What is Happening in America?

Are we headed back to the Middle Ages?

 

Sourcebook on 9/11 and its Aftermath

 

The Big Picture

 

27 Nov. 2007

 

 

 

 

Table of Contents

 

The Bigger Picture Behind 9/11. 2

Domination and Oil 2

Plans for War with Iran. 14

The Pre-Planned War in Afghanistan. 15

The Pre-Planned War with Iraq. 15

New Doctrine of Pre-emptive Strikes 17

“The Redirection”. 17

The Bush Administration Orchestrating a War with Iran. 20

Iran Operational Plan - TIRANNT (Theater Iran Near Term) and Conplan 8022  21

Planned Aerial Attacks on Iran. 27

Iran Operational Plan – Civilian Targets 34

Iran Operational Plan - Naval Deployment 34

Manipulation of Iraq War Casualty Lists 35

Cheney Defends Iraq Invasion. 35

Threats of War against Pakistan. 35

American Violations of Human Rights 36

Muslim Reaction. 36

Dollar and Power Hegemony. 38

Financial Meltdown and the End of Dollar Hegemony. 38

Opposing View: “Liquidity Event” “Market Adjustment”. 104

Opposing View to “Planeload of Cash”. 108

Tax Cuts for the Rich. 110

Life under Necon Rule So Far 111

American “Operations” against Other Economies 124

 

 

The Bigger Picture Behind 9/11

 

Domination and Oil

 

I think a lot of time what we’ve done as a movement is we talk about September 11th, what happened? Well, there was a controlled demolition. People talk about the Pentagon. People talk about the hijackers training at U.S. Air Force bases. People talk about the insider stock trades. People talk about the thousands of different points that, when we look at it suggests, not only that what the government is telling us is a complete lie, but that what actually appears to be happening is a pattern, a pattern of terrorism created by government agencies, to mind control you, to really mind control the world, to make you think that there is a threat, a threat of the other, and that if we don’t fight this threat, if we don’t invade, if we don’t create a police state, if we don’t take over the world’s oil, we will all perish. So I think we’ve done a good job of fleshing out the research points of how 9/11 happened, but I think we need to look a little bit more into why it happened and where do we go from here. …

 

Cheney and his faction are talking about nuclear war against Iran.  Why are they doing that?  What would cause these men, who basically have the golden goose right now … if the elite really had it like this, if there really is a Bilderberg Group, if there really is a CFR, if they have really have complete command and control over the system, why blow it up?  Why kill the golden goose?  If they have it on lockdown right now, what would compel these men  to risk basically nuclear annihilation?

 

And that’s why I am saying, false-flag terrorism, my thesis is that it emerges out of desperation.  This is not a show of strength, this is a show of a U.S. empire on the brink of collapse, a U.S. economy that is collapsing and the twilight of U.S. hegemony, the twilight of British hegemony, the breakdown of the Anglo-American finance system that has run the world for hundreds of years. The Federal Reserve is in big trouble. The Bank of England is in big trouble. The derivatives are in big trouble. And our military is in enormous trouble. So I’m going to hope to flesh these topics out today.

 

Now the big question is not how does false-flag terrorism happen. We’ve done a great job with that. I’m not saying stop the research. I’m saying why does it happen? Well, in the specific case of 9/11, here are just some of the reasons I am going to flesh out today.  I believe there is a stalled agenda. They have not done very well with the Free Trade of the Americas Agreement. They’re not doing a tremendous job in implementing CAFTA [Central American Free Trade Agreement].  They wanted to have the New World Order, the global government, by the year 2000. They are behind schedule. There’s an economic crisis right now where the dollar is in collapse so bad that the government is trying to prop it up. And of course we’re seeing NATO weakness with the emergence of Russia and China as dominant players on the world scene, the world’s energy scene, the world’s currency scene, and certainly the military and space weaponry scene. …

 

They wanted the Middle Eastern and Central Asian hydrocarbons; that means,  liquified natural gas and oil. It’s true this is a war for oil.  … This is also a war for Israel. And it is not anti-Semitic to talk about this. And we better start standing up to the intimidation of groups like the ADL that make us say when we talk about the fact that Israel is directing large parts of American foreign policy, that that is somehow anti-Semitic; that it’s anti-Jewish to talk about it.  That is a lie. And that is a manipulation technique to not talk about who is really influencing our policy which is a lot of members of the Likkud Party in Israel.

 

It’s also a breakdown of the Federal Reserve and the debt-industrial complex that ties into the dollar breakdown and the death of the petrodollar….

 

They’re trying to push a North American union, calling it the Security and Prosperity Agreement. It’s going to make you secure, free, and prosperous.  And they use this Orwellian language to push basically the dissolution of the United States, the breakdown of our borders, drugs moving through, human traffic moving through, guns moving through. And look I’m a second [memory?] person but I think that we don’t want the possibility of a real nuclear weapon moving in. What if there is a real organic terrorist group? You know, not having border security just means that there’s going to be more drug flow and more human trafficking.  Some of that goes into the sex slavery of Dyncorp, which I’m going to talk about.

 

Spiking government drug dealing. The police state. And the prison-industrial complex.  When you talk about drugs, they play both ends. They’ll ship the drugs in and then have a Wackenhut prison make you work for 70 cents an hour. And this is a war being waged on the working class through the Drug War.

 

And it’s most importantly an end game against Russia and China. I think we all better start to see that 9/11 is the beginning, not of a Middle-Eastern war, although it is, but really an end game against Russia and China. And we better start seeing that complex coming up.

 

It is World War III coming together. I’m going to show you how the chess pieces are coming together. How the chess pieces are going to play out. New technology. You want to know who is behind 9/11, I’m going to show you the factions. 

 

There’s a problem though.  The [Iraqi] civil war has gotten out of control. They don’t have total control. They thought that they can engineer this civil war and these Arabs will be at each others’ throats. Well, now they don’t know which side to play. …  

 

I think it’s out of control for [the neocons]. I don’t think that these guys are masterminds.  I think the neocons are fumblers.  … What they are is incompetent.  They are evil.  They’ll take their means to any point.  But I don’t think they’re overwhelmingly competent. …

 

We are living on the brink of the Apocalypse right now. We are circling the edge of the Apocalypse. (Daniel Abrahamson speaking to Project for a New American Citizen, April 15, 2007, on video downloaded from  http://video.google.com/videoplay?docid=8545414779301935419, 8 Aug. 2007.)

 

World events since the attacks of September 11, 2001 have not only been predicted, but also planned, orchestrated and – as their architects would like to believe – controlled. The current Central Asian war is not a response to terrorism, nor is it a reaction to Islamic fundamentalism. It is in fact, in the words of one of the most powerful men on the planet, the beginning of a final conflict before total world domination by the United States leads to the dissolution of all national governments. This, says Council on Foreign Relations (CFR) member and former Carter National Security Advisor, Zbigniew Brzezinski, will lead to nation states being incorporated into a new world order, controlled solely by economic interests as dictated by banks, corporations and ruling elites concerned with the maintenance (by manipulation and war) of their power. As a means of intimidation for the unenlightened reader who happens upon this frightening plan – the plan of the CFR - Brzezinski offers the alternative of a world in chaos unless the U.S. controls the planet by whatever means are necessary and likely to succeed. 

 

This position is corroborated by Dr. Johannes B. Koeppl, Ph.D. a former German defense ministry official and advisor to former NATO Secretary General Manfred Werner. On November 6, he told FTW, “The interests behind the Bush Administration, such as the CFR, The Trilateral Commission – founded by Brzezinski for David Rockefeller – and the Bliderberger [Ed.: Bilderberg] Group have prepared for and are now moving to implement open world dictatorship within the next five years. They are not fighting against terrorists. They are fighting against citizens.”  (Michael Ruppert, “A War in the Planning for Four Years,” Wilderness Publications, November 2001, from Global Research, http://globalresearch.ca/articles/RUP111B.html, downloaded 8 August 2007. A full discussion of Brzezinski’s view of “the grand chessboard,” which is well worth consulting, can be found in the Supplement.)

 

David Ray Griffin: there are just lots of mysteries about Flight 93 and 77 and the Pentagon strikes.

Just reading what we can learn from available information, we will never know the full truth, not even close to it. So our primary claim is not that we know the truth. The primary claim is that there are so many questions that demand a real, official investigation.

I have focused my attention on what we’re certain of, that the official story is false. We’re not certain of what happened to 93 or 77 or at the Pentagon and to some extent at the Towers.

Q: What could be the motive of our leaders to orchestrate such events?

DRG: As soon as the Soviet Union imploded, these guys started thinking we could have a unipolar world instead of a bipolar world, and we could make it permanent.

We could have the first borderless empire in history. We’ll be greater than Alexander the Great or Genghis Khan or the Roman Empire or the British Empire. Pretty heady trip. And they were writing about this all through the ‘90s, and they formed this organization called Project for the New American Century, which is a unipolar, neocon organization, and laid out five conditions for doing this: You’ve got to have a tremendous increase in military spending.

Second, the transformation of the military technologically, which really means the weaponization of space.

Third, we need to get control of the world’s oil, so Central Asia and the Middle East, and of course Iraq was in their sights from the time that Bush Sr. refused to go to Baghdad–they were writing letters to Clinton urging him to attack Baghdad. And clearly they had plans to attack Afghanistan prior to 9/11—that had developed at least in the summer of 2001.

Fourth, they wanted to revise the doctrine of pre-emptive strikes. According to international law up until then, you could not launch legally a pre-emptive strike on a country unless you had very good evidence that it was just about to launch a pre-emptive strike on you, and this strike had to be so imminent that there was no time to take it to the UN Security Council. So they said this was archaic, paying attention to international law, we should be able to attack any country we want to, basically.

The fifth requirement would be a kind of new Pearl Harbor that would get the American people ready to support these policies: the spending and be willing to accept pre-emptive strikes on other countries and so on. So 9/11 did all that. Gave them everything they wanted. We’re talking about billions even trillions of dollars, when you put it in terms of decades of spending.

That very day they increased military spending $40 billion, which is spending money. And by now we’ve upped it to over $200 billion. They don’t even count what they spend on Iraq in the budget; that’s just discretionary funds.

So you can’t imagine stronger motivation. The two major motivations for war have always been the political motivation of imperial lust, just the desire to win in battle and rule over other people; and the dominant motivation of at least the kind of people who’ve gone into politics and the military.

And then the other big motivation is economic, which in our day, partly is just lining their own pockets, partly it’s keeping the military spending going which means funding all these corporations that build things for the military, such as General Electric, Halliburton obviously and then all the ones that produce military equipment, tanks and all that stuff.

But also getting control of the world’s resources as they’re winding down. That’s where the oil in particular, oil and natural gas, come in.

And Iraq has such huge reserves.

So did the Caspian Sea. So we’ve got two of the biggest reserves back to back like that. So for people to say no motivation, we had what would count as the strongest possible motivations for going to war, in terms of what has always motivated people to go to war in the past. (“Interview with David Ray Griffin,” Whole Life Times, downloaded from
http://wholelifetimes.com/2006/09/griffin0609.html, 7 August 2007.)

 

Massive attention has now been given - and rightly so - to the reasons why Britain went to war against Iraq. But far too little attention has focused on why the US went to war, and that throws light on British motives too. The conventional explanation is that after the Twin Towers were hit, retaliation against al-Qaida bases in Afghanistan was a natural first step in launching a global war against terrorism. Then, because Saddam Hussein was alleged by the US and UK governments to retain weapons of mass destruction, the war could be extended to Iraq as well. However this theory does not fit all the facts. The truth may be a great deal murkier.

 

We now know that a blueprint for the creation of a global Pax Americana was drawn up for Dick Cheney (now vice-president), Donald Rumsfeld (defence secretary), Paul Wolfowitz (Rumsfeld's deputy), Jeb Bush (George Bush's younger brother) and Lewis Libby (Cheney's chief of staff). The document, entitled Rebuilding America's Defences, was written in September 2000 by the neoconservative think tank, Project for the New American Century (PNAC).

The plan shows Bush's cabinet intended to take military control of the Gulf region whether or not Saddam Hussein was in power. It says "while the unresolved conflict with Iraq provides the immediate justification, the need for a substantial American force presence in the Gulf transcends the issue of the regime of Saddam Hussein."

 

The PNAC blueprint supports an earlier document attributed to Wolfowitz and Libby which said the US must "discourage advanced industrial nations from challenging our leadership or even aspiring to a larger regional or global role". It refers to key allies such as the UK as "the most effective and efficient means of exercising American global leadership". It describes peacekeeping missions as "demanding American political leadership rather than that of the UN". It says "even should Saddam pass from the scene", US bases in Saudi Arabia and Kuwait will remain permanently... as "Iran may well prove as large a threat to US interests as Iraq has". It spotlights China for "regime change", saying "it is time to increase the presence of American forces in SE Asia".

 

The document also calls for the creation of "US space forces" to dominate space, and the total control of cyberspace to prevent "enemies" using the internet against the US. It also hints that the US may consider developing biological weapons "that can target specific genotypes [and] may transform biological warfare from the realm of terror to a politically useful tool".

Finally - written a year before 9/11 - it pinpoints North Korea, Syria and Iran as dangerous regimes, and says their existence justifies the creation of a "worldwide command and control system". This is a blueprint for US world domination. But before it is dismissed as an agenda for rightwing fantasists, it is clear it provides a much better explanation of what actually happened before, during and after 9/11 than the global war on terrorism thesis. This can be seen in several ways.

 

First, it is clear the US authorities did little or nothing to pre-empt the events of 9/11. It is known that at least 11 countries provided advance warning to the US of the 9/11 attacks. Two senior Mossad experts were sent to Washington in August 2001 to alert the CIA and FBI to a cell of 200 terrorists said to be preparing a big operation (Daily Telegraph, September 16 2001). The list they provided included the names of four of the 9/11 hijackers, none of whom was arrested.

 

It had been known as early as 1996 that there were plans to hit Washington targets with aeroplanes. Then in 1999 a US national intelligence council report noted that "al-Qaida suicide bombers could crash-land an aircraft packed with high explosives into the Pentagon, the headquarters of the CIA, or the White House".

 

Fifteen of the 9/11 hijackers obtained their visas in Saudi Arabia. Michael Springman, the former head of the American visa bureau in Jeddah, has stated that since 1987 the CIA had been illicitly issuing visas to unqualified applicants from the Middle East and bringing them to the US for training in terrorism for the Afghan war in collaboration with Bin Laden (BBC, November 6 2001). It seems this operation continued after the Afghan war for other purposes. It is also reported that five of the hijackers received training at secure US military installations in the 1990s (Newsweek, September 15 2001).

 

Instructive leads prior to 9/11 were not followed up. French Moroccan flight student Zacarias Moussaoui (now thought to be the 20th hijacker) was arrested in August 2001 after an instructor reported he showed a suspicious interest in learning how to steer large airliners. When US agents learned from French intelligence he had radical Islamist ties, they sought a warrant to search his computer, which contained clues to the September 11 mission (Times, November 3 2001). But they were turned down by the FBI. One agent wrote, a month before 9/11, that Moussaoui might be planning to crash into the Twin Towers (Newsweek, May 20 2002).

 

All of this makes it all the more astonishing - on the war on terrorism perspective - that there was such slow reaction on September 11 itself. The first hijacking was suspected at not later than 8.20am, and the last hijacked aircraft crashed in Pennsylvania at 10.06am. Not a single fighter plane was scrambled to investigate from the US Andrews airforce base, just 10 miles from Washington DC, until after the third plane had hit the Pentagon at 9.38 am. Why not? There were standard FAA intercept procedures for hijacked aircraft before 9/11. Between September 2000 and June 2001 the US military launched fighter aircraft on 67 occasions to chase suspicious aircraft (AP, August 13 2002). It is a US legal requirement that once an aircraft has moved significantly off its flight plan, fighter planes are sent up to investigate.

 

Was this inaction simply the result of key people disregarding, or being ignorant of, the evidence? Or could US air security operations have been deliberately stood down on September 11? If so, why, and on whose authority? The former US federal crimes prosecutor, John Loftus, has said: "The information provided by European intelligence services prior to 9/11 was so extensive that it is no longer possible for either the CIA or FBI to assert a defence of incompetence."

 

Nor is the US response after 9/11 any better. No serious attempt has ever been made to catch Bin Laden. In late September and early October 2001, leaders of Pakistan's two Islamist parties negotiated Bin Laden's extradition to Pakistan to stand trial for 9/11. However, a US official said, significantly, that "casting our objectives too narrowly" risked "a premature collapse of the international effort if by some lucky chance Mr Bin Laden was captured". The US chairman of the joint chiefs of staff, General Myers, went so far as to say that "the goal has never been to get Bin Laden" (AP, April 5 2002). The whistleblowing FBI agent Robert Wright told ABC News (December 19 2002) that FBI headquarters wanted no arrests. And in November 2001 the US airforce complained it had had al-Qaida and Taliban leaders in its sights as many as 10 times over the previous six weeks, but had been unable to attack because they did not receive permission quickly enough (Time Magazine, May 13 2002). None of this assembled evidence, all of which comes from sources already in the public domain, is compatible with the idea of a real, determined war on terrorism.

 

The catalogue of evidence does, however, fall into place when set against the PNAC blueprint. From this it seems that the so-called "war on terrorism" is being used largely as bogus cover for achieving wider US strategic geopolitical objectives. Indeed Tony Blair himself hinted at this when he said to the Commons liaison committee: "To be truthful about it, there was no way we could have got the public consent to have suddenly launched a campaign on Afghanistan but for what happened on September 11" (Times, July 17 2002). Similarly Rumsfeld was so determined to obtain a rationale for an attack on Iraq that on 10 separate occasions he asked the CIA to find evidence linking Iraq to 9/11; the CIA repeatedly came back empty-handed (Time Magazine, May 13 2002).

 

In fact, 9/11 offered an extremely convenient pretext to put the PNAC plan into action. The evidence again is quite clear that plans for military action against Afghanistan and Iraq were in hand well before 9/11. A report prepared for the US government from the Baker Institute of Public Policy stated in April 2001 that "the US remains a prisoner of its energy dilemma. Iraq remains a destabilising influence to... the flow of oil to international markets from the Middle East". Submitted to Vice-President Cheney's energy task group, the report recommended that because this was an unacceptable risk to the US, "military intervention" was necessary (Sunday Herald, October 6 2002).  (Michael Meacher, “This war on terrorism is bogus,” The Guardian, 6 Sept. 2003.)

 

Some have seen the US failure to avert the 9/11 attacks as creating an invaluable pretext for attacking Afghanistan in a war that had clearly already been well planned in advance. There is a possible precedent for this. The US national archives reveal that President Roosevelt used exactly this approach in relation to Pearl Harbor on December 7 1941. Some advance warning of the attacks was received, but the information never reached the US fleet. The ensuing national outrage persuaded a reluctant US public to join the second world war. Similarly the PNAC blueprint of September 2000 states that the process of transforming the US into "tomorrow's dominant force" is likely to be a long one in the absence of "some catastrophic and catalyzing event - like a new Pearl Harbor". The 9/11 attacks allowed the US to press the "go" button for a strategy in accordance with the PNAC agenda which it would otherwise have been politically impossible to implement. (Michael Meacher, “This war on terrorism is bogus,” The Guardian, 6 Sept. 2003.)

 

The conclusion of all this analysis must surely be that the "global war on terrorism" has the hallmarks of a political myth propagated to pave the way for a wholly different agenda - the US goal of world hegemony, built around securing by force command over the oil supplies required to drive the whole project. Is collusion in this myth and junior participation in this project really a proper aspiration for British foreign policy? If there was ever need to justify a more objective British stance, driven by our own independent goals, this whole depressing saga surely provides all the evidence needed for a radical change of course. (Michael Meacher, “This war on terrorism is bogus,” The Guardian, 6 Sept. 2003.)

 

Today by exploiting the terrible tragedy of 11 September 2001, the Republican Bush Jr. administration has set forth to steal a hydrocarbon empire from the Muslim states and peoples living in Central Asia and the Persian Gulf under the bogus pretexts of (1) fighting a war against international terrorism; and/or (2) eliminating weapons of mass destruction; and/or (3) the promotion of democracy. Only this time the geopolitical stakes are infinitely greater than they were a century ago: control and domination of two-thirds of the world’s hydrocarbon resources. The Bush Jr. administration has already targeted the remaining hydrocarbon resources of Africa, Latin America, and Southeast Asia for further conquest.  (Prof. Francis A. Boyle, “Unlimited Imperialism. Civil resistance against war across America,” Global Research, 4 March 2007.)

 

Iraqi Prime Minister Nouri al-Maliki went before the media on Tuesday to announce that his cabinet had “unanimously” approved US-backed draft legislation covering the future development of Iraq’s vast oil resources. The parliament, he declared, would begin debating the oil law the following day. He trumpetted his achievement as a key step towards finalising the “most important law in Iraq”.

 

The legislation embodies the criminal aims and objectives of the US invasion of Iraq more than four years ago. Behind the false claims about Iraqi “weapons of mass destruction” and links to terrorism were the ambitions of American energy conglomerates to access the country’s huge reserves—estimated at between 115 and 215 billion barrels of oil.

 

While the oil law has a number of implications, the most fundamental is that it would end the Iraqi state monopoly in the development of oil fields. While the Iraqi people will still constitutionally “own” the resources, foreign oil companies will gain contracts that give exclusive rights to exploration and production for periods as long as 20 years. The law leaves open the possibility for “production-sharing agreements” (PSAs) which guarantee the investing company against losses and lead to even higher rates of return.

 

Importantly, as far as Washington is concerned, all contracts entered into by the previous regime of Saddam Hussein—such as agreements with French, Russian and Chinese corporations—will be rendered void. US companies will be able to move in and appropriate development rights over the fields.

 

The propaganda surrounding the oil law is completely cynical. It is universally presented in Washington as a policy aimed at guaranteeing that oil revenues are shared by “all Iraqis”. The reality is that the entry of US and other energy giants into Iraq’s oil industry will lead to wholesale plunder. Iraq’s oil minister has predicted that as many as 65 of the 80 known undeveloped oil fields will come under foreign control. If the oil industry was developed to its full production potential, it could pump 6 million barrels a day and generate annual revenues of more than $130 billion, with the profits as high as 20 percent for the transnational companies.

 

It is this prize that has cost the lives of over 700,000 Iraqis and close to 4,000 occupation troops and left the country’s infrastructure devastated.

 

Washington’s perspective is to transform Iraq into a lucrative source of wealth for American corporate interests and a military base in the Middle East to extend US domination over the resource-rich region. To achieve this, it requires both a fig leaf of legality from the puppet Iraqi parliament in Baghdad and an end to the anti-occupation insurgency wracking the country.

 

The centrality of the oil law to the objectives of the US occupation is underscored by its prominent place in the Bush administration “benchmarks” for the Iraqi government. Since the draft legislation was first revealed on February 26, senior figures of Bush’s cabinet, ranging from Secretary of State Condoleezza Rice, Vice President Dick Cheney to Defence Secretary Robert Gates, have visited Baghdad to bully the various Iraqi factions in the US-backed parliament to accept its terms. The White House is pressuring Maliki to push through the legislation and other key benchmarks well before September, when a report to Congress on the progress of the latest US military “surge” is due.

 

Little progress had been made until this week. The Kurdish, Shiite and Sunni parties that previously dominated the cabinet continued to wrangle over aspects of the proposed law, as each has sought to secure a portion of the economic spoils. Without cabinet approval, the legislation could not be placed before parliament.

 

Over the past two months, however, two of the legislation’s key opponents—the Shiite Sadrist movement led by Moqtada al-Sadr and the Iraqi Accordance Front coalition of Sunni Arab parties—have withdrawn their ministers from the cabinet in protest against the occupation and the government. Maliki exploited this on Tuesday to push through the legislation in a session attended by just 24 out of 37 ministers.

 

President Bush was so pleased with the result that he rang Maliki personally to congratulate him. Maliki is gambling that the Sadrist and Sunni boycotts will enable the oil law to be rammed through the parliament as well. The sessions slated to debate the bill this week are unlikely to be attended by more than 150 out of the 275 legislators elected in December 2005. On top of more than 80 boycotters, dozens of Iraqi politicians live outside the country due to the lack of security. A number of previous sessions have lapsed after failing to reach the required quorum of 138.

 

The law’s passage through parliament is far from certain, however. The fact that the legislation was not tabled yesterday, as promised, suggests that the horse-trading, arm-twisting and pay-offs is continuing to ensure its acceptance by the remaining factions attending parliament. According to the latest reports, it will be presented today and sent to a committee of review for at least a week. (James Cogan, “Under sustained US pressure, Iraqi cabinet

sends oil law to parliament,” World Socialist Web Site, 5 July 2007, downloaded from http://www.wsws.org/articles/2007/jul2007/oil-j05.shtml6 August 2007.)

 

For all Cheney’s apocalyptic rhetoric about the Iranian threat, the Bush administration’s targeting of Iran has nothing to do with any of these pretexts. Cheney himself hinted at the real reason when he noted Iran’s strategic location. “They occupy one whole side of the Persian Gulf,” he explained to ABC News, “[and] clearly have the capacity to influence the world’s supply of oil—about 20 percent of the daily production comes out through the Straits of Hormuz.”

