt, but now he works in a small office stuffed to the gills with academic studies at the renowned London School of Economics. Woolley donated 4 million pounds (€3.5 million) to the elite university and funded its Paul Woolley Centre for the Study of Capital Market Dysfunctionality.

His goal is to prove how dangerous the financial markets are. “It’s like a tumor that keeps growing,” he says. According to Woolley, there is no justification for the fact that this industry brings in more than 40 percent of all US corporate profits and pays the highest salaries in good years, while in bad years it is bailed out by taxpayers.

‘Destroying Society’

In recent months, Woolley has spoken before the investment committee of the International Monetary Fund (IMF) and to major US fund managers at Harvard Law School. He is able to present his academic theories in the language of the market. And the turmoil on the markets is now so great that people are listening to this revolutionary in a pinstriped suit.

The former fund manager had his light-bulb moment when, in 2000, the dot-com bubble burst. Woolley had repeatedly told his clients, which included many of the world’s major asset managers, that small, money-losing tech stocks would not always be valued in the billions on the market.

But his warnings fell on deaf ears, and GMO’s clients withdrew 40 percent of their money when the company stopped investing in technology securities.

Woolley has observed the same phenomenon again and again. “The herd runs behind a trend until a crash occurs.” Society, he says, also pays a high price for this behavior. “The financial industry is doing a pretty good job of destroying society,” says Woolley. Many of his former colleagues, he adds, have a guilty conscience because “they can’t believe that the financial industry is still getting away with it.”

He feels that bankers have a strong incentive to design products to be as complex and non-transparent as possible. These products enable them to earn returns upwards of 25 percent, because customers simply do not understand the extent to which they are being had. Structured mortgage-backed securities, the risks of which even their creators no longer understood in the end, as well as credit default swaps, which allow investors to bet on the bankruptcies of entire countries, are only the best-known examples.

The more activity there is in the markets, the higher the fluctuations and the greater the potential profits. There is little that the traders at investment banks and hedge funds fear more than a boring market, one in which the economy is humming along nicely and the prices show little movement. The conditions that are reassuring to managers and employees in the real economy often lead to depression in the financial sector.

Two weeks ago, the share price of Société Générale, a major French bank, fell by 14 percent, after the British newspaper Daily Mail had reported the previous day on alleged problems at the bank. Even though the bank promptly denied the veracity of the report, the rumor had been set in motion. Apparently no one cared whether or not it was true. It was later rumored that journalists at the British paper had taken a piece of summer fiction printed in the French newspaper Le Monde, about a breakup of the euro zone and troubles at Société Générale in 2012, to be the truth — which the Daily Mail promptly denied.

Too Complex For Humans

This story seems almost antiquated, because share prices are usually set by computers nowadays. When Deutsche Börse decided to move from Frankfurt to the nearby town of Eschborn, the town saw a rapid increase in the demand for air-conditioned basement space, where so-called high-frequency traders, as well as banks, set up their state-of-the-art supercomputers. These computers are programmed to independently buy or sell stocks at intervals down to the millisecond, which enables them to react to the latest trends in the market.

Whoever has the fastest connection to the market stands the best chance of taking advantage of a critical millisecond and thus reacting to a price signal ahead of the competition. The computers are far more efficient than any human trader, because they can process hundreds of pieces of information per second. At the same time, such programs can also amplify — or even trigger — a crash.

On May 6, 2010, prices on Wall Street plunged by almost 10 percent within a few minutes. To this day, no one knows exactly what caused the so-called Flash Crash. Because this sort of thing happens with growing frequency, the US Securities and Exchange Commission (SEC) has imposed a waiting period on computers in emergency situations. If the price of a stock has dropped by 10 percent within five minutes, trading is temporarily halted, allowing the human players to consider whether there is in fact a real reason for the sharp decline.

Woolley believes that this regulation is insufficient. He is calling for a strict ban on high-frequency trading, which, in his view, has no social value whatsoever.

Computers have long set the tone in foreign currency trading. The currency markets are now too complex for humans to manage alone. We realized that you couldn’t really manage this with the human thought process, it was too difficult, there were too many variables,” says New York hedge fund manager Taylor. Many of his roughly 60 employees are IT experts, mathematicians and engineers. They feed massive volumes of data into the computers, including figures on the gross domestic product of countries, interest rates, commodities prices and inflation rates. “The only thing the computers can’t handle are political developments, that is why we have me as Chief Investment Officer,” says Taylor, although he points out that the money ultimately follows the instructions that are spat out by the computers.

But even Taylor isn’t entirely convinced of the myth of purely rational markets that obey nothing but the logic of numbers.

For example, says Taylor, he is “sure” that legendary speculator George Soros is “plotting against the euro.” Although Soros denied such accusations in an interview with SPIEGEL last week, he also said: “Financial markets have a very safe way of predicting the future. They cause it.”

The 81-year-old is one of the founders of the hedge fund industry. In the early 1990s, he suddenly became the quintessential unscrupulous speculator, one who takes advantage of even the tiniest weakness in the system without regard to the consequences. He borrowed 10 billion British pounds, then sold them on, triggering a wave of speculation that meant the Bank of England could no longer maintain the pound’s fixed exchange rates against the other currencies in the European Exchange Rate Mechanism (ERM). The pound had to be devalued and withdraw from the ERM. Soros was able to buy back the sum of money he had borrowed from the bank at a lower exchange rate. It was a bet that earned him more than $1 billion (€700 million).

Rushing Like Lemmings Toward the Abyss

Normally individual speculators like Soros and Taylor cannot move the market to such a significant degree on their own. But they can establish a trend that others then follow. Investors adhere to a herd mentality and, like lemmings, they are prepared to rush headlong toward an abyss, provided a few individuals are heading in that direction with sufficient determination.As a result of the crisis, some of these speculation funds have become even larger and more powerful, with a number of smaller competitors being forced out of the business. Customers tend to prefer investing their money with bigger players, believing this to be the safer choice.

For example, the hedge fund headed by John Paulson, currently the world’s most successful speculator, has grown to roughly $30 billion in assets in the last two years. This enables Paulson to place bets of ever-increasing size.

Paulson was largely unknown only a few years ago, until he bet a large sum of money on the collapse of the American mortgage market. Investment banks like Goldman Sachs created customized securities specially for Paulson that were based on subprime mortgages. They then sold the securities to investors who believed that their value was stable — and lost billions as a result. Paulson, on the other hand, profited. He earned close to $4 billion in 2007.

