Predictions, rumours and warnings are flying thick in media space. Hopeful visions of recovery, backed by assurances that “the worst is behind us” are vying for attention with ominous alarm calls about the tidal wave that may be heading our way. What are some of the most reasonable and prudent conclusions we can draw, without painting a target for the often spurious but effective charge of “conspiracy theorizing?”

Naturally that accusation is used most by detractors bereft of any more specific and arguable reasons to contradict inductions that they do not like, so we should not be intimidated, but we can make our points without needing to assume the existence of hidden and unproven factors and thus we should remain broadly unassailable.

A fact check

At the outset, we should point out that, in spite of the official self-serving noises coming from Western capitals and from Wall Street about the “green shoots” of recovery being visible at many places, and in spite of Lawrence Summers’ recent boast of “having stepped back from the brink,” there is no quantifiable, mechanical reason for such an imminent or incipient recovery.

Governments have not eliminated the causes of the crisis and have merely temporarily tried to make up for the astronomical bank and corporate losses by injecting enormous but still insufficient amounts of public money into the largest financial and industrial houses that they decided needed to survive. Otherwise the system has been left broadly intact, and in a country like Britain, the biggest banks still owe amounts three times higher than the nation’s GDP, while in the USA, official sources estimated the cost of the crisis at 23 trillion dollars, about twice the American GDP, which is not surprising if we consider the total face value of derivative financial products that has been emitted, and that is in the range of 550 trillion.

As significant is the fact that both the USA and Britain, following the logic of neo-liberal globalization, have de-industrialized and turned as a result into “rentier”, mostly financial economies, after outsourcing most of their production to poorer countries where labour is cheaper and less organized. Hence, all attempts that either of those two countries now may make to revive their production sectors will translate into exporting even more know-how, capital and jobs to nations like China for subsequent import of the finished goods against borrowed capital, thereby increasing the public debt even further, with no end in sight.

Thus, seasoned observers such as Robert Reich have pointed out that the stock market rally of June/July 2009 is caused by corporate profits, which in turn are almost entirely resulting from massive cost cutting, in great part payroll cuts (i.e. downsizing). Reich writes in his blog on July 23: ‘there is a limit to how much can be cut without a business eventually disappearing.” His recommendation is: “Keep your eye on the real economy, where unemployment and underemployment keep rising.” Eminent economists like Joseph Stiglitz and Michael Hudson make similar assessments.

These observations are matched by Dave Johnson (in “Campaign for America’s Future”) in an article entitled: “Dude, where’s my industrial policy?” Johnson notices that the successive measures taken by the Bush and Obama administrations as of this writing, are “stopgap, holding action, temporary, make up, back fall and after-the-fact-reaction,” as there is no policy to regenerate domestic manufacturing, while 45% of the nation’s profits are netted by the financial sector while it continues to borrow more than $2 billion abroad every day (at the end of 2009 it will look more like 4 billion a day).

His summary: “Face it: if we do not have an active and engaged industrial policy we are handing the business over to those (overseas countries) who do, and they do. And we are. Meanwhile, there are interests who benefit from this (lack of) policy and fight to keep it as it is. Where is your voice in this?” he rhetorically asks his fellow citizens.

There is no doubt that the US in particular, and the West in general, are getting poorer in real terms, while they continue to live well beyond their means. Such a binge can only lead to a painful hangover. Claims that the crisis is ebbing are delusional at best, misleading at worst, as the talk of a “jobless” recovery may not even be accurate, as there is no recovery of any kind to be expected for at least three years, even if some urgently needed reforms are made in the coming months, as they will take time to bear results.

The “experts” who announce the imminent return of the fat cows of Egypt are generally those (like Summers) who drove the US and other Western economies into the neo-liberal El Dorado which has now turned into a vale of tears for most; they were still affirming less than two years ago that the global economy was solid and sound so that chances of a recession were virtually non-existent. Unsurprisingly, they are again piping an optimistic tune. It has now been revealed that the Bush administration, acting under similar motives, kept secret US Air Force and CIA photographs that revealed the extent and speed of polar icecap melting, in order not to provide support to the stormy petrels in their warnings about global warming. Hiding the truth from their people is one of the chief specialties of governments.