 

The purpose of any US war on Iran, like the 2003 invasion of Iraq, would be to further longstanding US ambitions to dominate the oil-rich regions of the Middle East and Central Asia. Iran with its own huge reserves of oil and gas, not only lies across the Persian Gulf from Kuwait, Saudi Arabia and other major producers, but sits between Iraq and the largely unexploited oil and gas fields of the Central Asian republics. (Peter Symonds, “US Vice President Cheney menaces Iran with military aggression,” Global Research, 25 February 2007.)

The Anglo-American oil companies are indelibly behind Cheney's "contingency plan" to wage war on Iran. The latter is geared towards territorial and corporate control over oil and gas reserves as well as pipeline routes.

 

There is continuity in US Middle East war plans, from the Democrats to the Republicans. The essential features of Neoconservative discourse were already in place under the Clinton administration. US Central Command's (USCENTCOM) theater strategy in the mid-1990s was geared towards securing, from an economic and military standpoint, control over Middle East oil.

 

"The broad national security interests and objectives expressed in the President's National Security Strategy (NSS) and the Chairman's National Military Strategy (NMS) form the foundation of the United States Central Command's theater strategy. The NSS directs implementation of a strategy of dual containment of the rogue states of Iraq and Iran as long as those states pose a threat to U.S. interests, to other states in the region, and to their own citizens. Dual containment is designed to maintain the balance of power in the region without depending on either Iraq or Iran. USCENTCOM's theater strategy is interest-based and threat-focused. The purpose of U.S. engagement, as espoused in the NSS, is to protect the United States' vital interest in the region - uninterrupted, secure U.S./Allied access to Gulf oil. (USCENTCOM, http://www.milnet.com/milnet/pentagon/centcom/chap1/stratgic.htm#USPolicy , italics added)

 

Iran possesses 10 percent of global oil and gas reserves, the US is the first and foremost military and nuclear power in the World, but it possesses less than 3 percent of global oil and gas reserves.

 

On the other hand, the countries inhabited by Muslims, including the Middle East, North Africa, Central Asia, West and Central Africa, Malaysia, Indonesia and Brunei, possess approximately 80 percent of the World's oil and gas reserves.

 

The "war on terrorism" and the hate campaign directed against Muslims, which has gained impetus in recent months, bears a direct relationship to the "Battle for Middle East Oil".  How best to conquer these vast oil reserves located in countries inhabited by Muslims?  Build a political consensus against Muslim countries, describe them as "uncivilized", denigrate their culture and religion, implement ethnic profiling against Muslims in Western countries, foster hatred and racism against the inhabitants of the oil producing countries.  (Michel Chossudovsky, “Is the Bush Administration Planning a Nuclear Holocaust? Will the US launch ‘Mini-nukes’ against Iran in Retaliation for Tehran's ‘Non-compliance’?”  Global Research, 22 February 2006.)

 

5. The Real Objective Of This War Is Oil

 

The oil lies in Muslim lands. The objective is to take possession of the oil, transform countries into territories and redraw the map of the Middle East. …

 

The US led war in the broader Middle East Central Asian region consists in gaining control over more than sixty percent of the world's reserves of oil and natural gas. The Anglo-American oil giants also seek to gain control over oil and gas pipeline routes out of the region.  (Michel Chossudovsky, “The Criminalization of US Foreign Policy. From the Truman Doctrine to the Neo-Conservatives,” Global Research, 5 February 2007.)

 

The overriding motivation for this political smokescreen is that the US and the UK are beginning to run out of secure hydrocarbon energy supplies. By 2010 the Muslim world will control as much as 60% of the world's oil production and, even more importantly, 95% of remaining global oil export capacity. As demand is increasing, so supply is decreasing, continually since the 1960s.

 

This is leading to increasing dependence on foreign oil supplies for both the US and the UK. The US, which in 1990 produced domestically 57% of its total energy demand, is predicted to produce only 39% of its needs by 2010. A DTI minister has admitted that the UK could be facing "severe" gas shortages by 2005. The UK government has confirmed that 70% of our electricity will come from gas by 2020, and 90% of that will be imported. In that context it should be noted that Iraq has 110 trillion cubic feet of gas reserves in addition to its oil.

 

A report from the commission on America's national interests in July 2000 noted that the most promising new source of world supplies was the Caspian region, and this would relieve US dependence on Saudi Arabia. To diversify supply routes from the Caspian, one pipeline would run westward via Azerbaijan and Georgia to the Turkish port of Ceyhan. Another would extend eastwards through Afghanistan and Pakistan and terminate near the Indian border. This would rescue Enron's beleaguered power plant at Dabhol on India's west coast, in which Enron had sunk $3bn investment and whose economic survival was dependent on access to cheap gas.

 

Nor has the UK been disinterested in this scramble for the remaining world supplies of hydrocarbons, and this may partly explain British participation in US military actions. Lord Browne, chief executive of BP, warned Washington not to carve up Iraq for its own oil companies in the aftermath of war (Guardian, October 30 2002). And when a British foreign minister met Gadaffi in his desert tent in August 2002, it was said that "the UK does not want to lose out to other European nations already jostling for advantage when it comes to potentially lucrative oil contracts" with Libya (BBC Online, August 10 2002). (Michael Meacher, “This war on terrorism is bogus,” The Guardian, 6 Sept. 2003.)

 

Plans for War with Iran

 

‘The balance in the internal White House debate over Iran has shifted back in favour of military action before President George Bush leaves office in 18 months, the Guardian has learned. The shift follows an internal review involving the White House, the Pentagon and the state department over the last month. Although the Bush administration is in deep trouble over Iraq, it remains focused on Iran. A well-placed source in Washington said: "Bush is not going to leave office with Iran still in limbo." …at a meeting of the White House, Pentagon and state department last month, Mr Cheney expressed frustration at the lack of progress and Mr Bush sided with him. "The balance has tilted. There is cause for concern," the source said this week. … "Cheney has limited capital left, but if he wanted to use all his capital on this one issue, he could still have an impact," said Patrick Cronin, the director of studies at the International Institute for Strategic Studies.’ (“Cheney pushes Bush to act on Iran; Military solution back in favour as Rice loses out; President 'not prepared to leave conflict unresolved'”, Guardian, July 16, 2007.)

 

The Pre-Planned War in Afghanistan

 

Similar evidence exists in regard to Afghanistan. The BBC reported (September 18 2001) that Niaz Niak, a former Pakistan foreign secretary, was told by senior American officials at a meeting in Berlin in mid-July 2001 that "military action against Afghanistan would go ahead by the middle of October". Until July 2001 the US government saw the Taliban regime as a source of stability in Central Asia that would enable the construction of hydrocarbon pipelines from the oil and gas fields in Turkmenistan, Uzbekistan, Kazakhstan, through Afghanistan and Pakistan, to the Indian Ocean. But, confronted with the Taliban's refusal to accept US conditions, the US representatives told them "either you accept our offer of a carpet of gold, or we bury you under a carpet of bombs" (Inter Press Service, November 15 2001). (Michael Meacher, “This war on terrorism is bogus,” The Guardian, 6 Sept. 2003.)

 

The Pre-Planned War with Iraq

 

The so-called "war on terrorism" is being used largely as bogus cover for achieving wider US strategic geopolitical objectives. Indeed Tony Blair himself hinted at this when he said to the Commons liaison committee: "To be truthful about it, there was no way we could have got the public consent to have suddenly launched a campaign on Afghanistan but for what happened on September 11" (Times, July 17 2002). Similarly Rumsfeld was so determined to obtain a rationale for an attack on Iraq that on 10 separate occasions he asked the CIA to find evidence linking Iraq to 9/11; the CIA repeatedly came back empty-handed (Time Magazine, May 13 2002).  (Michael Meacher, “This war on terrorism is bogus,” The Guardian, 6 Sept. 2003.)

 

Not only did O'Neill give Suskind his time, he gave him 19,000 internal documents.

“Everything's there: Memoranda to the President, handwritten "thank you" notes, 100-page documents. Stuff that's sensitive,” says Suskind, adding that in some cases, it included transcripts of private, high-level National Security Council meetings. “You don’t get higher than that.”

And what happened at President Bush's very first National Security Council meeting is one of O'Neill's most startling revelations.

“From the very beginning, there was a conviction, that Saddam Hussein was a bad person and that he needed to go,” says O’Neill, who adds that going after Saddam was topic "A" 10 days after the inauguration - eight months before Sept. 11.

“From the very first instance, it was about Iraq. It was about what we can do to change this regime,” says Suskind. “Day one, these things were laid and sealed.”

As treasury secretary, O'Neill was a permanent member of the National Security Council. He says in the book he was surprised at the meeting that questions such as "Why Saddam?" and "Why now?" were never asked.

"It was all about finding a way to do it. That was the tone of it. The president saying ‘Go find me a way to do this,’" says O’Neill. “For me, the notion of pre-emption, that the U.S. has the unilateral right to do whatever we decide to do, is a really huge leap.”

And that came up at this first meeting, says O’Neill, who adds that the discussion of Iraq continued at the next National Security Council meeting two days later.

He got briefing materials under this cover sheet. “There are memos. One of them marked, secret, says, ‘Plan for post-Saddam Iraq,’" adds Suskind, who says that they discussed an occupation of Iraq in January and February of 2001.


Based on his interviews with O'Neill and several other officials at the meetings, Suskind writes that the planning envisioned peacekeeping troops, war crimes tribunals, and even divvying up Iraq's oil wealth.

He obtained one Pentagon document, dated March 5, 2001, and entitled "Foreign Suitors for Iraqi Oilfield contracts," which includes a map of potential areas for exploration.

“It talks about contractors around the world from, you know, 30-40 countries. And which ones have what intentions,” says Suskind. “On oil in Iraq.”

During the campaign, candidate Bush had criticized the Clinton-Gore Administration for being too interventionist: "If we don't stop extending our troops all around the world in nation-building missions, then we're going to have a serious problem coming down the road. And I'm going to prevent that."

“The thing that's most surprising, I think, is how emphatically, from the very first, the administration had said ‘X’ during the campaign, but from the first day was often doing ‘Y,’” says Suskind. “Not just saying ‘Y,’ but actively moving toward the opposite of what they had said during the election.” (“Bush Sought ‘Way’ To Invade Iraq? O'Neill Tells '60 Minutes' Iraq Was 'Topic A' 8 Months Before 9-11,” CBS News/60 Minutes, downloaded from 
http://www.cbsnews.com/stories/2004/01/09/60minutes/main592330.shtml, 16 Aug. 2007.)

 

New Doctrine of Pre-emptive Strikes

 

Now here’s something I learned from the book Rise of the Vulcans by James Mann. I mentioned this, the new doctrine of pre-emption, which is really a doctrine of preventive warfare. But people don’t understand, prevention sounds like a good thing, sounds better than pre-emption. So I call it the doctrine of preventive pre-emption warfare, which means that we see that some country may cause us trouble somewhere down the line — maybe five or 10 years from now — but we decide it would be easier to get rid of their weapons now than later, so we’ll just go ahead and attack them now.

That was the new doctrine that was signed into existence in a document called ”National Security Strategy of United States of America 2002.” And in the cover letter to that document the president himself says, “We can no longer wait until our enemies have gotten ready to attack us, we’ve got to act offensively.” (“Interview with David Ray Griffin,” Whole Life Times, downloaded from
http://wholelifetimes.com/2006/09/griffin0609.html, 7 August 2007.)

 

According to international law up until then, you could not launch legally a pre-emptive strike on a country unless you had very good evidence that it was just about to launch a pre-emptive strike on you, and this strike had to be so imminent that there was no time to take it to the UN Security Council. So they said this was archaic, paying attention to international law, we should be able to attack any country we want to, basically.

The [next] requirement would be a kind of new Pearl Harbor that would get the American people ready to support these policies: the spending and be willing to accept pre-emptive strikes on other countries and so on. So 9/11 did all that. Gave them everything they wanted. We’re talking about billions even trillions of dollars, when you put it in terms of decades of spending. (“Interview with David Ray Griffin,” Whole Life Times, downloaded from
http://wholelifetimes.com/2006/09/griffin0609.html, 7 August 2007.)

 

“The Redirection

 

In the past few months, as the situation in Iraq has deteriorated, the Bush Administration, in both its public diplomacy and its covert operations, has significantly shifted its Middle East strategy. The “redirection,” as some inside the White House have called the new strategy, has brought the United States closer to an open confrontation with Iran and, in parts of the region, propelled it into a widening sectarian conflict between Shiite and Sunni Muslims.

 

To undermine Iran, which is predominantly Shiite, the Bush Administration has decided, in effect, to reconfigure its priorities in the Middle East. In Lebanon, the Administration has coöperated with Saudi Arabia’s government, which is Sunni, in clandestine operations that are intended to weaken Hezbollah, the Shiite organization that is backed by Iran. The U.S. has also taken part in clandestine operations aimed at Iran and its ally Syria. A by-product of these activities has been the bolstering of Sunni extremist groups that espouse a militant vision of Islam and are hostile to America and sympathetic to Al Qaeda. …

 

The key players behind the redirection are Vice-President Dick Cheney, the deputy national-security adviser Elliott Abrams, the departing Ambassador to Iraq (and nominee for United Nations Ambassador), Zalmay Khalilzad, and Prince Bandar bin Sultan, the Saudi national-security adviser. While Rice has been deeply involved in shaping the public policy, former and current officials said that the clandestine side has been guided by Cheney. …

 

The policy shift has brought Saudi Arabia and Israel into a new strategic embrace, largely because both countries see Iran as an existential threat. They have been involved in direct talks, and the Saudis, who believe that greater stability in Israel and Palestine will give Iran less leverage in the region, have become more involved in Arab-Israeli negotiations.

 

The new strategy “is a major shift in American policy—it’s a sea change,” a U.S. government consultant with close ties to Israel said. …

 

Martin Indyk, a senior State Department official in the Clinton Administration who also served as Ambassador to Israel, said that “the Middle East is heading into a serious Sunni-Shiite Cold War.” Indyk, who is the director of the Saban Center for Middle East Policy at the Brookings Institution, added that, in his opinion, it was not clear whether the White House was fully aware of the strategic implications of its new policy. “The White House is not just doubling the bet in Iraq,” he said. “It’s doubling the bet across the region. This could get very complicated. Everything is upside down.” 

 

Flynt Leverett, a former Bush Administration National Security Council official, told me that “there is nothing coincidental or ironic” about the new strategy with regard to Iraq. “The Administration is trying to make a case that Iran is more dangerous and more provocative than the Sunni insurgents to American interests in Iraq, when—if you look at the actual casualty numbers—the punishment inflicted on America by the Sunnis is greater by an order of magnitude,” Leverett said. “This is all part of the campaign of provocative steps to increase the pressure on Iran. The idea is that at some point the Iranians will respond and then the Administration will have an open door to strike at them.”(Seymour Hersh, “The Redirection,” New Yorker, 5 March 2007.)

 

This administration has made a policy change, a decision that they are going to put all of the pressure they can on the Shiites, that is the Shiite regime in Iran, the Shiite - and they are also doing everything they can to stop Hezbollah - which is Shiite, the Hezbollah organization from getting any control or any more of a political foothold in Lebanon.

 

… I quote … Hassan Nasrallah, the head of Hezbollah, and he described it this way, as "fitna (ph)," the Arab word for "civil war." As far as he is concerned, we are interested in recreating what is happening in Iraq in Lebanon, that is Sunni versus Shia. And in looking into that story, and I saw him in December, I found this. That we have been pumping money, a great deal of money, without congressional authority, without any congressional oversight, Prince Bandar of Saudi Arabia is putting up some of this money, for covert operations in many areas of the Middle East where we think that the - we want to stop the Shiite spread or the Shiite influence.

 

They call it the "Shiite Crescent." And a lot of this money, and I can't tell you with absolute certainty how - exactly when and how, but this money has gotten into the hands - among other places, in Lebanon, into the hands of three - at least three jihadist groups. There are three Sunni jihadist groups whose main claim to fame inside Lebanon right now is that they are very tough. These are people connected to al Qaeda who want to take on Hezbollah. So this government, at the minimum, we may not directly be funneling money to them, but we certainly know that these groups exist.

 

My government, which arrests al Qaeda every place it can find them and send - some of them are in Guantanamo and other places, is sitting back while the Lebanese government we support, the government of Prime Minister Siniora, is providing arms and sustenance to three jihadist groups whose sole function, it seems to me and to the people that talk to me in our government, to be there in case there is a real shoot-'em-up with Hezbollah and we really get into some sort of serious major conflict between the Sunni government and Hezbollah, which is largely Shia, who are basically - or as you know, there is a coalition headed by Hezbollah that is challenging the government right now, demonstrations, sit-ins.

 

There has been some violence. So America, my country, without telling Congress, using funds not appropriated, I don't know where, by my sources believe much of the money obviously came from Iraq where there is all kinds of piles of loose money, pools of cash that could be used for covert operations.

All of this should be investigated by Congress, by the way, and I trust it will be. In my talking to membership - members there, they are very upset that they know nothing about this. And they have great many suspicions.

 

We are simply in a situation where this president is really taking his notion of executive privilege to the absolute limit here, running covert operations, using money that was not authorized by Congress, supporting groups indirectly that are involved with the same people that did 9/11, and we should be arresting these people rather than looking the other way. (Seymour Hersh, “Bush Funneling Money to Al Qaeda-related Groups,” ThinkProgress.com, 25 Feb. 2007, reproduced in Global Research, 26 Feb. 2007.)

 

The Bush Administration Orchestrating a War with Iran

 

An attack on Iran would be calamitous on many levels: our military is already strained to its limits, our forces in Iraq would be left wide-open to counterattack, the home front would be susceptible to terror attacks by Iranian special forces, and the missile batteries arrayed across the Iranian mountains overlooking the Persian Gulf would wreak devastating havoc on our fleet.

Sober heads see an attack on Iran as both essentially baseless and an invitation to a widening war we are not prepared to fight, thanks to Iraq. Because of this, the idea that such an attack may be undertaken is not considered a pressing reality by many analysts. Ali Larijani, Iran's top national security official, shares this view. "The possibility of this is very weak, and it's more a matter of psychological warfare," said Larijani on Thursday. "The Islamic republic's armed forces are in a state of complete readiness and are monitoring everything in order to give a crushing response to even the smallest aggression or threat." Larijani concluded his remarks by stating, "I advise Mr. Bush and his advisors to be rational and think about their own nation's interest."

This would be sage advice if Mr. Bush were the one doing the thinking. These days, all the thinking and management is being done by Dick Cheney, and if this Libby trial comes to pose a danger to his standing, all the sober analysis by policy experts may turn to dust. Nothing is more dangerous, after all, than a cornered animal. .  (William Rivers Pitt, “A Cornered Animal,” Truthout.org, 26 Jan. 2007.)

Unless Congress immediately impeaches Bush and Cheney, a year from now the US could be a dictatorial police state at war with Iran.

 

Many attentive people believe that the reason the Bush administration will not bow to expert advice and public opinion and begin withdrawing US troops from Iraq is that the administration intends to rescue its unpopular position with false flag operations that can be used to expand the war to Iran.

Too much is going wrong for the Bush administration: the failure of its Middle East wars, Republican senators jumping ship, Turkish troops massed on northern Iraq's border poised for an invasion to deal with Kurds, and a majority of Americans favoring the impeachment of Cheney and a near-majority favoring Bush's impeachment. The Bush administration desperately needs dramatic events to scare the American people and the Congress back in line with the militarist-police state that Bush and Cheney have fostered.  (Paul Craig Roberts, “Impeach Now Or Face the End of Constitutional Democracy,” CounterPunch, July 16, 2007, downloaded from http://counterpunch.org/roberts07162007.html, 6 August 2007.)

 

Iran Operational Plan - TIRANNT (Theater Iran Near Term) and Conplan 8022 

 

The Pentagon is continuing intensive planning for a possible bombing attack on Iran, a process that began last year, at the direction of the President. In recent months, the former intelligence official told me, a special planning group has been established in the offices of the Joint Chiefs of Staff, charged with creating a contingency bombing plan for Iran that can be implemented, upon orders from the President, within twenty-four hours.

 

In the past month, I was told by an Air Force adviser on targeting and the Pentagon consultant on terrorism, the Iran planning group has been handed a new assignment: to identify targets in Iran that may be involved in supplying or aiding militants in Iraq. Previously, the focus had been on the destruction of Iran’s nuclear facilities and possible regime change.

 

Two carrier strike groups—the Eisenhower and the Stennis—are now in the Arabian Sea. One plan is for them to be relieved early in the spring, but there is worry within the military that they may be ordered to stay in the area after the new carriers arrive, according to several sources. (Among other concerns, war games have shown that the carriers could be vulnerable to swarming tactics involving large numbers of small boats, a technique that the Iranians have practiced in the past; carriers have limited maneuverability in the narrow Strait of Hormuz, off Iran’s southern coast.) The former senior intelligence official said that the current contingency plans allow for an attack order this spring. He added, however, that senior officers on the Joint Chiefs were counting on the White House’s not being “foolish enough to do this in the face of Iraq, and the problems it would give the Republicans in 2008.” (Seymour Hersh, “The Redirection,” New Yorker, 5 March 2007.)

 

Code named by US military planners as TIRANNT,  "Theater Iran Near Term" has identified several thousand targets inside Iran as part of a "Shock and Awe" Blitzkrieg, which is now in its final planning stages. 

 

According to the Kuwait-based Arab Times, an attack on Iran under TIRANNT could occur any time between late February and the end of April. This assessment, however, does not take into account the disarray of US ground forces in Iraq as well as the untimely withdrawal of several thousand British troops from the Iraq war theater, many of whom were stationed in Southern Iraq on the immediate border with Iran

Revealed last April by William Arkin, a former US intelligence analyst, writing in the Washington Post, TIRANNT was first established in May 2003, following the invasion of Iraq

 

"In early 2003, even as U.S. forces were on the brink of war with Iraq, the Army had already begun conducting an analysis for a full-scale war with Iran. The analysis, called TIRANNT, for "theater Iran near term," was coupled with a mock scenario for a Marine Corps invasion and a simulation of the Iranian missile force. U.S. and British planners conducted a Caspian Sea war game around the same time. And Bush directed the U.S. Strategic Command to draw up a global strike war plan for an attack against Iranian weapons of mass destruction. All of this will ultimately feed into a new war plan for "major combat operations" against Iran that military sources confirm now exists in draft form. [This contingency plan entitled CONPLAN 8022 would be activated in the eventuality of a Second 9/11, on the presumption that Iran would be behind it]  

 

... Under TIRANNT, Army and U.S. Central Command planners have been examining both near-term and out-year scenarios for war with Iran, including all aspects of a major combat operation, from mobilization and deployment of forces through postwar stability operations after regime change." [William Arkin, Washington Post, 16 April 2006.] (Michel Chossudovsky, "’Theater Iran Near Term’ (TIRANNT),” Global Research, 21 February 2007.)

 

Consistent with CENTCOM's 1995 "sequencing" of theater operations, the plans to target Iran were activated under TIRANNT in the immediate wake of the 2003 invasion of Iraq. Confirmed by Arkin, the active component of the Iran military agenda was launched in May 2003 "when modelers and intelligence specialists pulled together the data needed for theater-level (meaning large-scale) scenario analysis for Iran." (William Arkin, Washington Post, 16 April 2006.). In October 2003, different theater scenarios for an Iran war were contemplated:

 

The US army, navy, air force and marines have all prepared battle plans and spent four years building bases and training for "Operation Iranian Freedom". Admiral Fallon, the new head of US Central Command, has inherited computerized plans under the name TIRANNT (Theatre Iran Near Term). (New Statesman, 19 Feb 2007)

 

Concurrently, the various parallel components of TIRANNT were put in place including the Marines "Concept of Operations": 

 

The Marines, meanwhile, have not only been involved in CENTCOM's war planning, but have been focused on their own specialty, "forcible entry." In April 2003, the Corps published its "Concept of Operations" for a maneuver against a mock country that explores the possibility of moving forces from ship to shore against a determined enemy without establishing a beachhead first. Though the Marine Corps enemy is described only as a deeply religious revolutionary country named Karona, it is -- with its Revolutionary Guards, WMD and oil wealth -- unmistakably meant to be Iran.

 

Various scenarios involving Iran's missile force have also been examined in another study, initiated in 2004 and known as BMD-I (ballistic missile defense -- Iran). In this study, the Center for Army Analysis modeled the performance of U.S. and Iranian weapons systems to determine the number of Iranian missiles expected to leak through a coalition defense.

 

The day-to-day planning for dealing with Iran's missile force falls to the U.S. Strategic Command in Omaha. In June 2004, Rumsfeld alerted the command to be prepared to implement CONPLAN 8022, a global strike plan that includes Iran. CONPLAN 8022 calls for bombers and missiles to be able to act within 12 hours of a presidential order. The new task force, sources have told me, mostly worries that if it were called upon to deliver "prompt" global strikes against certain targets in Iran under some emergency circumstances, the president might have to be told that the only option is a nuclear one. [William Arkin, Washington Post, 16 April 2006.] (Michel Chossudovsky, "’Theater Iran Near Term’ (TIRANNT),” Global Research, 21 February 2007.)

 

US preparations for an air strike against Iran are at an advanced stage, in spite of repeated public denials by the Bush administration, according to informed sources in Washington.

 

The present military build-up in the Gulf would allow the US to mount an attack by the spring. But the sources said that if there was an attack, it was more likely next year, just before Mr Bush leaves office.