Hedge funds often work hand-in-hand with investment banks, and banks often behave like hedge funds. The boundaries between the two kinds of institutions are fluid. Some critics already see Deutsche Bank, for example, as an enormous hedge fund rather than a normal bank.

Deutsche Bank is the top global player in foreign currency trading, with a market share of 16 percent of the global trade in dollars, francs, yen and euros. This is a high-volume business that generates little in the way of profits. But the bank uses its knowledge of demand for the currencies to design complex and therefore lucrative hedging strategies for its customers, which also usually puts Deutsche Bank on the winning side of the equation.

Italy Investigates Deutsche Bank

Between April and June, Deutsche Bank’s investment banking profits declined by half, probably because it was simply too quiet in the market. During this time, Deutsche Bank reduced its holdings of government bonds from the ailing euro-zone countries of Portugal, Italy, Ireland, Greece and Spain by 70 percent.

Because the bank is also the global leader in bond trading, its risk managers apparently heard the right signals. At the beginning of the year, Deutsche Bank still had €8 billion invested in Italian government bonds. Six months later — shortly before the crisis intensified dramatically — it only had €1 billion worth of Italian bonds.

Italian politicians apparently did not see this as a coincidence, and the country’s financial regulator CONSOB is now investigating the matter. Deutsche Bank also managed to get out of Greek government bonds before the crash in that country.

Now the bank is helping the Greeks restructure their government debt, in what is the ultimate capitulation of the state in the face of powerful investment banks. The traders at Deutsche Bank are apparently more clued into who holds Greece’s government bonds than the Greeks themselves.

Investment banker Anshu Jain, the designated co-CEO of Deutsche Bank, is proud of the fact that he and his traders were responsible for 70 percent of the bank’s total profits in good years, and he remains optimistic for the future. As a consequence of the crisis, the bank is now required to maintain a larger capital reserve for its investment banking division. Nevertheless, Jain said at an analysts’ conference that he expects regulation will lead to a substantial concentration in the business.

In the US at least, regulators have more or less prohibited banks from speculating on a large scale for their own accounts since the financial crisis. This so-called proprietary trading was potentially the biggest profit maker for banks, but it also came with the greatest amount of risk.

Nevertheless, the business continues to thrive. The proprietary traders became free agents, sometimes with the banks’ investment capital. Now they work as hedge fund managers and, as a result, can now evade all supervision.

Investment banks discovered the commodities markets some time ago, hiring traders to specifically focus on the once mundane business of trading in copper, wheat or pork bellies. Deutsche Bank expects a return on equity of 40 percent, which is higher than in any of its other divisions, for its growing trade in such products.

Woolley, the former asset manager, is calling for a ban on such transactions. He argues that the financial markets are destroying the relationship between supply and demand, giving producers the wrong price signals and potentially triggering famines.

‘Market of All Markets’

Speculation has always existed in economic history, but never to such an extent as today.

The deregulation of the markets and the rise of the financial industry began with the end of Bretton Woods. In 1944, a new system of fixed exchange rates was established at an international conference in the New Hampshire resort town, with the US government agreeing to exchange dollars for gold at any time.

Some 40 years ago, on Aug. 15, 1971, then US President Richard Nixon ended the Bretton Woods monetary system. He needed more money that he could cover with gold to finance the Vietnam War. The global economy lost its anchor as a result.

In 1972, foreign currency futures were established on the Chicago Board Options Exchange, making it possible for the first time to hedge against the risks associated with foreign currency transactions. This innovation paved the way for all manner of speculation. The financial market, as Berlin-based author Joseph Vogl writes, became “the market of all markets.”

There were still many hurdles to be overcome, including legal regulations that prevented the market from unleashing its unrestrained forces. With generous donations to politicians and parties, as well as active lobbying by Wall Street executives, the financial industry was able to make its voice heard in Washington.

Over time, the industry was able to rid itself of overly obstructive regulations. In fact, financial supervision was virtually eliminated. Politicians failed to control precisely that sector that is capable of unleashing more destructive force than almost any other industry.

The kiss of death came in 1999, under then President Bill Clinton, when the Glass-Steagall Act was repealed. The law dictated a strict separation between commercial and investment banks. Eliminating this separation removed a major barrier and enabled institutions like Citigroup and Bank of America to grow into financial giants. Indeed, many banks became so large and powerful that they are now — to use the famous phrase — too big to fail, meaning that in a crisis they have to be bailed out to prevent their collapse. Many small banks and brokerage firms were swallowed up in the process. From then on, the biggest players set the tone.

Wall Street to Washington

The investment banks made a brilliant move in 2004. The European Union had threatened to limit the foreign transactions of major US investment banks if the United States did not tighten its own regulations. This prompted five investment bankers to travel to Washington to exert their influence on the SEC. They proposed that the SEC be given the power to take a closer look at their high-risk positions in the future, but only if, in return, the banks would be required to keep less of their own capital in reserve to offset the risks of their transactions. From then on, the banks were able to expand their business unchecked. The second part of the deal — the SEC’s supervision — was pursued far less energetically.

The financial industry had managed to create a belief system which held that what’s good for Wall Street is good for society as a whole. As a result, the sector’s influence on the US economy continued to grow. Between 1973 and 1985, before deregulation began, profits in the US financial sector made up no more than 16 percent of the total profits of all US companies. This industry’s share of total profits increased to 30 percent in the 1990s, and in the last decade it even reached 41 percent.

It was no surprise that the myth of efficient financial markets was accepted so uncritically in Washington, given the large number of political players who went there directly from Wall Street. One was the former Goldman Sachs CEO Henry Paulson, who became treasury secretary under then President George W. Bush in 2006. In 2008, he was called upon to manage the financial crisis, which he had played a hand in triggering in the first place. Simon Johnson, the former chief economist at the IMF, characterizes the direct involvement of financial players in the inner workings of the government as a “quiet coup.” The Nobel Prize-winning economist Joseph Stiglitz is also critical of the revolving door between Washington and Wall Street, saying that it leads to a shared worldview that, even despite the crisis, hinders effective reform of the financial system.

Such an amalgamation of players is unthinkable in Germany, and yet even there was growing confidence in the power of free financial markets to increase prosperity. In 2004, the Social Democratic Party (SPD) and Green Party coalition government under then Chancellor Gerhard Schröder opened the German market to hedge funds and the expanded trade in speculative derivatives. Jörg Asmussen, who would later become a state secretary in the Finance Ministry, personally lobbied to permit trading in credit derivatives in Germany — the very securities that ultimately triggered the crisis.

