9/11 The Big Picture

Sourcebook on 9/11 and its Aftermath

The Big Picture

27 Nov. 2007

Table of Contents

The Bigger Picture Behind 9/11

Domination and Oil

Plans for War with Iran

The Pre-Planned War in Afghanistan

The Pre-Planned War with Iraq

New Doctrine of Pre-emptive Strikes

“The Redirection”

The Bush Administration Orchestrating a War with Iran

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

Planned Aerial Attacks on Iran

Iran Operational Plan – Civilian Targets

Iran Operational Plan – Naval Deployment

Manipulation of Iraq War Casualty Lists

Cheney Defends Iraq Invasion

Threats of War against Pakistan

American Violations of Human Rights

Muslim Reaction

Dollar and Power Hegemony

Financial Meltdown and the End of Dollar Hegemony

Opposing View: “Liquidity Event” “Market Adjustment”

Opposing View to “Planeload of Cash”

Tax Cuts for the Rich

Life under Necon Rule So Far

American “Operations” against Other Economies

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, 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,, 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, 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 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, , 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, 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, 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, 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,”, 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,”, 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, 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 at

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)


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, 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, 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, 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, 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, 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, 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

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.

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;

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 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.


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.


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”

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?


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, 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, 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, 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, 11 Aug. 2007.)


(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, 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, 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, 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.


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,, 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 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.


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.


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.


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 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, 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.”

Other writers with less prestigious platforms than the Post have been talking about an approaching financial bust for a couple of years. Among them has been economist Michael Hudson, author of an article on the housing bubble titled, “The New Road to Serfdom” in the May 2006 issue of Harper’s. Hudson has been speaking in interviews of a “break in the chain” of debt payments leading to a “long, slow economic crash,” with “asset deflation,” “mass defaults on mortgages,” and a “huge asset grab” by the rich who are able to protect their cash through money laundering and hedging with foreign currency bonds.

Among those poised to profit from the crash is the Carlyle Group, the equity fund that includes the Bush family and other high-profile investors with insider government connections. A January 2007 memorandum to company managers from founding partner William E. Conway, Jr., recently appeared which stated that, when the current “liquidity environment”—i.e., cheap credit—ends, “the buying opportunity will be a once in a lifetime chance.”

The fact that the crash is now being announced by the Post shows that it is a done deal. The Bilderbergers, or whomever it is that the Post reports to, have decided. It lets everyone know loud and clear that it’s time to batten down the hatches, run for cover, lay in two years of canned food, shield your assets, whatever.

Those left holding the bag will be the ordinary people whose assets are loaded with debt, such as tens of millions of mortgagees, millions of young people with student loans that can never be written off due to the “reformed” 2005 bankruptcy law, or vast numbers of workers with 401(k)s or other pension plans that are locked into the stock market.

In other words, it sounds eerily like 2000-2002 except maybe on a much larger scale. Then it was “only” the tenth worse bear market in history, but over a trillion dollars in wealth simply vanished. What makes today’s instance seem particularly unfair is that the preceding recovery that is now ending—the “jobless” one—was so anemic.

Neither Perlstein nor Samuelson gets to the bottom of the crisis, though they, like Conway of the Carlyle Group, point to the end of cheap credit. But interest rates are set by people who run central banks and financial institutions. They may be influenced by “the market,” but the market is controlled by people with money who want to maximize their profits.

Key to what is going on is that the Federal Reserve is refusing to follow the pattern set during the long reign of Fed Chairman Alan Greenspan in responding to shaky economic trends with lengthy infusions of credit as he did during the bubble of the 1990s and the housing bubble of 2001-2005.

This time around, Greenspan’s successor, Ben Bernanke, is sitting tight. With the economy teetering on the brink, the Fed is allowing rates to remain steady. The Fed claims their policy is due to the danger of rising “core inflation.” But this cannot be true. The biggest consumer item, houses and real estate, is tanking. Officially, unemployment is low, but mainly due to low-paying service jobs. Commodities have edged up, including food and gasoline, but that’s no reason to allow the entire national economy to be submerged.

So what is really happening? Actually, it’s simple. The difference today is that China and other large investors from abroad, including Middle Eastern oil magnates, are telling the U.S. that if interest rates come down, thereby devaluing their already-sliding dollar portfolios further, they will no longer support with their investments the bloated U.S. trade and fiscal deficits.

Of course we got ourselves into this quandary by shipping our manufacturing to China and other cheap-labor markets over the last generation. “Dollar hegemony” is backfiring. In fact China is using its American dollars to replace the International Monetary Fund as a lender to developing nations in Africa and elsewhere. As an additional insult, China now may be dictating a new generation of economic decline for the American people who are forced to buy their products at Wal-Mart by maxing out what is left of our available credit card debt.

About a year ago, a former Reagan Treasury official, now a well-known cable TV commentator, said that China had become “America’s bank” and commented approvingly that “it’s cheaper to print money than make cars anymore.” Ha ha.

It is truly staggering that none of the “mainstream” political candidates from either party has attacked this subject on the campaign trail. All are heavily funded by the financier elite who will profit no matter how bad the U.S. economy suffers. Every candidate except Ron Paul and Dennis Kucinich treats the Federal Reserve like the fifth graven image on Mount Rushmore. And even the so-called progressives are silent. The weekend before the Perlstein/ Samuelson articles came out, there was a huge progressive conference in Washington, D.C., called “Taming the Corporate Giant.” Not a single session was devoted to financial issues.

What is likely to happen? I’d suggest four possible scenarios:

1. Acceptance by the U.S. population of diminished prosperity and a declining role in the world. Grin and bear it. Live with your parents into your 40s instead of your 30s. Work two or three part-time jobs on the side, if you can find them. Die young if you lose your health care. Declare bankruptcy if you can, or just walk away from your debts until they bring back debtor’s prison like they’ve done in Dubai. Meanwhile, China buys more and more U.S. properties, homes, and businesses, as economists close to the Federal Reserve have suggested. If you’re an enterprising illegal immigrant, have fun continuing to jack up the underground economy, avoid business licenses and taxes, and rent out group houses to your friends.

2. Times of economic crisis produce international tension and politicians tend to go to war rather than face the economic music. The classic example is the worldwide depression of the 1930s leading to World War II. Conditions in the coming years could be as bad as they were then. We could have a really big war if the U.S. decides once and for all to haul off and let China, or whomever, have it in the chops. If they don’t want our dollars or our debt any more, how about a few nukes?

3. Maybe we’ll finally have a revolution either from the right or the center involving martial law, suspension of the Bill of Rights, etc., combined with some kind of military or forced-labor dictatorship. We’re halfway there anyway. Forget about a revolution from the left. They wouldn’t want to make anyone mad at them for being too radical.

4. Could there ever be a real try at reform, maybe even an attempt just to get back to the New Deal? Since the causes of the crisis are monetary, so would be the solutions. The first step would be for the Federal Reserve System to be abolished as a bank of issue and a transformation of the nation’s credit system into a genuine public utility by the federal government. This way we could rebuild our manufacturing and public infrastructure and develop an income assurance policy that would benefit everyone.

The latter is the only sensible solution. There are monetary reformers who know how to do it if anyone gave them half a chance. (Richard C. Cook, “It’s Official: The Crash of the U.S. Economy has begun,” Global Research, 14 June 2007.)

What makes a mortgage “subprime”?

The term “subprime” isn’t well known in Canada because most of our mortgage lending is “prime,” or conventional. In the U.S., however, rapidly rising house prices and a poorly regulated industry combined to create a mortgage monster that is now busy running amok.

“Subprime” refers to the risk associated with a borrower, not to the interest rate being charged on the mortgage. Typically subprime mortgages are offered at interest rates above prime, to customers with below-average credit ratings. Subprime mortgage lenders in the U.S. tend to target lower-income Americans, the elderly, new immigrants, people with a proven record of not paying their debts on time — just about anyone who would have trouble getting a mortgage from a conventional lender such as a major bank.

Their pitch is irresistible and it unfolds along lines like this: “You want to buy your first house? We’ll make it happen! And don’t worry about a down payment. In fact, we’ll even lend you more than the house is worth. We’ll even charge you a super low rate [the “teaser”] during the first year or two to keep your payments low. Sure, the loan will eventually reset at prevailing rates, but since housing prices are rising by 20 per cent a year, all you have to do is refinance your house to keep your payments low!”

Needless to say, the subprime bubble soon burst. After enjoying a short period at low fixed rates, people with subprime “bargains” suddenly found their loans were being reset at rates that were in the double-digits. U.S. housing prices, which had been soaring, started falling. People with subprime mortgages found they could no longer count on the increasing value of their homes to refinance their way out of the mess.

By late 2006, one subprime loan in eight was in default across the U.S. Foreclosures were soaring. More than 20 subprime lenders were bankrupt. And the National Community Reinvestment Coalition estimated that as many as 1.5 million Americans could lose their homes by the time all the damage is done. …

The U.S. subprime damage was blamed for some major sell-offs on Wall and Bay streets in the summer of 2007 as investors reacted to signs that lenders were beginning to tighten credit. Turning off the liquidity tap could make the American consumer less likely to spend. If that happens, the Canadian economy would also take a hit. So far, that’s not happening. But central banks on both sides of the border are watching closely for further signs of subprime fallout. (“The U.S. subprime mortgage meltdown. Will it spread to Canada?” CBC News, 9 Aug. 2007.)

“Crash” is a dangerous word. No one has managed to define it precisely but, like a juggernaut that careers off the highway, slams into your house and parks itself in your lounge, you certainly know when you’ve been hit by one, even when you can’t quite believe it or explain how it happened.

It feels a little like that now on the world’s stock markets, though the rumble of approaching catastrophe could be detected for some months. When even the United States Treasury Secretary, Henry Paulson, admits the turmoil will “exact a penalty” on the US economy’s growth rate, then things are bad.

Until yesterday, it was possible to believe the markets were experiencing a “correction”. That term now looks ludicrously euphemistic. Yesterday alone saw a collapse of 250 points in the FTSE 100 index, wiping 4.1 per cent from its value as it slumped to 5,859.9, well below the 6,000 mark, a psychological barrier. It is the biggest fall since March 2003. The loss since Wednesday stands at well over £100bn.

No market and hardly a stock escaped the carnage; in Tokyo the Nikkei closed down 2 per cent, Singapore lost 3.7 per cent, Korea down 7 per cent, France 2.6 per cent and Germany 1.7 per cent. Most crucially, because of the lead it offers the rest of the world, in New York shares pulled off a late-trading rally to end just 0.12 per cent down on the day – despite losses of about 2 per cent in early trading. But traders there remain nervous. The scale of the losses early in the day and the images of panicky dealers staring at screens a sea of red were reminiscent of the crashes of 1998 and 1987. Indeed then, as now, the abrupt end of a bull market followed a period of unusually easy credit, with excesses and scandals all about.

The comparison with 1987 is frightful. Then the Dow fell by 3.8 per cent and 4.6 per cent on the Thursday and Friday before Black Monday, at which point it lost 22.6 per cent of its value in one day. Even if it is not as bad as that, the party seems to be over.

Like a tiny bacillus laying low a vastly larger and, otherwise healthy organism, a crisis in one, relatively small, sector of the US mortgage market – “sub-prime” lending – has multiplied and spread to almost every corner of the global economy.

Sub-prime lending has been defined by the US Treasury Department as granting funds to those who “have weakened credit histories that include payment delinquencies, and possibly more severe problems such as charge-offs, judgments, and bankruptcies”. In other words, people who probably should not be borrowing money at all.