 

Neo-conservatives, particularly at the Washington-based American Enterprise Institute, are urging Mr Bush to open a new front against Iran. So too is the vice-president, Dick Cheney. The state department and the Pentagon are opposed, as are Democratic congressmen and the overwhelming majority of Republicans. The sources said Mr Bush had not yet made a decision. The Bush administration insists the military build-up is not offensive but aimed at containing Iran and forcing it to make diplomatic concessions. The aim is to persuade Tehran to curb its suspect nuclear weapons programme and abandon ambitions for regional expansion.

 

Robert Gates, the new US defence secretary, said yesterday: "I don't know how many times the president, secretary [of state Condoleezza] Rice and I have had to repeat that we have no intention of attacking Iran."

 

But Vincent Cannistraro, a Washington-based intelligence analyst, shared the sources' assessment that Pentagon planning was well under way. "Planning is going on, in spite of public disavowals by Gates. Targets have been selected. For a bombing campaign against nuclear sites, it is quite advanced. The military assets to carry this out are being put in place."

 

He added: "We are planning for war. It is incredibly dangerous." (Ewan MacAskill, “Target Iran: US able to strike in the spring,” Guardian, 10 Feb. 2007, reproduced on Global Research, 10 Feb. 2007.)

 

The planning of aerial bombings of Iran started in mid-2004, pursuant to the formulation of CONPLAN 8022 in early 2004. In May 2004, National Security Presidential Directive NSPD 35 entitled Nuclear Weapons Deployment Authorization was issued.

 

While its contents remain classified, the presumption is that NSPD 35 pertains to the stockpiling and deployment of tactical nuclear weapons in the Middle East war theater in compliance with CONPLAN 8022.  Chossudovsky, Michel. “The Criminalization of US Foreign Policy. From the Truman Doctrine to the Neo-Conservatives,” Global Research, 5 February 2007.

 

It may be pure and fanciful speculation, but it has to be said that half the military and political establishment believes that an attack on Iran is likely. Even the Iranians are beginning to show signs of nerves, feeling (quite rightly) that President Ahmadinejad has overreached himself and put too many international backs up for the country's good.

 

So what is the truth? You won't get much of it from either the White House or Whitehall, where a sort of embarrassed evasion prevails. Part of this is because, whether it actually wants to assault Iran or not, it suits Washington to keep up the appearance that it might, the more to frighten the regime into co-operation and restraint. But part of this may be because it doesn't really have a clear plan at all.

 

The US administration has lost the confidence of the American public and the majority of Congress. No democratic leader can pursue a war without the support of either, let alone both. Iran, as far as Congress is concerned, would be a military escapade too far. The Iraqi venture is no different. We're in the end game, only no one is being honest about what they're up to. (Adrian Hamilton, “The endgame in Iraq that can't succeed: Half the military establishment believes that an attack on Iran is likely,” The Independent, 26 January 2007, reproduced in Global Research, 27 January 2007.)

 

The naval buildup has been coordinated with the planned air attacks on Iran. The latter were outlined in mid-2004, following the formulation of CONCEPT PLAN CONPLAN 8022 (early 2004). The air attacks on Iran would involve a "shock and awe" blitzkrieg on a scale similar to the 2003 air war on Iraq

In November 2004, US Strategic Command conducted a major exercise of a "global strike plan" entitled "Global Lightening". The latter involved a simulated attack using both conventional and nuclear weapons against a "fictitious enemy" [Iran]. Following the "Global Lightening" exercise, US Strategic Command declared an advanced state of readiness. 

 

CONPLAN is the operational plan pursuant to the Global Strike Plan. It is described as "an actual plan that the Navy and the Air Force translate into strike package for their submarines and bombers,' 

CONPLAN 8022 is 'the overall umbrella plan for sort of the pre-planned strategic scenarios involving nuclear weapons.'

 

'It's specifically focused on these new types of threats -- Iran, North Korea -- proliferators and potentially terrorists too,' he said. 'There's nothing that says that they can't use CONPLAN 8022 in limited scenarios against Russian and Chinese targets.' (According to Hans Kristensen, of the Nuclear Information Project, quoted in Japanese economic News Wire, op cit) 

 

The use of tactical nuclear weapons is contemplated under CONPLAN 8022 alongside conventional weapons, as part of the Bush administration's preemptive war doctrine. In May 2004, National Security Presidential Directive NSPD 35 entitled Nuclear Weapons Deployment Authorization was issued. While its contents remains classified, the presumption is that NSPD 35 pertains to the deployment of tactical nuclear weapons in the Middle East war theater in compliance with CONPLAN 8022. (Michel Chossudovsky, “’Cold War Shivers’: War Preparations in the Middle East and Central Asia,” Global Research, 6 Oct. 2006.)  

 

In a recent article, Seymour Hersh (New Yorker) has suggested that the plan to nuke Iran has recently been dropped and that instead, the administration is contemplating the use conventional bunker bombs against Iran's nuclear facilities. Hersh points to divisions between Vice President Dick Cheney and the Chairman of the Joint Chiefs of Staff  General Peter Pace. 

 

According to Hersh's assessment  the use of tactical nuclear weapons directed against the Natanz facilities is considered as "politically unacceptable" because it would "vent fatal radiation for miles."  The Air Force now contemplates dropping large "bunker-buster" bombs on Natanz to "generate sufficient concussive force to accomplish what a tactical nuclear warhead would achieve, but without provoking an outcry over what would be the first use of a nuclear weapon in a conflict since Nagasaki." 

 

It should be understood that even in the case of limited aerial attacks with conventional warheads, the result would be a Chernobyl type nuclear nightmare. The destruction of Iran's civilian nuclear facilities would lead to the spread of nuclear radiation over a vast area. (Michel Chossudovsky, “Canadian Media Calls for Nuking Iran,” Global Research, 8 Sept. 2006.)

 

Defense Secretary Donald H. Rumsfeld has approved the military's most ambitious plan yet to fight terrorism around the world and retaliate more rapidly and decisively in the case of another major terrorist attack on the United States, according to defense officials.

 

The long-awaited campaign plan for the global war on terrorism, as well as two subordinate plans also approved within the past month by Rumsfeld, are considered the Pentagon's highest priority, according to officials familiar with the three documents who spoke on the condition of anonymity because they were not authorized to speak about them publicly.

 

Details of the plans are secret, but in general they envision a significantly expanded role for the military -- and, in particular, a growing force of elite Special Operations troops -- in continuous operations to combat terrorism outside of war zones such as Iraq and Afghanistan. Developed over about three years by the Special Operations Command (SOCOM) in Tampa, the plans reflect a beefing up of the Pentagon's involvement in domains traditionally handled by the Central Intelligence Agency and the State Department.  (Washington Post, 23 April 2006, cited in Michel Chossudovsky,  “The Pentagon's ‘Second 911.’ ‘Another [9/11] attack could create both a justification and an opportunity to retaliate against some known targets.’" Global Research, 10 Aug. 2006.)

 

A third plan sets out how the military can both disrupt and respond to another major terrorist strike on the United States. It includes lengthy annexes that offer a menu of options for the military to retaliate quickly against specific terrorist groups, individuals or state sponsors depending on who is believed to be behind an attack. Another attack could create both a justification and an opportunity that is lacking today to retaliate against some known targets, according to current and former defense officials familiar with the plan.

 

This plan details "what terrorists or bad guys we would hit if the gloves came off. The gloves are not off," said one official, who asked not to be identified because of the sensitivity of the subject. (italics added. (Washington Post, 23 April 2006, cited in Michel Chossudovsky,  “The Pentagon's ‘Second 911.’ ‘Another [9/11] attack could create both a justification and an opportunity to retaliate against some known targets.’" Global Research, 10 Aug. 2006.)

 

Planned Aerial Attacks on Iran

 

An operational plan to wage aerial attacks on Iran has been in "a state of readiness" since June 2005. Essential military hardware to wage this operation has been deployed. (For further details see Michel Chossudovsky, Nuclear War against Iran, Jan 2006 ).

 

Vice President Dick Cheney has ordered USSTRATCOM to draft a "contingency plan", which "includes a large-scale air assault on Iran employing both conventional and tactical nuclear weapons." (Michel Chossudovsky, “Is the Bush Administration Planning a Nuclear Holocaust? Will the US launch ‘Mini-nukes’ against Iran in Retaliation for Tehran's ‘Non-compliance’?”  Global Research, 22 February 2006.)

 

USSTRATCOM would have the responsibility for overseeing and coordinating this military deployment as well as launching the military operation. (For details, Michel Chossudovsky, Nuclear War against Iran, Jan 2006 ). 

 

In January 2005 a significant shift in USSTRATCOM's mandate was implemented. USSTRATCOM was identified as "the lead Combatant Command for integration and synchronization of DoD-wide efforts in combating weapons of mass destruction."  To implement this mandate, a brand new command unit entitled  Joint Functional Component Command Space and Global Strike , or JFCCSGS was created. 

 

Overseen by USSTRATCOM, JFCCSGS would be responsible for the launching of military operations "using nuclear or conventional weapons" in compliance with the Bush administration's new nuclear doctrine. Both categories of weapons would be integrated into a "joint strike operation" under unified Command and Control. 

 

According to Robert S. Norris and Hans M. Kristensen, writing in the Bulletin of Atomic Scientists,

 

"The Defense Department is upgrading its nuclear strike plans to reflect new presidential guidance and a transition in war planning from the top-heavy Single Integrated Operational Plan of the Cold War to a family of smaller and more flexible strike plans designed to defeat today's adversaries. The new central strategic war plan is known as OPLAN (Operations Plan) 8044.... This revised, detailed plan provides more flexible options to assure allies, and dissuade, deter, and if necessary, defeat adversaries in a wider range of contingencies....

 

One member of the new family is CONPLAN 8022, a concept plan for the quick use of nuclear, conventional, or information warfare capabilities to destroy--preemptively, if necessary--"time-urgent targets" anywhere in the world. Defense Secretary Donald Rumsfeld issued an Alert Order in early 2004 that directed the military to put CONPLAN 8022 into effect. As a result, the Bush administration's preemption policy is now operational on long-range bombers, strategic submarines on deterrent patrol, and presumably intercontinental ballistic missiles (ICBMs)." 

 

The operational implementation of the Global Strike would be under CONCEPT PLAN (CONPLAN) 8022, which now consists of  "an actual plan that the Navy and the Air Force translate into strike package for their submarines and bombers,' (Japanese Economic Newswire, 30 December 2005, For further details see Michel Chossudovsky, Nuclear War against Iran, op. cit.).

 

CONPLAN 8022 is 'the overall umbrella plan for sort of the pre-planned strategic scenarios involving nuclear weapons.'

 

'It's specifically focused on these new types of threats -- Iran, North Korea -- proliferators and potentially terrorists too,' he said. 'There's nothing that says that they can't use CONPLAN 8022 in limited scenarios against Russian and Chinese targets.' (According to Hans Kristensen, of the Nuclear Information Project, quoted in Japanese Economic News Wire, 30 December 2005.) (Michel Chossudovsky, “Is the Bush Administration Planning a Nuclear Holocaust? Will the US launch ‘Mini-nukes’ against Iran in Retaliation for Tehran's ‘Non-compliance’?”  Global Research, 22 February 2006.)

 

The various components of the military operation are firmly under US Command, coordinated by the Pentagon and US Strategic Command Headquarters (USSTRATCOM) at the Offutt Air Force base in Nebraska

 

The actions announced by Israel would be carried out in close coordination with the Pentagon. The command structure of the operation is centralized and ultimately Washington will decide when to launch the military operation. 

 

US military sources have confirmed that an aerial attack on Iran would involve a large scale deployment comparable to the US "shock and awe" bombing raids on Iraq in March 2003: 

 

American air strikes on Iran would vastly exceed the scope of the 1981 Israeli attack on the Osiraq nuclear center in Iraq, and would more resemble the opening days of the 2003 air campaign against Iraq. Using the full force of operational B-2 stealth bombers, staging from Diego Garcia or flying direct from the United States, possibly supplemented by F-117 stealth fighters staging from al Udeid in Qatar or some other location in theater, the two-dozen suspect nuclear sites would be targeted.

 

Military planners could tailor their target list to reflect the preferences of the Administration by having limited air strikes that would target only the most crucial facilities ... or the United States could opt for a far more comprehensive set of strikes against a comprehensive range of WMD related targets, as well as conventional and unconventional forces that might be used to counterattack against US forces in Iraq  (See Globalsecurity.org at http://www.globalsecurity.org/military/ops/iran-strikes.htm

 

In November, US Strategic Command conducted a major exercise of a "global strike plan" entitled "Global Lightening". The latter involved a simulated attack using both conventional and nuclear weapons against a "fictitious enemy".

 

Following the "Global Lightening" exercise, US Strategic Command declared an advanced state of readiness (See our analysis below) 

 

While Asian press reports stated that the "fictitious enemy" in the Global Lightening exercise was North Korea, the timing of the exercises, suggests that they were conducted in anticipation of a planned attack on Iran.  (Michel Chossudovsky, “Nuclear War against Iran,” Global Research, January 3, 2006.)

A preemptive nuclear attack using tactical nuclear weapons would be coordinated out of US Strategic Command Headquarters at the Offutt Air Force base in Nebraska, in liaison with US and coalition command units in the Persian Gulf, the Diego Garcia military base, Israel and Turkey. 

 

Under its new mandate, USSTRATCOM has a responsibility for "overseeing a global strike plan" consisting of both conventional and nuclear weapons. In military jargon, it is slated to play the role of  "a global integrator charged with the missions of Space Operations; Information Operations; Integrated Missile Defense; Global Command & Control; Intelligence, Surveillance and Reconnaissance; Global Strike; and Strategic Deterrence.... "  

 

In January 2005, at the outset of the military build-up directed against Iran, USSTRATCOM was identified as "the lead Combatant Command for integration and synchronization of DoD-wide efforts in combating weapons of mass destruction." 

To implement this mandate, a brand new command unit entitled 
Joint Functional Component Command Space and Global Strike, or JFCCSGS was created. 

 

JFCCSGS has the mandate to oversee the launching of a nuclear attack in accordance with the 2002 Nuclear Posture Review, approved by the US Congress in 2002. The NPR underscores the pre-emptive use of nuclear warheads not only against "rogue states" but also against China and Russia

Since November,  JFCCSGS is said to be in "an advance state of readiness" following the conduct of relevant military exercises. The  announcement was made in early December by  U.S. Strategic Command to the effect that the command unit had achieved "an operational capability for rapidly striking targets around the globe using nuclear or conventional weapons." The exercises conducted in November used "a fictional country believed to represent North Korea" (see David Ruppe, 2 December 2005):  

 

"The new unit [JFCCSGS] has 'met requirements necessary to declare an initial operational capability' as of Nov. 18. A week before this announcement, the unit finished a command-post exercise, dubbed Global Lightening, which was linked with another exercise, called Vigilant Shield, conducted by the North American Aerospace Defence Command, or NORAD, in charge of missile defense for North America.

 

'After assuming several new missions in 2002, U.S. Strategic Command was reorganized to create better cooperation and cross-functional awareness,' said Navy Capt. James Graybeal, a chief spokesperson for STRATCOM. 'By May of this year, the JFCCSGS has published a concept of operations and began to develop its day-to-day operational requirements and integrated planning process.'

 

'The command's performance during Global Lightning demonstrated its preparedness to execute its mission of proving integrated space and global strike capabilities to deter and dissuade aggressors and when directed, defeat adversaries through decisive joint global effects in support of STRATCOM,' he added without elaborating about 'new missions' of the new command unit that has around 250 personnel.

 

Nuclear specialists and governmental sources pointed out that one of its main missions would be to implement the 2001 nuclear strategy that includes an option of preemptive nuclear attacks on 'rogue states' with WMDs. (Japanese Economic Newswire, 30 December 2005)  

 

CONCEPT PLAN (CONPLAN) 8022 

 

JFCCSGS is in an advanced state of readiness to trigger nuclear attacks directed against Iran or North Korea

 

The operational implementation of the Global Strike is called CONCEPT PLAN (CONPLAN) 8022. The latter is described as "an actual plan that the Navy and the Air Force translate into strike package for their submarines and bombers,' (Ibid). 

 

CONPLAN 8022 is 'the overall umbrella plan for sort of the pre-planned strategic scenarios involving nuclear weapons.'

 

'It's specifically focused on these new types of threats -- Iran, North Korea -- proliferators and potentially terrorists too,' he said. 'There's nothing that says that they can't use CONPLAN 8022 in limited scenarios against Russian and Chinese targets.'(According to Hans Kristensen, of the Nuclear Information Project, quoted in Japanese economic News Wire, op cit) 

 

The mission of JFCCSGS is to implement CONPLAN 8022, in other words to trigger a nuclear war with Iran

 

The Commander in Chief, namely George W. Bush would instruct the Secretary of Defense, who would then instruct the Joint Chiefs of staff to activate CONPLAN 8022. 

 

CONPLAN is distinct from other  military operations. it does not contemplate the deployment of ground troops.  

 

CONPLAN 8022 is different from other war plans in that it posits a small-scale operation and no "boots on the ground." The typical war plan encompasses an amalgam of forces -- air, ground, sea -- and takes into account the logistics and political dimensions needed to sustain those forces in protracted operations.... The global strike plan is offensive, triggered by the perception of an imminent threat and carried out by presidential order.) (William Arkin, Washington Post, May 2005 (Michel Chossudovsky, “Nuclear War against Iran,” Global Research, January 3, 2006.)

 

The Pentagon, acting under instructions from Vice President Dick Cheney’s office, has tasked the United States Strategic Command (STRATCOM) with drawing up a contingency plan to be employed in response to another 9/11-type terrorist attack on the United States. The plan includes a large-scale air assault on Iran employing both conventional and tactical nuclear weapons. Within Iran there are more than 450 major strategic targets, including numerous suspected nuclear-weapons-program development sites. Many of the targets are hardened or are deep underground and could not be taken out by conventional weapons, hence the nuclear option. As in the case of Iraq, the response is not conditional on Iran actually being involved in the act of terrorism directed against the United States. Several senior Air Force officers involved in the planning are reportedly appalled at the implications of what they are doing—that Iran is being set up for an unprovoked nuclear attack—but no one is prepared to damage his career by posing any objections. (Philip Giraldi, “Attack on Iran: Pre-emptive Nuclear War,” Global Research, 2 Aug. 2005.)

 

Are we to understand that US, British and Israeli military planners are waiting in limbo for a Second 9/11, to extend the war beyond the borders of Lebanon, to launch a military operation directed against Syria and Iran

 

 Cheney's proposed "contingency plan" did not focus on preventing a Second 9/11. The Cheney plan is predicated on the presumption that Iran would be behind a Second 9/11 and that punitive bombings could immediately be activated, prior to the conduct of an investigation, much in the same way as the attacks on Afghanistan in October 2001, allegedly in retribution for the alleged support of the Taliban government to the 9/11 terrorists. It is worth noting that one does not plan a war in three weeks: the bombing and invasion of Afghanistan had been planned well in advance of 9/11. As Michael Keefer points out in an incisive review article: 

 

"At a deeper level, it implies that “9/11-type terrorist attacks” are recognized in Cheney’s office and the Pentagon as appropriate means of legitimizing wars of aggression against any country selected for that treatment by the regime and its corporate propaganda-amplification system....  (Keefer, February 2006 )

 

In a timely statement, barely a few days following the onslaught of the bombing of Lebanon, Vice President Cheney reiterated his warning:  "The enemy that struck on 9/11 is fractured and weakened, yet still lethal, still determined to hit us again" (Waterloo Courier, Iowa, 19 July 2006, italics added). 

 

"Justification and Opportunity to Retaliate against ...the State Sponsors [of Terrorism]"

 

 In April 2006, Defense Secretary Donald H. Rumsfeld  launched a far-reaching military plan to fight terrorism around the World, with a view to retaliating in the case of a second major terrorist attack on America

 

 "Defense Secretary Donald H. Rumsfeld has approved the military's most ambitious plan yet to fight terrorism around the world and retaliate more rapidly and decisively in the case of another major terrorist attack on the United States, according to defense officials.

 

 The long-awaited campaign plan for the global war on terrorism, as well as two subordinate plans also approved within the past month by Rumsfeld, are considered the Pentagon's highest priority, according to officials familiar with the three documents who spoke on the condition of anonymity because they were not authorized to speak about them publicly.

 

Details of the plans are secret, but in general they envision a significantly expanded role for the military -- and, in particular, a growing force of elite Special Operations troops -- in continuous operations to combat terrorism outside of war zones such as Iraq and Afghanistan. Developed over about three years by the Special Operations Command (SOCOM) in Tampa, the plans reflect a beefing up of the Pentagon's involvement in domains traditionally handled by the Central Intelligence Agency and the State Department. (Washington Post, 23 April 2006)

 

 This plan is predicated on the possibility of a Second 911 and the need to retaliate if and when the US is attacked: 

 

 "A third plan sets out how the military can both disrupt and respond to another major terrorist strike on the United States. It includes lengthy annexes that offer a menu of options for the military to retaliate quickly against specific terrorist groups, individuals or state sponsors depending on who is believed to be behind an attack. Another attack could create both a justification and an opportunity that is lacking today to retaliate against some known targets, according to current and former defense officials familiar with the plan.

 

 This plan details "what terrorists or bad guys we would hit if the gloves came off. The gloves are not off," said one official, who asked not to be identified because of the sensitivity of the subject. (italics added, WP 23 April 2006)

 

The presumption of this military document, is that a Second 911 attack "which is lacking today" would usefully create both a "justification and an opportunity" to wage war on "some known targets [Iran and Syria]". 

 

The announcement on August 10 by the British Home Office of a foiled large scale terror attack to simultaneously blow up as many as ten airplanes, conveys the impression that it is the Western World rather than the Middle East which is under attack. 

Realities are twisted upside down. The disinformation campaign has gone into full gear. The British and US media are increasingly pointing towards  "preemptive war" as an act of "self defense" against Al Qaeda and the State sponsors of terrorism, who are allegedly preparing a Second 911. The underlying objective, through fear and intimidation, is ultimately to build public acceptance for the next stage of the Middle East "war on terrorism" which is directed against Syria and Iran(Michel Chossudovsky, “The Pentagon's "Second 911." ‘Another [9/11] attack could create both a justification and an opportunity to retaliate against some known targets,’"
Global Research, 10 August 2006, downloaded from

http://www.globalresearch.ca/index.php?context=viewArticle&code=CHO20060810&articleId=2942, 3 Aug. 2007.)

 

Iran Operational Plan – Civilian Targets

 

Press reports in the Middle East confirm that the planned air strikes are by no means limited to Iran's nuclear facilities. Central Command Headquarters in Florida (CENTCOM) has already selected a comprehensive list of  military and civilian targets. Industrial sites, civilian infrastructure including roads, water systems, bridges,  electric power plants telecommunications towers, government buildings are part of the assumptions underlying the Blitzkrieg.  "A single raid could result in 10,000 targets being hit with warplanes flying from the US and Diego Garcia" [Gulf News, 21 Feb 2007, emphasis added.] (Michel Chossudovsky, "’Theater Iran Near Term’ (TIRANNT),” Global Research, 21 February 2007.)

 

Iran Operational Plan - Naval Deployment

 

Three strike groups including the Stennis, the Eisenhower and the Nimitz are being deployed in the Persian Gulf. According to Gulf News, "The Stennis strike group...  is now strengthening a high level of US Navy presence in the Gulf. The Stennis and the carrier Dwight D. Eisenhower, already in the region, will soon be joined by the carrier Nimitz. (Gulf News,  21 Feb 2007). According to British military sources, the US navy can put six carriers into battle at a month's notice. (Michel Chossudovsky, "’Theater Iran Near Term’ (TIRANNT),” Global Research, 21 February 2007.)

 

The US-led naval deployment (involving a massive deployment of military hardware) is taking place in two distinct theaters: the Persian Gulf and the Eastern Mediterranean.

 

The militarization of the Eastern Mediterranean is broadly under the jurisdiction of NATO in liaison with Israel. Directed against Syria, it is conducted under the façade of a UN peace-keeping mission. In this context, the war on Lebanon last Summer must be viewed as a stage of the broader US sponsored military road-map.

 

The naval armada in the Persian Gulf is largely under US command, with the participation of Canada. (Michel Chossudovsky, “The Unthinkable: The US- Israeli Nuclear War on Iran,” Global Research, 21 January 2007.)

 

In this context, the Israeli led war on Lebanon last Summer, which was conducive to countless atrocities and the destruction of an entire country, must be viewed as a stage of the broader US sponsored military road-map. …

The naval buildup is coordinated with the air attacks. (Michel Chossudovsky, “The Criminalization of US Foreign Policy. From the Truman Doctrine to the Neo-Conservatives,” Global Research, 5 February 2007.)

 

Manipulation of Iraq War Casualty Lists

 

 [Torin Wolf’s] s insight as a combat nurse reveals that the actual amount of dead troops numbers around 15,000-17,000, not the 3,500 we have been told. “If you get shot in combat – Bam! Clock goes off. If you die in transit [to a hospital out of Iraq such as Ramstein in Germany] you are not an official Iraq casualty.” The same holds true if the troops out of the country die 24 hours after they were hit in Iraq. The official troop death number is just those that have died in action on the ground. (Gibb Wake, “Iraq war veteran and experienced demolitions expert blows the cover on 9/11 inside job,” National Writer’s Syndicate, 31 July 2007, downloaded from   http://nationalwriterssyndicate.com/index.php?option=com_content&task=view&id=128&Itemid=2, 31 July 2007.)