Once we have established from mainstream, authoritative sources that the US, hitherto at least the engine of global growth, is continuing its slide into the abyss of insolvency, we can look at some the diagnoses ventured by certain savvy analysts who have earlier been proven right in some of their important predictions.

Grim prospects

One of the most thorough among those forecasters is the French group GEAB (Groupe d’Etudes et d’Analyses Boursieres) which accurately predicted the crash of September 2008, almost two years in advance. In its special summer bulletin No. 36, brought out on June 16, 2009, entitled “Trois vagues scelerates”, authored by H.G. Fandrich for LEAP/E2020, the GEAB takes a very dim view of the coming months. It questions crucially the ability of the USA and Great Britain to finance their respective sky-rocketing public deficits and predicts they will both default by the end of this summer.

The “three dastardly, or freak waves” (a well known, very dangerous oceanic phenomenon) that the LEAP/E2020 are referring to are three convergent, highly destructive economic processes which are overtaking the global economy, and particularly the western countries, starting with the USA, though their most visible effects have registered in smaller European nations such as Iceland, Ireland, and the Baltic republics, as also in a number of American states, notably California, the largest and hitherto the richest in the Union.

However, by the end of the summer, it is forecast that all areas of the world will experience a major deterioration in their economic situation. The three waves are 1] massive job losses and the resulting endemic unemployment, 2] a series of bankruptcies involving companies, banks, real estate, governments, regional and city administrations, and 3] the last throes of the crisis of the US Treasury bonds and Bills, of the Greenback, with the correlated resurgence of inflation. The three waves are, according to the LEAP report, “simultaneous, asynchronous and non-parallel”, which makes them even more devastating. States are now carrying crushing debt burdens, vastly increased by the recent massive bail-out transfers to banks and MNCs, which will soon make them insolvent even as they openly plunder pension funds and private savings in the name of the national interest.

The LEAP report squarely accuses the world’s major government of misleading the public (as in Iraq and Afghanistan, giving a relatively rosy view of “military success”) by promoting the legend of a budding recovery in order to push citizens who still can to invest in bank and other stocks, while trying to convince emerging country governments such as China, India, Russia, Arab oil exporters and others to continue to buy their debt and invest in their economies. However, it appears this sale pitch is not working well with foreign states that are seeing through the ploy and staying away from the “rescued” but still insolvent major western banks.

The Chinese Government in particular is very clear about the real status of American public and private finance and is apparently not afraid to openly challenge its irresponsible fiscal and industrial policies, while making alternative arrangements insofar as it can without hurting itself too much. The main victims of this deception are small investors and the average citizens of the nations in question, who are lulled into trusting stock markets and banks once again.

The unravelling of the US-British economic engine has not gone unnoticed in the EU either, and leaders reputed for their staunch “Atlantic” credentials and pro-American sentiments, such as Nicolas Sarkozy in France, Angela Merkel in Germany, and Silvio Berlusconi in Italy, are concerned about the fate of their own countries within the tight Anglo-American embrace. While moving closer to Russia, Asia, and other emerging regions of the world, they are openly talking about multi-polarity and needed alternatives to the Dollar-based system. So far, they have thrown their support behind the proposal mooted at the last G-20 summit in London to adopt the FMI’s SDRs (Special Drawing Rights) as a new reserve currency which would be based on the “gang of four” (US Dollar, Euro, Japanese Yen and Pound Sterling).

The obvious feature of this arrangement is that it would preserve the leadership status of the Euro-American alliance, with Japan as a long-standing junior partner as the IMF, notes Michel Chossudovsky (July 23, 2009, Global Research) is not responsible for monetary policy that would remain in the hands of the four aforesaid central banks. More importantly, this reform does nothing to solve the debt crisis.

In reality, the new SDR regime would be based on a virtual merger of the Euro with the Dollar, or a successor to the latter that might take the form of the mythical “Amero”, reportedly on the drawing boards of the US Federal system. The British pound may be on its last leg as, in the wake of the collapse of the City in 2007-2008, the UK’s financial centre has been taken under the custody of the EU. In an article in the London Review of Books, May 28, 2009, John Lanchester tellingly said: “It’s finished”.