Losses in the sub-prime sector are thought to run to about £50bn. Compare that with the hundreds of billions wiped off the value of shares in the past few days alone, and whatever sums it will cost central banks, taxpayers and shareholders to prop up ailing companies. This infection has done harm quite out of proportion to its origins.

The reason for that is the growing liberalisation, sophistication and globalisation of financial markets. The American banks that undertook this sub-prime lending were able to package up the debts and sell them on to banks, hedge funds and other investors from Zurich to Shanghai. This “securitisation” of the debt was designed to spread the risk, or exposure, around, with investors attracted by the unusually high returns on these funds.

Fine; except the US housing slump has activated the sub-prime virus and no one has much idea where this flaky debt is now sitting. Hence the panic, the gossip, and the rapid intervention by the Federal Reserve, the European Central Bank and the Bank of Japan to lend huge sums of money to prevent the financial system seizing up (“an injection of liquidity” to the cognoscenti).

Over the past week, the Fed has injected $88bn (£44.3bn), while the ECB has put up €211bn (£142.6bn). So will the virus spread out of the City and into the “real economy” of jobs, pensions and housing? Yes, because the value of pension funds and savings has already been slashed. When companies find it harder to raise capital – because of the “credit crunch” and the collapse in shares, they find it trickier to fund investment.

When that vital commodity – “confidence” – goes into short supply, consumers tend to take fright too. We might not get all that goes on in the City, but maybe now is not the moment to splash out on that new car or, indeed, gear up for a bigger house.

So there is a chance that house prices, already weakening, will start to stagnate, as is happening in the commercial property market. That would be no bad thing – especially for first-time buyers – provided unemployment does not creep up. If that happens then repossessions and a fire sale of buy-to-let property could follow, and we would have our own sub-prime-style crisis. The authorities are haunted by such a turn of events. True, we have a more benign global background of high global growth (about 5 per cent), more broadly based (with China and India) and still low inflation and unemployment. But the Bank of England and the Government will have to do a good deal – cutting the base rate, increasing public spending – to restore confidence.

A Treasury spokesman said: “The UK economy remains strong, against a background of a strong world economy. There will always be periods of uncertainty in the markets, but the long-term decisions the Government has taken – giving independence to the Bank of England, the fiscal rules and low and stable borrowing – have created a strong platform.

“The UK economy is experiencing its longest unbroken expansion since records began… Our openness and flexibility continue to position the UK to benefit from the opportunities of globalisation and absorb shocks.”

The impact on financial sectors


UK pension funds will have had their value fall in tandem with the exchanges. Those funds that have benefited from putting money into hedge funds and private equity ventures may see some or all of those investments in jeopardy. However, post-Maxwell, new protections should have made abuses less likely.

Housing Market

The big danger. If growth slows appreciably and joblessness rises then we could see some panicky selling. A welcome slow down in house price inflation could turn into a slump, with a “rush to the door” by marginal buy-to-let investors and other speculators. Negative-equity misery could re-emerge.

The Economy

Much depends on the reaction of the authorities. A loss of confidence in financial markets can easily affect consumer behaviour (spending less, saving more) and companies (who usually hold back on large investment plans). A reduction in interest rates and, in time, a boost from the Budget would help calm nerves.


Can cut both ways. Voters tend to “cling to nanny” in turbulent times, especially if they’re not confident in the Opposition. On the other hand if electors blame Mr Brown for the crisis then things look better for the Tories. In any case, the Prime Minister doesn’t have to go the country until 2010.

“Crash” is a dangerous word. No one has managed to define it precisely but, like a juggernaut that careers off the highway, slams into your house and parks itself in your lounge, you certainly know when you’ve been hit by one, even when you can’t quite believe it or explain how it happened.

It feels a little like that now on the world’s stock markets, though the rumble of approaching catastrophe could be detected for some months. When even the United States Treasury Secretary, Henry Paulson, admits the turmoil will “exact a penalty” on the US economy’s growth rate, then things are bad.

Until yesterday, it was possible to believe the markets were experiencing a “correction”. That term now looks ludicrously euphemistic. Yesterday alone saw a collapse of 250 points in the FTSE 100 index, wiping 4.1 per cent from its value as it slumped to 5,859.9, well below the 6,000 mark, a psychological barrier. It is the biggest fall since March 2003. The loss since Wednesday stands at well over £100bn.

No market and hardly a stock escaped the carnage; in Tokyo the Nikkei closed down 2 per cent, Singapore lost 3.7 per cent, Korea down 7 per cent, France 2.6 per cent and Germany 1.7 per cent. Most crucially, because of the lead it offers the rest of the world, in New York shares pulled off a late-trading rally to end just 0.12 per cent down on the day – despite losses of about 2 per cent in early trading. But traders there remain nervous. The scale of the losses early in the day and the images of panicky dealers staring at screens a sea of red were reminiscent of the crashes of 1998 and 1987. Indeed then, as now, the abrupt end of a bull market followed a period of unusually easy credit, with excesses and scandals all about.

The comparison with 1987 is frightful. Then the Dow fell by 3.8 per cent and 4.6 per cent on the Thursday and Friday before Black Monday, at which point it lost 22.6 per cent of its value in one day. Even if it is not as bad as that, the party seems to be over.

Like a tiny bacillus laying low a vastly larger and, otherwise healthy organism, a crisis in one, relatively small, sector of the US mortgage market – “sub-prime” lending – has multiplied and spread to almost every corner of the global economy.

Sub-prime lending has been defined by the US Treasury Department as granting funds to those who “have weakened credit histories that include payment delinquencies, and possibly more severe problems such as charge-offs, judgments, and bankruptcies”. In other words, people who probably should not be borrowing money at all.

Losses in the sub-prime sector are thought to run to about £50bn. Compare that with the hundreds of billions wiped off the value of shares in the past few days alone, and whatever sums it will cost central banks, taxpayers and shareholders to prop up ailing companies. This infection has done harm quite out of proportion to its origins.

The reason for that is the growing liberalisation, sophistication and globalisation of financial markets. The American banks that undertook this sub-prime lending were able to package up the debts and sell them on to banks, hedge funds and other investors from Zurich to Shanghai. This “securitisation” of the debt was designed to spread the risk, or exposure, around, with investors attracted by the unusually high returns on these funds.

Fine; except the US housing slump has activated the sub-prime virus and no one has much idea where this flaky debt is now sitting. Hence the panic, the gossip, and the rapid intervention by the Federal Reserve, the European Central Bank and the Bank of Japan to lend huge sums of money to prevent the financial system seizing up (“an injection of liquidity” to the cognoscenti).

Over the past week, the Fed has injected $88bn (£44.3bn), while the ECB has put up €211bn (£142.6bn). So will the virus spread out of the City and into the “real economy” of jobs, pensions and housing? Yes, because the value of pension funds and savings has already been slashed. When companies find it harder to raise capital – because of the “credit crunch” and the collapse in shares, they find it trickier to fund investment.

When that vital commodity – “confidence” – goes into short supply, consumers tend to take fright too. We might not get all that goes on in the City, but maybe now is not the moment to splash out on that new car or, indeed, gear up for a bigger house.

So there is a chance that house prices, already weakening, will start to stagnate, as is happening in the commercial property market. That would be no bad thing – especially for first-time buyers – provided unemployment does not creep up. If that happens then repossessions and a fire sale of buy-to-let property could follow, and we would have our own sub-prime-style crisis. The authorities are haunted by such a turn of events. True, we have a more benign global background of high global growth (about 5 per cent), more broadly based (with China and India) and still low inflation and unemployment. But the Bank of England and the Government will have to do a good deal – cutting the base rate, increasing public spending – to restore confidence.

A Treasury spokesman said: “The UK economy remains strong, against a background of a strong world economy. There will always be periods of uncertainty in the markets, but the long-term decisions the Government has taken – giving independence to the Bank of England, the fiscal rules and low and stable borrowing – have created a strong platform.

“The UK economy is experiencing its longest unbroken expansion since records began… Our openness and flexibility continue to position the UK to benefit from the opportunities of globalisation and absorb shocks.”

The impact on financial sectors


UK pension funds will have had their value fall in tandem with the exchanges. Those funds that have benefited from putting money into hedge funds and private equity ventures may see some or all of those investments in jeopardy. However, post-Maxwell, new protections should have made abuses less likely.

Housing Market

The big danger. If growth slows appreciably and joblessness rises then we could see some panicky selling. A welcome slow down in house price inflation could turn into a slump, with a “rush to the door” by marginal buy-to-let investors and other speculators. Negative-equity misery could re-emerge.

The Economy

Much depends on the reaction of the authorities. A loss of confidence in financial markets can easily affect consumer behaviour (spending less, saving more) and companies (who usually hold back on large investment plans). A reduction in interest rates and, in time, a boost from the Budget would help calm nerves.


Can cut both ways. Voters tend to “cling to nanny” in turbulent times, especially if they’re not confident in the Opposition. On the other hand if electors blame Mr Brown for the crisis then things look better for the Tories. In any case, the Prime Minister doesn’t have to go the country until 2010. (Sean O’Grady, Economics Editor, “Shares plummet around the world; FTSE’s worst day nin four years; Value of UK PLC falls £60bn; Market slumps 13% since June; Pensions surplus wiped out; Fears for housing market; Growing threat to economy,” The Independent, UK, 17 Aug. 2007.)

Opposing View: “Liquidity Event” “Market Adjustment”

It was an exciting week in financial markets, including some dramatic central bank interventions in short-term money markets. …

First, a little background… The banking system as a whole usually holds only a small amount of reserves in excess of what is required. A bank that ends up with extra reserves would find it advantageous to loan Federal Reserve deposits overnight to a bank with a deficit in what is called the federal funds market. The interest rate on these overnight loans is usually very sensitive to the quantity of excess reserves in the system, so the Fed could change this rate by adding or subtracting deposits through open market operations. The Fed simply announces the rate it intends to maintain, with the current target being 5.25%, and the announcement is credible because all participants know that the Fed will be adding or draining reserves as necessary to keep the rate near the target.

Not all loans will take place exactly at the target rate, however. These loans are unsecured, and though their very short-term nature makes the risk small, it is not zero. Small banks will often pay a slightly higher rate to borrow fed funds than will big banks, and an individual bank will have a maximum amount it is willing to lend to any given other bank. If a bank has a really big outflow of reserves, or its usual sources for borrowing short-term funds dry up, it may need to offer a rate well in excess of 5.25% in order to maintain a positive level of reserves.

This was the case on Friday, on which the fed funds market opened with some trades at 6%, some 75 basis points above the rate that the Fed has declared it will defend. So, the Fed used open market operations in the form of repurchase agreements to create new reserves, evidently in the amount of $38 billion. One can put this number in perspective with the following graph of what Federal Reserve deposits usually turn out to be over a two-week period. This was a huge intervention, on a par with the remarkable measures taken September 11, 2001, when the interbank loan market faced severe disruption from the physical destruction of a large number of the key institutions that make these markets. Again this week it seems that banks suddenly desired a huge volume of reserves in excess of the amounts they are required to maintain.

…Some analysts have interpreted the Fed’s action as “bailing out the banks”, and are particularly troubled by the fact that the assets purchased by the Fed through the open market operations apparently involved mortgage-backed securities. I too was a little surprised that the Fed would consider buying anything other than Treasury bills, though I agree with Calculated Risk that since the reserves were injected in the form of a 3-day repurchase agreement,

unless the banks go under in 3 calendar days, they will pay the loan back with 3 days of 5.25% interest. No big deal.