Then came the crash. Since then, the government has tried to rein in the forces it was partially responsible for unleashing. Asmussen was a member of a group of experts tasked to draft proposals for new regulations.

German Chancellor Angela Merkel knows that there is more at stake than the stability of the economy and overcoming a temporary weakness. “This type of crisis cannot be allowed to repeat itself in the foreseeable future,” Merkel said, “otherwise it will be extremely difficult to guarantee political stability, and not only in Germany.” This, she added, is the real challenge, “that anyone who wants to do business in a stable country must be aware of.”

Following the near-collapse of the markets, then-German President Horst Köhler characterized the financial markets as a “monster.” And there were plenty of good intentions when it came to taming this monster. “History cannot be allowed to repeat itself,” US President Barack Obama promised after the Lehman bankruptcy, while French President Sarkozy spoke of a historic opportunity to create a new world.

Nothing More than Piecemeal Regulations

In fact, the United States and Europe did attempt to constrain the monster that was the financial market. Governments can hardly be accused of not having made a serious effort in this direction, but the project they face is exceedingly difficult.Solo efforts by individual countries are pointless, because the industry is globally interconnected. On the other hand, internationally coordinated solutions are difficult. As a result, the regulations remain nothing more than piecemeal.

For the financial industry, new regulations are often little more than a sportsmanlike challenge to search for new tricks with which to circumvent the rules. In their conflict with politicians and regulatory agencies, banks and hedge funds have a clear competitive advantage: They hire the brightest minds in the financial world and pay them millions. The public-sector regulators can hardly compete.

Not surprisingly, politicians haven’t done much more than push around a lot of paper until now. The law with which President Obama intends to regulate the financial markets encompasses more than 800 pages. But the US government is only at the beginning of a long process, in which concrete regulations will be derived from the provisions of the new law. Both the Republicans and the banks’ lobbyists can exert their influence on this process to make sure that many of the new regulations are watered down.

For instance, the law was intended to completely prohibit banks from engaging in proprietary trading, with which they speculate in the foreign currency, stock and commodities markets. But the legislation contains so many exceptions that business will continue to flourish, in some cases by simply outsourcing trading activities.

The United States also wants to force hedge funds to disclose more information about their business. But even though the law doesn’t go into effect until next March, speculator Soros is already demonstrating how it can be circumvented. After buying out the outside investors in his hedge fund, he now intends to conduct business in the future as a so-called family-owned company. Funds that manage the assets of a family are not subject to the new disclosure rules.

In Europe, the European Commission has developed a draft of new capital market rules, which includes 165 pages of guidelines and another 500 pages of regulations. Under the proposed rules, banks would be required to keep more capital resources in reserve to protect against risk, and they would only be allowed to borrow up to a certain ratio.

These proposals make sense, but the financial industry is already two steps ahead. It has created a world in which the usual rules for exchanges and banks do not apply: the realm of the “shadow banks.”

For bankers, this is by no means a world of illegal or semi-legal institutions, despite what the term implies. Hedge funds and private equity firms are known as shadow banks. In the United States, shadow banks have already incurred debts of more than $16 trillion, as compared with $13 trillion among commercial banks.

Regulating ‘Shadow Banks’ Unlikely

This poses a huge risk for the financial market. Jochen Sanio, head of Germany’s banking regulatory agency, believes it is highly likely that the next crisis will emanate from this largely unregulated realm of hedge funds and other financial players. Jens Weidmann, the president of the German central bank, the Bundesbank, also cautions against the dangers of shadow banks. But why are they not subject to the same rules as commercial banks?

In this case, national egos are what stand in the way of comprehensive financial market reform. Britain, in particular, isn’t keen on keeping too close an eye on hedge funds, because the financial industry is one of the few remaining sectors in which the British are still competitive worldwide.

An effective financial market reform would have to treat shadow banks the same way all other banks are treated. This would mean completely banning so-called short selling, which is essentially betting on falling prices. It would also have to improve licensing requirements on new financial instruments and ban some that already exist, because they are designed solely for speculative purposes. It would also involve establishing a number of other rules that would make doing business significantly more difficult for banks, hedge funds and private equity firms.

All of these measures would rein in the financial market and put its importance for the economy into perspective. Banks would have to concentrate once again on the role they played prior to the great deregulation of the financial market, namely to organize payment transactions, manage the investments of private customers and companies and finance their business deals with loans.

But that seems unlikely. There are too many contradictions and conflicts of interest between the countries involved and governments to allow such a massive change to occur. But the monster cannot be tamed with half-hearted reforms, which is why people who have been involved in the financial world for decades assume that it will strike again soon.

When asked whether it is possible to make future crises unlikely, Hilmar Kopper, the former CEO of Deutsche Bank and current chairman of the supervisory board of HSH Nordbank, replies with a simple “no.” According to Kopper, more huge financial bubbles could happen in the future.

“I’m frustrated,” says Kopper. “I don’t know how a government is supposed to regulate this.”

DIETMAR HAWRANEK, ARMIN MAHLER, CHRISTOPH PAULY, MICHAELA SCHIESSL AND THOMAS SCHULZ

Translated from the German by Christopher Sultan

Related SPIEGEL ONLINE links:

© SPIEGEL ONLINE 2011
All Rights Reserved
Reproduction only allowed with the permission of SPIEGELnet GmbH

Find out how you can reprint this DER SPIEGEL article in your publication.

Related Topics
DER SPIEGEL

Graphic: Size of the financial industry

<>

Related Topics
Zoom

DER SPIEGEL

<>

Graphic: The US financial industry

<>

<>
Graphic: Size of the financial industry

<>

<>

<>

As we celebrate year three of the Great Financial Crisis with the first official bailout of an entire country (Greece), I’m still astounded by the complete and utter lack of coverage the underlying cause of this Crisis has received.

Tens of thousands, if not hundreds of thousands of articles and research reports have been written about the Crisis, and yet I would wager less than 1% of them actually bother talking about what caused it, let alone how the various efforts to stop it have in fact FAILED to address this key issue.

Remember back in 2007? At that time we were told it was all about Subprime mortgages. Then in 2008, we were told it was the investment banks, specifically Lehman Brothers’ (LEHMQ.PK) failure and AIG’s credit default swaps. In 2009, we were told it was poor accounting standards and bad bets made by Wall Street. And here we are in 2010, and we’re still being told it was simply bad bets made by Wall Street.