Though the banks of the major continental economies, Germany and France, may not be as badly indebted as their counterparts across the Atlantic and the Channel, those countries are still facing the prospects of massive and painful bankruptcies of some of their “crown jewels”. As soon as the September national elections are over in Germany, the extent of the losses and the proportion of toxic assets held in the largest financial institutions will be made apparent, while joblessness will surge.

As could be expected, Russia has balked at the West’s “reserve currency reform” proposal and demanded that the SDRs include the Chinese Yuan as well as commodities and gold in the supporting “basket”. President Medvedev went so far at the July G-8 meeting in Italy as to flourish a gold ruble as a future anchor of the global monetary system – denominated a “United Future World Currency”.

Beijing was more muted, but while promoting the adoption of the SDR to replace the Dollar, it is clearly making its own arrangements to transact more and more business with trading partners in Yuan and their own respective monetary units. It is likely that a rival system to the West’s IMF-based regime will emerge within the SCO (China-Russia and four Central Asian Republics) or amongst IBRIC members (Indonesia-Brazil-Russia-India-China) as a tangible demonstration that the world has become multi-polar, or bi-polar at least. Indeed, that new Eurasian system might provide the impetus to revive world trade, which is rapidly dwindling or even collapsing.

The fact that countries and regional blocs are going their own way to deal with the crisis is adding to the uncertainty and instability, and fuels dire predictions of an increasing number of experts, from the JEAP/GEAB team to Bob Chapman (internationalforecaster.com) and Jim Sinclair (jsminaset.com), who both reported in June that the US State Department has instructed embassies to stock up a year’s worth of local currency in anticipation of the Dollar’s collapse by the end of September.

Similarly John Morley warned (thetrumpet.com) on July 21 that “the world prepares to dump the US Dollar” and that Japan might be about to jump the not so good US ship, especially if the Opposition wins the upcoming elections. Its economic spokesman Masaharu Nakayama has stated that if elected, his party would no longer purchase US Treasuries unless they are denominated in Yen.

A large part of the US ability to generate funds over the last decades has been tied to the “Yen carry trade,” which in turn is largely responsible for the prolonged Japanese economic recession. Thus such a radical change in Japan’s financial policy, Morley points out “would break the US bond market”, while Benjamin Fulford, Forbes’s Magazine former correspondent in Tokyo, predicted “chaos will prevail within several months, a year at most” in America when the US has to endure the effects of its insolvency and inability to borrow abroad. Back in 2000, also in the Trumpet, Tim Thompson had predicted that America’s irresponsible debt-accumulation would result in the “greatest fall in mankind’s history”.

Jim Willis (goldenjackass.com) notes that the Fed is currently fighting disclosure to Congress of the way it has used the hundreds of billions disbursed to banks within the TARP programme. Willis wrote in his 321gold report of July 17 of the “imminent erosion of the US Dollar Seawall” which would lead by the end of summer to “Quantum drop devaluation” of the greenback, when the world becomes aware of the hidden monetization that the Fed and Treasury are resorting to. He also discusses the increasingly desperate and dubious measures being resorted to by states like California, which is now paying many of its public servants in IOUs that, though not a valid currency, are in turn used in some cases to pay taxes by the recipients. The accumulation of many ad hoc uncoordinated measures and steps of this kind is likely to result in economic (and social) anarchy in the relatively near future.

Chapman sees a first bank shutdown taking place in September and lasting three or four days, as a parting shot for subsequent much longer bank holidays taking place within the next two or three years, while a drastic and painful reorganization of the currency and economy takes place, probably under a regime akin to martial law, de facto or de jure and justified by convenient international emergencies such as the Iranian or North Korean nuclear threats, or a global pandemic.

Many concur that these dramatic events are being set to autumn 2009 (when, coincidentally, both Israel and the US announced they would have to act against Iran if Tehran does not agree to their demands regarding its nuclear development program) as the Federal Reserve will no longer be able to prevent interest rates from rising, nor to resort to other subterfuges such as loaning to foreign reserve banks the Dollars to acquire its own debt, as it is widely believed to be doing so far from secret offshore accounts where it has secreted trillions of “vanished” US currency. Willis points out the billions “gone missing” from a number of US Federal programmes such as the Iraq Reconstruction Fund, the Pentagons’ general budget, the Katrina Relief Fund or TARP, and ventures to say that those Dollars have been stashed abroad in preparation for the expected emergency.