More sound analysis was provided by Felix Salmon, King Banian, Paul Krugman, and Mark Thoma. And here’s William Polley:

A lot of entities holding mortgage backed securities needed liquidity. They were willing to borrow at a higher overnight rate to get that liquidity as evidenced by the spike in the funds rate early in the morning. The Fed, quite understandably, did not want the funds rate to spike, and so they loaned these banks reserves accepting mortgage backed securities of the highest quality as collateral (the Fed was NOT bailing them out by buying distressed subprime loans). This kept anyone from unloading good quality assets at fire sale prices just to get liquidity. That would have been disastrous. The agreement is that on Monday the banks get their securities back and the Fed takes back the reserves.

The bottom line is that the Fed was doing exactly what it needed to do. But the fact that this was needed is a very troubling development. (Jim Hamilton, “What is a Liquidity Event?” Economist’s View, August 11, 2007, downloaded from, 11 August 2007.)

The credit crunch is shaking the foundations of the U.S. financial system, with increasing losses at banks and thrifts and a rare run on money-market funds that invested small amounts in risky assets like subprime mortgages.

Banks are exposed at many levels to the growing bankruptcies and dislocations in financial markets, from making and purchasing mortgages — nearly half of bank holdings are in mortgages — to providing loans to the dozens of mortgage companies that have gone bankrupt this year. Government reports this week showed that losses on real estate lending have burgeoned at banks and thrifts this year, but because of ample cash reserves and profits, most of them so far have weathered the storm.

Consumers typically deposit their paychecks into bank accounts or money-market funds, which are offered by brokerages as a kind of substitute for bank savings accounts offering higher returns. But while the deposits and money-market accounts offered by banks and thrifts are government insured, money-market funds at brokerages are not guaranteed, though they still are considered among the safest investments.

The tiny portion of money-market funds invested in subprime and other suspect debt securities this week prompted a rare run on the funds as investors pulled their money out and put it into what they considered the safest haven — Treasury bonds and bills. The flight into Treasury bills on Monday caused the biggest drop in yields on the securities since the October 1987 stock-market crash.

Paul Herbert, an investment analyst at Morningstar Inc., said the flight out of money-market funds does not seem justified, as few of the funds are exposed to losses big enough to cause consumers to lose their money.

“There is no need to panic about money-market funds,” he said. “I can understand why people would want to seek the safest option possible. However, I’m not convinced that money-market funds are that unsafe except in a few cases.”

Though money-market funds have been around since the 1970s, only one has ever “broken the buck” with its share price dropping below $1, and that fund made it up to investors, according to Morningstar.

The flight of some of the 38 million investors in money-market funds is posing one of the most critical problems in the financial markets because money-market funds are the biggest owners of commercial paper — the short-term loans corporations need to pay expenses and roll over their debt.

The sudden pullback by money-market funds and other bond investors has pushed teetering mortgage lenders like American Home Mortgage into bankruptcy and is threatening the solvency of Luminent Mortgage, Thornburg Mortgage and Countrywide, the largest mortgage lender, among dozens of other corporations that rely on funding through the commercial-paper market.

Loans raised in the commercial-paper market come due in as little as four days, and about half of the $1 trillion market comes due within six months. To pay off loans coming due, Thornburg was forced to tap backup lines of credit and sell some of its better-performing mortgage assets at a loss, while Luminent exercised a rarely used option to extend the maturities on its paper — a technique used by American Home Mortgage before it went bankrupt.

Countrywide Financial Corp. last week was forced to draw down an $11.5 billion line of credit with major banks to pay off its commercial paper and avert insolvency. Yesterday, it announced that Bank of America Corp. has made an investment of $2 billion in the company. But those moves now expose the bank lenders to losses if Countrywide is not able to soon pull its mortgage-lending business back together.

In a sign of the stress on banks and their customers yesterday, the four top U.S. banks each borrowed $500 million through the Federal Reserve’s emergency-lending window on behalf of distressed clients. In a joint statement, JPMorgan Chase & Co., Bank of America Corp. and Wachovia Corp. said the move was “intended to display the effectiveness” of the Fed’s discount window.

The Fed in recent days slashed the interest rates and fees it charges on discount loans and has been jawboning banks in an attempt to lure more banks to the window. Banks traditionally are reluctant to seek emergency loans because it gives the appearance they are desperate.

Citigroup Inc., the largest bank, stressed that it “has substantial liquidity and widespread borrowing capacity” for its own purposes, but the loans were needed by customers with less access to credit. “Citi is pleased to inject liquidity into the financial system during times of market stress and to support creditworthy clients,” it said.

With bankruptcies among mortgage lenders snowballing, banks’ exposure to losses is mounting. Moody’s Investors Service yesterday said Citigroup, Bank of America and two European banks may be forced by “swap” arrangements to cover the losses on $1.6 billion of loans American Home is auctioning in bankruptcy proceedings.

Federal Deposit Insurance Corp. Chairman Sheila Bair said the banks face further challenges as millions of home loans in coming months “reset” to reflect higher market interest rates and deferred principal payments. “The market’s going through a period of adjustment. We knew it was coming; it was inevitable,” she said. (Patrice Hill, “Credit crunch rattles system,” Washington Times, August 23, 2007, downloaded from, 23 Aug. 2007.)

Opposing View to “Planeload of Cash”

Earlier this month, the House Committee on Oversight and Government Reform held a hearing that criticized the decision to ship American currency into Iraq just after Saddam Hussein’s government fell. As the committee’s chairman, Henry Waxman of California, put it .., “Who in their right mind would send 360 tons of cash into a war zone?” His criticism attracted wide attention, feeding antiwar sentiment and even providing material for comedians. But a careful investigation … paints a far different picture.

The currency that was shipped into Iraq in the days after the fall of Saddam Hussein’s government was part of a successful financial operation that had been carefully planned months before the invasion. Its aims were to prevent a financial collapse in Iraq, put the financial system on a firm footing and pave the way for a new Iraqi currency. …

The plan … had two stages … designed to work for Iraq’s cash economy, in which checks or electronic funds transfers were virtually unknown and shipments of tons of cash were commonplace.

In the first stage, the United States would pay Iraqi government employees and pensioners in American dollars. These were obtained from Saddam Hussein’s accounts in American banks, which … amounted to about $1.7 billion. Since the dollar is a strong and reliable currency (Ed.: This statement seems to be in question], paying in dollars would create financial stability until a new Iraqi governing body was established… The second stage of the plan was to print a new Iraqi currency for which Iraqis could exchange their old dinars.

The final details of the plan were reviewed in the White House Situation Room by President Bush and the National Security Council on March 12, 2003. I attended that meeting. Treasury Secretary John Snow opened the presentation with a series of slides. … [A] slide indicated that we could ship $100 million in small denominations to Baghdad on one week’s notice. President Bush approved the plan…

To carry out the first stage of the plan, President Bush issued an executive order on March 20, 2003, instructing United States banks to relinquish Mr. Hussein’s frozen dollars. From that money, 237.3 tons in $1, $5, $10 and $20 bills were sent to Iraq. During April, United States Treasury officials in Baghdad worked with the military and the Iraqi Finance Ministry officials … to make sure the right people were paid. The Iraqis supplied extensive documentation of each recipient of a pension or paycheck. …

On April 29, Jay Garner … reported to Washington that the payments had lifted the mood of people in Baghdad during those first few confusing days. Even more important, a collapse of the financial system was avoided.

This success paved the way for the second stage of the plan. In only a few months, 27 planeloads (in 747 jumbo jets) of new Iraqi currency were flown into Iraq from seven printing plants around the world. Armed convoys delivered the currency to 240 sites around the country. From there, it was distributed to 25 million Iraqis in exchange for their old dinars, which were then dyed, collected into trucks, shipped to incinerators and burned or simply buried.

The new currency proved to be very popular. It provided a sound underpinning for the financial system and remains strong, appreciating against the dollar even in the past few months. Hence, the second part of the currency plan was also a success…

One of the most successful and carefully planned operations of the war has been held up in this hearing for criticism and even ridicule. As these facts show, praise rather than ridicule is appropriate: praise for the brave experts in the United States Treasury who went to Iraq in April 2003 and established a working Finance Ministry and central bank, praise for the Iraqis in the Finance Ministry who carefully preserved payment records in the face of looting…, and yes, even praise for planning and follow-through back in the United States. (John Taylor, “The Iraq Currency Plan Was a Big Success,” Economist’s View, downloaded from, 11 August 2007.)

Tax Cuts for the Rich

The president had promised to cut taxes, and he did. Within six months of taking office, he pushed a trillion dollars worth of tax cuts through Congress.

But O’Neill thought it should have been the end. After 9/11 and the war in Afghanistan, the budget deficit was growing. So at a meeting with the vice president after the mid-term elections in 2002, Suskind writes that O’Neill argued against a second round of tax cuts.

“Cheney, at this moment, shows his hand,” says Suskind. “He says, ‘You know, Paul, Reagan proved that deficits don’t matter. We won the mid-term elections, this is our due.’ … O’Neill is speechless.”

”It was not just about not wanting the tax cut. It was about how to use the nation’s resources to improve the condition of our society,” says O’Neill. “And I thought the weight of working on Social Security and fundamental tax reform was a lot more important than a tax reduction.”

Did he think it was irresponsible? “Well, it’s for sure not what I would have done,” says O’Neill.

The former treasury secretary accuses Vice President Dick Cheney of not being an honest broker, but, with a handful of others, part of “a praetorian guard that encircled the president” to block out contrary views. “This is the way Dick likes it,” says O’Neill.

Meanwhile, the White House was losing patience with O’Neill. He was becoming known for a series of off-the-cuff remarks his critics called gaffes. One of them sent the dollar into a nosedive and required major damage control.

Twice during stock market meltdowns, O’Neill was not available to the president: He was out of the country – one time on a trip to Africa with the Irish rock star Bono.

“Africa made an enormous splash. It was like a road show,” says Suskind. “He comes back and the president says to him at a meeting, ‘You know, you’re getting quite a cult following.’ And it clearly was not a joke. And it was not said in jest.”

Suskind writes that the relationship grew tenser and that the president even took a jab at O’Neill in public, at an economic forum in Texas.

The two men were never close. And O’Neill was not amused when Mr. Bush began calling him “The Big O.” He thought the president’s habit of giving people nicknames was a form of bullying. Everything came to a head for O’Neill at a November 2002 meeting at the White House of the economic team.

“It’s a huge meeting. You got Dick Cheney from the, you know, secure location on the video. The President is there,” says Suskind, who was given a nearly verbatim transcript by someone who attended the meeting.

He says everyone expected Mr. Bush to rubber stamp the plan under discussion: a big new tax cut. But, according to Suskind, the president was perhaps having second thoughts about cutting taxes again, and was uncharacteristically engaged.

“He asks, ‘Haven’t we already given money to rich people? This second tax cut’s gonna do it again,’” says Suskind.

“He says, ‘Didn’t we already, why are we doing it again?’ Now, his advisers, they say, ‘Well Mr. President, the upper class, they’re the entrepreneurs. That’s the standard response.’ And the president kind of goes, ‘OK.’ That’s their response. And then, he comes back to it again. ‘Well, shouldn’t we be giving money to the middle, won’t people be able to say, ‘You did it once, and then you did it twice, and what was it good for?’”

But according to the transcript, White House political advisor Karl Rove jumped in.

“Karl Rove is saying to the president, a kind of mantra. ‘Stick to principle. Stick to principle.’ He says it over and over again,” says Suskind. “Don’t waver.”

In the end, the president didn’t. And nine days after that meeting in which O’Neill made it clear he could not publicly support another tax cut, the vice president called and asked him to resign.