All of these answers are partially right, but none of them are totally 100% accurate. Why? Because they fail to address the one underlying issue that links ALL of these items. I’m talking about the Black Hole of Finance: a bottomless pit that no official or regulator bothers mentioning in public because acknowledging it would mean acknowledging that all of the efforts to stop the Crisis are truly paltry.

What caused the Crisis?

Derivatives.

You’ve probably heard this term before, or have some vague understanding of what the term means. But the actual reality of derivatives and what they represent for the financial markets remains a topic no one in the mainstream media (or the regulators for that matter) wants to touch.

Why?

Let’s do some quick math.

If you add up the value of every stock on the planet, the entire market capitalization would be about $36 trillion. If you do the same process for bonds, you’d get a market capitalization of roughly $72 trillion.

The notional value of the derivative market is roughly $1.4 QUADRILLION.

I realize that number sounds like something out of Looney tunes, so I’ll try to put it into perspective.

$1.4 Quadrillion is roughly:

-40 TIMES THE WORLD’S STOCK MARKET.

-10 TIMES the value of EVERY STOCK & EVERY BOND ON THE PLANET.

-23 TIMES WORLD GDP.

What’s a derivative?

As their name implies, derivatives are securities whose value is “derived” from an underlying asset (a mortgage, credit card debt, etc). A lot of smart people have tried to explain what these things are, but they usually miss the forest for the trees. A derivative is NOT an asset. It’s, in reality, nothing, just an imaginary security of no tangible value that banks/ financial institutions trade as a kind of “gentleman’s bet” on the value of future risk or securities.

Let me give you an example. Let’s say you and I want to bet on whether our neighbor Joe will default on his mortgage. Is the bet an asset? Does it have any real value? Both counts register a definite “no.”

That’s the rough equivalent of a derivative. There are dozens of different types of these things based on just about everything under the sun. Some derivatives are actually derived off the value of other derivatives, a fact that makes my head hurt every time I think about it.

The other thing you need to know about derivatives is that they are totally unregulated. There is no derivative clearing house. No official report explains the risk or actual value of these things (the notional value of the derivatives market is not the same thing as the actual “at risk” money underlying these securities: I’ll detail all of this in tomorrow’s essay).

Regardless, to claim that these things have any real tangible value or perform any kind of wealth generation (for anyone other than Wall Street) is pure fiction (perpetuated by another fiction: that Wall Street is able to value these things or price them accurately). But thanks to Wall Street’s lobbying power, they’ve become the centerpiece of the financial markets.

If these numbers scare you, you’re not alone. As early as 1998, soon to be chairperson of the Commodity Futures Trading Commission (CFTC), Brooksley Born, approached Alan Greenspan, Bob Rubin, and Larry Summers (the three heads of economic policy) about derivatives. She said she thought derivatives should be reined in and regulated because they were getting too out of control. The response from Greenspan and company was that if she pushed for regulation, the market would implode.

Remember, this was back in 1998: a full DECADE before the Crisis hit. And already, the guys in charge of the markets knew that derivatives were such a big problem that trying to regulate them or increase their transparency would destroy the market. If you think I’m exaggerating, you can read the actual Washington Post story here.

So why are these items so accepted? Well, for one thing Wall Street makes roughly $35 billion+ per year from trading them, so it has a powerful incentive to keep them untouched.

Also, it’s kind of difficult for Ben Bernanke and the world’s central bankers to claim they saved the financial world from destruction when you realize that even the most liberal estimate of the bailout costs ($24 trillion) is equal to less than 2% of the notional value of the derivatives market.

Indeed, even saying the number ($1+ QUADRILLION) sounds ridiculous. Every time I’ve mentioned it at a dinner party I get nothing but blank stares or snickers. Can you imagine if someone in a position of power actually bothered explaining this on TV? The entire financial media would respond with, “well, that’s great, now we…. wait a minute… what did you just say?”

And yet, you simply cannot discuss the Financial Crisis without mentioning derivatives. What do you think subprime mortgage backed securities were? Derivatives. What about Credit Default Swaps? Yep, derivatives again. Heck, even the Greece crisis involved that country using derivatives to hide its true liabilities in order to join the European Union.

In plain terms, derivatives are THE cause of the Financial Crisis. They are behind EVERY failure/ default that has occurred thus far. The fact that virtually no one is willing to address this issue or include it in the discussion of how to insure we don’t have a Second Round of the Crisis only confirms the fact that no one has a clue how to resolve this situation.

In tomorrow’s essay I’ll explain the difference between “notional value” of derivatives and real “at risk” money. I’ll also be talking about which banks have the greatest derivative exposure (hint: the ones who received the bulk of the bailouts), as well as how to prepare for the inevitable next wave of the Derivative Crisis. In the meantime, add the terms “Quadrillion” and “Derivative” to every discussion of the Crisis you hear. If you hear some pundit discussion this stuff on the radio or TV, phone in and ask him or her about Derivatives. You’ll likely get a blank stare and silence, but that’s better than the mindless chatter about how everything’s fixed that is currently saturating the air waves.

This article was sent to 127,017 people who get the Macro View newsletter. Get the Macro View newsletter »

<>

<>

The Bankers Rule The World

“Financial terrorists have exploited chaos they created to seize complete control.”

Speculation that Canadian Central Bank head Mark Carney has been tapped to become the next Governor of the Bank of England brings with it the possibility of virtually complete domination of Europe by Goldman Sachs – the very same financial terrorists who helped cause the economic collapse in the first place.

“Mark Carney, the governor of Canada’s central bank, has been informally approached as a potential candidate to replace Sir Mervyn King as head of the Bank of England in June next year,” reports the Financial Times.

“One of the world’s most respected central bankers, Mr Carney, 47, now heads the Financial

Stability Board, which oversees global financial regulation. He was approached recently by a member of the BoE’s court, the largely non-executive body that oversees its activities, according to three people involved in the process.”
Carney is also a 13-year Goldman Sachs veteran and was involved in the 1998 Russian financial crisis which was exacerbated by Goldman advising Russia while simultaneously betting against the country’s ability to pay its debt.

Although the appointment would see the highly unusual precedent of a foreigner heading up the 318-year-old central bank, according to one observer, “As a Canadian national he is a subject of the Queen…That is important.”

Carney’s possible ascension to become the next BoE head, although denied by the Bank of Canada, would be the cherry on the cake for Goldman Sachs’ financial overthrow of Europe in their bid to exploit the financial crisis to centralize power into an EU superstate.