 

Cheney Defends Iraq Invasion

 

Asked whether the decision to invade Iraq was the right one, despite the failure to find the weapons of mass destruction at the center of the public case for war, Cheney replied: "Yes, sir."


"The decisions we've made with respect to Iraq and Afghanistan have been absolutely the sound ones in terms of the overall strategy," he said, in a reference to himself and to US President George W. Bush.

"We walk out of here on January 20th of '09, and I think we'll be able to hold our heads high knowing we did the best we could for the country. That's what counts more than anything else," he said. (“Iraq Crackdown Yielding Results, Says Cheney,” International News, 1 Aug. 2007.)

 

Threats of War against Pakistan

 

Cheney also has the option of attacking into Pakistan. Cheney had visited Pakistan at the end of February [2007] with an obvious ultimatum to General Musharraf to get ready to mount a land war against Iran this summer. Equally and immediately obvious was the fact that Musharraf, who considers himself the heir to the great Mustafa Kemal Ataturk of Turkey, had told the Vice President to go Cheney himself. With Pakistan refusing to attack its neighbor, Cheney suddenly discovered that Osama bin Laden was being protected by Musharraf! ….

 

If Musharraf was harboring Osama, why would al Qaeda declare war against Musharraf? The answer is what it has always been: “al Qaeda” is a troupe of agents provocateurs founded by the CIA and the British, and remains so until this day. Webster G. Tarpley, Cheney determined to strike in US with WMD this summer; only impeachment and removal, or a general strike, can stop him,” Online Journal, 23 July 2007, downloaded from http://onlinejournal.com/artman/publish/article_2220.shtml, 6 August 2007.)

 

American Violations of Human Rights

 

My government has a secret unit that since December of 2001 has been disappearing people just like the Brazilians and the Argentineans did. Rumsfeld decided after 9/11 that he could not wait. The president signed a secret document…There's a team of people, they fly in unmarked planes, they fly in Gulfstreams, they have their own choppers, they don't carry American passports, and they just grab people. (Bonnie Azab Powell, “Investigative journalist Seymour Hersh spills the secrets of the Iraq quagmire and the war on terror,” UC Berkeley News Center, 11 October 2004, downloaded from http://www.berkeley.edu/news/media/releases/2004/10/11_hersh.shtml, 12 Aug. 2007.)

 

While his critics may call him a "muckraker" and unpatriotic, on Friday night it was obvious that Hersh takes the crumbling of America's image, very, very personally.

 

"My parents were immigrants," Hersh said. "They came here because America meant something…the Statue of Liberty and all that stuff, because America always was this bastion of morality and integrity and a place for a fresh start. And it's right in front of us, not hidden, that they've taken this away from us."  (Bonnie Azab Powell, “Investigative journalist Seymour Hersh spills the secrets of the Iraq quagmire and the war on terror,” UC Berkeley News Center, 11 October 2004, downloaded from http://www.berkeley.edu/news/media/releases/2004/10/11_hersh.shtml, 12 Aug. 2007.)

 

Muslim Reaction

 

Death is not the "item" in the news. It is the death of the myth of American justice and freedom. So now we can all breathe freely as we see the true nature of the animal before us. Even those who continued to insist on living in doubt can deny it no longer.  (Mirza Yawar Baig, “The Black Bull [Saddam] dies today,” Information Clearing House, 30 Dec. 2006, downloaded from http://www.european911citizensjury.com/07.htm, 12 Aug. 2007.)

 

 


Dollar and Power Hegemony

 

Financial Meltdown and the End of Dollar Hegemony

 

When it comes to financial magic, the government of the United States takes the prize. Sleights of hand and clever distractions by purveyors of line-of-credit mortgages, living-benefit variable annuities and equity-indexed life insurance are clumsy parlour tricks compared with the Big Magic of American politicians.

Consider the proud trumpeting that came from Washington at the close of fiscal 2007. The deficit for the unified budget was, politicians crowed, down to a mere $162.8 billion.

In fact, the U.S. government is overspending at a far greater rate. The total federal debt actually increased by $497.1 billion over the same period.

But politicians of both parties use happy numbers to distract American voters. Democrats routinely criticize the Republican administration for crippling deficits, but they politely use the least-damaging figure, the $162.8 billion. Why? Because references to more-realistic accounting would reveal vastly greater numbers and implicate both parties.

You can understand how this is done by taking a close look at a single statement on U.S. federal finance from the president's Council of Economic Advisers. The September statement shows that the "on-budget" numbers produced a deficit of $344.3 billion in fiscal 2007. The "off-budget" numbers had a surplus of $181.5 billion. (The off-budget figures are dominated by Social Security, Medicare and other programs with trust funds.)

Combine those two figures and you get the unified budget, that $162.8 billion. In the past eight years there's been two years of reported surpluses and six years of reported deficits. Altogether, the total reported deficit has run $1.3 trillion.

Some numbers don't add up
But if you examine another figure, the gross U.S. federal debt, you'll see something strange. First, the U.S. debt has increased in each of the past eight years, even in the two years when surpluses were reported. Second, the gross federal debt, which includes the obligations held by the Social Security and Medicare trust funds, has increased much faster than the deficits -- about $3.3 trillion over the same eight years.

That's $2 trillion more than the reported $1.3 trillion in deficits over the period. Can you spell "Enron"?

In other words, while the reported deficits averaged $164 billion over the past eight years, U.S. government debt increased an average of $418 billion a year. That's a lot more than twice as much.

How could this happen?

Easy. The U.S. Treasury Department simply credits the Social Security, Medicare and other trust funds with interest payments in the form of new Treasury obligations. No cash is actually paid. The trust funds magically increase in value with a bookkeeping entry. It represents money the American government owes itself.

So what happens if the funny money is taken away?

When the imaginary interest payments are included, Social Security and Medicare are running at a tranquilizing surplus (that $181.5 billion mentioned earlier). But measure actual cash, and the surplus disappears.

In 2005, for instance, the U.S. Social Security Disability Income program started to run at a cash loss. 2007 is the first year that Medicare Part A (the hospital insurance program) benefits exceeded income.

The same thing will happen to the U.S. Social Security retirement-income program in six to nine years, depending on which of the trustees' estimates you use. During the same period, the expenses of Medicare Part B and Part D, which are paid out of general tax revenue, will rise rapidly.

Despite this, the U.S. Social Security Administration writes workers every year advising them that the program will have a problem 34 years from now, not six or nine years. In fact, the real problem is already here. It will be a big-time problem in less than a decade.

Count on it.  (Scott Burns, “U.S. government tricks hide trillions in debt: Every year, tens or even hundreds of billions of dollars are quietly added to the U.S. national debt -- on top of the deficits that we hear about. What's going on?,” Sympatico.MSN, 21 Nov. 2007, downloaded from http://finance.sympatico.msn.ca/Investing/Insight/Article.aspx?cp-documentid=5750084.)

It’s a Bloodbath. That’s the only way to describe it.

On Friday the Dow Jones took a 280 point nosedive on fears that that losses in the subprime market will spill over into the broader economy and cut into GDP.

 

Ever since the two Bears Sterns hedge funds folded a couple weeks ago the stock market has been writhing like a drug-addict in a detox-cell. Yesterday’s sell-off added to last week’s plunge that wiped out $2.1 trillion in value from global equity markets. New York investment guru, Jim Rogers said that the real market is “one of the biggest bubbles we’ve ever had in credit” and that the subprime rout “has a long way to go.”

We are now beginning to feel the first tremors from the massive credit expansion which began 6 years ago at the Federal Reserve. The trillions of dollars which were pumped into the global economy via low interest rates and increased money supply have raised the nominal value of equities, but at great cost. Now, stocks will fall sharply and businesses will fail as volatility increases and liquidity dries up. Stagnant wages and a declining dollar have thrust the country into a deflationary cycle which has---up to this point---been concealed by Greenspan’s “cheap money” policy. Those days are over. Economic fundamentals are taking hold. The market swings will get deeper and more violent as the Fed’s massive credit bubble continues to unwind. Trillions of dollars of market value will vanish overnight. The stock market will go into a long-term swoon.

Ludwig von Mises summed it up like this:

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The question is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved." (Thanks to the Daily Reckoning)

It doesn’t matter if the “underlying economy is strong” (as Henry Paulson likes to say). That’s nonsense. Trillions of dollars of over-leveraged bets are quickly unraveling which has the same effect as taking a wrecking ball down Wall Street.

This week a third Bear Stearns fund shuttered its doors and stopped investors from withdrawing their money. Bear’s CFO, Sam Molinaro, described the chaos in the credit market as the worst he'd seen in 22 years. At the same time, American Home Mortgage Investment Corp---the 10th-largest mortgage lender in the U.S. ---said that “it can't pay its creditors, potentially becoming the first big lender outside the subprime mortgage business to go bust.” (MarketWatch)

This is big news, mainly because AHM is the first major lender OUTSIDE THE SUBPRIME MORTGAGE BUSINESS to go belly-up. The contagion has now spread through the entire mortgage industry—Alt-A, piggyback, Interest Only, ARMs, Prime, 2-28, Jumbo,—the whole range of loans is now vulnerable. That means we should expect far more than the estimated 2 million foreclosures by year-end. This is bound to wreak havoc in the secondary market where $1.7 trillion in toxic CDOs have already become the scourge of Wall Street.

Some of the country’s biggest banks are going to take a beating when AHM goes under. Bank of America is on the hook for $1.3 billion, Bear Stearns $2 billion and Barclay’s $1 billion. All told, AHM’s mortgage underwriting amounted to a whopping $9.7 billion. (Apparently, AHM could not even come up with a measly $300 million to cover existing deals on mortgages! Where’d all the money go?) This shows the downstream effects of these massive mortgage-lending meltdowns. Everybody gets hurt.

AHM’s stock plunged 90% IN ONE DAY. Jittery investors are now bailing out at the first sign of a downturn. Wall Street has become a bundle of nerves and the problems in housing have only just begun. Inventory is still building, prices are falling and defaults are steadily rising; all the necessary components for a full-blown catastrophe.

AHM warned investors on Tuesday that it had stopped buying loans from a variety of originators. 2 other mortgage lenders announced they were going out of business just hours later. The lending climate has gotten worse by the day. Up to now, the banks have had no trouble bundling mortgages off to Wall Street through collateralized debt obligations (CDOs). Now everything has changed. The banks are buried under MORE THAN $300 BILLION worth of loans that no one wants. The mortgage CDO is going the way of the Dodo. Unfortunately, it has attached itself to many of the investment banks on its way to extinction.

And it’s not just the banks that are in for a drubbing. The insurance companies and pension funds are loaded with trillions of dollars in “toxic waste” CDOs. That shoe hasn’t even dropped yet. By the end of 2008, the economy will be on life-support and Wall Street will look like the Baghdad morgue. America’s biggest financials will be splayed out on a marble slab peering blankly into the ether.

Think I’m kidding?

Already the big investment banks are taking on water. Merrill Lynch has fallen 22% since the start of the year. Citigroup is down 16% and Lehman Bros Holdings has dropped 22%. According to Bloomberg News: “The highest level of defaults in 10 years on subprime mortgages and a $33 billion pileup of unsold bonds and loans for funding acquisitions are driving investors away from debt of the New York-based securities firms. Concerns about credit quality may get worse because banks promised to provide $300 billion in debt for leveraged buyouts announced this year……Bear Stearns Cos., Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Goldman Sachs Group Inc., are as good as junk.”

That’s right---“junk”.

We’ve never seen an economic tsunami like this before. The dollar is falling, employment and manufacturing are weakening, new car sales are off for the seventh straight month, consumer spending is down to a paltry 1.3%, and oil is hitting new highs every day as it marches inexorably towards a $100 per barrel.

So, where’s the silver lining?

Apart from the 2 million-plus foreclosures, and the 80 or so mortgage lenders who have filed for bankruptcy; a growing number of investment firms are feeling the pinch from the turmoil in real estate. Bear Stearns; Basis Capital Funds Management, Absolute Capital, IKB Deutsche Industrial Bank AG, Commerzbank AG, Sowood Capital Management, C-Bass, UBS-AG, Caliber Global Investment and Nomura Holdings Inc.—are all either going under or have taken a major hit from the troubles in subprime. The list will only grow as the weeks go by. (Check out these graphs to understand what’s really going on in the housing market. http://www.recharts.com/reports/CSHB031207/CSHB031207.html?ref=patrick.net

The problems in real estate are not limited to residential housing either. The credit crunch is now affecting deals in commercial real estate, too. Low-cost, low-documentation, “covenant lite” loans are a thing of the past. Banks are finally stiffening their lending requirements even though the horse has already left the barn. Commercial mortgage-backed securities are now nearly as tainted as their evil-twin, residential mortgage-backed securities (RMBS). There’s no market for these turkeys. The banks are returning to traditional lending standards and simply don’t want to take the risk anymore.

Bataan
Death March?

Leveraged Buy Outs (LBOs) have been a dependable source of market liquidity. But not any more. In the last quarter, there was $57 billion in LBOs. In the first month of this quarter that amount dropped to less than $2 billion. That’s quite a tumble. The Wall Street Journal’s Dennis Berman summed it up like this: “the Street is scrambling to finance some $220 billion of leveraged buy out deals” (but) the “mood has gone from Nantucket holiday to Bataan Death March”.

Berman nailed it. The investment banks took great pleasure in their profligate lending; raking in the lavish fees for joining mega-corporations together in conjugal bliss. Then someone took the punch bowl. Now the banking giants are scratching their heads-- wondering how they can unload $220B of toxic-debt onto wary investors. It won’t be easy.

“The banks and brokers are in the bull’s eye,” said Kevin Murphy. “There’s article after article not only on subprime, but also banks sitting on leveraged buy out loans.” (WSJ) Credit protection on bank debt is soaring just as investor confidence is on the wane. In fact, the VIX index (The “fear gauge”) which measures market volatility--- has surged 60% in the last week alone. The increased volatility means that more and more investors will probably ditch the stock market altogether and head for the safety of US Treasuries.

But, that just presents a different set of problems. After all, what good are US Treasuries if the dollar continues to plummet? No one will put up with 5% or 6% return on their investment if the dollar keeps sliding 10% to 15% per year. It would be wiser to one’s move money into foreign investments where the currency is stable.

And, that is (presumably) why Treasury Secretary Paulson is in China today---to sweet talk our Communist bankers into buying more USTs to prop up the flaccid greenback. (Note: The Chinese are currently holding $103 billion in toxic US-CDOs---and are not at all happy about their decline in value.) If the Chinese don’t purchase more US debt, then panicky US investors will start moving their dollars into gold, foreign currencies and German state bonds as a hedge against inflation. This will further accelerate the flight of foreign capital from American markets and trigger a massive blow-off in the stock and bond markets. In fact, this process is already underway (although it has been largely concealed in the business media).  In truth, the big money has been fleeing the US for the last 3 years. What passes as “trading” on Wall Street today is just the endless expansion of credit via newer and more opaque debt-instruments. It’s all a sham. America’s hard assets are being sold off at an unprecedented pace.

Credit Crunch: Whose ox gets gored?

When money gets tight; anyone who is “over-extended” is apt to get hurt. That means that the maxed-out hedge fund industry will continue to get clobbered. At current debt-to-investment ratios, the stock market only has to fall about 10% for the average hedge fund to take a 50% scalping. That’s more than enough to put most funds under water for good. The carnage in Hedgistan will likely persist into the foreseeable future.

That might not bother the robber-baron fund-managers who’ve already extracted their 2% “pound of flesh” on the front end. But it’s a rotten deal for the working stiff who could lose his entire retirement in a matter of hours. He didn’t realize that his investment portfolio was a crap-shoot. He probably thought there were laws to protect him from Wall Street scam-artists and flim-flam men.

It’ll be even worse for the banks than the hedge funds. In fact, the banks are more exposed than any time in history. Consider this: the banks are presently holding a half trillion dollars in debt (LBOs and CDOs) FOR WHICH THERE IS NO MARKET. Most of this debt will be dramatically downgraded since the CDOs have no true “mark to market” value. It’s clear now that the rating agencies were in bed with the investment banks. In fact, Joshua Rosner admitted as much in a recent New York Times editorial:

“The original models used to rate collateralized debt obligations were created in close cooperation with the investment banks that designed the securities”…. (The agencies) “actively advise issuers of these securities on how to achieve their desired ratings.” (Joshua Rosner, “Stopping the Subprime Crisis,” NY Times.)

Pretty cozy deal, eh? Just tell the agency the rating you want and they tell you how to get it.

Now we know why $1.7 trillion in CDOs are headed for the landfill.

The downgrading of CDOs has just begun and Wall Street is already in a frenzy over what the effects will be. Once the ratings fall, the banks will be required to increase their reserves to cover the additional risk. For example, “As a recent issue of Grant’s explains, global commercial banks are only required to set aside 56 cents ($0.56) for every $100 worth of triple-A rated securities they hold. That’s roughly 178 to 1 ratio. Drop that down to double-B minus, and the requirement skyrockets to $52 per $100 worth of securities held---a margin increase of more than 9,000%”.

“56 cents ($0.56) for every $100 worth of triple-A rated securities”?!? Are you kidding me?

As Mugambo Guru says, "That is 1/18th of the 10% stock margin equity required in 1929"!! (Mugambo Guru; kitco.com)

The high-risk game the banks have been playing---of “securitizing” the loans of applicants with shaky credit---is falling apart fast. There’s no market for chopped-up loans from over-extended homeowners with bad credit. The banks don’t have the reserves to cover the loans they have on the books and the CDOs have no fixed market value. End of story. The music has stopped and the banks can’t find a chair.

The public doesn’t know anything about this looming disaster yet. How will people react when they drive up to their local bank and see plywood sheeting covering the windows?

This will happen. There will be bank failures.

The derivatives market is another area of concern. The notional value of these relatively untested instruments has risen to $286 trillion in 2006---up from a meager $63 trillion in 2000. No one has any idea of how these new “swaps and options” will hold up in a slumping market or under the stress of increased volatility. Could they bring down the whole market?

That depends on whether they’re backed-up by sufficient collateral to meet their obligations. But that seems unlikely. We’ve seen over and over again that nothing in this new deregulated market is “as it seems”. It’s all stardust mixed with snake oil. What the Wall Street hucksters call the “new financial architecture of investment” is really nothing more than one overleveraged debt-bomb stacked atop another. Ironically, many of these same swindles were used in the run-up to the Great Depression. Now they’ve resurfaced to do even more damage. When the crooks and con-men write the laws (deregulation) and run the system; the results are usually the same. The little guy always gets screwed. That much is certain.

At present, the stock market is running on fumes. Another 4 to 6 months of wild gyrations and it’ll be over. The NASDAQ plunged 75% after the dot.com bust. How low will it go this time?

Keep an eye on the yen. The ongoing troubles in subprime and hedge funds are pushing the yen upwards which will unwind trillions of dollars of low interest, short term loans which are fueling the rise in stock prices. If the yen strengthens, traders will be forced to sell their positions and the market will tank. It’s just that simple. The Dow Jones will be a Dead Duck.

So far, Japan’s monetary manipulations have been a real boon for Wall Street--enriching the investment bankers, the big-time traders and the hedge fund managers. They’re the one’s who can take advantage of the interest rate spread and then maximize their leverage in the stock market. It works like a charm in an up-market, but things can unravel quickly when the market retreats or starts to zigzag erratically. The recent rumblings suggest that the volatility will continue which will push the yen upwards and cut off the flow of cheap credit to the stock market. When that happens, the end is nigh.

The American People: “We’re not a dumb as you think”

It’s always refreshing to find out that the majority of Americans seem to have a grasp of what is really going on behind the fake headlines. For example, The Wall Street Journal/NBC conducted a poll this week which shows that two-thirds of Americans believe that “the economy is either in a recession now or will be in the next year.” That matches up pretty well with the 71% of Americans who now feel the Iraq War “was a mistake”. Americans are clearly downbeat in their outlook on the economy and haven’t been taken in by the daily infusions of happy talk about “low inflation” and “sustained growth” from toothy TV pundits. In fact, the mood of the country regarding the economy is downright gloomy. “Only 19% of Americans say things in the nation are headed in the right direction, while 67% say the country is off on the wrong track.” Iraq, of course, is the number one reason for the pessimism, but the dissatisfaction runs much deeper than just that.

“Only 16% expressed substantial confidence in the financial industry”—“18% in the energy or pharmaceutical industries”—“17% in large corporations and 11% in health-insurance companies.” Only 18% of the people have confidence in the corporate media and only 16% in the federal government.

These are encouraging numbers. They show that the vast majority of people have lost confidence in the system and its institutions. They also illustrate the limits of propaganda. People are not as easily indoctrinated as many believe. Eventually the “bewildered herd” catches on and sees through the lies and deception.

The American people know intuitively that something is fundamentally wrong with the economy. They just don’t know the details or the extent of the damage. Decades of neoliberal policies have inflated the currency, broadened the wealth gap, and destroyed manufacturing. Workers can no longer buy the things they produce because wages have stagnated through a stealth campaign of inflation which originated at the Federal Reserve. When wages shrink, prices eventually fall from overcapacity and the economy slips into a deflationary cycle. This downward spiral ultimately ends in depression. So far, that's been avoided because of the Fed’s massive expansion of cheap credit. But that won’t last.

Economic policy is not “accidental”. The Fed’s policies were designed to create a crisis, and that crisis was intended to coincide with the activation of a nation-wide police-state. It is foolish to think that Greenspan or his fellows did not grasp the implications of the system they put in place. These are very smart men and very shrewd economists. They knew exactly what they were doing. They all understand the effects of low interest rates and expanded money supply. And, they’re also all familiar with Ludwig von Mises, who said:

"There is no means of avoiding the final collapse of a boom brought about by credit expansion.”

A crash is unavoidable because the policies were designed to create a crash. It’s that simple.

The Federal Reserve is a central player in a carefully considered plan to shift the nation’s wealth from one class to another. And they have succeeded. Nearly 4 million American jobs have been sent overseas, the country has increased the national debt by $3 trillion dollars, and foreign investors own $4.5 trillion in US dollar-backed assets. While the Fed has been carrying out its economic strategy; the Bush administration has deployed the military around the world to conduct a global resource war. These are two wheels on the same axle. The goal is to maintain control of the global economic system by seizing the remaining energy resources in Eurasia and the Middle East and by integrating potential rivals into the American-led economic model under the direction of the Central Bank. All of the leading candidates—Democrat and Republican---belong to secretive organizations which ascribe to the same basic principles of global rule (new world order) and permanent US hegemony. There’s no quantifiable difference between any of them.

The impending economic crisis is part of a much broader scheme to remake the political system from the ground-up so it better meets the needs of ruling elite. After the crash, public assets will be sold at firesale prices to the highest bidder. Public lands will be auctioned off. Basic services will be privatized. Democracy will be shelved.

The unsupervised expansion of credit through interest rate manipulation is the fast-track to tyranny. Thomas Jefferson fully understood this. He said:

“If the American people ever allow private banks to control the issue of our currency, first by inflation, then by deflation, the banks and the corporations that will grow up will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.”

We are now in the first phase of Greenspan’s Depression. The stock market is headed for the doldrums and the economy will quickly follow. Many more mortgage lenders, hedge funds and investment banks will be carried out feet first.

As the disaster unfolds, we should try to focus on where the troubles began and keep in mind Jefferson’s injunction:

“The issuing of power should be taken from the banks and restored to the people to whom it properly belongs.”

Rep. Ron Paul is the only presidential candidate who supports abolishing the Federal Reserve. (Mike Whitney, “Stock market Meldown,” Global Research, 6 Aug. 2007.)

 

Stock markets worldwide slumped Thursday amid mounting fears that the crisis in the subprime mortgage lending market is leading to a more generalized credit crisis. The Dow-Jones Industrial Average, the most widely followed stock index, ended down 387.18 points, its largest loss in six months and the fourth triple-digit movement in five days, an indication of the increasing instability in financial markets.

 

Thursday’s triggering event was the announcement by BNP Paribas, the biggest publicly-held French bank, that three of its subsidiaries engaged in trading in US mortgage-backed securities were suspending operations. This came as a German central bank meeting was under way to discuss a bailout of IKB Deutsche Industriebank, a regional bank overexposed to losses in the US subprime market. At the same time, the Dutch lender NIBC Holding said it had lost $189 million on United States mortgage investments.

 

BNP Paribas said that no redemptions would be made on the $3.8 billion invested in the funds until it could determine the value of the assets held by them. “The complete evaporation of liquidity in certain market segments of the U.S. securitization market has made it impossible to value certain assets fairly regardless of their quality or credit rating,” the bank said in a statement.

 

Securitization is a process in which a home mortgage is resold by the mortgage lender and then combined with thousands of other mortgages in packages that are sold to hedge funds and other huge investment firms in the form of Collateralized Debt Obligations, or CDOs. The process is so complex, and the distance so great between the underlying asset—the home—and the paper held by the investor, that determining the actual value of the investment under conditions of rising defaults and foreclosures has become problematic.