With the deficit now climbing towards $400 billion, O’Neill maintains he was in the right. (“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, 16 Aug. 2007.)

Life under Necon Rule So Far

Borrowing the opening line from Dickens’ Tale of Two Cities – “It was the best of times, it was the worst of times….” He referred to the French Revolution promising “Liberte, egalite and fraternite” that began in 1789, inspired by ours from 1775 – 1783. It ended a 1000 years of monarchal rule in France benefitting those of privilege and established the nation as a republic the way ours did for us here a few years earlier.

That was the good news. The bad was the wrong people came to power. They were the Jacobins who at first were revolutionary moderates and patriots until they lost control to extremists like Maximilien Robespierre who ushered in a “reign of terror” (The Great Terror sounding a lot like today’s “war on terror”) characterized by brutal repression against perceived enemies from within the Revolution who didn’t get a chance to prove they weren’t. In the name of defending it, individual rights were denied and civil liberties suspended. Laws were passed that allowed charging those designated counter-revolutionaries or enemies of the state with undefined crimes against liberty.

It resulted in justice being meted out to thousands for what Orwell called “thoughtcrimes” or for their freely expressed opinions and actions judged hostile to the state under a system of near-vigilante justice by the Paris Revolutionary (kangaroo) Tribunal with no right of appeal. It led to the public spectacle of an inglorious trip to and quick ending from the death penalty method of choice of the times – the guillotine that was barbaric but quick, and a much easier, less painful way to die for its victims than the use of state-inflicted torture-murder in the commonly drawn out lethal injection process used in 37 of the 38 death penalty states and by the federal government making the condemned endure a slow agonizing death unable to cry out while they’re being made to suffer during their last moments of life. Instances of this barbarity aren’t exceptions. They’re the rule, the exception being this time a report or two of what really happens slipped out and made news.

Fast forward to the past year and the previous five under George Bush and ask: sound familiar? French Revolutionary laws during the “reign of terror,” like the Law of Suspects, were earlier versions of our Patriot I and II and Military Commission Acts today. The Revolutionary Tribunal, with no chance for justice or right of appeal, was no different than our military courts today, and too many civil ones, in which any US citizen may now be tried anywhere in the world, with no habeas right of appeal or hope for due process and from which those sent there won’t fare any better than the French did, doomed to meet their unjust fate – even though much in these laws today is unconstitutional and one day will be reversed by a High Court upholding the law instead of the extremist rogue one now empowered that scorns it.

What May Lie Ahead

At the end of the sixth horrific year under the reign of the Bush modern-day extremist Jacobin-neocons, we can now look ahead, but to what. We have an administration in charge for another two years one longtime analyst characterizes as “a bunch of crooks, incompetents and perverts” with the president’s approval rating plunging as low as 28% in some independent polls and a growing number of people in the country demanding his impeachment and removal from office.

It’s not likely from the new Democrat-led Congress arriving in January, as their DLC leadership took it off the table and so far only promises more of the same failed policy other than some minor tinkering around the edges to create an illusion of change no different than the deceptive kind of course correction proposed by the Baker “Gang of Ten” Iraq Study Group (ISG) that guarantees none at all. It doesn’t leave members of the body politic with much hope for the new year that will likely just deliver more of the same rogue leadership and policy engendering growing public discontent and anger but not at a level so far to scare the those in power enough to want to address it.

The heart of the problem is the unpopular illegal war of aggression in Iraq, the cesspool of corruption and scorn for the law in Washington, and the assault on human rights and civil liberties in the country justified by the so-called “war on terror” now rebranded a “long war” against “Islamofascism” and “radicals and extremists” (who happen to be Muslims.) It’s the same failed policy using the kind of deliberately provocative language intended to deceive the public to think a threat great enough exists to justify any state action in the name of national security including waging wars of aggression and all the horrors associated with them at home and abroad.

After the Baker “bob and weave,” the now you see a change of course and now you don’t, disingenuously suggesting a drawdown and exit strategy, the New York Times on December 16 reports “Military planners and White House budget analysts have been asked to provide President Bush with options for increasing American forces in Iraq by 20,000 or more.”

The article goes on to say one option is to boost the force level by up to 50,000 even though any increase greater than 20 – 30,000 would be “prohibitive” – but it won’t deter the Pentagon, on administration orders, from extending tours of duty even longer for forces now there and calling up thousands of reservists and greatly extended National Guard units to get into this quagmire even though it’s recognized their presence will only make things worse as well as place an unfair burden on those called up, who’ve served before, and their families.

As of December 27, it’s somewhat less clear what Iraq troop strength policy will emerge in January following comments by incoming Democrat chairman of the Senate Foreign Relations Committee, Joseph Biden, who just stated “I totally oppose this surging of additional American troops into Baghdad. It’s contrary to the overwhelming body of informed opinion, both inside and outside the administration.” Senator Biden will hold hearings on Iraq on January 9, and at that time things may heat up a bit at least in rhetoric if not in final policy.

Additional heat may be created in January after George Bush admitted for the first time on December 19 that the US isn’t winning the war even though two weeks before the November mid-term elections he said emphatically “absolutely, we’re winning in Iraq.” He wouldn’t acknowledge what most every honest observer knows including the Pentagon Joint Chiefs – that the wars in Iraq and Afghanistan are lost. They can’t be won and won’t be. No military solution is possible now or any time ahead.

The president is living in a state of denial, obsessed with his messianic mission fed him by the vice-president and hardest of his hard line neocon allies, and it shows in the outlandish solutions he proposes to an insoluble problem – send in more troops (that will only make things worse) and increase the overall size of the military (that guarantees a permanent state of war).

It also clearly sounds a lot like the first official hint from the chief executive that a draft is needed and will come at some unspecified time ahead – likely following another “made in Washington” 9/11 calamity severe enough to get the public to go along with something now thought intolerable. The president’s sentiment was echoed on December 21 by administration Veterans Affairs secretary Jim Nicholson who (incredibly) said that “society would benefit” if the US reinstated the military draft. He didn’t say for whom. He did go further when asked in a press conference whether it should include women saying: “I think if we bring back the draft, there should be no loopholes for anybody who happens to be drafted.” Maybe, to his thinking, it should include pregnant mothers as well and single ones with small children.

Such openness by the VA secretary apparently was too much, too soon, and too clear for the White House that quickly got the Department of Veterans Affairs to issue a separate follow-up statement from Nicholson saying: “Let me be clear, I strongly support the all-volunteer military and do not support returning to a draft.” Let the reader choose which message to believe, but, with the nation in a permanent state of war, it looks like the trial balloon and hint of a draft now being floated is the opening round to instituting one at some designated time ahead. That likelihood looms even greater as the Selective Service System announced it’s planning a comprehensive test of the military draft machinery, which it hasn’t done since 1998 while, at the same time, saying the agency isn’t gearing up for a draft. But what else would they say as they make plans to do this on orders from the administration.

It all amounts to an increasing level of insanity from a power-crazed administration as well as sounding much like Benjamin Franklin’s wisdom who said “The definition of insanity is doing the same thing over and over expecting different results.” In the case of Iraq, doing it with more troops on the ground is even more insane as a greater occupying force there only guarantees a stronger resistance to it presenting more targets to aim at with virtually no chance for a peaceful resolution of the conflict short of a full unconditional withdrawal of all occupying forces, no strings attached, that won’t happen. In the case of a future draft, now seeming more likely, it only guarantees this nation plans to stay in a permanent state of war against future enemies to be chosen with those in or to be included in the “axis of evil” heading the target list at some point ahead.

George Bush and others floating these lunatic schemes have no regard for the lives of those affected, and why should they. For now, their aim is to buy time, and as long as they can get away with it, they and their well-connected cronies and corporate friends stand to gain from the price everyone else has to pay – a huge one including the thousands of lives lost each week and the many more thousands of survivors whose lives will never be the same again.

Think what it means as the new year approaches. The nation is at war on two fronts, it’s likely more ahead are contemplated by some in the administration, no substantive effort is being made to change course, and the condition at home is a relentless march toward becoming a full-blown national security police state we’re already perilously close to. It’s because the neocon-dominated Bush administration is reckless in ambition, out-of-control in policy, and the embodiment of a relentless and ruthless “weapon of mass destruction” unleashed on all humanity in its way.

It’s underpinned by an extremist ideology based on rule by savage capitalism that’s frighteningly close to and borders on the tipping edge of the classic definition of fascism combining corporatism with strong elements of patriotism and nationalism, a claimed messianic Almighty-directed and blessed mission, and characterized by authoritarian rule backed by the iron fist of militarism and ‘homeland security” enforcers, illegally spying on everyone, and intolerant of dissent and opposition in an age where the law is what the chief executive says it is and all semblance of checks and balances no longer exist. In a word – despotism, but cloaked in the deceptive rhetoric of a modern democracy falsely claiming to serve the needs of all its people.

It’s also an age of extreme greed and corruption infesting government and corporate boardrooms with the gap between rich and poor at levels greater than since the 19th century “Gilded Age” of the “robber barons.” It’s something economist Paul Krugman calls “entirely unprecedented” under George Bush that “For the first time in our history, so much (of the nation’s economic growth has gone) to a small, wealthy minority” while the great majority can’t stay even as inflation-adjusted wages fail to keep up with rising prices and poverty is growing in an age of affluence affecting tens of millions in the richest country ever in the world.

The grossness of this disparity was on the online business pages of the New York Times on Christmas Day in a story titled “Wall St. Bonuses” So Much Money, Too Few ($250,000) Ferraris. The article highlights that “The 2006 bonus gold rush has re-energized some luxury markets” like Manhattan real estate that had softened earlier in the year and echoed the lament of a real estate broker about a “dearth of listings for two clients trying to spend $20 million on Manhattan properties” while mentioning some of the Wall Street wealthy already in their luxury nests are buying $5 million apartments for their children and private resort vacation homes to boot.

The same ugly data is there overall worldwide in a newly released study by the Helsinki-based World Institute for Development Economics Research of the UN University that shows the richest 2% of adults in the world own more than half of its wealth compared, on the other end, with the assets of about half the world’s population accounting for barely 1% of global wealth – lumps of coal only for them and a “Ba Humbug” dismissal for their plight by those with everything wanting still more.

The Cost to a Society Based on Predatory Capitalism and Out-of-Control Greed, Corruption and Militarism

The societal breakdown in the US is a national disgrace and affects many millions. A sampling of some of it is listed below:

— 47 million Americans can’t afford basic health insurance.

— Over 80 million in total have no health coverage during some portion of each year and most of them are employed.

— The Bush administration just proposed sweeping cuts in payments to pharmacies to reduce the Medicaid benefits 50 million poor in the country rely on, can’t afford to make up the difference for on their own, and may have to forego medications they vitally need if pharmacies won’t fill prescriptions at lower prices.

— The US ranks 41st in infant mortality, and the World Health Organization (WHO) ranks the country 37th in the world in “overall health performance” and 54th in the fairness of health care despite spending at a current level overall of around $2 trillion a year or about double the amount per capita of the OECD countries that deliver superior health care overall to their citizens as a national priority.

— Well over 12 millions Americans struggle daily to feed themselves, and many thousands across the country can’t afford housing and are forced to sleep on the streets including in winter cold.

— A just released December 14 US Conference of Mayors report said these conditions continue to worsen based on a survey of 23 cities showing 7% more requests for food aid in 2006 following a 12% jump in 2005 during a period of economic growth.

— The same report showed requests for shelter rose 9% in 2006 with requests from families with children rising 5%.