Last year, former EU Commissioner Mario Monti was picked to replace Silvio Berlusconi, the democratically elected Prime Minister of Italy. Monti is an international advisor for Goldman Sachs, the European Chairman of David Rockefeller’s Trilateral Commission and also a leading member of the Bilderberg Group.

“This is the band of criminals who brought us this financial disaster. It is like asking arsonists to put out the fire,” commented Alessandro Sallusti, editor of Il Giornale.

Similarly, when Greek Prime Minister George Papandreou dared to suggest the people of Greece be allowed to have their say in a referendum, within days he was dispatched and replaced with Lucas Papademos, former vice-President of the ECB, visiting Harvard Professor and ex-senior economist at the Boston Federal Reserve.

Papademos ran Greece’s central bank while it oversaw derivatives deals with Goldman Sachs that enabled Greece to hide the true size of its massive debt, leading to Europe’s debt crisis.

Papademos and Monti were installed as unelected leaders for the precise reason that they “aren’t directly accountable to the public,” noted Time Magazine’s Stephen Faris, once again illustrating the fundamentally dictatorial and undemocratic foundation of the entire European Union.

Shortly afterwards,Mario Draghi – former Vice Chairman of Goldman Sachs International – was installed as President of the European Central Bank.

The U.S. Treasury Secretary at the beginning of the 2008 financial collapse was Hank Paulson, former CEO of Goldman Sachs. When Paulson was replaced with Tim Geither, Goldman Sachs lobbyist Mark Patterson was hired as his chief advisor. Current Goldman Sachs CEO Lloyd Blankfein has visited the White House 10 times. Goldman Sachs spent the most money helping Barack Obama get elected in 2008.

As the graphic below illustrates, the economies of France, Ireland, Germany and Belgium are also all now controlled by individuals with a direct relationship with Goldman Sachs.

Dominion over virtually all of Europe’s major economies, as well as the United States, by one international banking giant, notorious for its role in corruption and insider trading, is now almost complete.

Goldman Sachs rules the world.

*********************

Paul Joseph Watson
Infowars.com
Wednesday, April 18, 2012
Paul Joseph Watson is the editor and writer for Prison Planet.com. He is the author of Order Out Of Chaos. Watson is also a regular fill-in host for The Alex Jones Show and Infowars Nightly News.

Similar/Related Articles
  1. Banker Coup: Goldman Sachs Takes Over Europe
  2. Bankers Have Seized Europe: Goldman Sachs Has Taken Over
  3. Goldman Sachs Rules The World: Nightly News Report
  4. Goldman Sachs Rules The World with Trader, Alessio Rastani
  5. Financial Crisis Commission Threatens To Audit Goldman Sachs
  6. Goldman Sachs misled Congress after duping clients, Senate panel chairman says
  7. What is good for Goldman Sachs is bad for the world
  8. The Complete And Annotated Guide To The European Bank Run (Or The Final Phase Of Goldman’s World Domination Plan)
  9. Goldman Sachs and Occupy Wall Street’s Bank: A Greg Palast Investigation (Video)
  10. A slap on the wrist for Goldman Sachs
  11. Hank Paulson Held A Secret Meeting With Goldman Sachs In Moscow
  12. Bank giant Goldman rewards staff with €11.4bn

Share

<>

Home |Physics & Math |Science in Society | News

Revealed – the capitalist network that runs the world

AS PROTESTS against financial power sweep the world this week, science may have confirmed the protesters’ worst fears. An analysis of the relationships between 43,000 transnational corporations has identified a relatively small group of companies, mainly banks, with disproportionate power over the global economy.

The study’s assumptions have attracted some criticism, but complex systems analysts contacted by New Scientist say it is a unique effort to untangle control in the global economy. Pushing the analysis further, they say, could help to identify ways of making global capitalism more stable.

The idea that a few bankers control a large chunk of the global economy might not seem like news to New York’s Occupy Wall Street movement and protesters elsewhere (see photo). But the study, by a trio of complex systems theorists at the Swiss Federal Institute of Technology in Zurich, is the first to go beyond ideology to empirically identify such a network of power. It combines the mathematics long used to model natural systems with comprehensive corporate data to map ownership among the world’s transnational corporations (TNCs).

“Reality is so complex, we must move away from dogma, whether it’s conspiracy theories or free-market,” says James Glattfelder. “Our analysis is reality-based.”

Previous studies have found that a few TNCs own large chunks of the world’s economy, but they included only a limited number of companies and omitted indirect ownerships, so could not say how this affected the global economy – whether it made it more or less stable, for instance.

The Zurich team can. From Orbis 2007, a database listing 37 million companies and investors worldwide, they pulled out all 43,060 TNCs and the share ownerships linking them. Then they constructed a model of which companies controlled others through shareholding networks, coupled with each company’s operating revenues, to map the structure of economic power.

The work, to be published in PLoS One, revealed a core of 1318 companies with interlocking ownerships (see image). Each of the 1318 had ties to two or more other companies, and on average they were connected to 20. What’s more, although they represented 20 per cent of global operating revenues, the 1318 appeared to collectively own through their shares the majority of the world’s large blue chip and manufacturing firms – the “real” economy – representing a further 60 per cent of global revenues.

When the team further untangled the web of ownership, it found much of it tracked back to a “super-entity” of 147 even more tightly knit companies – all of their ownership was held by other members of the super-entity – that controlled 40 per cent of the total wealth in the network. “In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network,” says Glattfelder. Most were financial institutions. The top 20 included Barclays Bank, JPMorgan Chase & Co, and The Goldman Sachs Group.

John Driffill of the University of London, a macroeconomics expert, says the value of the analysis is not just to see if a small number of people controls the global economy, but rather its insights into economic stability.

Concentration of power is not good or bad in itself, says the Zurich team, but the core’s tight interconnections could be. As the world learned in 2008, such networks are unstable. “If one [company] suffers distress,” says Glattfelder, “this propagates.”

“It’s disconcerting to see how connected things really are,” agrees George Sugihara of the Scripps Institution of Oceanography in La Jolla, California, a complex systems expert who has advised Deutsche Bank.

Yaneer Bar-Yam, head of the New England Complex Systems Institute (NECSI), warns that the analysis assumes ownership equates to control, which is not always true. Most company shares are held by fund managers who may or may not control what the companies they part-own actually do. The impact of this on the system’s behaviour, he says, requires more analysis.