 

French stocks fell 3 percent in afternoon trading, while Germany’s DAX index dropped 2.13 percent and Britain’s FTSE 100 fell 1.96 percent. The New York Stock Exchange fell 200 points in its first hour, then rallied, partly in response to well-publicized interventions by central banks to stabilize the financial markets.

 

The European Central Bank made available nearly 100 billion euros ($130 billion) at a cut-price 4 percent interest rate for bank lenders. It was the first such intervention by the ECB, which manages the value of the euro, since the terrorist attacks of September 11, 2001 shut down the New York financial markets for several days.

 

After the European action, the Federal Reserve Bank of New York injected $24 billion into the money markets by entering into repurchase agreements with major banks. The Bank of Canada also injected funds into the banking system, and issued a public statement that “it will provide liquidity to support the stability of the Canadian financial system and the continued functioning of financial markets.”

 

Even President Bush joined in the confidence-building exercise, issuing a carefully worded reassurance to the market in the course of his last White House press conference before embarking on his month-long sojourn in Crawford, Texas. He avoided the subject in his opening remarks—since that would have underscored the magnitude of the crisis—and waited until reporters asked his reaction to the financial upheaval.

 

In comments that were clearly rehearsed, Bush declared, “The fundamentals of our economy are strong.” He added, “Another factor one has got to look at is the amount of liquidity in the system. In other words, is there enough liquidity to enable markets to be able to correct? And I am told there is enough liquidity in the system to enable markets to correct.”

 

Bush later added—in another reassurance to Wall Street—that he opposed any proposal to raise the tax rate on the earnings of hedge fund managers, by taxing so-called “carried interest” as income rather than capital gains. While endorsing the billion-dollar incomes of the big speculators, he rejected any effort to bail out homeowners facing foreclosure or huge increases in monthly payments under adjustable-rate mortgages.

 

But in afternoon trading in New York, the wave of selling returned, partly in response to further indications that the subprime lending debacle was having a wider impact. This included press reports of heavy losses and forced selling of holdings by North American Equity Opportunities, a hedge fund run by Goldman Sachs, the huge investment bank.

 

A letter to investors in Black Mesa Capital, another hedge fund, noted that one “very large hedge fund” was liquidating a “massive” trading portfolio. The letter, reported Thursday by MarketWatch, declared, “‘Clearly, something is amiss in the markets that few in our strategy, if anyone, have experienced before.”

 

American International Group (AIG), the largest US insurance company and a major mortgage lender, warned Thursday that defaults on subprime mortgages were increasing, and that the increased delinquency rate was spreading to mortgages in the category just above subprime, which AIG terms “nonprime.” AIG said 10.8 percent of subprime mortgages were 60 days overdue, compared with 4.6 percent in the nonprime category.

 

Press reports emphasized the shock effect of the French banking crisis on Wall Street trading. According to the Associated Press (AP): “The announcement by BNP Paribas raised the specter of a widening impact of U.S. credit market problems. The idea that anyone—institutions, investors, companies, individuals—can’t get money when they need it unnerved a stock market that has suffered through weeks of volatility triggered by concerns about available credit and bad subprime mortgages.”

 

The AP suggested that the massive intervention by the European Central Bank had had a boomerang effect. According to the Associated Press, “although the bank’s loan of more than $130 billion in overnight funds to banks at a bargain rate of 4 percent was intended to calm investors, Wall Street saw the step as confirmation of the credit markets’ problems.”

 

Other events this week have demonstrated the deep-going crisis in the financial system. On Monday, American Home Mortgage, once the 10th-largest home mortgage lender, filed for bankruptcy, laying off nearly 7,000 employees, many at its Long Island, New York headquarters, and suspending most operations.

 

The giant investment bank Bear Stearns fired co-president Warren Spector, holding him responsible for the failure of two hedge funds that were part of the asset management group he supervised. The two funds, specializing in securities backed by subprime mortgages, filed for bankruptcy after losing billions, and last Friday Bear Stearns saw its credit rating lowered.

 

Figures reported in the financial press show a wider pattern of credit-tightening. Thomson Financial reported that sales of high-yield junk bonds fell from $22.4 billion in June to only $2.4 billion in July, while sales of investment-grade bonds fell from $109 billion in June to $30.4 billion in July, the lowest monthly figure in five years.

 

The Los Angeles Times noted, “many analysts say the real test will come in September, when private equity firms and investment banks will need to find investors for an estimated $330 billion in bonds and loans needed to finance corporate buyouts that already have been announced.”

 

The economics columnist for the Washington Post, Robert Samuelson, normally a free-market true believer, expressed the gloom settling in among financial observers. In Thursday’s column, written before the latest market plunge, he bemoaned the almost incomprehensible complexity of the mortgage securitization process: “The peril is that so much has changed so quickly that no one knows how the system operates. It’s often roulette. Monday’s defensible investment may become Tuesday’s silly speculation. Global markets are interconnected, and financial conditions are tightening. Some hedge funds—including foreign funds—have suffered huge losses on US subprime mortgages. These could harm banks that lent to hedge funds. Up to a point, losses are inevitable and desirable. They remind investors of risk. But too many losses—too much fear of the unknown — can trigger a chain reaction of selling and credit contraction. This must worry the Federal Reserve and other government central banks.”

 

Another Post business columnist, Steven Pearlstein, wrote: “Meanwhile, at hedge funds, insurance companies and the big Wall Street banks, masters of the universe are sweating bullets over what they are going to tell investors and regulators about all those assets on their balance sheets that, suddenly, nobody wants to buy. They include credit swaps and other fancy derivatives, along with loans to private-equity firms for corporate buyouts.”

 

Pearlstein was scathing about what he termed the Bush “administration’s Katrina-like response to the meltdown in the mortgage market, which has spread well beyond sketchy subprime loans... when, as result of market and regulatory failures, millions of Americans face the prospect of losing their homes, jobs or retirement savings, you’d expect the government to show a bit more urgency and candor about the problem, and more creativity and leadership in addressing it. This is hardly the time to head for the ranch and the beach and leave everything to Mr. Market.” (Patrick Martin, “Credit fears spark stock market plunge.” World Socialist Web Site, 10 August 2007.)

 

The U.S. Dollar is kaput. Confidence in the currency is eroding by the day.

A report in The Sydney Morning Herald stated, "Australia’s Treasurer Peter Costello has called on East Asia’s central bankers to ‘telegraph’ their intentions to diversify out of American investments and ensure an ‘orderly adjustment’….Central banks in China, Japan, Taiwan, South Korea, and Hong Kong have channeled immense foreign reserves into American government bonds, helping to prop up the US dollar and hold down interest rates,’ said Costello, but ‘the strategy has changed.’"

Indeed, the strategy has changed. The world has come to its senses and is moving away from the green slip of paper that is currently mired in $8.7 trillion of debt.

The central banks now want to reduce their USD reserves while trying to do as little damage to their own economies as possible. That’ll be difficult. If a sell-off ensues, it will start a stampede for the exits.

There’s little hope of an "orderly adjustment" as Costello opines; that’s just false optimism. When the greenback begins listing; things will turn helter-skelter quickly.

In September, we saw early signs that the dollar was in trouble. The trade deficit registered at $70 billion but the Net Foreign Security Purchases (NFSP) came in at a paltry $33 billion. That means that our main trading partners are no longer buying back our debt which puts downward pressure on the greenback. The Fed had two choices; either raise interest rates substantially or let the currency fall. Given the tenuous condition of the housing bubble and the proximity of the midterm elections, the Fed did neither.

A month later, in October, the trade deficit hit $69.9 billion but, then, without warning, a miracle occurred. The Net Foreign Security Purchases skyrocketed to a "historic high" of $116.8 billion; covering both months’ shortfalls almost to the penny.

Coincidence?

Not likely. Either the skittish central banks decided to "stock up" on their dollar-denominated investments or the Federal Reserve (and their banking-buddies) is buying back its own debt to float us through the elections.

This is exactly the kind of hanky-panky that people expected when Greenspan stopped publishing the M-3 last March keeping the rest of us in the dark about what was really going on with the money supply.

Are we supposed to believe that the skeptical central banks suddenly doubled up on their T-Bills while they’re (publicly) moaning about the dollar’s weakness and threatening to diversify?

That’s a stretch.

According to the Wall Street Journal the Chinese Central-bank governor Zhou Xiaochuan stated unequivocally that "we think we’ve got enough." The Chinese presently have nearly $1 trillion in USD and US Treasuries.

"Enough"?

The United States runs a $200 billion per year trade deficit with China. If they’ve "got enough" we’re dead-ducks. After all, it doesn’t take a sell-off to kill the dollar, just unwillingness on the part of the main players to stop purchasing at the same rate.

Of course, everyone in Washington already knew that doomsday was approaching. That’s the way the system was designed from the very beginning. It’s all part of the madcap scheme to "starve the beast" and transfer the nation’s wealth to a handful of western plutocrats. That explains why the Fed and the White House whirred along like two spokes on the same wheel; every policy calculated to thrust the country headlong toward disaster.

The administration never created a funding mechanism for the $400 million tax cuts or for the 35% expansion of the Federal government. Defense spending increased by leaps and bounds as did the "no-bid" contracts for friends of the Bush clan. At the same time, interest rates were lowered to rock-bottom to put as much money as possible into the hands of people who couldn’t meet the traditional criteria for a mortgage. And, if gluttonous waste, reckless overspending and "Mickey Mouse" loans were not enough; the Fed capped it off by doubling the money supply in 7 years; a surefire prescription for hyper-inflation.

So, which one of these policies was not deliberate?

The financial crisis that we now face was created by design. It is intended to destroy the labor movement, crush the middle class, quash Medicare, Medicaid and Social Security, reduce our foreign debt by 50 or 60%, force a restructuring of America’s debt, privatize all public assets and resources, and create a new regime of austerity measures which will divert more wealth to the banking and corporate establishments.

The avatars of neoliberalism invariably use crooked politicians to spawn enormous "unsustainable" debt so that the nation’s riches can be transferred to ruling elites. It works the same everywhere. It’s a form of corporate colonization, only this time the victim is the good old USA.

"The Phase of Impact"

According to Richard Daughty in his prescient article "The Phase of Impact" the Federal Reserve and the Treasury Dept have already manned the battle-stations. Here’s an excerpt:

"Mr. Paulson, the Secretary of the Treasury, is, by virtue of his ascension to the throne, now the head of the shadowy President’s Working Group of Financial Markets (which was created by Presidential Order 12631) and he is insisting that they meet more often, namely every 6 weeks!

This whole Working Group thing was originally set up as a fallback, ad-hoc, if-then defense to deal with possible economic emergencies, but now they are routinely meeting every 6 weeks. He has even ordered Jim Wilkinson, his chief of staff, to “oversee the creation of a Treasury Command Center to track markets world-wide and serve as an operations base in a crisis"! (Wall Street Journal) World-wide!! The American government is moving to take control of the world-wide economy as the result of an anticipated crisis? Yikes!

Daughty goes on to say: "So a lot of the hubbub is obviously being caused by some approaching upheaval, perhaps reflected in something sent to me by Phil S., which is the Global Europe Anticipation Bulletin No 8 which reminded us that last May they predicted that the economy would have a ‘phase of acceleration’ that would begin in June, and it "would be spread out over a period of a maximum of 6 months’, which it subsequently did. They said then, and are saying again now, that a ‘phase of impact will begin in November 2006’, and that this impact phase would be the ‘explosive phase of the crisis’.

This ‘phase of impact’ that is due to begin momentarily is, they explain, ‘a period when a series of brutal crises starts affecting by contamination the total system. This explosive phase of the crisis, which will last 6 months to one year, will affect directly and very strongly financial players and markets, the owners of investment schemes with fixed incomes in dollars, pension funds and the strategic relations between the United States on the one side, and Europe and Asia on the other." (Richard Daughty; "The Phase of Impact" Kitco.com)

Predictions, of course, are rarely reliable and Daughty’s scenario may be a bit too apocalyptic for many. But if we accept the premise that the tax cuts, the expansion of the federal government, the doubling of the money supply, and the $10 trillion that was sluiced into the housing bubble were not merely "honest mistakes" made by "supply side" enthusiasts; then we must assume that this is all part of a loony plan to demolish the economic foundation-blocks of the current system and remake society from the ground up.

Domestically, that plan appears to involve the activation of the police state.

In the last few weeks the Bush administration has passed the Military Commissions Act of 2006 which allows the president to arrest and torture whomever he chooses without charging him with a crime. Also, unbeknownst to most Americans, Bush signed into law a provision which, according to Senator Patrick Leahy, will allow the president to unilaterally declare martial law. By changing the Insurrection Act, Bush has essentially overturned the Posse Comitatus Act which bars the president from deploying troops within the United States. The John Warner Defense Authorization Act of 2007 (as it is called) also allows Bush to take control of the National Guard which has always been under the purview of the state governors. Bush now has absolute power over all armed troops within the country, a state of affairs which the constitution purposely tried to prevent. The administration’s dream of militarizing the country under the sole authority of the executive has now been achieved although the public still has no idea that a coup has taken place.

Internationally, the falling dollar means that America’s debt will be reduced proportionate to the percentage-loss of the dollar in relation to other currencies. This is a great deal for the U.S. First the Fed prints fiat money to buy valuable resources and manufactured goods and then it nabs a discount by depreciating its currency. It’s a "win-win" situation for Washington, although it will undoubtedly cheat unwitting foreign-creditors out of their hard-earned profits. It’s doubtful that their interests will weigh very heavily on the money-lenders at the US Treasury or the Federal Reserve.

The dollar faces a second crisis at home which is bound to play out throughout 2007. The $10 trillion dollar housing bubble is quickly losing air causing a precipitous drop in GDP. The housing industry is seeing its steepest decline in 30 years and home equity is beginning to shrivel. Housing has been the one bright spot in an otherwise bleak economic landscape. With the housing market slowing down and prices decreasing, the $600 billion of consumer spending which was extracted in 2005 from home equity will quickly evaporate triggering an overall slowdown in the economy. (Consumer spending is 70% of GDP)

By the Fed’s own calculations; "The total amount of residential housing wealth in the US just about doubled between 1999 and 2006 up from $10.4 trillion to $20.4 trillion. ("Times Online") If these figures are accurate than we can assume that much of America’s "perceived" growth has been nothing more than the expansion of debt. In fact, that seems to be the case. Wages have been stagnant since the 1970s, 3 million manufacturing jobs have been outsourced, savings have shrunk to below 0%, and personal debt is soaring. We have become an "asset-based" society and when the principle asset begins to lose its value, we are in deep trouble. As housing prices continue to decline through 2007 we can expect a full-blown recession. If energy prices rear their ugly head again, (were they lowered for the elections?) it will just be that much worse.

So, how will recession affect the dollar?

Capital has no loyalties. It follows the markets. When America’s bustling consumer market stalls, we’ll undergo capital flight just like everywhere else. The 3 million lost manufacturing jobs, the 200,000 lost high-paying high-tech jobs, the tax incentives for major corporations doing business outside the country; all signal that corporate America has already loaded the boats and is headed for more promising markets in Asia and Europe. A sluggish consumer market could further weaken the dollar and force Americans to begin saving again but, (and here’s the surprising part) the decision-makers at the Federal Reserve and the Treasury Dept don’t really care if the face-value of the greenback goes down anyway.

What really matters is that the dollar retains its position as the world’s reserve currency. That allows the Federal Reserve to continue to print the money, set the interest rates, and control the global economic system. The dollar presently accounts for 66% of foreign currency reserves in central banks across the globe, an increase of nearly 10% in one decade alone. The dollar has become the international currency, a de-facto monopoly. This is the goal of the globalists and the American ruling elite who dream of one system, the dollar-system; with us running it.

So, how will this cadre of plutocrats coerce the other nations to continue to use the dollar while it plummets from its perch?

Oil.

As long as oil is denominated in dollars, the central banks will be forced to stockpile American scrip regardless of its value. It’s no different than holding a gun to someone’s head. They will use our debt-plagued greenbacks or their cars and trucks will sputter, their tractors and factories will wheeze, and their economies will grind to a halt. It’s just that simple.

America cannot maintain its superpower status unless it continues to control the global economic system. That means the linkage between the dollar and oil must be preserved. The Bush troupe sees this as an existential issue upon which the future of America’s ruling class depends. By 2020, 60% of the world’s oil will come from the Middle East. Bush will do everything in his power to control the resources of the Caspian Basin, thereby expanding US dollar-hegemony and paving the way for a new American century. (Mike Whitney, “The Dollar’s Full-System Meltdown,” Global Research, 31 Oct. 2006.)

 

What’s the eventual goal? One world bank.  And this has become trite almost to say, “They are pushing for a one world bank.” But they are. And when we look at it, the early institutions that are doing it … World Bank, WTO, … International Monetary Fund, … Trilateral Commission, the European Union Central Bank, … World Economic Forum, the Bilderberg Group. Course I’m sure a lot of you know about the Bilderberg.  120 of the world’s top elites, the top bloodline families, the top royals of Europe, who are very close to the control levers of this system, getting together, not necessarily dictating all policy, but they’re going to discuss which direction they’re going to take your world in. They’re not going to let you in to the meeting. The U.N. Economic [and Social Council].

 

People don’t talk about that in any G8 Summit. This is another major group where the countries get together and say how are we going to plan this world out for people. We control the world. What are we going to do?

 

The push right now is for a world bank. Well, how do you get a world bank? How do you do it?  You need to kill the dollar.

 

It’s a controlled collapse.  It is. I mean, I don’t think anyone in the elite predicts the dollar is going to survive. It’s just how long. A year? Two years? Three? Five? Ten if we’re lucky, maybe?

 

It’s coming to an end though. The credits are about to roll, OK?

 

So I say, the dollar on the deathbed. The end of U.S. currency hegemony. … So the dollar is still 65% of the world’s currency reserves.  But it’s dropping. The world’s major central banks are liquidating the dollar right now. The Russians are, the Chinese, the Europeans, I mean, United Arab Emirates, Qatar, middle-eastern banks are doing it.

 

They’re not going to tell you that in the Wall Street Journal. You go on the websites of these people’s own countries and they’ll say, “Oh, yah, we’re selling the dollar.”  Finance ministers are coming out and saying, “We think the dollar is finished.  We do not want a part of it.” 

 

In March 2007, the Chinese finance minister just said we’re going to diversify into gold, into Euros, into yen, into our own currency.  They’re scared cause they see it coming down and they say we don’t want to hold all this worthless paper. They know it’s fiat. They know it’s based on nothing. It’s a fictitious thing of our imagination. We all just play the game, as if money were worth something. It’s not. It’s a joke.

 

But because their biggest assets are U.S. dollars, they need to start switching it over. Now if they do it too fast, the whole thing comes down and they lose anyways.  Slowly. At least the Chinese think they can bring it down slowly too.  The globalists, the Anglo-Americans think they can bring it down slowly.  That’s why you see them working together.  You see why the policy coordinates. Because on the one hand there’s this war against Russia and China. This confrontation that is brewing.  And on the other hand, they’re working together economically. Now why?

 

Nobody wants the dollar to collapse too fast. Let’s sort of do it at the right pace, you know, medium pace, right? And just wipe you out in sort of slow torture. It’s like the Chinese water torture. That’s what it is, with this death of the dollar.

 

The Euro is up 50% since 2002.  This is just a fact.  It just hit a two-year high against the dollar. 

 

Again, when we talk about the US, it’s the bankrupt, doubling-down gambler.  That’s what this whole country is really … a drunken degenerate gambler that decided to double-down.

 

Three trillion missing from the Pentagon.  2.3 trillion in one year. It’s like another trillion….  Who knows how much is really missing?  This is just what they found.  Three trillion. Dov Zackheim … is now working in a company called Booz Allen Hamilton.  … You want to understand who’s got a lot of control over this shadow government right now?  Just google it. Booz Allen Hamilton. That’s all I’ll say.

 

The current account deficit is over $800 billion a year. This means the U.S. needs roughly $70 billion in foreign investment per month to cover its current trade deficit. This is over $2 billion a day. It’s a bankrupt … if we were a credit-card consumer, they would have foreclosed on everything right now. And they are.

 

I mean, they’re buying up our assets.  The Chinese have announced that they are going to take their currency and start buying up our stock, buying up our assets. They’re buying up the highways. They’re buying up the rivers. They’re buying up the forests and the ports.

 

It’s a fire sale. Your banks are being sold out. Your property is being sold out. Your RRAs are being stolen. Your 401K is being wiped out. It’s a fire sale.

 

Welcome to their game. And they’re expecting you not to notice.  Just play dumb. Just be a good person.  Just keep watching TV. Just take that Paxil and that Zooloft. Go back to sleep stupid, right?

 

The official debt of this country is supposedly 9 trillion. That’s what they put. You know, when Paul O’Neil resigned he said there was like 4 or 5 trillion off the books.

 

But when you look at the long-term debt, major mainstream news articles say, long-term debt, 45-75 trillion.  That’s more than assets in this country. There is more long-term debt than all the wealth in the country, OK?  

 

It’s over. We’ve been sold out. We were sold out a long time ago. There is not a lot of coming back from this.  The question is how slow is the collapse going to happen?

 

And if we look at the comprehensive annual financial report, CAFR, we’ve been looted.  There was actually a lot more money than they told us. That money got stolen.  The government keeps two sets of books. They have the books for you and then they have the CAFR.  So they’ve looted the state budgets, the local budgets, and the federal budgets with the CAFR.  Look into that stuff. There was a lot more money that they stole.

 

This is a heist on a level bank robbers couldn’t dream of, you know?  That’s what these people are. They’re the bank producers and the bank robbers at the same time. 

 

The debt house of cards is beginning to collapse.  It’s called the debt-industrial complex.  … The debt-industrial complex is … a system that is now built on debt, built on credit. The country doesn’t make anything any more. It’s all debt. Everyone’s in debt. The country is in debt. You’re in debt. I’m in debt. Everybody’s in debt. 

 

Collapse of the $1 trillion subprime loan market is an indication of where we’re going.   The bubble is collapsing. The Fed put trillions of dollars into the system, a credit free-for-all, which is pumped into the real-estate market, where they say no money down, nothing for the first two years.  And, if the value of houses keeps going up, we’ll give you a second mortgage, third mortgage, keep leveraging, keep leveraging. 

 

And now the payments go up. Nobody can make those payments.  So you’ve seen all the sub-prime mortgage lenders are going belly up.  They’re going to have to get bailed out probably. And this is a crisis for the bankers right now. 

 

The mortgage-backed security market is tanking.  … That’s where they take a thousand or ten thousand people with a subprime housing loan and package them into a bond and then they sell that bond. And so when you’re paying off your debt, you’re actually paying some banker who bought a bond of your issue. And that’s how this is worked. So it’s leveraged.

 

Now where is it leveraged?  Into the hedge funds.  That is 1.5 trillion in unregulated leveraged speculation – this is 100 to one, sometimes 500 to one. And do you want to see how this affects the market, having all these 8-10,000 hedge funds, 1.5 trillion unregulated?

 

Look at the blowout of the $6 billion-dollar Ameranth fund in Connecticut. This fund blew out. Natural-gas prices tanked, from like 9 to $4.50. One hedge fund blew out. What do you think is going to happen when five or ten blow out? Or fifteen or twenty or a hundred or five hundred, who are all playing this market and thinking it was going to keep going up and up and up?  It’s not going to be pretty.

 

Now what’s leveraged on top of that.  It gets worse. I’m sorry.

 

The derivatives market. Four hundred to 600 trillion in parasitic leveraged side bets and debt.  Leveraged 5, 600 to one.  You want to talk about the casino mentality of these parasitic bankers?  This is what’s going on. So you see how this house of cards is built up? The debt-industrial complex, the credit complex, mortgage-backed securities on top of that, which go into hedge funds, which go into derivatives. And when the bottom falls out, you fall out. I fall out. And the dollar falls out.

 

[Reading from an overhead:]

 

The U.S. dollar is doomed by inflation. 

 

They have now instituted the Plunge Protection Team, the PPT. The heads of the Treasury, the SEC and Federal Reserve are working to prop up the market with hundreds of billions of dollars.

 

You know, there is a report about Iraq that they just printed off billions in pallets, and sent them on pallets to Iraq, just lots of unregulated money.  This is kind of a window into the way the Fed operates. They just run off a line of money when they want to. And then they give it to third parties, select third parties, who put it into the system.

 

So why isn’t the market collapsing?  It is collapsing.  And the PPT keeps running it up. And then the people that short-sell the market have to cover their short bets and that creates a false rally.  And this has been going on for a while. 

 

The Feds M3 money supply – no longer public as of March 2006.  Why? Because they’re running a lot of money off those sheets.  They’re printing a lot of money right now. We’re looking at a major hyperinflationary spiral.   (Daniel Abrahamson speaking to Project for a New American Citizen, April 15, 2007, on video downloaded from  http://video.google.com/videoplay?docid=8545414779301935419, 8 Aug. 2007.)


A few nuclear bombs in Iranian hands are no strategic threat to the US or even Israel. But Iran’s new oil bourse could oust the dollar as the world’s reserve currency, stampede central banks to shift a trillion dollars into the euro and other currencies, and implode US stock price and real estate bubbles. Any military solution will be an even greater disaster than the Iraq adventure.