— Public education is deliberately being eroded with illiteracy in basic reading, math and computer skills shamefully high and rising.

— The US prison population is the highest in the world at 2.2 million and increasing by 1000 a week, half of those in it are black, and half of the total prison population is there for non-violent offenses half of which are drug-related. The US prison system is a shameful Gulag and an affront to humanity. The appalling conviction and sentencing of first-time drug offender Weldon Angelos is but one of countless examples. He was convicted of three sales of marijuana in 2004 while in possession of a gun unrelated to the sale. Under the insane federal mandatory sentencing laws, he was sentenced to five years for the first offense and 25 years each for the other two totaling 55 years in federal prison or a likely life sentence if he’s forced to serve it all because he possessed and sold a few “joints” of a substance less harmful than legal cigarettes that kill millions yearly while it’s not known marijuana ever killed anyone using it. Only in America.

— The true state of things overall is suppressed by the dominant corporate-controlled media (including the NPR and PBS parts of it) functioning as a national thought-control police controlling all mass communication and depriving the public of any real information vital to a healthy democracy and their welfare.

— Racial segregation is as great as in the 1960s, and the national sport almost is demonizing Muslims as “terrorists, radicals, extremists and Islamofascists” and impoverished “people the color of the earth” Mexicans and Latin Americans as “illegal immigrant invaders polluting” our white western European society and culture, mindless that they only come el norte in desperate search of work because of the devastating effects of NAFTA on their lives that destroyed their ability to support their families.

Data from the Oakland Institute think tank specializing in social, economic and environmental issues shows that heavily subsidized US corn exports to Mexico have tripled since NAFTA came into force forcing two million Mexican corn farmers out of business, something that was predicted in advance but allowed to happen anyway. It also led to suicides but at a rate nowhere near the level globalized trade US-style had on farmers in India where as many as 100,000 of them have taken their own lives because “New World Order” indebtedness caused them to lose their farms and then everything else.

— Childhood poverty in the US ranks 22nd and next to last among developed nations when there should be virtually none tolerated in the richest country in the world or toleration of any of the other listed abuses.

— An alarming number of high-paying and other jobs have been exported abroad in a process that’s gone on for decades but picked up in momentum since the 1980s and especially in recent years. Mckinsey Global Institute estimates the volume will grow 30 – 40% a year for the next five years. Forrester Research estimates 3.3 million white-collar jobs will be lost by 2015 with most affected areas in financial services and information technology, and University of California researchers estimate that “up to 14 million American jobs are at risk to outsourcing.”

It adds up to a nation in decline, losing its industrial base and becoming primarily a service-oriented economy mainly offering low-skill, low-pay jobs with the better, higher-paying ones growing scarcer, making a college degree in areas outside of critical skills almost worthless. Exporting jobs to low-wage countries is a boon for corporate bottom lines in an age of “globalized free trade” never characterized as fair for the harm it does to millions of wage earners at home or in the developing countries on the receiving end being exploited by capital that sucks out their wealth and impoverishes their people, many of whom work for near-slave-rate wages in a modern era of serfdom in countries around the world in Asia, Africa, Eastern Europe and Latin and Central America.

— Worker outrage around the world in protest is growing in response to these abuses (unreported in the US) because most governments are doing little or nothing to ameliorate them. It showed up on November 22 in South Korea when over 200,000 workers belonging to the Korean Confederation of Trade Unions (KCTU) staged a general strike protesting in 17 cities against the bilateral US-Korea Free Trade Agreement currently being negotiated that will do to their members and farmers what NAFTA did to Mexicans and India’s agricultural trade policies did to their small farmers. It continued on the streets in the days following and spilled over to the Big Sky Ski Resort in Big Sky, Montana where negotiations are being held in seclusion but are still unable to escape the daily protests held against them there.

— It happened as well in Cebu City, Philippines where President Gloria Macapagal-Arroyo (closely allied to the failed Bush agenda and elected through fraud) had to cancel two Association of Southeast Asian Nations (ASEAN) meetings in December attended by 19 countries including the US and Canada. It was an abrupt ending to the meeting held to ratify trade and security agreements because of the mass protests by workers, farmers and others against their harmful effects forcing thousands in the country to leave daily to go abroad for work paying enough to support their families at home.

— Workers almost everywhere have been harmed, including in the US, as union clout and worker rights here have declined in an age where the social contract government once had with its working people has been dismantled with less than 13% of the work force (the lowest in the industrialized world) unionized today compared to one-third of it in 1958. In an age of modern-day “robber barons,” the middle class bedrock of a democratic state is slowly disappearing as the nation moves closer to becoming a banana republic at a time when 51 of the world’s largest economies are corporate giants, most of them US-based.

It all goes on with no redress or sign of change in an age of out-of-control militarism and outlandish budgets supporting it that began ratcheting up under Ronald Reagan, along with big budget deficits to pay for it, and have gone wild under George Bush. The White House just approved a fiscal year 2008 near $470 billion Pentagon budget on top of an additional $100+ billion off-the-books amount minimum more that will boost this year’s war budget for Iraq and Afghanistan to a yearly record of about $170 billion. It also needs tens of billions annually for “Homeland Security” and tens of billions more for the “spy agencies” totaling numbers in the range of well over $700 billion a year and rising – while social spending continues to be slashed to pay for it all in a heartless society scorning its people and their essential needs as long as the interests of capital are served along with the militarists in it profiting from its blood money.

Since WW II, when the US emerged as the only dominant nation left standing, Washington, instead of disarming and fostering peace, embarked on a now long-running program of militarization to maintain the country’s political, economic and military preeminence over all others. It takes a lot of military spending to do it, that could have been used far more productively investing in human capital (like health and education) and physical capital (like essential infrastructure) as well as promoting non-military related business and industry that over time pay back far greater dividends than the short-term gains from building weapons and having large standing armies, navies and air forces that only exist to kill and destroy.

Productive spending also pays off in creating a society free from a dominant military culture like now exists out-of-control and hard to contain in the Pentagon that scorns civil liberties and democratic principles and values that have nearly vanished. The course this nation chose 60 years ago led to today’s corrupted society armed to the teeth for endless wars with the most destructive weapons in human history deployed on over 800 known military bases in about 155 of the 192 countries of the world. It cost an unimaginable amount creating this monster as documented by the Center for Defense Information. It reported this country spent an estimated $21 trillion in constant dollars since 1945 on defense, the numbers continue to rise sharply, and the mindset of most of the nation’s leaders, especially George Bush, is when you’ve got the might, you have to throw it around to prove it as well as scare off potential challengers.

Shamefully the US stands as a modern-day Sparta glorifying war and those put in charge to wage it. Witness the retirement ceremony for Army Major General Geoffrey Miller last summer when Army Vice Chief of Staff General Richard Cody awarded the man who supervised the infamous US Guantanamo and Abu Ghraib torture-prisons with the Distinguished Service Medal (DDSM). This award was established by Richard Nixon in 1970 so the Secretary of Defense could reward officers of the US Armed Forces “whose exceptional performance of duty and contributions to national security or defense have been at the highest levels.”

Witness also the December 16 retirement ceremony at the Pentagon for unindicted war criminal and torture-authorizer Donald Rumsfeld complete with pomp and circumstance, George Bush and Dick Cheney in attendance for the spectacle, and a 19 round cannon salute that might have been better aimed. In open defiance of growing public anger over the war, speakers, including the president, shamelessly lauded Rumsfeld for the war of aggression he directed and his leadership in doing it. The galling scene showed Bush hugging Rumsfeld saying: “This man knows how to lead, and he did. And the country is better off for it.” He failed to say for whom, but it got worse with Dick Cheney saying: “I believe the record speaks for itself – Don Rumsfeld is the finest Secretary of Defense this nation ever had.”

Contrast those spectacles with the fate of extraordinary people like Lynne Stewart prosecuted for her crime of courage, honor and resisting tyranny. She was unjustly charged under the 1996 Antiterrorism Act with four counts of aiding and abetting a terrorist organization and violating Special Administration Measures (SAMS) imposed by the US Bureau of Prisons, which included a gag order on Sheik Abdel Rahman whom she represented as counsel for the defense in his 1995 trial because former US Attorney General Ramsey Clark asked her to take the case.

Lynne took it in the same spirit she spent her entire 30 year professional life as a courageous champion for the rights of the poor, underprivileged and those in society never afforded due process unless they’re lucky enough to have an advocate like her. She broke no law, and her trial was a gross miscarriage of justice. Still, the Justice Department asked for a harsh 30 year sentence. It wasn’t for any crime committed. It was to send a clear message to all in the legal community not to represent “unpopular clients” and not to afford them their legal right of due process with competent counsel when the government wants them put away.

Lynne for the present had the last word being vindicated in court on October 17 when Judge John G. Koeltl rejected the prosecution’s case in the 28 month sentence he handed down allowing Lynne to remain free pending her appeal to a higher court, acknowledging it might overturn her conviction and effectively rebuking the Justice Department for their prosecution of a courageous woman who spent a lifetime fighting for justice.

The outcome was painfully different in an age of Muslim demonization and persecution shown in the prosecution of Dr. Rafil Dhafir, a Muslim American of Iraqi descent and practicing oncologist until his license was unjustly revoked as a prelude to the greater outrage committed against him. Dr. Dhafir was charged and tried in another US “kangaroo court” for what Katherine Hughes called and wrote his “crime of compassion.” Katherine followed the trial daily in court for 17 weeks and remains his champion, continuing to work tirelessly for his vindication and release.

Dr. Dhafir was convicted and is now serving a 22 year sentence in federal prison for violating the Iraqi Sanctions Regulations (the IEEPA) having used his own funds and what he could raise from others to bring desperately needed humanitarian aid, including food and medical supplies, to Iraqi people unable to get them because of the punitive, harsh and unjust sanctions imposed prior to the 2003 war. He did it through his Help the Needy charity, and for it was convicted of violating the sanctions, tax fraud, money laundering, and mail and wire fraud – a total of 60 counts and found guilty on 59 of them.

The verdict sent another chill through the Muslim community, and as Katherine explained on her web site – – “If we can get Rafil Dhafir, we can get anyone.” Not quite, as Lynne Stewart’s vindication proves. But it proves something else too. In the age of George Bush, the chance of prevailing against injustice as a white American is a lot better than for a “not-as-white” Arab Muslim, even an American one, especially one courageous enough to take on a mission of mercy in defiance of state policy unjustly prohibiting it.

Dr. Dhafir was confined at the federal prison in Fairton, NJ until December when he was transfered further away from his family, who weren’t told. He’s now at what’s been described as the hellhole in Terre Haute, IN, in an area of right wing extremism and KKK influence, in a deliberate act of further barbaric vengeance to break his spirit, restrict his access to legal help and his family, and cause him undue pain and suffering in an age of US-sanctioned and authorized torture as a method of social control and inhumanity and because no dissenting authority has the courage to challenge Washington’s willingness to go against the most basic principles of equity and justice.

A Look Back to Find Direction Ahead

A look back to an important anniversary just reached should have been duly noted and reflected on in the major media, but it passed nearly unnoticed. It was the December 15 anniversary of the Bill of Rights of 1791 to the Constitution framed in 1787. It gave us unimaginable freedoms up to that time written into the law of the land that overall was a great democratic experiment never tried before outside of ancient Athens for a few decades before it ended. It gave people the rights of free expression, religion and peaceable assembly; protection from illegal searches and seizure; the right of due process, against double jeopardy and to remain silent if accused; to a speedy trial by jury if charged with the right to counsel and to be able to call witnesses; protection from any cruel and unusual punishment and more.