Most observers agree that what will occur will involve a massive consolidation of banks into a few giant institutions that are now lying in wait under the protection of the Federal Reserve, which has recently rescued them and intends to distribute the spoils amongst them.

War and technological revolution

Much has been made of the usual role played by wars in catalyzing economic recoveries and of the influence of the conflicts in Iraq and Afghanistan on the present context. However, although great international confrontations such as World War II did indeed help the US, as a relatively distant, isolated, belligerent provider of capital and equipment to its allies, pull out of the Great Depression after effective wholesale “nationalization” of its economy, relatively local wars, similar to the US war in Vietnam, cannot play such a pump priming function and only further the interests of some niche sectors (arms manufacturers, financial speculators, energy traders, security contractors) of the economy at the cost of general welfare.

While it is true that those “niche sectors” are controlled by people who make policies and generally govern the USA and Britain, apart from some other powers, they do not compensate for the impoverishment of the nation as a whole, due to the enormous costs it has to bear (more than a trillion USD in Iraq alone).

A small country, Israel, was able to emerge from stagnation and attain high growth rates through a high-tech revolution it engineered in the wake of the September 2001 terrorist attacks by turning into a world leader in advanced defence, surveillance, security and domestic monitoring research and manufacturing. Being already a leading arms producer and merchant, the Jewish state also became a leading provider of anti-terrorist and “crowd control” equipment and know-how that it is able to “test” on local Palestinians, but a specialized sector of that scope is not large enough to revive an economy of the size of the USA.

This is not to say that a technological revolution of critical import, such as the emergence of the Internet /IT could not trigger a resurgence. The question however is whether any new technology as Dave Johnson feared, would not be automatically outsourced to poorer manufacturing countries, hence doing little to solve the problems of the most developed economies.

In the USA and in a few other states, it is widely suspected that the Department of Defence and associated contractors hold the key to some “epoch-making” technological breakthroughs, particularly in sectors of  energy-generating and carrying, aerospace, mass transportation, computing, artificial intelligence, surgery, nano and bio-technology, but that the military-industrial complex, notorious since the days of President Eisenhower’s farewell speech, holds on to its secrets and takes a long time to reluctantly release them into the private sector, as it is unwilling to lose its strategic edge on all rivals and enemies, real or potential.

The question is whether the emergency in which the country finds itself will prompt a reform of this long-standing policy, but it sounds likely that such an opening up will be preceded or accompanied by a new wave of protectionistic policies intended to prevent as much as possible foreign access to these prized sources of competitive advantage, seen as assets for continuing global leadership. Likewise Europe, as advocated for years by French Nobel Prize winner in Economics Maurice Allais, and recently by the eminent scholar Emmanuel Todd in an interview to the ENA journal of April 2009, can also be expected to raise the walls of protectionism in order to limit the damage of the crisis.

In the early nineteen seventies, the Vietnam War eventually brought Washington to the brink of insolvency and forced it to back out of the gold standard, effectively renouncing the Bretton Woods agreement, and increase taxes enormously, while inflation and interest rates skyrocketed. The invasions and occupations of Iraq and Afghanistan are having an even more painful effect since the US can no longer maintain the Dollar as the global reserve currency, which gave it a limitless credit line with the rest of the world. 

The big difference between those foreign adventures and the great confrontations which forged the modern United States, such as the Civil War and the two world conflicts, is that “local”, expeditionary wars as the Iraq conquest are waged without putting the nation’s economy on a war footing. Instead business is kept going as usual in order not to make people at large feel the military and fiscal burden of the aggressive policy. President George W Bush’s famous advice to his citizens after 911, while launching the War on Terror, was to go shopping.

The keepers of the status quo

There is no doubt that Washington is again confronted with the inevitability of drastic tax increases, particularly on the richest sections of the populations which have had a virtually free ride since the adoption of Reaganomics, preceded by the Thatcher reforms in Britain. As a corollary, the inevitable and predictable effect of “supply side” economics have been the pauperization of the weakest sections of “liberal” societies: blue collar workers, unwed mothers, temporary workers, working class pensioners and the accelerating decline of the middle classes.