Author and historian Webster Griffin Tarpley warned today that the Bush administration is in the advanced stages of planning for a catastrophic nuclear sneak attack on Iran. The goal, said Tarpley, would be incidentally to disable Iran’s nuclear capacity, but mainly to prevent the opening -- timed to coincide with the Iranian New Year on March 20 -- of the first non-dollar international oil market since 1944.

"A few nuclear bombs in Iranian hands hardly add up to a strategic threat to the United States," said Tarpley. "But the new Iranian euro-based oil market or oil bourse as it is called has the potential to oust the dollar as the world’s reserve currency, causing central banks to shift a trillion dollars or more in reserves into the euro and other destinations. That would spell immediate doom for the US stock price bubble and real estate bubble as hot money streamed out of this country. It would cut Wall Street and London out of a myriad of lucrative transactions, and deprive the US-UK combine of their ability to interfere in access to other people’s oil," he added.

The Iranian oil bourse would be the first euro-based oil market in the recent history of the world where sellers and buyers of oil could come together for spot and futures transactions independent of the dollar, thus outside US control and without Wall Street skimming off a hefty part of the profits. Today’s privileged position for the dollar is "obsolete and removed from reality," Tarpley asserted.

"The 213-point drop in the Dow last Friday on reports that Iran was shifting funds out of Europe is the merest hint of what may be coming," Tarpley noted. "If the Iranian oil bourse opens, the colossal instability to the dollar, the stock market, and the US banking system will very likely be revealed rather quickly."

The current system allows the US to export unlimited supplies of dollar bills to buy goods abroad, resulting in a yearly trade deficit of $700 billion and counting. Americans should not feel threatened by the inevitable crisis of this system, Tarpley pointed out, since the unique US privilege of importing without producing, as world dumping ground and buyer of last resort, has cut the US standard of living in half since 1970, creating a low-wage economy. It is time for the US once again to earn foreign exchange by producing exports which will mean jobs and prosperity here.

"A rational way out would be to rebuild the world monetary system around fixed parities among the dollar, the euro, and the yen as equal participants, with gold settlement and a credit mechanism to expand exports of capital goods. This would avoid a new general war."

"As for ‘Helicopter Ben’ Bernanke, the incoming Federal Reserve boss, he is clearly getting ready to gin up the printing presses to print an avalanche of paper dollars if the Chinese and Japanese demand cash for their plummeting US Treasury bonds in the near future -- what economists call monetization of the debt. The Fed will soon stop publishing the M3 data series on the money supply, which is the one that would reveal a monetization of debt. Bernanke seems to have Weimar-style hyperinflation written all over him," Tarpley commented.

"The lunatic neocon war plan for Iran is doomed to failure, just as their Iraq adventure was," Tarpley concluded. "If attacked, there is every indication Iran would cut the world oil aorta at the Straits of Hormuz, fire off missiles at Israel and other targets, and unleash Iraqi Shiites and Iranian volunteers around Basra. The position of the US and especially the UK forces there would soon become extraordinarily critical. If Russians and Chinese were killed in the raids, the stage would be set for larger confrontation. All of this would guarantee endless war and economic ruin for the US and the dollar. Why not avoid this incalculable folly by calling right now for a new Bretton Woods international monetary conference, which would be welcomed by the world community as a whole?" (Webster G. Tarpley, “Behind the Mad Rush to Bomb Iran: Teheran’s Euro-Based Oil Exchange Spells Doom for the Dollar,” Global Currency Evaluation Institute, 26 Jan. 2007, downloaded from
http://www.1global.org/article_behind_the_mad_rush.html, 11 Aug. 2007.)

 

Global Institute believes strategic miscalculations in programs enacted to inflate the dollar and forestall its slide have not only failed, but have eroded its value - setting off a death spiral - which will most likely hasten its ultimate demise.

 

A Marked Man: Saddam Hussein began selling his oil for euros instead of dollars, in Nov. 6, 2000-2003 triggering the largest decline in the dollar’s history!

 

Iran, Syria, Venezuela, Indonesia and Russia have all hinted of rejecting dollars in payment for oil

 

A world jettisoning mountains of hyperinflated greenbacks would mortally wound the dollar, the US and its strategic partner, the UK.

 

Under threat of other nations adopting the Euro for oil purchases, circumventing the dollar thereby sparking its implosion and final collapse - the US strategic choice appears to have been the military option - a preemptive invasion doctrine - WAR!

 

Missing: A plausible pretext, giving war legitimacy, while sending a powerful message to all oil producing nations entertaining the same ruinous idea. This pretext had to be convincing enough to mobilize public support for going to war.

 

The solution: - an attack on U.S. soil which could justify an immediate and unending government campaign against "imminent threats to U.S. security" - a preemptive war on "Terrorism" could be launched . . . the 9/11 atrocities provided the perfect catalyst. After careful study of credible sources, Global Currency Evaluation Institute has concluded: The US Government’s solution to stave off its looming financial crisis brings into question its complicity in the 9/11 World Trade Center "terrorist attacks.".

 

The official US account of 9/11 appears to be a total fabrication - a mythical version of events incompatible with empirical evidence. (Global Currency Evaluation Institute, Statement on http://www.1global.org/index.html, downloaded 11 Aug. 2007.)

 

A large number of events - whose importance began to appear clearly at the end of 2006 - is about to thrust the world's financial sector into a process of deep crisis: depreciation of US dollar-denominated assets, monetisation of US debt, fast degradation of US banks' and of some EU banks' balance-sheets, low level of banks' reserves, fast depreciation of housing loans (2) and recession of the US economy.

For example, the value of US dollar-denominated assets worldwide (3) compared to the composite basket of currencies of the US main trade partners, decreased by USD 2,000 billion only because of the US currency's loss in value. Another example, because of the same devaluation, the US debt fell by more than the US trade deficit's worth (forecast: USD 750 billion) or than the balance of payment deficit's worth (forecast: USD 900 billion) (4).

The monetisation of the US debt (anticipated in February 2006 by LEAP/E2020 (5)) directly affects the balance sheets of the big international financial players, with some effects that should become more obvious in 2007.

In the United States, a growing number of financial institutions is beginning to announce that the bursting of the real-estate bubble and the increasing amount of default on housing loan repayments has started to impact on banks' (6) and loaning institutions' results. For instance, due to the market's fast degradation, the US government no longer even tries to look into Fanny Mae's and Freddy Mac's accounts, the two giant quasi-government financial institutions who together weigh more than half of the US mortgage market (7). Thus Fanny Mae has not presented any quarterly or yearly report since 2004 and must ask for an exemption in order to remain listed on the New York Stock Exchange (8) and continue to increase its market share. Less than a month ago,
Kevin M. Warsh, governor of the New York Federal Reserve, warned against risks of systemic crisis for the US loan mortgage market due to Fanny Mae and Freddy Mac accounting practices (9). Those risks are likely to cross US borders since foreign investors, namely Asian, who walked away from US Treasury Bonds, have started a few months ago to buy Fanny Mae and Freddy Mac stocks.

Moreover, for many years, the US authorities have allowed banks to diminish drastically their asset reserves while making massive bets on the derivatives market where the risks are high. The chart below shows how those Wall Street's giants (such as JPMorgan/Chase or CityBank or Bank of America, who were on top of all financial news in the past months), with counterparties close to none, are in fact doomed to bankruptcy in case a big crisis occurs. This provides a rather eloquent image of the frailty of the hedging sector banks invested in so massively.

Seven largest US banks' counter-party to their investment on the derivatives market - 2005 (Source: Office of the Comptroller of the Currency / US Department of Treasury) (GEAB, “Financial Crisis: Global Systemic Crisis in 2007, ‘Another Bubble’ Close to Bursting,” Global Research, 21 Dec. 2006, downloaded from http://www.globalresearch.ca/index.php?context=va&aid=4225, 11 Aug. 2007.)

 



Notes:

(1) With a EURUSD exchange rate now steadily above 1.30, the LEAP/E2020 researchers feel entitled to consider that the impact phase of the global systemic crisis has well started. LEAP/E2020 calculated that an operator who invested 100,000 Euros and followed over the last 10 months their anticipatory advices in terms of EURUSD exchange rate or US real-estate evolution, earned a minimum of 15,000 USD (currency) or 10,000 USD (US real-estate). A good proof that strategic analysis and individual short-term choices can gather in anticipation.  (GEAB, “Financial Crisis: Global systemic crisis in 2007, "Another bubble" close to bursting,” Global Research, 21 Dec. 2006.)

 

Source : « Mortgages delinquencies : a rising threat » AP/Yahoo, 11/12/2006

(3) Sources : International Bank of Settlements and
GEAB N°2

(4) A 10% loss of the US dollar against the currencies of its main trade partners corresponds to an USD 850 billion reduction on the relative value of the US debt (source: US National Debt Clock), with a US trade deficit estimated to be around USD 750 billion in 2006 and a US balance of payment deficit over USD 900 billion (source: Roubini Global Economics Service). Thanks to the devaluation of the dollar, the US government transfers an increasing amount of its deficits to its creditors and trade partners.

(5) “With their decision to put an end to the publication of M3 and other indicators designed to measure the evolution of Dollar ownership worldwide, the US authorities initiated a policy of « hidden monetisation » of the US debt. The Bush administration's incapacity to handle the various deficits (budget, trade) and the related debt will result in a monetary creation of unequalled proportion, leading to a dilution of the American debt in an ocean of Dollars. The process has in fact already started: during the first three and a half months of the US fiscal year (beginning in October), the Federal Reserve has increased by 320 billion USD its stock of currency, that is 5 times more than it did over the same period last year”, source
GEAB N°2, 16/02/2006

(6) As already announced by the world's third largest bank, HSBC. Source : [Banknet360]url:http://, 06/12/2006

(7) Source : «
Time to Reform Fanny Mae and Freddy Mac », Heritage Foundation, 20/05/2006


(8) Source : “Fanny notes more accounting problems”, 10/11/2005, MarketWatch/DowJones


(9) Source : « Financial Markets and the Federal Reserve », Governor Kevin M. Warsh, Federal Reserve, 21/11/2006


Could the proposed Iranian oil bourse (IOB) become the catalyst for a significant blow to the influential position the US dollar enjoys? Manifold supply fears have driven the price of crude oil to its recent high of US$67.10 - only a notch below its highest price in inflation-adjusted dollar terms. With the world facing a daily bill of roughly $5.5 billion for crude oil at current price levels, it becomes apparent that sellers and purchasers of the black gold are looking into all ways that could lead to a financial improvement on their respective sides.

Non-US-dollar holders so far have been the victim of additional transaction costs in the oil trade. The necessary conversion of local currencies into oil-buying greenbacks can be considered a hidden tax, charged and enjoyed by the international banking sector. The IOB, by eliminating this transaction cost, will become a factor that could unsettle the dollar's dominant position. While the worldwide bottleneck of inadequate refining facilities and partly dramatic declines in production - for example in the North Sea - are two factors that cannot be eliminated in the short term, there is one area left which could result in smiling faces of oil producers as well as most buyers.

Oil consumers are entangled in a web of supply fears that span the globe. In Venezuela, President Hugo Chavez threatens to divert oil supplies from the US to China, which faces severe gasoline and diesel shortages these days. Attacks on Iraqi oil installations have slowed exports there. Ecuador's oil industry is still recovering from a strike, while Nigerian oil companies are in the middle of efforts to avoid a strike there.

Until now, oil has been solely priced, traded and paid for in the greenback on markets in both London and New York. But monthly worldwide oil revenues of over $110 billion (on a 20-trading-day basis) - a third of which ends up with OPEC (Organization of the Petroleum Exporting Countries) members - raise the question of what happens to these cash mountains. According to the most recent data from the US Treasury Department, OPEC members have parked only a skimpy $120 billion in direct dollar holdings, which are almost equally split between equities and American debt paper. This is a clear indication that oil producers are investing their windfalls elsewhere. The yield spread between US and EU debt papers in favor of the EU is another hint where the petrodollars might be heading.

Especially in the case of Iran, it does not make sense to accept dollars only for its much-desired commodity. Given that Iran is seen as a hostile country by the current US administration for its intention to build its own nuclear reactors, one wonders whether the new IOB will not try to attract buyers other than Americans. Iran has recently announced that the new oil exchange will start up its computers in March 2006.

The proposal to set up a petroleum bourse was first voiced in Iran's development plan for 2000-2005. Last July, Heydar Mostakhdemin-Hosseini, who heads the board of directors of the Iranian Stock Exchange council, said authorities had agreed in principle to the establishment of the IOB, where petrochemicals, crude oil and oil and gas products will be traded. The oil exchange would strive to make Iran the main hub for oil deals in the region and most deals will be conducted via the Internet. Experts from London's International Petroleum Exchange (IPE) and the New York Mercantile Exchange (NYMEX) have reportedly confirmed the feasibility of the project.

The IOB can count on two sharp arrows in its holster. It can - and probably will - lure European buyers with oil prices quoted in euros, saving them dollar transaction costs. And it can strike barter deals with oil-hungry giants like China and India who have a lot of products and commodities to offer. One doubts whether American hamburgers and legal services will be considered adequate collateral for the world's most sought-after resource.

Worse than an Iranian nuclear attack?

Weaned off the almighty commodity, the US dollar can have a deeper impact on the US economy than a direct nuclear attack by Iran. The permanent demand for dollar-denominated paper stems substantially from the fact that until now almost all resources of the world are quoted in it. While this led to the eurodollar (US dollar-denominated deposits at foreign banks or foreign branches of American banks) market in the 1970s, the new terms of trade could ring in the demise of the dollar as the premier reserve currency.

With the world economy depending so much on oil, the black gold itself can be seen as a reserve currency that will be handed out against only the best collateral in the future. Last month, the Federal Reserve Bank of San Francisco published a paper about the progress of the diversification of central banks' reserves around the world. It concluded that the dollar's position is on the decline in many countries. China, the new industrial giant, has officially declared that it will diversify a part of its forex holdings into oil by building a strategic petroleum reserve. Construction of storage tanks has begun this year and will take several years until completion. China has not yet said how many barrels of oil it wants to store. The implications for the oil market can only be guessed as China wants to use its future reserves to smooth out spikes in oil price.

Iran holds a strong hand as the No 2 producer of crude behind Saudi Arabia, pumping 5% of the world's oil demand. Politicians there will also keep in mind that dollar deposits might become a burden in the future, if the US steps up its current war of words to the level of economic sanctions in the attempt to halt construction of Iran's nuclear power plants. Money in the bank does not help when you have no access to it. Substituting Iran's domestic oil demand partly with nuclear power will place the country in a win-win situation. Cheaper nuclear energy and increases in oil exports from the current level of roughly 2.5 million barrels a day will result in a profitable equation for Iran.

Only one major actor stands to lose from a change in the current status quo: the US, which with less than 5% of the global population, consumes roughly one third of global oil production. Oil in euros would benefit millions more in the EU and its trading partners, though. And it would loosen the grip the US has on OPEC members. Thinking of the rapid growth of hostilities between the US and Arab nations in recent years, a renunciation of the dollar appears to be more than just an Arab daydream.

As this development poses a very real danger to the superior status of the greenback and the interests of the US, the "president of war" can be expected to take a strong line against the winds blowing from the Middle East. One may be reminded that Saddam Hussein had entered into discreet talks with the EU, proposing to sell his oil for euros. That was in the year before the first oil war of this century.

The IOB could help the euro to become the interim primary reserve currency before China and India rise to the first two slots in the global economic ranking in the next few decades. A decline of the dollar's position in oil trading might also open the floodgates in other commodity markets where the dollar is the medium of exchange but where the US has only a minority market share. A global economy driven by tough efficiency demands in the light of thin profit margins almost everywhere is a good primer for accounting changes in other commodity markets as well. This process could begin in resources like steel and energy and spread to all other resources that are marketed globally. The world outside the US has a lot to gain from it. (Toni Straka, “Killing the Dollar in Iran,” Global Currency Evaluation Institute, undated, downloaded from
http://www.1global.org/article_killing_the_dollar.html, 11 Aug. 2007.)


Abstract: The American Empire depends on the U.S. dollar. The proposed Iranian Oil Bourse will accelerate the fall of the U.S. dollar and hence the fall of the American Empire.

A nation-state taxes its own citizens, while an empire taxes other nation-states. The history of empires, from Greek and Roman, to Ottoman and British, teaches that the economic foundation of every single empire is the taxation of other nations or of their subjects. The imperial ability to tax has always rested on a better and stronger economy, and as a consequence, a better and stronger military that peacefully or militarily enforced the tax. One part of those taxes went to improve the living standards of the empire and the other part went to reinforce the military dominance necessary to enforce those taxes.

Historically, taxing the subject state has been in various forms, usually gold and silver, where those were considered money, but also slaves, soldiers, crops, cattle, or other agricultural and natural resources, whatever economic goods the empire demanded and the subject-state could deliver. Historically, the taxation has always been direct: the subject state handed over the money (gold/silver) or the economic goods directly to the empire.

For the first time in history, in the twentieth century, America was able to tax the world indirectly—not by enforcing the direct payment of taxes like all of its predecessor empires did, but by distributing its own currency, the U.S. Dollar, to other nations in exchange for goods with the intended consequence of devaluing over time those dollars and paying back later each dollar with less economic goods. The difference between the value of the dollar during the initial purchase and the devalued dollar during the repayment was the U.S. imperial tax. Here is how this happened.

Early in the 20th century, the U.S. economy began to dominate the world economy. At the time the U.S. dollar was tied to gold, so that the dollar neither increased, nor decreased its value, but was always convertible into the same amount of gold. The Great Depression with its the preceding inflation from 1921 to 1929 substantially increased the amount of paper money in circulation without the correspondent increase in gold. This rendered the effective backing of the U.S. dollar by gold impossible. As a consequence, President Franklin Delano Roosevelt decoupled the dollar from gold in 1932. Up to this point, the U.S. may have well dominated the world economy, but from an economic point of view, it was not technically an empire. The fixed value of the dollar for gold did not allow the Americans to extract economic benefits from other countries by supplying them with gold-backed dollars.

Economically, the American Empire was born with the establishment of the Bretton Woods system in 1945. The dollar was made only partially convertible to gold—convertibility to gold was available to foreign governments only, but not to private institutions. At this time the US dollar was established as the international reserve currency. This was possible, because during WWII, the United States had supplied its allies with food and military provisions, accepting gold as payment, thus accumulating significant portion of the world’s gold.

An economic Empire would not have been possible if the dollar remained fully backed by gold, i.e., if the dollar supply was kept limited and within the availability of gold, so as to exchange back dollars for gold at the pre-agreed exchange ratio. However, the dollar supply was actually increased far beyond its gold backing and handed over to foreigners in exchange for economic goods. There was no prospect of buying back those dollars at the same value—the amount of gold was not sufficient to redeem those dollars, while the quantity of dollars continually increased, so that those dollars constantly depreciated. The constant depreciation of the increasing dollar holdings of foreigners via persistent U.S. trade deficits was tantamount to a tax—an inflation tax.

When in 1971 foreigners demanded payment for their dollars in gold, The U.S. Government defaulted on its payments on August 15. The popular spin of this default was that "the link between the dollar and gold was severed". The proper interpretation is that the U.S. Government went bankrupt, just like any commercial bank is declared bankrupt.

However, by doing so, the U.S. declared itself an Empire. It had extracted an enormous amount of economic goods from the rest of the world, with no intention or ability to return those goods. The world was effectively taxed and it could not do anything about it: it could not force the U.S. in bankruptcy proceedings and take possession of its gold and other assets for payment, nor could it take forcefully what it was owed by declaring war and winning it. Essentially, the U.S. imposed on the world an inflation tax and collected an imperial seigniorage!

From that point on, to sustain the American Empire and to continue to tax the rest of the world via inflation, the United States had to force the world to continue to accept ever depreciating dollars in exchange for economic goods and to have the world hold more and more of those dollars, while those dollars depreciated. It had to give the world an economic reason to hold dollars, and that reason was oil.

In 1971, as it became clear that the U.S. Government would not be able to buy back its dollars for gold, it prepared an alternative arrangement to hold the world hostage to its fiat dollar: during 1972-1973 it struck an iron-clad arrangement with Saudi Arabia—to support the rule of the House of Saud in exchange for accepting only dollars as a payment for Saudi oil. By imposing the dollar on the OPEC’s leader, the dollar was effectively imposed on all OPEC members. Because the world had to buy oil from the Arab oil countries, it had the reason to hold dollars as payment for oil. Because the world needed ever increasing quantities of oil at an ever increasing oil prices, the world’s demand for dollars could only increase. Even though dollars were no longer exchangeable for gold, they were now exchangeable for oil.

The economic essence of this arrangement was that the dollar was now backed by oil. As long as that was the case, the world had to accumulate increasing amounts of dollars, because those dollars were needed to buy oil. As long as the dollar was the only payment for oil, its dominance in the world was assured, and the American Empire could continue to tax the rest of the world. If, for any reason, the dollar lost its oil backing, the American Empire would cease to exist, because it would no longer be able to tax the world by making them accumulate ever more dollars. Thus, Imperial survival dictated that oil be sold only for dollars. It also implied that oil reserves were spread around various sovereign states that none was strong enough, economically or militarily, to demand payment for oil in something other than dollars. If someone demanded a different payment, he had to be convinced, either by political or by military means, to change his mind.

The man that actually did demand Euro for his oil was Saddam Hussein in late 2000. At first, his demand was met with ridicule, later with neglect, but as it became clearer that he meant his demand and even converted his $10 billion reserve fund at the U.N. into Euro, political pressure was exerted to change his mind. Other countries, like Iran, also wanted payment in other currencies, most notably Euro and Yen. The danger to the dollar was clear and present, so a punitive action was in order. Bush’s war in Iraq was not about existing weapons of mass destruction, about defending human rights, about spreading democracy, or even about seizing oil fields. It was about defending the dollar, ergo the American Empire; it was about setting an example that anyone who demanded payment in currencies other than U.S. Dollars would be likewise punished.

Many have criticized Bush for staging the war in Iraq in order to seize Iraqi oil fields. However, those critics can’t explain why Bush would need to seize those fields—he could simply print dollars for nothing and use them to get all the oil in the world that he needs. He must have had some other reason to invade Iraq.

History teaches that an empire goes to war for one of two reasons: (1) to defend itself or (2) benefit from war. Economically speaking, in order for an empire to initiate and conduct a war, its benefits must outweigh its military and social costs. Benefits from Iraqi oil fields are hardly worth the long-term, multi-year military cost. Bush went into Iraq to defend the American Empire. Indeed, this is the case: two months after the United States invaded Iraq, the Oil for Food Program was ended, the country’s accounts were switched back to dollars, and oil began to be sold once again only for U.S. dollars. No longer could the world buy oil from Iraq with Euro. Global dollar supremacy was once again restored. Bush descended from a fighter jet and declared himself the victor: the mission was indeed accomplished—Bush successfully defended the U.S. dollar, and thus the American Empire.

II. Iranian Oil Bourse

The Iranian government has recently proposed to open in March 2006 an Iranian Oil Bourse that will be based on an euro-based oil-trading mechanism that naturally implies payment for oil in Euro. In economic terms, this represents a much greater threat to the hegemony of the dollar than Saddam’s, because it will allow anyone willing either to buy or to sell oil for Euro to transact on the exchange, thus circumventing the U.S. dollar altogether. If so, then it is likely that much of the world will eagerly adopt this euro-denominated oil system:

  • The Europeans will not have to buy and hold dollars in order to secure their payment for oil, but would instead use with their own currency.
  • The Chinese and the Japanese will be especially eager to adopt the new exchange. It will allow them to drastically lower their enormous dollar reserves and diversify them with Euros. One portion of their dollars they will still want to hold onto; another portion of their dollar holdings they may decide to dump outright; a third portion of their hoards they will decide to use up for future payments without replenishing their dollar holdings, but building up instead their euro reserves.
  • The Russians have economic interest in adopting the Euro – the bulk of their trade is with European countries, with oil-exporting countries, with China, and with Japan. Adoption of the Euro will immediately take care of the first two blocs, and will over time facilitate trade with China and Japan. Also, Russians seemingly detest holding depreciating dollars, for they have recently found a new religion with gold: their central bank is diversifying out of dollars and accumulating gold. Russians have also revived their nationalism; if embracing the Euro will stab the Americans, they will gladly do it and smugly watch the Americans bleed.
  • The Arab oil-exporting countries will eagerly adopt the Euro as a means of diversification against rising mountains of depreciating dollars. Just like the Russians, their trade is mostly with European countries, and therefore will prefer the European currency both for its stability and for avoiding currency risk.

Only the British will find themselves between a rock and a hard place. They have had a strategic partnership with the U.S. forever, but have also had their natural pull from Europe. So far, they have had many reasons to stick with the winner. However, when they see their century-old partner falling, will they firmly stand behind him or will they deliver the coup de grace? Still, we should not forget that currently the two leading oil exchanges are the New York’s NYMEX and the London’s International Petroleum Exchange (IPE), even though both of them are effectively owned by Americans. It seems more likely that the British will have to go down with the sinking ship, for otherwise they will be shooting themselves in the foot by hurting their own London IPE interests. It is here noteworthy that for all the rhetoric about the reasons for the surviving British Pound, the British most likely did not adopt the Euro namely because the Americans must have pressured them not to: otherwise the London IPE would have had to switch to Euros, thus mortally wounding the dollar and their strategic partner.