Crucially, by identifying the architecture of global economic power, the analysis could help make it more stable. By finding the vulnerable aspects of the system, economists can suggest measures to prevent future collapses spreading through the entire economy. Glattfelder says we may need global anti-trust rules, which now exist only at national level, to limit over-connection among TNCs. Sugihara says the analysis suggests one possible solution: firms should be taxed for excess interconnectivity to discourage this risk.

One thing won’t chime with some of the protesters’ claims: the super-entity is unlikely to be the intentional result of a conspiracy to rule the world. “Such structures are common in nature,” says Sugihara.

Newcomers to any network connect preferentially to highly connected members. TNCs buy shares in each other for business reasons, not for world domination. If connectedness clusters, so does wealth, says Dan Braha of NECSI: in similar models, money flows towards the most highly connected members. The Zurich study, says Sugihara, “is strong evidence that simple rules governing TNCs give rise spontaneously to highly connected groups”. Or as Braha puts it: “The Occupy Wall Street claim that 1 per cent of people have most of the wealth reflects a logical phase of the self-organising economy.”

So, the super-entity may not result from conspiracy. The real question, says the Zurich team, is whether it can exert concerted political power. Driffill feels 147 is too many to sustain collusion. Braha suspects they will compete in the market but act together on common interests. Resisting changes to the network structure may be one such common interest.

When this article was first posted, the comment in the final sentence of the paragraph beginning “Crucially, by identifying the architecture of global economic power…” was misattributed.

The top 50 of the 147 superconnected companies

1. Barclays plc
2. Capital Group Companies Inc
3. FMR Corporation
4. AXA
5. State Street Corporation
6. JP Morgan Chase & Co
7. Legal & General Group plc
8. Vanguard Group Inc
9. UBS AG
10. Merrill Lynch & Co Inc
11. Wellington Management Co LLP
12. Deutsche Bank AG
13. Franklin Resources Inc
14. Credit Suisse Group
15. Walton Enterprises LLC
16. Bank of New York Mellon Corp
17. Natixis
18. Goldman Sachs Group Inc
19. T Rowe Price Group Inc
20. Legg Mason Inc
21. Morgan Stanley
22. Mitsubishi UFJ Financial Group Inc
23. Northern Trust Corporation
24. Société Générale
25. Bank of America Corporation
26. Lloyds TSB Group plc
27. Invesco plc
28. Allianz SE 29. TIAA
30. Old Mutual Public Limited Company
31. Aviva plc
32. Schroders plc
33. Dodge & Cox
34. Lehman Brothers Holdings Inc*
35. Sun Life Financial Inc
36. Standard Life plc
37. CNCE
38. Nomura Holdings Inc
39. The Depository Trust Company
40. Massachusetts Mutual Life Insurance
41. ING Groep NV
42. Brandes Investment Partners LP
43. Unicredito Italiano SPA
44. Deposit Insurance Corporation of Japan
45. Vereniging Aegon
46. BNP Paribas
47. Affiliated Managers Group Inc
48. Resona Holdings Inc
49. Capital Group International Inc
50. China Petrochemical Group Company

* Lehman still existed in the 2007 dataset used

Graphic: The 1318 transnational corporations that form the core of the economy

(Data: PLoS One)         

Issue 2835 of New Scientist magazine

  • New Scientist
  • Not just a website!
  • Subscribe to New Scientist and get:
  • New Scientist magazine delivered every week
  • Unlimited online access to articles from over 500 back issues
  • Subscribe

<>

just search

goldman sachs role in greece debt crisis

  1. Greek Debt Crisis: How Goldman Sachs Helped Greece to Mask its

    http://www.spiegel.de/…/greek-debt-crisis-how-goldman-sachs-helped-gree

    Feb 8, 2010 – Goldman Sachs helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal that legally circumvented

  2. Wall St. Helped Greece to Mask Debt Fueling Europe’s Crisis

    Feb 13, 2010 – Gary D. Cohn, president of Goldman Sachs, went to Athens to pitch complex financial derivatives played a role in the run-up of Greek debt.

  3. Greek debt crisis a Goldman Sachs economic coup? | Raw Replay

    http://www.rawstory.com/…/greek-debt-crisis-a-goldman-sachs-economic-c…

    Jul 28, 2011 – Journalist, entrepreneur and Russia Today opinion host Max Keiser traveled to Greece recently for a film project that looks at how the country

<>

<>

<><><><><><><><><><><><><><><><><><>

Thursday, June 7, 2012

Biodiversity loss and its impact on humanity

Another review paper on biodiversity in the latest Nature (to celebrate the coming Rio+20?).  In addition to review two decades of research on BEF, this paper also reviews the impacts of biodiversity loss on ecosystem services.

The paper summarized six consensus statements and four emerging trends on BEF research, all of which are fairly straight forward/established except the last one–”The ecological consequences of biodiversity loss can be predicted from evolutionary history.”  For me this is a very strong statement and I wasn’t aware of we have learned enough to predict. 

The authors are less confident with the linkage between biodiversity and ecosystem services in making their four statements after reviewing the top 100 papers for each ecosystem services (Table 1).

Statement one

There is now sufficient evidence that biodiversity per se either directly influences (experimental evidence) or is strongly correlated with (observational evidence) certain provisioning and regulating services.

Statement two

For many of the ecosystem services reviewed, the evidence for effects of biodiversity is mixed, and the contribution of biodiversity per se to the service is less well defined.

Statement three

For many services, there are insufficient data to evaluate the relationship between biodiversity and the service.

Statement four

For a small number of ecosystem services, current evidence for the impact of biodiversity runs counter to expectations.

Print

Paris, 7 June 2012

<>

The Four Horsemen Of The Apocalypse Are Saddling Up

June 7, 2012

Repost This

68
15
1

Image Credit: Photos.com

Michael Crumbliss

Twenty years ago scientists met at the Earth Summit in Rio to examine the climate and ecology of the Earth and man’s impacts. Two decades later 17 prominent ecologists have released a paper summarizing the evidence of the 1000’s of ecological studies undertaken in since 1992.

In short they decided that the evidence is overwhelming and consistent. The danger of a catastrophic ecological crash is looming and is far more immediate than previously believed. In some areas of the world collapses are already happening.

Coauthor Elizabeth Hadly from Stanford University said, “We may already be past these tipping points in particular regions of the world. I just returned from a trip to the high Himalayas in Nepal, where I witnessed families fighting each other with machetes for wood – wood that they would burn to cook their food in one evening. In places where governments are lacking basic infrastructure, people fend for themselves, and biodiversity suffers. We desperately need global leadership for planet Earth.”