The much needed reversal of those “slash and burn” policies carried out in the name of “economic efficiency”, amounting to the removal of  remaining barriers to the growth of the great fortunes, is and will be fiercely resisted by the beneficiaries of the neo-liberal regime who have immensely increased their wealth and power in the last three decades. The elite that sits at all commands and controls in the USA and to a large extent in London too, is made up of the overlapping castes of Wall Street investment and merchant bankers, weapons manufacturers, energy tycoons, high officials of the Treasury, Federal Reserve Board members from the entourage of the fathers of the Neo-Liberal revolution, Paul Volker, Alan Greenspan, Larry Summers, Robert Rubin, Jon Corzine, Lloyd Blankfein, many of them trained and built up in the Goldman Sachs “financial yeshiva” or in the Lazard, JPMorgan Chase and other leading banking concerns and related insurance companies like Hank Greenberg’s AIG.

Most have cultural and ideological affinities with the mentors of the Neo-Conservative movement, Irving and William Kristol, Charles Krauthammer, Paul Wolfowitz, Richard Perle, and with others less noted for their convictions, but belonging to the same fraternity like current World Bank Chairman Robert Zoellig, IMF’s Chair Dominique Strauss-Kahn and “free electrons” gravitating within the system, whether we refer to investment manager and “guru” George Soros, the Canadian liquor kings the Bronfmans, the Media Kings the Newhouses or the now discredited former Chairman of NASDAQ Bernard Madoff. The nebula’s arms embrace the globe and one of its major achievements was the adoption and enforcement in many countries of the so-called Chicago Consensus, based on the rather extreme theories of Milton Friedman.

That caste of global financial lords, pundits and ideologues, extending its control to the all important media and entertainment sphere, whether in outspokenly liberal but “politically correct” Hollywood, or in the public relations firms where “perceptions are shaped,” is linked by common loyalty to an ultra-liberal agenda (sometimes mitigated by some apparent social concerns), and has a network of associates, partners and agents in all important countries.

Prominent among those are the Russian oligarchs who used the support of their backers in North America, Western Europe and Israel to take control of critical sectors of the Soviet economy during the latter’s breakup. They have since lost some of their power because of the rising power of the Russian State which tends to take a dim view of their speculative methods, monopolistic goals and pro-western positions. One of US’ favourites, Mikhail Khodorkovski, has been in jail for the last few years after being convicted on several counts of fraud and tax evasion, while Boris Berezovski lives in exile in Britain to escape arrest in his land of birth. Others, like Abramovich made his peace with the Kremlin, but also resides in England.

Some books have recently attempted to connect some of the apparently loose strands which make up the “global financial-ideological” fabric. For instance, ‘The Transparent Cabal’ by Prof. Steven Sniegoski, ‘Guilt by Association’ by Jeff Gates, an ex-Counsel to US Senate’s Finance Committee, and Murray Friedman’s ‘The Neo-Conservative Revolution, Jewish Intellectuals and the Shaping of Public Policy,’ which, contrary to the earlier two books is highly supportive of the movement he describes, provide a wealth of information on the interconnections and synergies that keep such apparently different worlds as Wall Street, Hollywood, the Media Lords, Capitol Hill Legislators and top-ranking diplomats, Pentagon bureaucrats and lobbyists, and Israeli politicians on both the right and left aisles of the spectrum, working together in spite of superficial differences.

Gates makes a very important point in his book and website www.criminalstate.com when he observes that the cabal that effectively rules the US relies on “a very advanced knowledge of game theory.” That accounts for the fact that (captive) opposition is systematically included and promoted in the strategy in order to present token alternatives, while in fact letting the master plan unfold, thus serving the overall objectives. Eminent watchers of the US scene like Emmanuel Todd have concluded that there are no serious divergences between the two “opposing” parties in the USA.