At any rate, no matter what the British decide, should the Iranian Oil Bourse gain momentum and accelerate, the interests that matter—those of Europeans, Chinese, Japanese, Russians, and Arabs—will eagerly adopt the Euro, thus sealing the fate of the dollar. Americans cannot allow this to happen, and if necessary, will use a vast array of strategies to halt or hobble the exchange’s operations:

  • Sabotaging the Exchange—this could be a computer virus, network, communications, or server attack, various server security breaches, or a 9-11-type attack on main and backup facilities.
  • Coup d’état—this is by far the best long-term strategy available to the Americans.
  • Negotiating Acceptable Terms & Limitations—this is another excellent solution to the Americans. Of course, a government coup is clearly the preferred strategy, for it will ensure that the exchange does not operate at all and does not threaten American interests. However, if an attempted sabotage or coup d’etat fail, then negotiation is clearly the second-best available option.
  • Joint U.N. War Resolution—this will be, no doubt, hard to secure given the interests of all other members of the Security Council. Recent rhetoric about Iranians developing nuclear weapons undoubtedly serves to prepare this course of action.
  • Unilateral Nuclear Strike—this is a terrible strategic choice for all the reasons associated with the next strategy, the Unilateral Total War. The American will likely use Israel to do their dirty nuclear job.
  • Unilateral Total War—this is obviously the worst strategic choice. First, the U.S. military resources have been already depleted with two wars. Secondly, the Americans will alienate other powerful nations. Third, major reserve countries may decide to quietly retaliate by dumping their own mountains of dollars, thus preventing the U.S. from further financing its militant ambitions. Finally, Iran has strategic alliances with other powerful nations that may trigger their involvement in war; Iran reputedly has such alliance with China, India, and Russia, known as the Shanghai Cooperative Group, a.k.a. Shanghai Coop.

Whatever the strategic choice, from a purely economic point of view, should the Iranian Oil Bourse gain momentum, it will be eagerly embraced by major economic powers and will precipitate the demise of the dollar.

III. The Demise of the Dollar

The collapsing dollar will dramatically accelerate U.S. inflation and will pressure short-term and long-term interest rates much higher. At this point, the Fed will find itself between two equally disastrous options—deflation or hyperinflation. The first option, deflation, known in the international finance literature as the "classical medicine", requires stopping the monetary expansion and raising interest rates, thus inducing a major economic depression, a collapse in real estate prices, and an implosion in bond, stock, and derivative markets, most likely precipitating a total financial collapse. The alternative option is to take the easy way out by inflating, whereby the Fed pegs the long-bond yield, raises the Helicopters and drowns the financial system in liquidity, bailing out numerous LTCMs and hyperinflating the economy.

The Austrian theory of money, credit, and the business cycle teaches us that ultimately there is no in-between the mythological Scylla and Charybdis scenario—between deflation and hyperinflation. Sooner or later, as pressure on the dollar rises and inflation rears its ugly head, the monetary system must swing one way or the other, forcing the Fed to make its choice. There is no doubt that the newly-appointed Commander-in-Chief of the Federal Reserve, Ben Bernanke, an renowned scholar of the Great Depression and an adept helicopter pilot, will choose the latter course of action—hyperinflation. Bernanke has learnt well the lessons of the Great Depression and the destructiveness of deflations. He has also learnt well from the Maestro the panacea of every financial problem—to inflate his way out, come hell or high water. He has even devised ingenious unconventional ways around the deflationary liquidity trap and teaches the Japanese how to apply them. To avoid deflation, he has publicly stated that he will accelerate the printing presses and "drop money from helicopters". If necessary, he will monetize everything in sight. He will ultimately destroy the American currency in Hyperinflation.

Hyperinflations, however, do not happen in an instant. It usually takes years before the final collapse. The Weimar hyperinflation began around 1920 and ended in 1923 with the total destruction of the currency. Similar was the fate of some post-communist countries: it took Russia and Bulgaria 7-8 years to hyperinflate their currencies before they ultimately destroyed them.

However, because the dollar is the reserve currency of the world, hyperinflating the dollar will be fundamentally different in two ways from all hyperinflations in history. On the one hand, there are tens of trillions of dollar-denominated debt and hundreds of trillions of dollar-denominated derivatives. Given that the ratio of currency to debts and derivatives is tiny, the coming hyperinflation must be necessarily of epic proportions. On the other hand, central banks around the world will fight tooth and nail to support the dollar, so that world financial system does not collapse and that their reserves do not evaporate into the nothingness. Many central banks will choose willy-nilly to support the dollar by inflating their own currencies. Thus, these two powerful forces will drive the dollar in opposite directions. Its inevitable demise may be swift and sudden, or it may be protracted and painful.

Whatever the speed of hyperinflation, ordinary Americans will have few available options to protect themselves—during crises, peoples’ first instinct is to resort to more "stable" fiat currencies of neighboring countries, like the Canadian Dollar and the Mexican Peso, but their availability will prove limited and complicated as people will most likely have to cope with governmentally-imposed capital controls. Next, people instinctively convert hyperinflating currencies to hard assets like land and real estate, but sellers refuse to accept the hyperinflating currency and quickly disappear from the market. Having run out of meaningful options to protect themselves, ordinary people will have little choice, but to convert their dollars to hard currencies like gold and silver, thus driving their prices much higher. On the other hand, central banks have no other options but gold. First, in times of crises, central banks fear the risk inherent in all fiat currencies. Moreover, not even the largest fiat currencies will accommodate their need to convert their reserves. Also, it is not practical for central banks to hold real estate and land. Thus, central banks will have no alternative, but to scramble to convert their reserves to the only hard currency known to man—gold. Historically, in times of crises, gold has always been the ultimate safe haven. When people and central banks flee en masse to gold, its value has always skyrocketed. This time, it will be no different. (Krasssimir Petrov, “Economics of Empire,” Global Currency Evaluation Institute, undated, downloaded from
http://www.1global.org/article_economics_of_empires.html, 11 August 2007.)


It's accepted wisdom that the United States, despite recent problems, is still the strongest growth locomotive for the world economy, the pillar of the global system. What if we were to discover that, instead of being the pillar, that the United States was, in fact, the heart of a dysfunctional economic system, which is spreading instability, unemployment, and depression globally?

No other nation on earth comes near to the commanding US military superiority in smart bombs, military IT, or in sheer force capabilities. The US position in the world since 1945, and especially since 1971, has rested on two pillars, however: The superiority of the US military over all, and, the role of the dollar as world reserve currency. That dollar is the Achilles heel of American hegemony today.

In my view, the world has entered a new, highly dangerous phase since the collapse of the US stock market bubble in 2001. I am speaking about the unsustainable basis of the very Dollar System itself. What is that Dollar System?

How the Dollar System works

After 1945, the US emerged from war with the world's gold reserves, the largest industrial base, and a surplus of dollars backed by gold. In the 1950's into the 1960's Cold War, the US could afford to be generous to key allies such as Germany and Japan, to allow the economies of Asia and Western Europe to flourish as a counter to communism. By opening the US to imports from Japan and West Germany, a stability was reached. More importantly, from pure US self-interest, a tight trade area was built which worked also to the advantage of the US.

That held until the late 1960's, when the costly Vietnam war led to a drain of US gold reserves. By 1968 the drain had reached crisis levels, as foreign central banks holding dollars feared the US deficits would make their dollars worthless, and preferred real gold instead.

In August 1971, Nixon finally broke the Bretton Woods agreement, and refused to redeem dollars for gold. He had not enough gold to give. That turn opened a most remarkable phase of world economic history. After 1971 the dollar was fixed not to an ounce of gold, something measurable. It was fixed only to the printing press of the Treasury and Federal Reserve.

The dollar became a political currency—do you have "confidence" in the US as the defender of the Free World? At first Washington did not appreciate what a weapon it had created after it broke from gold. It acted out of necessity, as its gold reserves had got dangerously low. It used its role as the pillar of NATO and free world security to demand allies continue to accept its dollars as before.

Currencies floated up and down against the dollar. Financial markets were slowly deregulated. Controls were lifted. Offshore banking was allowed, with unregulated hedge funds and financial derivatives. All these changes originated from Washington, in coordination with New York banks.

The dollar debt paradox

What soon became clear to US Treasury and Federal Reserve circles after 1971, was that they could exert more global influence via debt, US Treasury debt, than they ever did by running trade surpluses. One man's debt is the other's credit. Because all key commodities, above all, oil, were traded globally in dollars, demand for dollars would continue, even if the US created more dollars than its own economy justified.

Soon, its trade partners held so many dollars that they feared to create a dollar crisis. Instead, they systematically inflated, and actually weakened their own economies to support the Dollar System, fearing a global collapse. The first shock came with the 1973 increase in oil by 400%. Germany, Japan and the world was devastated, unemployment soared. The dollar gained.

This Dollar System is the real source of a global inflation which we have witnessed in Europe and worldwide since 1971. In the years between 1945 and 1965, total supply of dollars grew a total of only some 55%. Those were the golden years of low inflation and stable growth. After Nixon's break with gold, dollars expanded by more than 2,000% between 1970 and 2001!

The dollar is still the only global reserve currency. This means other central banks must hold dollars as reserve to guarantee against currency crises, to back their export trade, to finance oil imports and such. Today, some 67% of all central bank reserves are dollars. Gold is but a tiny share now, and Euros only about 15%. Until creation of the Euro, there was not even a theoretical rival to the dollar reserve currency role.

What is little understood, is how the role of US trade deficits and the Dollar System are connected. The United States has followed a deliberate policy of trade deficits and budget deficits for most of the past two decades, so-called benign neglect, in effect, to lock the rest of the world into dependence on a US money system. So long as the world accepts US dollars as money value, the US enjoys unique advantage as the sole printer of those dollars. The trick is to get the world to accept. The history of the past 30 years is about how this was done, using WTO, IMF, World Bank and George Soros to name a few.

What has evolved is a mechanism more effective than any the British Empire had with India and its colonies under the Gold Standard. So long as the US is the sole military superpower, the world will continue to accept inflated US dollars as payment for its goods. Developing countries like Argentina or Congo or Zambia are forced to get dollars to get the IMF seal of approval. Industrial trading nations are forced to earn dollars to defend their own currencies. The total effect of US financial and political and trade policy has been to maintain the unique role of the dollar in the world economy. It is no accident that the greatest financial center in the world is New York. It's the core of the global Dollar System.

It works so: A German company, say BMW, gets dollars for its car sales in the USA. It turns the dollars over to the Bundesbank or ECB in exchange for Marks or Euros it can use.

The German central bank thus builds up its dollar currency reserves. Since the oil shocks of the 1970's, the need to have dollars to import oil became national security policy for most countries, Germany included. Boosting dollar exports was a national goal. But since the Bundesbank no longer could get gold for their dollars, the issue became what to do with the mountain of dollars their trade earned. They decided to at least earn an interest rate by buying safe, secure US Treasury bonds. So long as the US had a large Budget deficit, there were plenty of bonds to buy.

Today, most foreign central banks hold US Treasury bonds or similar US government assets as their "currency reserves." They in fact hold an estimated $1 trillion to $1.5 trillion of US Government debt. Here is the devil of the system. In effect, the US economy is addicted to foreign borrowing, like a drug addict. It is able to enjoy a far higher living standard than were it to have to use its own savings to finance its consumption. America lives off the borrowed money of the rest of the world in the Dollar System. In effect, the German workers at BMW build the cars and give it away to Americans for free, when the central bank uses the dollars to buy US bonds.

Today, the US trade deficit runs at an unbelievable $500 billion, and the dollar does not collapse. Why? In May and June alone, the Bank of China and Bank of Japan bought $100 billion of US Treasury and other government debt! Even when the value of those bonds was falling. They did it to save their exports by manipulating the Yen to dollar to prevent a rising yen.

Because the world payments system, and most importantly, the world capital markets---stocks, bonds, derivatives—are dollar markets, the dollar overwhelms all others. The European Central Bank could offer an alternative. So far it does not. It only reacts to a dollar world. German banks destroy the German economy as they rush to imitate US banks. The Dollar System is destroying the German industrial base. German national economic policy as well as Bundesbank and now ECB policy is oriented on the far smaller export sector, to maximize trade surplus dollars, or to the big banks, to attract as many dollars as possible.

China plays a key role today

The biggest dollar surplus country today is China. Globalization is in fact just a code word for dollarization. The Chinese Yuan is fixed to the dollar. The US is being flooded with cheap Chinese goods, often outsourced by US multinationals. China today has the largest trade surplus with the US, more than $100 billion a year. Japan is second with $70 billion. Canada with $48 bn, Mexico with $37 bn and Germany with $36 bn make the top 5 trade deficit countries, a total deficit of almost $300 billion of the colossal $480 deficit in 2002. This gives a clue to US foreign policy priorities.

What is perverse about this system is the fact that Washington has succeeded in getting foreign surplus countries to invest their own savings, to be a creditor to the US, buying Treasury bonds. Asian countries like Indonesia export capital to the US instead of the reverse!

The US Treasury and Greenspan are certain that its trade partners will be forced to always buy more US debt to prevent the global monetary system from collapsing, as nearly happened in 1998 with the Russia default and the LTCM hedge fund crisis.

Washington Treasury officials have learned to be masters at the psychology of "monetary chicken." Treasury Secretary Snow used an implied threat of letting the dollar collapse, after the Iraq war, to warn Germany about the risk of trying to be too close to France with the Euro. Some weeks after the dollar had fallen sharply, and German export industry was screaming pain, Snow reversed his stand and the dollar stabilized. Now the dollar again rises as foreign money flows back in.

But debt must be repaid you say? Does it ever? The central banks just keep buying new debt, rolling the old debts over. The debts of the USA are the assets of the rest of the world, the basis of their credit systems!

The second key to the Dollar System deals with poorer debtor countries. Here the US influence is strategic in the key multilateral institutions of finance—World Bank and IMF, WTO. Entire countries like Argentina or Brazil or Indonesia are forced to devalue currencies relative to the dollar, privatize key state industries, cut subsidies, all to repay dollar debt, most often to private US banks. When they resist selling off their best assets, tehy are charged with being corrupt. The growth of offshore money centers in the Caribbean, a key part of the drug money cycle, is also a direct consequence of the decisions in Washington in the 1970's and after, to deregulate financial markets and banks. As long as the dollar is the global currency, the US gains, or at least its big banks.

This is a kind of Dollar Imperialism more slick than anything the British Empire even dreamed of. It is a part of the current America "Empire" debate no one mentions. Instead of the US investing in colonies like England to earn profits on the trade, the money comes from the client states into the US economy. The problem is that Washington has allowed this perverse system to get out of all control to the point today it threatens to bring the entire world to the point of collapse. Had the US instead promoted long-term policy of investing in the economic growth and self-sufficiency of countries like Argentina or Congo, rather than bleeding them in repayment of unpayable dollar debts, the world would look far less unstable today.

The internal debt bomb in the USA

The question is if the Dollar System is reaching its real limits? The Dollar System for the past 30 years has been built on growing dollar debt. What if the rest of the world decides it no longer wants to give its savings to the US Treasury to finance its deficits or its wars? What if China decides that it should diversify its risk by buying Euro debt? Or Japan or Russia? That day may come sooner than we think.

In addition to colossal debts to the rest of the world, the US internal debt burdens have reached alarming levels in the past three decades, especially the past decade.

The total US debt—public and private—has more than doubled since 1995. It is now officially over $34 trillion. It was just over $16 trillion in 1995, and "only" $7 trillion in 1985. Most alarming it has grown faster than income to service it, or GDP.

Since the Asia crisis in 1998, the US debt situation has exploded. The heart of the debt explosion is in US private consumer debt. And the heart of consumer debt is the home mortgage debt growth, helped by two semi-government agencies—Fannie Mae and Freddie Mac. Since 2001 and the collapse of the stock market wealth, the Federal Reserve has cut interest rates 13 times to a 45 year low.

US Households took on new home mortgage debt in the first six months this year at an annual rate of $700 billion, double the debt growth in 2000. Total mortgage debt in the US totals just under $5 trillion, double the debt in 1996. It has grown far faster than personal income per capita. That is larger than the GDP of most nations.

The aim has been to inflate a housing speculation market in order to keep the economy rolling. The cost has been staggering new debt levels. Because it was created with record low interest rates, when rates again rise, millions of Americans will suddenly find the burden impossible, especially as unemployment rises. Fannie Mae and Freddie Mac combined guarantee $3 trillion in US home mortgages. The US banking system holds much of their bonds. When the housing bubble collapses, a new banking crisis is pre-programmed as well, with JP Morgan/Chase, Wells Fargo and BankAmerica the worst.

The US economy has only managed to avoid a severe recession since the collapse of the stock market three years ago, by a record amount of consumer borrowing. "Shop until you drop" is a popular American expression. The Federal Reserve has pushed interest rates down to 1%, the lowest in 45 years. The aim is to keep the cost of the debt low such that families continue to borrow, in order to spend! Some 76% of the US economy GDP today is consumer spending. And most of that is tied to a record boom in home buying.

But the rate of new debt growth among families is rapidly reaching alarm levels, while the overall manufacturing economy continues to stagnate or decline. Today US factories only operate at 74% of capacity, near historic lows. With so much unused capacity, there is little chance companies will soon invest in new factories or jobs. They are going to China.

So Greenspan continues to rely on foreign money to prop up his consumer debt bubble, at low interest rates. Were foreign money to stop propping the US economy, now at some $2.5 billion daily, the Federal Reserve would be forced to raise its interest rates to make dollar investments more attractive. Higher rates would trigger a crisis in consumer debt, mortgage defaults, credit card and car loan failures. Higher rates would plunge the US economy into a depression. This may be about to happen, despite poor George Bush's desires to get reelected.

There is a limit how much debt US families can pay to keep the economy afloat.

There is no US recovery, merely a debt spending boom based on this home buying explosion.

Total US household debt reached a high in June of $8.7 trillion, double that of 1994. Families are agreeing to longer debt payments for basics like homes or cars. The length of new car loans now averages 60.7 months, and the amount of car debt financed increased to $27,920, and the average new home costs $243,000.

With rapidly rising unemployment and a real economy that is not growing, at some point there will come a violent reality clash, as the market for home lending reaches its limit. At that point the danger is the consumer will stop buying, and the manufacturing economy will not be able to create new jobs and a real recovery. The jobs have gone to China!

We might already be at or very close to that point. In the past six weeks, US interest rates have risen sharply, as owners of US bonds have started to sell in panic levels, fearing the bonanza in real estate may be over, and trying to get out with some profit before bond prices collapse. The European Central Bank is advising member banks to not buy any more US Freddie Mac or government agency debts.

The problem is this process of creating debt, domestic and foreign, to keep the US economy going, has gathered so much momentum it risks destroying what remains of the US manufacturing and technology base. Henry Kissinger warned in a conference of Computer Associates in June, that the US risked destroying its own middle class, and its key strategic industries via outsourcing to China, India and other cheap areas. Today only 11% of the total workforce is in manufacturing. In 1970, it was 30%. Post-industrial America is a bubble economy about to pop.

Fed chief Greenspan even warned China about the rate of its trade increase with the US, pressuring China to upvalue the Renminbi to make its goods less competitive in dollar markets, and slow the job loss. But this is dangerous. China holds $340 billion in US Treasury bonds and other reserve assets. The US needs the Chinese dollar savings to finance its soaring deficits.

It is caught in its own web: American jobs, hi-tech jobs as well as factory jobs, are vanishing permanently as US factories source to China, India or other cheap areas. If Washington pressures China and others to cut back exports they risk to kill the goose that lays golden dollar eggs. Who will buy that growing Government dollar debt? Private bond traders are desperately trying to sell their US bonds. Germany can only buy so much dollar debt, also Japan.

The US waged war in Iraq not out of fundamental strength but fundamental weakness. It is economic weakness however, not military.

Oil and food, and money as strategic weapon

The fundamental reason for the Iraq war, beyond agendas of Richard Perle or other hawks, is hence, strategic in my view. US economic hegemony in this distorted Dollar System increasingly depends on a rising rate of support from the rest of the world to sustain US debt levels. Like the old Sorcerers' Apprentice. But the point is past where this can be gotten easily. That is the real significance of the US shift to unilateralism and military threats as foreign policy. Europe can no longer be given a piece of the Third World debt pie as in the 1980's. Japan has to cough up even more, as does China now.

Even ordinary Americans have to give up their pension promises. If the Dollar System is to remain hegemonic, it must find major new sources of support. That spells likely destabilization and wars for the rest of the world.

Could it be that in this context, some long-term thinkers in Washington and elsewhere have devised a strategy of establishing US military control of all strategic sources of oil for the one potential power rival, Eurasia, from Brussels to Berlin to Moscow and Beijing? The dollar vulnerability and debt problems are well known in leading policy circles.

As Henry Kissinger once noted, "Who controls the food supply controls the people; who controls the energy can control whole continents; who controls money can control the world." (F. William Engdahl, “Crisis of the U.S. Dollar System,” Global Currency Evaluation Institute, undated, downloaded from
http://www.1global.org/article_crisis_of_the_us.html, 11 Aug. 2007.)

 

Remember when the U.S. was the world’s greatest industrial democracy? Barely thirty years ago the output of our producing economy and the skills of our workforce led the world.

 

What happened? It’s hard to believe that in the space of a generation our character and capabilities just collapsed as, for example, did our steel and automobile industries and our family farming. What then are the causes of the decline?

 

Here’s how I would put it today: our economy is on an artificial life-support system, a barely-breathing hostage in a lunatic asylum. That asylum is the U.S. and world financial systems which are on the verge of collapse.

The inmates are the world’s central bankers, along with most of the financial magnates big and small. The fact is that the economy of much of the world is in a decisive downward slide which the financiers cannot stop because the systems they operate are the primary cause. As often happens, the inmates rule the asylum.

 

The problems aren’t confined to the U.S. Unemployment worldwide is increasing, debt is rampant, infrastructures are crumbling, and commodity prices are rising.

 

In such an environment, crime, warfare, terrorism, and other forms of violence are endemic. Only the most naïve, self-centered, and deluded jingoist could describe such a scenario in terms of the freedom-loving Western democracies being besieged by the ‘bad guys.

 

Rather what is happening highlights the growing failures of Western globalist finance whose impact on political stability has been so corrosive. As many responsible commentators are warning, we are likely to see major financial shocks within the next few months. The warnings are even coming from high-flying institutional players like the Bank of International Settlements and the International Monetary Fund.

 

We may even be seeing the end of an era when the financiers ruled the world. At a certain point, governments or their military and bureaucratic establishments are likely to stop being passive spectators to the onrushing disorder. It is already happening in Russia and elsewhere.

The countries that will be least able to master their own destiny are those like the U.S. where governments have been most passive to economic decomposition from actions of their financial sectors. The financiers are the ones who for the last generation have benefited most from economies marked by privatization, deregulation, and speculation, but that may be about to change. Whether the change will be constructive or catastrophic is yet to be seen.

 

THE HOUSING BUBBLE SETS THE STAGE FOR THE U.S. COLLAPSE

 

Within the U.S., foreign investors, above all Communist China, have been propping up our massive trade and fiscal deficits with their capital. To keep them happy, interest rates, after six years of “cheap credit,” must now be kept relatively high. Otherwise the Chinese, et.al., might bail-out, leaving us to fend for ourselves with our hollowed-out shell of an economy.

 

Even so, these investors are increasingly uneasy with their dollar holdings and are bailing out anyway. Foreign purchase of U.S. securities has plummeted. And our debt-laden economy, where our manufacturing base has been largely outsourced, is no longer capable of providing our own population with a living by utilizing our own productive resources.

 

For a while we were floating on the housing bubble, but those days are now history when, according to a Merrill-Lynch study, the artificially pumped-up housing industry, as late as 2005, accounted for fifty percent of U.S. economic growth.

 

As everyone knows, the Federal Reserve under Chairman Alan Greenspan used the housing bubble, like a steroid drug, to pump liquidity into the economy. This worked, at least for a while, because consumers could borrow huge amounts of money at relatively low interest rates for the purchase of homes or for taking out home equity loans to pay off their credit cards, finance college education for their children, buy new cars, etc.

 

When the final history of the housing bubble is written, its beginnings will be dated as early as 1989-90, when credit restrictions on the purchase of real estate first began to be eased. According to mortgage industry insiders interviewed for this article, they began to be taught the methods for getting around consumers’ weak credit reports and selling them homes anyway in the mid to late 1990s.

The Fed started inflating the housing bubble in earnest around 2001, after the collapse of the dot.com bubble, which failed with the stock market decline of 2000-2002. Then, over a trillion dollars of wealth, including working peoples’ retirement savings, simply vanished.

 

Also according to mortgage specialists, it was in March 2001, two months after George W. Bush became president, that a ‘wave of intoxicated fraud’ started. Mortgage companies began to be instructed, by the creditors/lenders, on how to package loan applications as "master strokes of forgery," so that completely unqualified buyers could purchase homes.

 

There could not have been a sudden onset of industry-wide illegal activity without direction from higher-up in the money chain. It could not have continued without reports being filed by whistleblowers with regulatory agencies. Today the government is prosecuting mortgage fraud, but they certainly had to know about it while it was actually going on.