Most of the credit for this historic achievement goes to James Madison who drafted the first 10 amendments and with his perseverance got the other Framers to go along. He then managed to get the needed two-thirds vote from both Houses of Congress and ratification by the required three-fourths of the states in 1791 to have them become the law of the land – a major landmark achievement today being defiled by those in power who have contempt for the freedoms the Founders gave us.

Madison is thought of by some to be the “Father of the Constitution,” but it’s more accurate to call him its Godfather as he had a lot of help from the other 54 Founders who met in the Philadelphia State House, where the Declaration of Independence was signed 11 years earlier, to frame this historic document for the new republic they hoped would last into “remote futurity” – if we could keep it as Ben Franklin warned at the time and would shudder now at how things turned out and condemn those in power responsible.

Two future presidents, Thomas Jefferson and John Adams were serving abroad as envoys to France and Britain and weren’t in Philadelphia for this historic gathering. When they were back later on, Jefferson and Madison wanted twelve initial amendments to the Constitution instead of the original 10 that were adopted. Federalists John Adams and Alexander Hamilton, however, opposed the Bill of Rights entirely and managed to exclude from them the other two that included “freedom from monopolies in commerce,” or what are now giant corporate predators, and “freedom from a permanent military,” or today’s standing armies waging wars of illegal aggression.

Imagine what might have been, what was lost, and how the country might be governed today had Jefferson and Madison prevailed. Still they deserve our gratitude for what they accomplished, and it’s disconcerting at the least to wonder how much worse off we’d be now if they hadn’t gotten any of the Bill of Rights freedoms in our founding law that although lost under neocon rule may one day be restored if we can survive in the meantime.

A Look Ahead In An Age of State-Sponsored Terror Under Neocon Rule

It’s time to pause at year’s end to give thanks for our blessings but reflect that the spirit of the season demands that the madness of Bush neocon rule be stopped and ended before it’s too late. Six years is more than enough to know the administration’s agenda at home and abroad is roguish, corrupted by greed and contempt for the law, ruthless in its pursuit of world dominance through the barrel of a gun, and arrogant enough to think it can get away with it because who’ll challenge those in charge.

Internally, there no longer are checks and balances as the three branches of government under Republicans and Democrats are united for a common purpose, and their agenda to carry it out is hostile to the public interest. It’s the ultimate expression of Lord Acton’s dictum that “power corrupts, and absolute power corrupts absolutely.” Positively it does in the age of George Bush and a culture obsessed with power, the lust for more of it, and the worship of the wealth and privilege that comes with it. It wreaks of the Vince Lombardi philosophy that “Winning isn’t everything; it’s the only thing,” and the only rules are the ones those now in power make up as they go along justifying whatever they choose to do, regardless of its consequences always harmful to the great majority.

It’s also based on might making right but not the way Abe Lincoln meant it when he said in his February, 1860 Cooper Union speech prior to his July presidential nomination that year: “Let us have faith that right makes might, and in that faith, let us, to the end, dare to do our duty as we understand it.” He later expressed a spirit of reconciliation with the South and kind of humanity George Bush has contempt for in his second inaugural address in March, 1865 when he spoke of “malice toward none (and) charity for all” only weeks before his life was taken by an assassin’s bullet. Imagining that language from George Bush, and meaning it, would be to imagine the unimaginable from a man who likely doesn’t even understand it.

What is imaginable in the year ahead and thenceforth is a world without George Bush and his neocon extremist administration leading the nation on a path to hell. Those wanting justice demand the Congress act to impeach him and the vice-president and then remove them from office allowing for the chance charges will be brought against them both and others in their administration so they’ll be held to account in the International Criminal Court (ICC) in the Hague or another judicial venue where officials may be prosecuted for war crimes, crimes against humanity and genocide. They committed them all and more against the people of Iraq, at least two of the three in Afghanistan, and a legion of others against the people of the United States and its Constitution.

It’ll only happen if it comes from the bottom up, from enough public outrage bubbling to the surface vocally demanding justice be served and the rule of law restored and again respected. No one at any level in public or private life should ever be allowed to get away with the kind of reckless and gross criminality that’s been rampant and out-of-control in Washington for the past six years under Republican neocon rule.

It’s long past time to put an end to this criminal class of rogues in charge, running the country like their private fiefdom in a culture of galling corruption and scorn for the law that exceeds anything here ever preceding their tenure. Already there’s a groundswell of growing outrage slowly building in size and intensity. As the new year approaches, it remains to be seen if a combination of those people of conscience can unite with enough others in the body politic to give us all what everyone should want and demand – an end to wars, a renewed respect for the law, accountability for those in government who violated it, and a commitment to serve the public interest with equity and equal justice for all in the true spirit of a real democracy restored from the grave and once again respected and cherished. (Stephen Lendman, “Predatory Capitalism, Corruption and Militarism: What Lies Ahead in an Age of Neocon Rule?” Global Research, 2 January, 2007.)

American “Operations” against Other Economies

“Practices of the unscrupulous money changers stand indicted in the court of public opinion,

rejected by the hearts and minds of men”.
(Franklin D. Roosevelt’s First Inaugural Address, 1933)

Humanity is undergoing in the post-Cold War era an economic crisis of unprecedented scale leading to the rapid impoverishment of large sectors of the World population. The plunge of national currencies in virtually all major regions of the World has contributed to destabilising national economies while precipitating entire countries into abysmal poverty.

The crisis is not limited to Southeast Asia or the former Soviet Union. The collapse in the standard of living is taking place abruptly and simultaneously in a large number of countries. This Worldwide crisis of the late twentieth century is more devastating than the Great Depression of the 1930s. It has far-reaching geo-political implications; economic dislocation has also been accompanied by the outbreak of regional conflicts, the fracturing of national societies and in some cases the destruction of entire countries. This is by far the most serious economic crisis in modern history.

The existence of a “global financial crisis” is casually denied by the Western media, its social impacts are downplayed or distorted; international institutions including the United Nations deny the mounting tide of World poverty: “the progress in reducing poverty over the [late] 20th century is remarkable and unprecedented…”.1 The “consensus” is that the Western economy is “healthy” and that “market corrections” on Wall Street are largely attributable to the “Asian flu” and to Russia’s troubled “transition to a free market economy”.

Evolution of the Global Financial Crisis

The plunge of Asia’s currency markets (initiated in mid-1997) was followed in October 1997 by the dramatic meltdown of major bourses around the World. In the uncertain wake of Wall Street’s temporary recovery in early 1998 –largely spurred by panic flight out of Japanese stocks– financial markets backslided a few months later to reach a new dramatic turning-point in August with the spectacular nose-dive of the Russian ruble. The Dow Jones plunged by 554 points on August 31st (its second largest decline in the history of the New York stock exchange) leading in the course of September to the dramatic meltdown of stock markets around the World. In a matter of a few weeks (from the Dow’s 9337 peak in mid-July), 2300 billion dollars of “paper profits” had evaporated from the U.S. stock market.2

The ruble’s free-fall had spurred Moscow’s largest commercial banks into bankruptcy leading to the potential take-over of Russia’s financial system by a handful of Western banks and brokerage houses. In turn, the crisis has created the danger of massive debt default to Moscow’s Western creditors including the Deutsche and Dresdner banks. Since the outset of Russia’s macro-economic reforms, following the first injection of IMF “shock therapy” in 1992, some 500 billion dollars worth of Russian assets –including plants of the military industrial complex, infrastructure and natural resources– have been confiscated (through the privatisation programmes and forced bankruptcies) and transferred into the hands of Western capitalists.3 In the brutal aftermath of the Cold War, an entire economic and social system is being dismantled.

“Financial Warfare”

The Worldwide scramble to appropriate wealth through “financial manipulation” is the driving force behind this crisis. It is also the source of economic turmoil and social devastation. In the words of renowned currency speculator and billionaire George Soros (who made 1.6 billion dollars of speculative gains in the dramatic crash of the British pound in 1992) “extending the market mechanism to all domains has the potential of destroying society”.4 This manipulation of market forces by powerful actors constitutes a form of financial and economic warfare. No need to recolonise lost territory or send in invading armies. In the late twentieth century, the outright “conquest of nations” meaning the control over productive assets, labour, natural resources and institutions can be carried out in an impersonal fashion from the corporate boardroom: commands are dispatched from a computer terminal, or a cell phone. The relevant data are instantly relayed to major financial markets — often resulting in immediate disruptions in the functioning of national economies. “Financial warfare” also applies complex speculative instruments including the gamut of derivative trade, forward foreign exchange transactions, currency options, hedge funds, index funds, etc. Speculative instruments have been used with the ultimate purpose of capturing financial wealth and acquiring control over productive assets. In the words of Malaysia’s Prime Minister Mahathir Mohamad: “This deliberate devaluation of the currency of a country by currency traders purely for profit is a serious denial of the rights of independent nations”.5

The appropriation of global wealth through this manipulation of market forces is routinely supported by the IMF’s lethal macro-economic interventions which act almost concurrently in ruthlessly disrupting national economies all over the World. “Financial warfare” knows no territorial boundaries; it does not limit its actions to besieging former enemies of the Cold War era. In Korea, Indonesia and Thailand, the vaults of the central banks were pillaged by institutional speculators while the monetary authorities sought in vain to prop up their ailing currencies. In 1997, more than 100 billion dollars of Asia’s hard currency reserves had been confiscated and transferred (in a matter of months) into private financial hands. In the wake of the currency devaluations, real earnings and employment plummeted virtually overnight leading to mass poverty in countries which had in the post-War period registered significant economic and social progress.

The financial scam in the foreign exchange market had destabilised national economies, thereby creating the preconditions for the subsequent plunder of the Asian countries’ productive assets by so-called “vulture foreign investors”.6 In Thailand, 56 domestic banks and financial institutions were closed down on orders of the IMF, unemployment virtually doubled overnight.7 Similarly in Korea, the IMF “rescue operation” has unleashed a lethal chain of bankruptcies leading to the outright liquidation of so-called “troubled merchant banks”. In the wake of the IMF’s “mediation” (put in place in December 1997 after high-level consultations with the World’s largest commercial and merchant banks), “an average of more than 200 companies [were] shut down per day (…) 4,000 workers every day were driven out onto streets as unemployed”.8 Resulting from the credit freeze and “the instantaneous bank shut-down”, some 15,000 bankruptcies are expected in 1998 including 90 percent of Korea’s construction companies (with combined debts of $20 billion dollars to domestic financial institutions).9 South Korea’s Parliament has been transformed into a “rubber stamp”. Enabling legislation is enforced through “financial blackmail”: if the legislation is not speedily enacted according to IMF’s deadlines, the disbursements under the bail-out will be suspended with the danger of renewed currency speculation.

In turn, the IMF sponsored “exit programme” (ie. forced bankruptcy) has deliberately contributed to fracturing the chaebols which are now invited to establish “strategic alliances with foreign firms” (meaning their eventual control by Western capital). With the devaluation, the cost of Korean labour had also tumbled: “It’s now cheaper to buy one of these [high tech] companies than buy a factory — and you get all the distribution, brand-name recognition and trained labour force free in the bargain”…10

The Demise of Central Banking

In many regards, this Worldwide crisis marks the demise of central banking meaning the derogation of national economic sovereignty and the inability of the national State to control money creation on behalf of society. In other words, privately held money reserves in the hands of “institutional speculators” far exceed the limited capabilities of the World’s central banks. The latter acting individually or collectively are no longer able to fight the tide of speculative activity. Monetary policy is in the hands of private creditors who have the ability to freeze State budgets, paralyse the payments process, thwart the regular disbursement of wages to millions of workers (as in the former Soviet Union) and precipitate the collapse of production and social programmes. As the crisis deepens, speculative raids on central banks are extending into China, Latin America and the Middle East with devastating economic and social consequences.