Coming from Chile, Canada, Finland, the United Kingdom, Spain and the United States, the authors of this paper initially met at the University of California Berkeley in 2010 to hold a trans-disciplinary brainstorming session.

They reviewed scores of theoretical and conceptual bodies of work in various biological disciplines in search of new ways to cope with the historically unprecedented changes now occurring on Earth.

In the process they discovered that:

Human-generated pressures, known as global-scale forcing mechanisms, are modifying Earth’s atmosphere, oceans and climate so rapidly that they are likely forcing ecosystems and biodiversity to reach a critical threshold of existence in our lifetime.

Global-scale forcing mechanisms today “include unprecedented rates and magnitudes of human population growth with attendant resource consumption, habitat transformation and fragmentation, energy production and consumption, and climate change,” according to a statement by Simon Fraser University (SFU).

Human activity drives today’s global-scale forcing mechanisms more than ever before. As a result, the rate of climate change we are seeing now exceeds the rate that occurred during the extreme planetary state change that tipped Earth from being in a glacial to an interglacial state 12,000 years ago. You have to go back to the end of the cataclysmic falling star, which ended the age of dinosaurs, to find a previous precedent.

The exponentially increasing extinction of Earth’s current species, dominance of previously rare life forms and occurrence of extreme climate fluctuations parallel critical transitions that coincided with the last major planetary transition.

When these sorts of perturbations are mirrored in toy ecosystem models, they tip these systems quickly and irreversibly.

The authors recommend governments undertake five actions immediately if we are to have any hope of delaying or minimizing a planetary-state-shift. Arne Mooers, an SFU biodiversity professor and a co-author of this study, summarizes them as follows.

“Society globally has to collectively decide that we need to drastically lower our population very quickly. More of us need to move to optimal areas at higher density and let parts of the planet recover. Folks like us have to be forced to be materially poorer, at least in the short term. We also need to invest a lot more in creating technologies to produce and distribute food without eating up more land and wild species. It’s a very tall order.”

“Much as the consensus statements by doctors led to public warnings that tobacco use is harmful to your health, this is a consensus statement by experts who agree that loss of Earth’s wild species will be harmful to the world’s ecosystems and may harm society by reducing ecosystem services that are essential to human health and prosperity,” said Bradley Cardinale, an associate professor at the U-M School of Natural Resources and Environment and in the Department of Ecology and Evolutionary Biology.

“We need to take biodiversity loss far more seriously—from individuals to international governing bodies—and take greater action to prevent further losses of species,” said Cardinale.

The authors note that studies of small-scale ecosystems show that once 50-90 percent of an area has been altered, the entire ecosystem tips irreversibly into a state far different from the original, in terms of the mix of plant and animal species and their interactions. This situation typically is accompanied by species extinctions and a loss of biodiversity.

“No one can agree on what exactly will happen when an ecosystem loses a species, but most of us agree that it’s not going to be good. And we agree that if ecosystems lose most of their species, it will be a disaster,” said Shahid Naeem of Columbia University, one of the co-authors. “Twenty years and a thousand studies later, what the world thought was true in Rio in 1992 has finally been proven: Biodiversity underpins our ability to achieve sustainable development.”

Human actions are dismantling Earth’s natural ecosystems, resulting in species extinctions at rates several orders of magnitude faster than observed in the fossil record. Even so, there’s still time—if the nations of the world make biodiversity preservation an international priority—to conserve much of the remaining variety of life and to restore much of what’s been lost, according to Cardinale and his colleagues.

Source: Michael Crumbliss

Source: redOrbit (http://s.tt/1dAa4)

Scientists uncover evidence of impending tipping point for Earth

By Robert Sanders, Media Relations | June 6, 2012

BERKELEY —A prestigious group of scientists from around the world is warning that population growth, widespread destruction of natural ecosystems, and climate change may be driving Earth toward an irreversible change in the biosphere, a planet-wide tipping point that would have destructive consequences absent adequate preparation and mitigation.

UC Berkeley professor Tony Barnosky explains how an increasing human population, coupled with climate change, could irreversibly alter Earth’s ecosystem. (Video produced by Roxanne Makasdjian)

“It really will be a new world, biologically, at that point,” warns Anthony Barnosky, professor of integrative biology at the University of California, Berkeley, and lead author of a review paper appearing in the June 7 issue of the journal Nature. “The data suggests that there will be a reduction in biodiversity and severe impacts on much of what we depend on to sustain our quality of life, including, for example, fisheries, agriculture, forest products and clean water. This could happen within just a few generations.”

The Nature paper, in which the scientists compare the biological impact of past incidences of global change with processes under way today and assess evidence for what the future holds, appears in an issue devoted to the environment in advance of the June 20-22 United Nations Rio+20 Earth Summit in Rio de Janeiro, Brazil.

The result of such a major shift in the biosphere would be mixed, Barnosky noted, with some plant and animal species disappearing, new mixes of remaining species, and major disruptions in terms of which agricultural crops can grow where.

UC Berkeley begins work predicting looming global impacts

The paper by 22 internationally known scientists describes an urgent need for better predictive models that are based on a detailed understanding of how the biosphere reacted in the distant past to rapidly changing conditions, including climate and human population growth. In a related development, groundbreaking research to develop the reliable, detailed biological forecasts the paper is calling for is now underway at UC Berkeley. The endeavor, The Berkeley Initiative in Global Change Biology, or BiGCB, is a massive undertaking involving more than 100 UC Berkeley scientists from an extraordinary range of disciplines that already has received funding: a $2.5 million grant from the Gordon and Betty Moore Foundation and a $1.5 million grant from the Keck Foundation. The paper by Barnosky and others emerged from the first conference convened under the BiGCB’s auspices.

“One key goal of the BiGCB is to understand how plants and animals responded to major shifts in the atmosphere, oceans, and climate in the past, so that scientists can improve their forecasts and policy makers can take the steps necessary to either mitigate or adapt to changes that may be inevitable,” Barnosky said. “Better predictive models will lead to better decisions in terms of protecting the natural resources future generations will rely on for quality of life and prosperity.” Climate change could also lead to global political instability, according to a U.S. Department of Defense study referred to in the Nature paper.