 

The bubble was coordinated from Wall Street, where brokerages ‘bundled’ the ‘creatively-financed’ mortgages and sold them as bonds to retirement and mutual funds and to overseas investors. Portfolio managers were directed to buy subprime bonds as other bonds matured. It’s the subprime segment of the industry that has now collapsed, triggering, for instance, the recent highly-publicized demise of two Bear Stearns hedge funds.

 

And it’s not just lower-income home purchasers who are affected. The Washington Post has reported that for the first time in living memory foreclosures are happening in Washington’s affluent suburban neighborhoods in places like Fairfax, Loudon, and Montgomery Counties.

 

The subprime bonds were known to be suspect. One reason was that they were based on adjustable rate mortgages that were actually time bombs, scheduled to detonate a couple of years later with monthly payments hundreds of dollars a month higher than when they were written. Many of these mortgages will reset to higher payments this October.

 

Purchasers were lied to when they were told they could re-sell their homes in time to escape the payment hikes. Now the collapse of the market has made further resale at prices high enough to escape without losses impossible.

One way the system worked was for mortgage lenders to maximize the ‘points’ buyers were required to finance, making the mortgages more attractive to Wall Street. Of course bundling and selling the mortgages relieved the banks which originated the loans from exposure, pushing a considerable amount of the risk onto millions of small investors. This was in addition to the normal sale of mortgages to quasi-public agencies like Freddie Mac and Fannie Mae.

 

Was it a scam? Of course. Did the Federal Reserve know about it? They had to.

 

Did Congress exercise any oversight? No.

 

What did the White House know?

 

Amy Gluckman, an editor of Dollars and Sense, reported in the November/December 2006 issue: “During the Clinton administration, Greenspan was relatively ‘unembedded,’ averaging only one meeting per month at the White House.

 

“But when George W. Bush moved into 1600 Pennsylvania Ave., Greenspan’s behavior changed. During 2001, he averaged 3.3 White House visits a month, more than triple his rate under Clinton and much more often with high-level officials like Vice President Cheney. His visits rose to 4.6 a month in 2002 and 5.7 in 2003.

 

“Whatever White House officials were whispering in Greenspan’s ear, it worked: Greenspan abruptly changed his tune on tax cuts, lending critical support to Bush’s massive 2001 and 2003 tax giveaways, and he loosened the reins by cutting Fed-controlled interest rates repeatedly beginning in January 2001, a gift to the Republicans in power.

 

Along the way, the bubble caused housing prices to inflate drastically, which officialdom touted as economic ‘growth.’ Even today, periodicals like Barron’s naively boast that this inflation boosted American’s ‘wealth.’

 

But this source of liquidity for everyday people has been maxed out, like our credit cards, and there is nothing to replace it. There is no cash cushion anymore, because years ago people stopped earning enough money for personal or household savings.

 

As purchasers lose their homes to foreclosure, the real estate is being grabbed at bankruptcy prices by the banks and by any other investors with ready money. Whole neighborhoods of cities like Cleveland or Atlanta are turning into boarded-up ghost towns.

 

What we are seeing are the results of an economic crime on a fantastic scale that implicates the highest levels of our financial and governmental establishments. It spanned three presidential administrations - Bush I, Clinton, and Bush II - though the worst of it came with the surge of outright lending fraud after 2001.

 

As usual when hypocrisy is rampant only the small fry are being called to account. Commentators, including a sleepwalking Congress, have self-righteously railed at consumers who got in over their heads. The Mortgage Bankers Association is even lobbying Congress to allocate $7 million more to the FBI to go after the supposedly rogue brokers within their own industry who are being scapegoated.

 

THE BUBBLES ARE ONLY SYMPTOMS

 

But there’s much more to it than that. These bubbles are symptoms. They are created because our wage and salary earners lack purchasing power due to stagnant incomes and various structural causes. These causes include the outsourcing of our manufacturing industries to China and other cheap labor markets and the super-efficiency of the remaining U.S. industry which is able to manufacture products with ever-fewer workers.

 

Also, our farming, mining, and other resource-based industries are in a long-term slide. This and the decline of hard manufacturing have been going on since our oil production peaked in the 1970s, followed by the Federal Reserve-induced recession of 1979-83. Next came the deregulation of the financial industry. It was all part of the economic disintegration that led to today’s “service economy.”

 

Now, for the first time in modern U.S. history, there are no new economic engines at all. The last real engine was the internet which has now reached maturity with marginal players being weeded out.

 

Our biggest sources of new private-sector jobs today are food service, processing of financial paperwork, health care for the growing numbers of retirees, and menial low-paying jobs, like landscaping and building maintenance. These are increasingly being performed by immigrants who are also underpricing U.S. citizens in many service jobs like childcare and auto repair.

 

Today the rank-and-file of our population must increasingly turn to borrowing in order to survive. Only the banks and the credit card companies are the beneficiaries. The total societal debt for individuals, businesses, and government is over $45 trillion and climbing. This is happening even while the real value of wages and salaries is decreasing.

 

What I have just been saying is bad enough, but here’s where the real lunacy enters in.

 

A major factor connected to the decline in the value of employee earnings is dollar devaluation in the overarching financial economy due to the proliferation of huge quantities of bank credit being used to keep the stock market afloat and to fuel the speculative games of equity, hedge, and derivative funds.

 

In other words, while our factories continue to shut down, the Wall Street gambling casino - like its Las Vegas counterpart - is running full-bore, 24/7. This, along with financing of the massive federal deficit, is what critics are talking about when they speak of the Federal Reserve ‘printing money.’

The main growth factors for federal spending are Middle East war expenditures and interest on the national debt. But within the private sector it’s leveraged loans to businesses which The Economist recently said ‘mirror’.interest-only and negative-amortization mortgages -  in the subprime market. But here’s the big difference: in the leveraged business economy, the amount of assets at stake are even greater than with the housing bubble.

 

The financial world, which Dr. Michael Hudson calls the FIRE economy ‘Finance, Insurance, and Real Estate’ has been producing millionaires and billionaires among those who know how to play the game.

 

The Wall Street hedge funds stand out as the most irresponsible financial scams in history. Unregulated and secretive, they account for a third of all stock trades, own $2 trillion in assets, and pay their individual managers over $1 billion a year. Think about this the next time someone you know has their job outsourced to China or when his adjustable rate mortgage resets and drives up his monthly house payment past the level of affordability.

 

The hedge funds borrow huge sums from the banks which generate loans under their Federal Reserve-sanctioned fractional reserve privileges. Often this money is used by the hedge funds to ‘short the market,’ thereby earning profits when stock prices decline.

 

In other words, the hedge funds and their banking enablers use banking leverage to bet against the producing economy. In doing so, they may actually drive stock prices down, causing ordinary investors to lose a portion of their own wealth. Can this be called anything other than a crime?

 

The livelihood of much of the U.S. workforce and perhaps half of the rest of the world’s population’ maybe three billion people is being threatened by such financial lawlessness. The justification that was first used for financial deregulation and tax cuts for the rich was that the trickle-down effect of wealthy peoples earnings would spill over to the rank-and-file.

 

The Reagan administration ushered in these policies in the 1980s under the heading of ‘supply-side economics.’ But the opposite has happened. The system has institutionalized an increasingly stratified worldwide culture of haves and have-nots.

 

THE ROOT CAUSE OF THE CATASTROPHE

 

How did today’s looming tragedy come to pass?

 

Looking for causes is like peeling an onion. What we are really seeing are the terminal throes of a failed financial system almost a century old. It’s happening because, since the creation of the Federal Reserve System in 1913, even during the period of the New Deal with its Keynesian economics aimed at full employment, our economy has been based almost entirely on fractional reserve banking.

 

This means that under the regime of the world’s all-powerful central banking systems, money is brought into existence only as debt-bearing loans. Interest on this lending tends to grow exponentially unless overtaken by real economic growth.

 

Remember that every instance of bank lending, from purchase of Treasury Bonds, to credit cards, to home mortgages, to billion-dollar loans to hedge funds for leveraged buyouts or sheer speculation, must eventually be paid back somewhere, somehow, sometime, by somebody, with interest. In the end, it all comes back to people who work for a living, whether in the U.S. or elsewhere, because that is the only way the world community ever creates real wealth.

In an anemic economy like that of the U.S., growth cannot catch up with interest in a deregulated financial marketplace where interest rates are high. Rates may not seem high compared with, say, the twenty percent-plus rates of the early 1980s, but they are high in an economy with, at best, a two percent GDP growth rate.

 

And they have been high on average since the 1960s, as the banking industry became increasingly deregulated. Interestingly, since 1965, the U.S. dollar has lost eighty percent of its value, which tends to validate the contention by some observers that higher interest rates not only do not reduce inflation, as the Federal Reserve contends, but actually cause it.

 

The situation today is worse in many respects than 1929, because the debt ‘overhang’ vs. real economic value is much higher now than it was then. The U.S. economy was in far better shape in the 1920s, because so much of our population was gainfully employed in factories or on farms.

 

The question is not when will the system start to come down, because this has already begun. It’s shown most clearly by the fact that according to Federal Reserve data, M1, the part of the money supply most readily available for consumer purchases, is not only lagging behind inflation but has actually decreased in eleven of the last twelve months. This means that the producing economy is already in a recession.

 

The federal government is trying to figure out what to do. Their biggest concern is that foreign investors have started to pull out of dollar-denominated markets.

 

The government’s ‘plunge protection team. - known officially as the President’s Working Group on Financial Markets - is trying to engineer what they call a ‘soft landing.’ It’s been likened to the process by which you cook a frog in a pot where you raise the temperature one degree a day. The frog doesn’t hop out because the heat goes up gradually, but before long it’s too late. The frog has been cooked.

 

Even if the plunge protection team succeeds, and the frog cooks slowly, there will be a massive de facto default on dollar-denominated debt and a long-term degradation of the U.S. standard of living. The inside word is that we are likely to see major monetary shocks and a possible stock market crash as early as December 2007.

 

The worst off will be people locked into retirement funds which have a heavy load of mortgage-related securities. Entire investment portfolios are likely to disappear overnight.

 

The banks, along with the bank-leveraged equity and hedge funds, are preparing for the biggest fire sale in at least a generation. Insiders are going liquid to get ready. If you think Enron was ‘the bomb,’ you won’t want to miss this one.

 

WHAT CAN BE DONE?

 

There are so many flaws in the system that it’s time for real change.

As I have been pointing out in articles over the last several months, the key to a rational solution would be immediate monetary reform leading to a fundamental shift in how the world conducts its financial business. It would mean taking control of the world’s economy out of the hands of the private bankers and giving it back to democratically elected governments.

I spent twenty-one years working for the U.S. Treasury Department and studying U.S. monetary history. For much of our history we were a laboratory for diverse monetary systems.

 

During and after the Civil War (1861-5) we had five different sources of money that fueled our economy. One was the Greenbacks, an extremely successful currency which the government spent directly into circulation. Contrary to financiers’ propaganda, the Greenbacks were not inflationary.

 

Another was gold and silver coinage and specie-backed Treasury paper currency. The third was notes lent into circulation by the national banks. The fourth was retained earnings - individual savings and business reinvestment of profits -which was the primary source of capital for industry. The fifth was the stock and bond markets.

 

After the Federal Reserve Act was passed by Congress in 1913, the banks and the government inflated the currency through war debt and destroyed most of the value of the Greenbacks and coinage. The banks never entirely displaced the capital markets but eventually took them over during the present-day era of leveraged mergers, acquisitions, and buyouts, while the Federal Reserve created and deflated asset bubbles.

 

The banking system which rules the economy through the Federal Reserve System has produced the crushing debt pyramid of today. The system is a travesty. Banks, which can be useful in facilitating commerce, should never have this much power. Many intelligent people have called for the Federal Reserve to be abolished, including former chairmen of the House banking committee Wright Patman and Henry Gonzales and current Republican presidential candidate Ron Paul.

 

Some might call such a program a revolution. I prefer to call it a restoration - of national sovereignty. Central to the program would be the elimination of the Federal Reserve as a bank of issue and restoration of money-creation to the people’s representatives in Congress. This is what our Constitution says too. It’s the system we had before 1913.

 

THE MONETARY PRESCRIPTION

 

The fundamental objectives of monetary policy should be to secure a healthy producing economy and provide for sufficient individual income. The objectives should not be to produce massive profits for the banks, fodder for Wall Street swindles, and a blank check for out-of-control government expenditures.

 

Note I referred to income. I did not say ‘create jobs.’ That is the Keynesian answer, because Keynes was a collectivist, and the main thing collectivists like to come up with is to give everyone more work to do, even if it’s just grabbing a shovel and digging ditches like they did with the WPA during the Depression.

 

It’s what President Clinton did with his welfare-to-work program that threw hundreds of thousands of mothers off the welfare rolls and into a job market where sufficient work at a living wage did not exist. It’s another reason the government is constantly borrowing more money to fuel the military-industrial complex by creating more military, bureaucratic, and contractor jobs.

 

Back to income. The idea of ‘income,’ as opposed to ‘jobs,’ is a civilized and humane idea. When are we going to realize that everyone doesn’t need a paying job in order for an industrial economy to provide all with a decent living? When are we going to realize that the productivity of the modern economy is part of the heritage of all of us, part of the social commons?

Why can’t mothers have the choice of staying home with the kids like they could a generation ago? Why can’t some people choose to do eldercare? Why can’t others comfortably go into lower-paying occupations like teaching or the arts? Why can’t some just opt to study or travel for a while or learn new skills or start a business without facing financial ruin as they often must today? Why can’t retirees enjoy their retirement instead of having to stay in the job market or worrying about Social Security going broke?

 

The U.S. and world economies are on the brink of collapse due to the lunacy of the financial system, not because we can’t produce enough.

 

Contrary to so many doomsayers, the mature world economy is capable of providing a decent living for everyone on the planet. It cannot because the monetary equivalent of its bounty is skimmed by interest-bearing debt.

 

These are things that monetary reformers have known about for decades. The first steps within the U.S. would be 1) a large-scale cancellation of debt; 2) a guaranteed income for all at about $10,000 a year, not connected to whether a person has a job; 3) an additional National Dividend, fluctuating with national productivity, that would provide every citizen with their rightful share in the benefits of our incredible producing economy; 4) direct spending of money by the government for infrastructure and other necessary costs without resort to taxation or borrowing; 5) creation of a new system of private lending to businesses and consumers at non-usurious rates of interest; 6) re-regulation of the financial industry, including the banning of bank-created credit for speculation, such as purchase of securities on margin and for leveraging buyouts, acquisitions, mergers, hedge funds, and derivatives; and 7) abolishment of the Federal Reserve as a bank of issue with retention of its functions as a national financial transaction clearinghouse.

 

While these proposals are basically simple, the overall program is so different from what we have today with our financier-controlled system that it takes careful reading and a great deal of thought to understand exactly how it would work. One way to approach it is to look at the likely effects.

 

These measures would immediately shift the basis of our economy from borrowing from the banks to a mixed system that would include the direct creation of credit at the public and grassroots level. The size of government would shrink, our producing economy would be reborn, debt would come down, economic democracy would become a reality, and the financial industry could be right-sized. Finally, the international situation could be stabilized because we would no longer be driven to a constant state of warfare to seize other nations’ resources as with Iraq and to prop up the dollar as a reserve currency abroad.

 

Such a system would work by creating indigenous sources of credit needed to mobilize the natural wealth and productivity of the nation. There are people who could implement this program. Systems to do so could be installed within the U.S. Treasury and the Federal Reserve within a matter of months.

Fundamental monetary reform implemented to restore economic democracy is what America’s real task should be for the twenty-first century. One thing is for certain. The out-of-control financial system that has wrecked the U.S. and world economies over the last generation cannot be allowed to continue.

How the outcome will play out may well depend on whether there is a Jefferson, Lincoln, or Roosevelt waiting in the wings. The success of each of these great leaders was due to one critical factor: their ability to implement monetary reform at a time of national emergency. (Richard C. Cook, “The Crashing U.S. Economy Held Hostage: Our Economy is on an Artificial Life-Support System,” Global Research, July 7, 2007.)

 

“If the world's central bankers accumulate fewer dollars, the result would be an unrelenting American need to borrow in the face of an ever weaker dollar - a recipe for higher interest rates and higher prices. The economic repercussions could unfold gradually, resulting in a long, slow decline in living standards. Or there could be a quick unraveling, with the hallmarks of an uncontrolled fiscal crisis."  (New York Times editorial, 4 January 2005.)

 

It seems that there are a growing number of people who believe as I do, that the economic tsunami planned by the Bush administration is probably only months away. In just 5 short years the national debt has increased by nearly 3 trillion dollars while the dollar has continued its predictable decline. The dollar has fallen a whopping 38% since Bush took office, due largely to the massive $450 billion per year tax cuts. At the same time, numerous laws have been passed (Patriot Act, Intelligence Reform Bill, Homeland Security Bill, National ID, Passport requirements etc) anticipating the need for greater repression when the economy takes its inevitable nosedive. Regrettably, that nosedive looks to be coming sooner rather than later.

 

The administration is currently putting as much pressure as possible on OPEC to ratchet up the flow of oil another 1 million barrels per day (well over capacity) to settle down nervous markets and buy time for the planned bombing of Iran in June. Like Fed Chief Alan Greenspan's artificially low interest rates, the manipulation of oil production is a way of concealing how dire the situation really is. Rising prices at the pump signal an upcoming recession, (depression?) so the administration is pulling out all the stops to meet the short term demand and maintain the illusion that things are still okay. (Bush would rather avoid massive popular unrest until his battle-plans for Iran are carried out)

 

But, of course, things are not okay. The country has been intentionally plundered and will eventually wind up in the hands of its creditors as Bush and his lieutenants planned from the very beginning. Those who don't believe this should note the methodical way that the deficits have been produced at (around) $450 billion per year; a systematic and orderly siphoning off of the nation's future. The value of the dollar and the increasing national debt follow exactly the same (deliberate) downward trajectory.

 

This same Ponzi scheme has been carried out repeatedly by the IMF and World Bank throughout the world; Argentina being the last dramatic illustration. (Argentina's economic collapse occurred when its trade deficit was running at 4%; right now ours is at an unprecedented 6%.) Bankruptcy is a fairly straight forward way of delivering valuable public assets and resources to collaborative industries, and of annihilating national sovereignty. After a nation is successfully driven to destitution, public policy decisions are made by creditors and not by representatives of the people. (Enter, Paul Wolfowitz)

 

Did Americans really believe they could avoid a similar fate?

 

If so, they'd better forget about it, because the hammer is about to come down big-time, and the collateral damage will be huge.

 

The Bush administration is mainly comprised of internationalists. That doesn't mean that they "hate America"; simply that they are committed to bringing America into line with the "new world order" and an economic regime that has been approved by corporate and financial elites alike. Their patriotism extends no further than the garish tri-colored flag on their lapel. The catastrophe that middle class Americans face is what these elites breezily refer to as "shock therapy"; a sudden jolt, followed by fundamental changes to the system. In the near future we can expect tax reform, fiscal discipline, deregulation, free capital flows, lowered tariffs, reduced public services, and privatization. In other words, a society entirely designed to service the needs of corporations.

 

There are a number of signs that the economy is close to meltdown-stage. Even with cheap energy, low interest rates and $450 billion in borrowed revenue pumped into the system each year, the economy is still barely treading water.

 

This has a lot to due with the colossal shifting of wealth brought on by the tax cuts. Supply-side, trickle-down theories have been widely discredited and Bush's tax cuts have done nothing to stimulate the economy as promised. Now, with oil tilting towards $60 per barrel, the economic landscape is changing quickly, and shock-waves are already being felt throughout the country.

The Iraq war has contributed considerably to our current dilemma. The conflict has taken nearly one million barrels of Iraqi oil per day off line.(The exact amount that the administration is trying to replace by pressuring OPEC) In other words, the astronomical prices at the pump are the direct result of Bush's war. The media has failed to report on the negative affects the war has had on oil production, just as they have obscured the incredibly successful insurgent strategy of destroying pipelines. This isn't a storyline that plays well to the American public, who expected that Iraq would be paying for its own reconstruction by now. Instead, the resistance is striking back at the empire's Achilles heel (America's need for massive amounts of cheap oil) and its having a damaging affect on the US economy.

 

Just as the economy cannot float along with sharp increases in oil prices, so too, Bush's profligate deficits threaten the dollar's status as the world's reserve currency. This is much more serious than a simple decline in the value of the dollar. If the major oil producers convert from the dollar to the euro, the American economy will sink almost overnight. If oil is traded in euros then central banks around the world would be compelled to follow and America will be required to pay off its enormous $8 trillion debt. That, of course, would be doomsday for the American economy. But, a recent report indicates that two-thirds of the world's 65 central banks have already "begun to move from dollars to euros." The Bush plan to savage the dollar has been telegraphed around the world and, as the New York Times says, "the greenback has nowhere to go but down". There's only one thing that the administration can do to ensure that energy dealers keep trading in dollars: control the flow of oil. That means that an attack on Iran is nearly a certainty.

 

The difficulties facing both the dollar and the economy are not insurmountable. The world has been more than willing to compensate for America's wasteful spending as long as America shows itself to be a responsible steward of the global economy. However, the administration's military and economic recklessness suggests that some of the key players on the world stage (particularly Russia, Iran, Venezuela, Germany, France, China, Brazil) are collaborating on an alternate plan; a contingency plan. If Iran is bombed in an unprovoked act of aggression, we will certainly see this plan activated. The most likely scenario would be a quick switch to the euro that would have grave implications for the American economy. (Russia has already indicated that it will do this) For Iran, an attack would justify arming disparate terrorist organizations with the weaponry they need to attack American and Israeli interests wherever they may be. In any event, an unprovoked attack will dispel the remaining illusions about Bush's war against terror and confirm to everyone that we are engaged in a new world war; a conflict for global domination.

 

The neoliberal chickens have come home to roost. America has become the latest staging ground for the eccentric economic policies of the Washington Consensus. The towering national debt coupled with the staggering trade deficits have put the nation on a precipice and a seismic shift in the fortunes of middle-class Americans is looking more likely all the time. The New York Times summarized the country's prospects like this:

 

"The economic repercussions could unfold gradually, resulting in a long, slow decline in living standards. Or there could be a quick unraveling, with the hallmarks of an uncontrolled fiscal crisis."

 

"An uncontrolled fiscal crisis"... America's future under George Bush. We are facing years of collective struggle ahead. If there's a quick fix, I have no idea what it might be. (Mike Whitney, “Coming Sooner Than You Think: The Economic Tsunami,” Counterpunch, 8 April 2005.)

 

The problem is that entities outside the traditional banking sector have been engaged in bank-like functions and are hence subject to bank-like problems such as bank-runs. Here's how it works.

 

Hedge funds can be hit with withdrawals even if they are not in trouble themselves, at least initially, due to uncertainties about the future state of the market.

 

But like a bank who lends out most of the deposit it receives, a hedge fund uses the deposits it receives to purchase securities and other assets for its portfolio. Thus, unless it has substantial cash reserves on-hand (part of the scramble now is to build cash reserves), when investors make withdrawals the fund must begin to liquidate its portfolio to pay them off.

 

But if nobody will purchase mortgage-backed securities, who do you sell to? With nobody buying the assets the fund is trying to sell, they are forced to try to raise cash in other ways, and problems mount.

 

And it can feed on itself, just like a bank run. If investors hear that people are having trouble getting their money out of a particular fund, or from funds generally, they will rush to get their money out before the fund fails, and the problems get worse as funds try to sell assets to raise the needed cash.

So it's sort of like a bank run, but without a standing lending facility (i.e. the equivalent of a discount window) available to meet the demand for liquidity, though such institutions could be created. ("A New Kind of Bank Run" Economist’s View, downloaded from http://economistsview.typepad.com/economistsview/2007/08/a-new-kind-of-b.html, 11 August 2007.)

 

It’s official. Mark your calendars. The crash of the U.S. economy has begun. It was announced the morning of Wednesday, June 13, 2007, by economic writers Steven Pearlstein and Robert Samuelson in the pages of the Washington Post, one of the foremost house organs of the U.S. monetary elite.

 

Pearlstein’s column was titled, “The Takeover Boom, About to Go Bust” and concerned the extraordinary amount of debt vs. operating profits of companies currently subject to leveraged buyouts.

 

In language remarkably alarmist for the usually ultra-bland pages of the Post, Pearlstein wrote, “It is impossible to predict when the magic moment will be reached and everyone finally realizes that the prices being paid for these companies, and the debt taken on to support the acquisitions, are unsustainable. When that happens, it won't be pretty. Across the board, stock prices and company valuations will fall. Banks will announce painful write-offs, some hedge funds will close their doors, and private-equity funds will report disappointing returns. Some companies will be forced into bankruptcy or restructuring.”

 

Further, “Falling stock prices will cause companies to reduce their hiring and capital spending while governments will be forced to raise taxes or reduce services, as revenue from capital gains taxes declines. And the combination of reduced wealth and higher interest rates will finally cause consumers to pull back on their debt-financed consumption. It happened after the junk-bond and savings-and-loan collapses of the late 1980s. It happened after the tech and telecom bust of the late '90s. And it will happen this time.”

 

Samuelson’s column, “The End of Cheap Credit,” left the door slightly ajar in case the collapse is not quite so severe. He wrote of rising interest rates, “As the price of money increases, borrowing and the economy might weaken. The deep slump in housing could worsen. We could also discover that the long period of cheap credit has left a nasty residue.”