This ongoing pillage of central bank reserves, however, is by no means limited to developing countries. It has also hit several Western countries including Canada and Australia where the monetary authorities have been incapable of stemming the slide of their national currencies. In Canada, billions of dollars were borrowed from private financiers to prop up central bank reserves in the wake of speculative assaults. In Japan –where the yen has tumbled to new lows– “the Korean scenario” is viewed (according to economist Michael Hudson), as a “dress rehearsal” for the take over of Japan’s financial sector by a handful of Western investment banks. The big players are Goldman Sachs, Morgan Stanley, Deutsche Morgan Gruenfell among others who are buying up Japan’s bad bank loans at less than ten percent of their face value. In recent months both US Secretary of the Treasury Robert Rubin and Secretary of State Madeleine K. Albright have exerted political pressure on Tokyo insisting “on nothing less than an immediate disposal of Japan’s bad bank loans–preferably to US and other foreign “vulture investors” at distress prices. To achieve their objectives they are even pressuring Japan to rewrite its constitution, restructure its political system and cabinet and redesign its financial system… Once foreign investors gain control of Japanese banks, these banks will move to take over Japanese industry…”11

Creditors and Speculators

The World’s largest banks and brokerage houses are both creditors and institutional speculators. In the present context, they contribute (through their speculative assaults) to destabilising national currencies thereby boosting the volume of dollar denominated debts. They then reappear as creditors with a view to collecting these debts. Finally, they are called in as “policy advisors” or consultants in the IMF-World Bank sponsored “bankruptcy programmes” of which they are the ultimate beneficiaries. In Indonesia, for instance, amidst street rioting and in the wake of Suharto’s resignation, the privatisation of key sectors of the Indonesian economy ordered by the IMF was entrusted to eight of the World’s largest merchant banks including Lehman Brothers, Credit Suisse-First Boston, Goldman Sachs and UBS/SBC Warburg Dillon Read.12 The World’s largest money managers set countries on fire and are then called in as firemen (under the IMF “rescue plan”) to extinguish the blaze. They ultimately decide which enterprises are to be closed down and which are to be auctioned off to foreign investors at bargain prices

Who Funds the IMF Bailouts?

Under repeated speculative assaults, Asian central banks had entered into multi-billion dollar contracts (in the forward foreign exchange market) in a vain attempt to protect their currency. With the total depletion of their hard currency reserves, the monetary authorities were forced to borrow large amounts of money under the IMF bailout agreement. Following a scheme devised during the Mexican crisis of 1994-95, the bailout money, however, is not intended “to rescue the country”; in fact the money never entered Korea, Thailand or Indonesia; it was earmarked to reimburse the “institutional speculators”, to ensure that they would be able to collect their multi-billion dollar loot. In turn, the Asian tigers have been tamed by their financial masters. Transformed into lame ducks– they have been “locked up” into servicing these massive dollar denominated debts well into the third millennium.

But “where did the money come from” to finance these multi-billion dollar operations? Only a small portion of the money comes from IMF resources: starting with the Mexican 1995 bail-out, G7 countries including the US Treasury were called upon to make large lump-sum contributions to these IMF sponsored rescue operations leading to significant hikes in the levels of public debt.13 Yet in an ironic twist, the issuing of US public debt to finance the bail-outs is underwritten and guaranteed by the same group of Wall Street merchant banks involved in the speculative assaults.

In other words, those who guarantee the issuing of public debt (to finance the bailout) are those who will ultimately appropriate the loot (eg. as creditors of Korea or Thailand) –ie. they are the ultimate recipients of the bailout money (which essentially constitutes a “safety net” for the institutional speculator). The vast amounts of money granted under the rescue packages are intended to enable the Asian countries meet their debt obligations with those same financial institutions which contributed to precipitating the breakdown of their national currencies in the first place. As a result of this vicious circle, a handful of commercial banks and brokerage houses have enriched themselves beyond bounds; they have also increased their stranglehold over governments and politicians around the World.

Strong Economic Medicine

Since the 1994-95 Mexican crisis, the IMF has played a crucial role in shaping the “financial environment” in which the global banks and money managers wage their speculative raids. The global banks are craving for access to inside information. Successful speculative attacks require the concurrent implementation on their behalf of “strong economic medicine” under the IMF bail-out agreements. The “big six” Wall Street commercial banks (including Chase, Bank America, Citicorp and J. P. Morgan) and the “big five” merchant banks (Goldman Sachs, Lehman Brothers, Morgan Stanley and Salomon Smith Barney) were consulted on the clauses to be included in the bail-out agreements. In the case of Korea’s short-term debt, Wall Street’s largest financial institutions were called in on Christmas Eve (24 December 1997), for high level talks at the Federal Reserve Bank of New York.14

The global banks have a direct stake in the decline of national currencies. In April 1997 barely two months before the onslaught of the Asian currency crisis, the Institute of International Finance (IIF), a Washington based think-tank representing the interests of some 290 global banks and brokerage houses had “urged authorities in emerging markets to counter upward exchange rate pressures where needed…”. 15 This request (communicated in a formal Letter to the IMF) hints in no uncertain terms that the IMF should advocate an environment in which national currencies are allowed to slide.16

Indonesia was ordered by the IMF to unpeg its currency barely three months before the rupiahs dramatic plunge. In the words of American billionaire and presidential candidate Steve Forbes: “Did the IMF help precipitate the crisis? This agency advocates openness and transparency for national economies, yet it rivals the CIA in cloaking its own operations. Did it, for instance, have secret conversations with Thailand, advocating the devaluation that instantly set off the catastrophic chain of events?” (…) Did IMF prescriptions exacerbate the illness? These countries’ moneys were knocked down to absurdly low levels”.17

Deregulating Capital Movements

The international rules regulating the movements of money and capital (across international borders) contribute to shaping the “financial battlefields” on which banks and speculators wage their deadly assaults. In their Worldwide quest to appropriate economic and financial wealth, global banks and multinational corporations have actively pressured for the outright deregulation of international capital flows including the movement of “hot” and “dirty” money.18 Caving in to these demands (after hasty consultations with G7 finance ministers), a formal verdict to deregulate capital movements was taken by the IMF Interim Committee in Washington in April 1998. The official communique stated that the IMF will proceed with the Amendment of its Articles with a view to “making the liberalization of capital movements one of the purposes of the Fund and extending, as needed, the Fund’s jurisdiction for this purpose”. 19 The IMF managing director, Mr. Michel Camdessus nonetheless conceded in a dispassionate tone that “a number of developing countries may come under speculative attacks after opening their capital account” while reiterating (ad nauseam) that this can be avoided by the adoption of “sound macroeconomic policies and strong financial systems in member countries”. (ie. the IMF’s standard “economic cure for disaster”).20

The IMF’s resolve to deregulate capital movements was taken behind closed doors (conveniently removed from the public eye and with very little press coverage) barely two weeks before citizens’ groups from around the World gathered in late April 1998 in mass demonstrations in Paris opposing the controversial Multilateral Agreement on Investment (MAI) under OECD auspices. This agreement would have granted entrenched rights to banks and multinational corporations overriding national laws on foreign investment as well derogating the fundamental rights of citizens. The MAI constitutes an act of capitulation by democratic government to banks and multinational corporations.

The timing was right on course: while the approval of the MAI had been temporarily stalled, the proposed deregulation of foreign investment through a more expedient avenue had been officially launched: the Amendment of the Articles would for all practical purposes derogate the powers of national governments to regulate foreign investment. It would also nullify the efforts of the Worldwide citizens’ campaign against the MAI: the deregulation of foreign investment would be achieved (“with a stroke of a pen”) without the need for a cumbersome multilateral agreement under OECD or WTO auspices and without the legal hassle of a global investment treaty entrenched in international law.

Creating a Global Financial Watchdog

As the aggressive scramble for global wealth unfolds and the financial crisis reaches dangerous heights, international banks and speculators are anxious to play a more direct role in shaping financial structures to their advantage as well as “policing” country level economic reforms. Free market conservatives in the United States (associated with the Republican Party) have blamed the IMF for its reckless behaviour. Disregarding the IMF’s intergovernmental status, they are demanding greater US control over the IMF. They have also hinted that the IMF should henceforth perform a more placid role (similar to that of the bond rate agencies such as Moody’s or Standard and Poor) while consigning the financing of the multi-billion dollar bail-outs to the private banking sector.21

Discussed behind closed doors in April 1998, a more perceptive initiative (couched in softer language) was put forth by the World’s largest banks and investment houses through their Washington mouthpiece (the Institute of International Finance). The banks proposal consists in the creation of a “Financial Watchdog –a so-called “Private Sector Advisory Council”– with a view to routinely supervising the activities of the IMF. “The Institute [of International Finance], with its nearly universal membership of leading private financial firms, stands ready to work with the official community to advance this process.” 22 Responding to the global banks initiative, the IMF has called for concrete “steps to strengthen private sector involvement” in crisis management –what might be interpreted as a “power sharing arrangement” between the IMF and the global banks.23 The international banking community has also set up it own high level “Steering Committee on Emerging Markets Finance” integrated by some of the World’s most powerful financiers including William Rhodes, Vice Chairman of Citibank and Sir David Walker, Chairman of Morgan Stanley. The hidden agenda behind these various initiatives is to gradually transform the IMF –from its present status as an inter-governmental body– into a full fledged bureaucracy which more effectively serves the interests of the global banks. More importantly, the banks and speculators want access to the details of IMF negotiations with member governments which will enable them to carefully position their assaults in financial markets both prior and in the wake of an IMF bailout agreement. The global banks (pointing to the need for “transparency”) have called upon “the IMF to provide valuable insights [on its dealings with national governments] without revealing confidential information…”. But what they really want is privileged inside information.24

The ongoing financial crisis is not only conducive to the demise of national State institutions all over the World, it also consists in the step by step dismantling (and possible privatisation) of the post War institutions established by the founding fathers at the Bretton Woods Conference in 1944. In striking contrast with the IMF’s present-day destructive role, these institutions were intended by their architects to safeguard the stability of national economies. In the words of Henry Morgenthau, US Secretary of the Treasury in his closing statement to the Conference (22 July 1944): “We came here to work out methods which would do away with economic evils –the competitive currency devaluation and destructive impediments to trade– which preceded the present war. We have succeeded in this effort.”25 (Michael Chossudovsky, “Financial Warfare,” 1997, downloaded from, 12 Aug. 2007.)


1. United Nations Development Program, Human Development Report, 1997, New York, 1997, p. 2.

2. Robert O’Harrow Jr., “Dow Dives 513 Points, or 6.4”, Washington Post, 1 September 1998, page A.

3. Bob Djurdjevic, Return looted Russian Assets, Aug. 30, Truth in Media’s Global Watch, Phoenix, 30 August 98.

4. See “Society under Threat- Soros”, The Guardian, London, 31 October 1997.

5. Statement at the Meeting of the Group of 15, Malacca, Malaysia, 3 November 1997, quoted in the South China Morning Post, Hong Kong, 3 November 1997

6. See Michael Hudson and Bill Totten, “Vulture speculators”, Our World, No. 197, Kawasaki, 12 August 1998.

7. Nicola Bullard, Walden Bello and Kamal Malhotra, “Taming the Tigers: the IMF and the Asian Crisis”, Special Issue on the IMF, Focus on Trade No. 23, Focus on the Global South, Bangkok, March 1998.