Barnosky discusses the Berkeley Initiative in Global Change Biology, an effort to improve our understanding of the past impacts of climate change so as to improve our forecasts for the future. (Video produced by Roxanne Makasdjian)

“UC Berkeley is uniquely positioned to conduct this sort of complex, multi-disciplinary research,” said Graham Fleming, UC Berkeley’s vice chancellor for research. “Our world-class museums hold a treasure trove of biological specimens dating back many millennia that tell the story of how our planet has reacted to climate change in the past. That, combined with new technologies and data mining methods used by our distinguished faculty in a broad array of disciplines, will help us decipher the clues to the puzzle of how the biosphere will change as the result of the continued expansion of human activity on our planet.”

One BiGCB project launched last month, with UC Berkeley scientists drilling into Northern California’s Clear Lake, one of the oldest lakes in the world with sediments dating back more than 120,000 years, to determine how past changes in California’s climate impacted local plant and animal populations.

City of Berkeley Mayor Tom Bates, chair of the Bay Area Joint Policy Committee, said the BiGCB “is providing the type of research that policy makers urgently need as we work to reduce greenhouse gas emissions and prepare the Bay region to adapt to the inevitable impacts of climate change. To take meaningful actions to protect our region, we first need to understand the serious global and local changes that threaten our natural resources and biodiversity.”

“The Bay Area’s natural systems, which we often take for granted, are absolutely critical to the health and well-being of our people, our economy and the Bay Area’s quality of life,” added Bates.

How close is a global tipping point?

The authors of the Nature review – biologists, ecologists, complex-systems theoreticians, geologists and paleontologists from the United States, Canada, South America and Europe – argue that, although many warning signs are emerging, no one knows how close Earth is to a global tipping point, or if it is inevitable. The scientists urge focused research to identify early warning signs of a global transition and an acceleration of efforts to address the root causes.

Image courtesy of Cheng (Lily) Li.

“We really do have to be thinking about these global scale tipping points, because even the parts of Earth we are not messing with directly could be prone to some very major changes,” Barnosky said. “And the root cause, ultimately, is human population growth and how many resources each one of us uses.”

Co-author Elizabeth Hadly from Stanford University said “we may already be past these tipping points in particular regions of the world. I just returned from a trip to the high Himalayas in Nepal, where I witnessed families fighting each other with machetes for wood – wood that they would burn to cook their food in one evening. In places where governments are lacking basic infrastructure, people fend for themselves, and biodiversity suffers. We desperately need global leadership for planet Earth.”

The authors note that studies of small-scale ecosystems show that once 50-90 percent of an area has been altered, the entire ecosystem tips irreversibly into a state far different from the original, in terms of the mix of plant and animal species and their interactions. This situation typically is accompanied by species extinctions and a loss of biodiversity.

Currently, to support a population of 7 billion people, about 43 percent of Earth’s land surface has been converted to agricultural or urban use, with roads cutting through much of the remainder. The population is expected to rise to 9 billion by 2045; at that rate, current trends suggest that half Earth’s land surface will be disturbed by 2025. To Barnosky, this is disturbingly close to a global tipping point.

“Can it really happen? Looking into the past tells us unequivocally that, yes, it can really happen. It has happened. The last glacial/interglacial transition 11,700 years ago was an example of that,” he said, noting that animal diversity still has not recovered from extinctions during that time. “I think that if we want to avoid the most unpleasant surprises, we want to stay away from that 50 percent mark.”

Global change biology

The paper emerged from a conference held at UC Berkeley in 2010 to discuss the idea of a global tipping point, and how to recognize and avoid it.

Following that meeting, 22 of the attendees summarized available evidence of past global state-shifts, the current state of threats to the global environment, and what happened after past tipping points.

They concluded that there is an urgent need for global cooperation to reduce world population growth and per-capita resource use, replace fossil fuels with sustainable sources, develop more efficient food production and distribution without taking over more land, and better manage the land and ocean areas not already dominated by humans as reservoirs of biodiversity and ecosystem services.

“Ideally, we want to be able to predict what could be detrimental biological change in time to steer the boat to where we don’t get to those points,” Barnosky said. “My underlying philosophy is that we want to keep Earth, our life support system, at least as healthy as it is today, in terms of supporting humanity, and forecast when we are going in directions that would reduce our quality of life so that we can avoid that.”

“My view is that humanity is at a crossroads now, where we have to make an active choice,” Barnosky said. “One choice is to acknowledge these issues and potential consequences and try to guide the future (in a way we want to). The other choice is just to throw up our hands and say, ‘Let’s just go on as usual and see what happens.’ My guess is, if we take that latter choice, yes, humanity is going to survive, but we are going to see some effects that will seriously degrade the quality of life for our children and grandchildren.”

The work was supported by UC Berkeley’s Office of the Vice Chancellor for Research.

Related information:

<>

more under development and editing, iA inashallah

<>

And See

A news report by Bloomberg Markets Magazine details trillions of dollars in secret federal loans made to the big banks during the 2008 financial crisis, a process that helped them rake in billions of dollars in undisclosed profits. Here, some key numbers that illuminate the Federal Reserve’s “breathtaking”$7.7 trillion bank bailout:

http://theweek.com/article/index/221883/the-federal-reserves-breathtaking-77-trillion-bank-bailout

Destructive Power of the Financial Markets

http://www.spiegel.de/international/business/0,1518,781590,00.html

The Dumbest Idea In The World Maximizing Shareholder Value

http://www.forbes.com/sites/stevedenning/2011/11/28/maximizing-shareholder-value-the-dumbest-idea-in-the-world/

And

Hedge Hogs; Gold Man’s Sacks; “financial terrorist attacks;” and the Obama sellout:

http://abusalmandeyauddeeneberle.wordpress.com/hedge-hogs-gold-man%E2%80%99s-sacks-%E2%80%9Cfinancial-terrorist-attacks%E2%80%9D-and-the-obama-sellout/

SUPER COMMITTEE BIG BANK ROBBERY and “this sucker” going down

http://abusalmandeyauddeeneberle.wordpress.com/super-committee-big-bank-robbery-and-this-sucker-going-down/

Terrorism by Economic Collapse, debt bondage, money as debt on interest, etc

http://terrorismbreedsterrorism.wordpress.com/terrorism-topics/terrorism-by-economic-collapse/

Derivatives ‘Mother of All Bubbles’ exploding

http://inlightofrecentevents.wordpress.com/2011/10/14/derivatives-%E2%80%98mother-of-all-bubbles%E2%80%99-exploding/

Super rich 1% vs 99 %; Terrorism Cycle: Guillotines: Occupy “ALL” streets 

http://inlightofrecentevents.wordpress.com/derivatives-%E2%80%98mother-of-all-bubbles%E2%80%99-exploding/

 

<>

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s