Despite their divergent opinions, the three afore-mentioned authors agree on the seminal and decisive role the Neo-con cabal, with the tacit support of many nominally Left Wing liberals -  whose declared opposition turned out to be deliberately “platonic” and ineffective - played in fostering and waging the Iraq and Afghan wars on the US and its closest allies, and in making American policies increasingly aggressive and militaristic to the point of alienating the country from most other nations. It should be noted however, that such a threatening and expansionistic posture is directly related to economic policies that relied increasingly on the unlimited expansion of credit to finance US prosperity at the cost of other countries, incited to produce consumer goods and export them, along with natural resources against payment in Dollar-denominated virtual debt instruments.

Military imperialism is hence but the flip side of US casino-like financial system. We should not confuse this critique of a particular ideological interest group with propaganda against an ethnic or religious community since, as has been said time and again by serious scholars on this issue, there is no place for anti-Semitism in rational debate.

The Obama enigma: tensions on Olympus?

The situation is fast coming to a head in the USA. President Barack Obama was obviously selected by the ruling Inner Circle, before being elected under the American opaque and convoluted “democratic” process, in order to provide a welcome relief to the world and to Americans, largely horrified by the crass and brutal display of the neo-conservative police state under the Bush-Cheney presidency. A man had to be found outside the elite as a goodwill ambassador and reassuring symbol to the “Third World,” the Muslim countries in particular, as well as to the restive ethnic minorities at home.

The young, handsome and eloquent senator from Illinois, Lincoln’s state, with a past in Black American community activism and links with radical leaders as Rev. Jeremy Wright, was an ideal candidate. Though he was not well known, many in the supra-national financial Command and Control Centres decided to throw their support behind him, but if we judge by the names of his major funders, beginning with the biggest of them, Goldman Sachs, he was and is expected to behave by their rules and protect their privileges, while shielding them from the fallout of the economic disaster for which they are largely responsible.

So far the charismatic Afro-American President, flanked by trusted insiders as his keepers, from Rahm Emanuel to Tim Geithner, has kept his part of the bargain by sponsoring gigantic bailout packages, mostly to benefit the money centre banks that are as hermetic and secret as the prior TARP. However, there is perhaps another “atavistic” side to Obama, shown by his displeasure with Israeli obduracy, for which the Bush administration had unlimited tolerance, by his relative personal goodwill towards nations such as Russia that are regarded as inimical by the financial elite, and by his seeming willingness to let some of the most blatant cases of corruption and fraud that pervade the highest spheres of the financial system be brought to light.

A growing expose of Goldman Sachs, reflected in a scathing article by Matt Taibbi in “Rolling Stone” and pursued by Max Keiser in a TV programme which has become a global hit, is threatening to destroy or at least main this colossus whose alleged criminal practices are now common knowledge. The arrest on July 3 of former Goldman employee Sergey Aleynikov led to the discovery of a top secret trading software that he stands accused of stealing from the firm. It now appears that six months after the 1987 market crash, President Reagan created a working group on financial markets in which Goldman was made an adviser, with the task of helping make liquidities available in exceptional circumstances.

It has now been made public that the New York firm used this inside track to access certain Government security codes and thereby perfected technical tools to manipulate markets that made many suspect it had privileged information. Such accusations only confirm allegations that the secret financial (and supra-national) power that rules the US has a backdoor to the most restricted departments of national policy. Only connivance at the highest levels can explain frauds on the scale perpetrated by Bernard Madoff, in which some $ 150 billion at least are unaccounted for, and are believed to have been transferred to other countries with which the secretive financier had special relations.

If one could say in past decades that “what was good for GM was good for America,” today one could argue that the US Government is Goldman Sachs and conversely. Yet there is no evidence that Obama is doing anything to defend the “crown jewel” of Wall Street; some voices are in fact suggesting that the White House is letting the storm rise, despite angry calls from above to crush the popular revolt. It remains to be seen whether in the coming months the collapse of what is left of Wall Street is synchronized with the meltdown of US imperial power, leading to the downfall of the global neo-liberal system.

If the American financial house of cards comes tumbling down in coming months or years, we can expect the US Government to, in effect, default on the claims held to its domestic assets by foreign governments and companies. Indian analyst Vivan Sethi, who has predicted this possibility, advises that other countries could then in response repurchase US assets under their jurisdiction with the Dollars they hold in their reserves. A scenario of global economic warfare is to be predicted and regional blocs will close their doors to protect themselves against the storm.

The author is Convener, Editorial Board, World Affairs Journal