8. Korean Federation of Trade Unions, “Unbridled Freedom to Sack Workers Is No Solution At All”, Seoul, 13 January 1998.

9. Song Jung tae, “Insolvency of Construction Firms rises in 1998”, Korea Herald, 24 December 1997. Legislation (following IMF directives) was approved which dismantles the extensive powers of the Ministry of Finance while also stripping the Ministry of its financial regulatory and supervisory functions.

The financial sector had been opened up, a Financial Supervisory Council under the advice of Western merchant banks arbitrarily decides the fate of Korean banks. Selected banks (the lucky ones) are to be “made more attractive” by earmarking a significant chunk of the bail-out money to finance (subsidise) their acquisition at depressed prices by foreign buyers, –ie. the shopping-spree by Western financiers is funded by the government on borrowed money from Western financiers.

10. Michael Hudson, Our World, Kawasaki, December 23, 1997.

11. Michael Hudson, “Big Bang is Culprit behind Yen’s Fall”, Our World, No. 187, Kawasaki, 28 July 1998. See also Secretary of State Madeleine K. Albright and Japanese Foreign Minister Keizo Obuchi, Joint Press Conference, Ikura House, Tokyo, July 4, 1998 contained in Official Press Release, US Department of State, Washington, 7 July, l998.

12. See Nicola Bullard, Walden Bello and Kamal Malhotra, op. cit.

13. On 15 July 1998, the Republican dominated House of Representatives slashed the Clinton Administration request of 18 billion dollar in additional US funding to the IMF to 3.5 billion. Part of the US contribution to the bail-outs would be financed under the Foreign Exchange Stabilisation Fund of the Treasury. The US Congress has estimated the increase in the US public debt and the burden on taxpayers of the US contributions to the Asian bail-outs.

14. Financial Times, London, 27-28 December 1997, p. 3).

15. Institute of International Finance, Report of the Multilateral Agencies Group, IIF Annual Report, Washington, 1997.

16. Letter addressed by the Managing director of the Institute of International Finance Mr. Charles Dallara to Mr. Philip Maystadt, Chairman of the IMF Interim Committee, April 1997, quoted in Institute of International Finance, 1997 Annual Report, Washington, 1997.

17. Steven Forbes, “Why Reward Bad Behaviour, editorial, Forbes Magazine, 4 May 1998.

18. “Hot money” is speculative capital, “dirty money” are the proceeds of organised crime which are routinely laundered in the international financial system.

19. International Monetary Fund, Communiqué of the Interim Committee of the Board of Governors of the International Monetary Fund, Press Release No. 98/14 Washington, April 16, 1998. The controversial proposal to amend its articles on “capital account liberalisation” had initially been put forth in April 1997.

20. See Communique of the IMF Interim Committee, Hong Kong, 21 September 1997.

21. See Steven Forbes, op cit.

22. Institute of International Finance, “East Asian Crises Calls for New International Measures, Say Financial Leaders”, Press Release, 18 April 1998.

23. IMF, Communiqué of the Interim Committee of the Board of Governors, April 16, 1998.

24. The IIF proposes that global banks and brokerage houses could for this purpose “be rotated and selected through a neutral process [to ensure confidentiality], and a regular exchange of views [which] is unlikely to reveal dramatic surprises that turn markets abruptly (…). In this era of globalization, both market participants and multilateral institutions have crucial roles to play; the more they understand each other, the greater the prospects for better functioning of markets and financial stability… “. See Letter of Charles Dallara, Managing Director of the IIF to Mr. Philip Maystadt, Chairman of IMF Interim Committee, IIF, Washington, 8 April 1998.

25. Closing Address, Bretton Woods Conference, Bretton Woods, New Hampshire, 22 July 1944. The IMF’s present role is in violation of its Articles of Agreement.

In late November 1997 following the dramatic plunge of the Korean won on the foreign exchange market, an IMF team of economists led by Mr. Hubert Neiss was rushed to Seoul. Its mandate: negotiate the terms of a “Mexican-style bail-out” with a view to “restoring economic health and stability”.

An important precedent had been set: the IMF’s standard “economic medicine” (routinely imposed on the Third World and Eastern Europe) had been launched for the first time in an advanced industrial economy… The details of the economic reform program, however, had already been decided in advance in consultation with the US Treasury, Wall Street’s commercial and merchant banks as well as with major banking interests in Japan and the European Union.

A Letter of Intent (“Memorandum on the Economic Program”) was put together in a hurry on behalf of the government with virtually no analysis of the broader causes of the financial meltdown. (The “policy solutions” had already been decided upon: no analysis was deemed necessary).

A covering letter was drafted with the help of IMF officials dated December 3 and signed by the Governor of the Bank of Korea, Mr. Kyung-shik Lee and the Minister of Finance Mr. Chan yuel Lim. The Memorandum included the usual Policy Framework Paper (PFP) imposed by the Bretton Woods institutions on indebted Third World nations. (See International Monetary Fund, Korea, Request for Stand-by Arrangement, Washington, December 3, 1997, The text of the IMF Agreement together with the “Memorandum on the Economic Program” was published by Chosun Ilbo.)

Managing Director Mr. Michel Camdessus was in Seoul during the final days of negotiation; the IMF’s mission was briskly wrapped up on December 3d after a one week stint; a “proposed decision” on the stand-by arrangement had already been drafted by IMF staff for adoption by the IMF Executive Board on the following day (December 4th). In close consultation with IMF negotiators, the World Bank and the Asian Development Bank had also sent in their own teams. A World Bank package with stringent conditionalities on “financial governance” was announced on December 18th.

A Safety Net for the Creditors

On Christmas Eve December 24th, officials from six leading US commercial banks including Chase, Bank America, Citicorp and J. P. Morgan were called in for talks at the Federal Reserve Bank of New York. The “big five” New York merchant banks (Goldman Sachs, Lehman Brothers, Morgan Stanley and Salomon Smith Harney) were also involved in these discussions on South Korea’s short-term debt. (Financial Times, 27-28 December 1997, p. 3).

Almost simultaneously, some 80 European creditor banks under the chairmanship of the Deutsche Bank were meeting behind closed doors in Frankfurt while Japan’s big ten banks (which account for a large portion of Korea’s short term debt) were involved in high level discussions in Tokyo with Mr. Kyong shik Lee, Governor of the Bank of Korea.

No Capital Inflows under the Bailout

The bail-out (to be financed by G7 governments, the IMF, the World Bank and the Asian Development Bank) will evidently not result in capital inflows into Korea: it largely serves the interests of the international banking community, enabling US, European and Japanese banks to cash in on Korea’s short term debt. In turn, Korea will be locked into the servicing of this debt under the Agreement until the year 2006.

The Macro-Economic Agenda

The IMF program derogates Korea’s economic sovereignty, it plunges the country virtually overnight into a deep recession. The social impact is devastating. The standard of living has collapsed; the IMF program depresses wages and creates massive unemployment. (Wages expressed in US dollars have already been cut in half as a result of the devaluation). The Agreement also requires the government to introduce “labor market flexibility” including procedures for compressing wages and shedding “surplus workers”.

The IMF Agreement consists in tearing down Korea’s banking system while creating conditions, which enable the speedy acquisition of the most profitable industrial assets by foreign capital. The Agreement lifts the ceiling on individual foreign ownership to 50 percent by the end of 1997 and 55 percent by February 1998. The IMF Agreement requires further trade liberalization as well as the opening up of the domestic bond market to foreign capital. It also marks the demise of central banking in Asia’s most vibrant economy.

Under legislation demanded by the IMF, the Agreement allows for 100 percent ownership by foreign merchant banks: “foreign financial institutions will be allowed to purchase equity in domestic banks without restriction” (Memorandum, para. 32, p. 44).

Derogating Korea’s Sovereignty

A de facto “parallel government” has been installed. The Bank of Korea (BOK) is to be reorganized, the powers of the Ministry of Finance are to be redefined. Under the bailout, external creditors will dictate fiscal and monetary policy. Monetary policy under the IMF’s stewardship will be tightened. Government spending on social programs and infrastructure will be curtailed. Enforcing Enabling Legislation through Financial Blackmail.

During a special session of the legislature on December 23d “lawmakers endorsed the four government motions concerning the IMF rescue plans”. (Choe Seung chul, Assembly Opens to Legislate Key Financial reforms”, Korea Herald, 23 December 1997). Legislation following IMF guidelines was approved which dismantles the extensive powers of the Ministry of Finance while also stripping the Ministry of its financial regulatory and supervisory functions.

South Korea’s Parliament has been transformed into a “rubber stamp”. Enabling legislation is enforced through “financial blackmail”: if the legislation is not speedily enacted according to the IMF’s deadlines, the disbursements under the bail-out will be suspended with the danger of renewed currency speculation.

The IMF had also demanded the speedy passage of legislation which will provide for “central bank independence”. The latter provision will thwart the financing of economic development “from within” through monetary policy –a process of State supported credit which has largely been instrumental in Korea’s dynamic industrial development over the last 30 years.

The central bank has been crushed. Institutional speculators have pillaged its foreign exchange reserves. In late November, the Bank of Korea’s reserves had plunged to an all time low of 7.26 billion dollars. Under the IMF Agreement, which freezes the supply of domestic credit, Korean corporations will increasingly rely on foreign lending institutions (para. 28) (The latter are also routinely involved in speculating against the Korean won).

The Newly Elected President Supports the IMF

President elect Kim Dae-jung had warned in a press conference during the electoral campaign on December 5th (following the IMF Executive Board decision of December 4th) that “…now foreign investors can freely buy our entire financial sector, including 26 banks, 27 securities firms, 12 insurance companies and 21 merchant banks, all of which are listed on the Korean Stock Exchange, for just 5.5 trillion won,’ that is, $3.7 billion”. (Michael Hudson, “Draft for Our World”, Dec. 23, 1997). But upon winning the election on Dec. 18th, Kim announced his unbending support for the IMF: “I will boldly open the market. I will make it so that foreign investors will invest with confidence”.

The IMF’s Bankruptcy Program

The devaluation of the won has generated a deadly chain of bankruptcies affecting both financial and industrial enterprises. The devaluation has also contributed to triggering sharp rises in the prices of consumer necessities.

Ironically, rather than restoring “economic stability”, the IMF program has served to heighten the impact of the devaluation leading to a further string of bankruptcies. A so-called “exit policy” (ie. bankruptcy program) has been set in motion: the operations of some nine “troubled” merchant banks were suspended on December 2 prior to the completion of the IMF mission. In consultation with the IMF, the government is to “prepare a comprehensive action program to strengthen financial supervision and regulation…” (Agreement, para. 25).

Dismantling the Chaebols

The IMF Agreement has created conditions which facilitate so-called “friendly” mergers and acquisitions by foreign capital. The automotive group Kia, among Korea’s largest conglomerates declared insolvency. A similar fate has affected the Halla Group involved in shipbuilding, engineering and auto-parts.

The IMF program contributes to fracturing the chaebols which are now invited to establish “strategic alliances with foreign firms” (meaning their eventual control by foreign capital). In turn, selected Korean banks will “be made more attractive” to potential foreign buyers by transferring their non performing loans to a public bail out fund: the Korea Asset Management Corporation (KAMC).

The freeze on central bank credit imposed by the IMF prevents the Central Bank from coming to the rescue of “troubled” enterprises or banks. The agreement stipulates that “such merchant banks that are unable to submit to appropriate restructuring plans within 30 days will have their licenses revoked (Agreement, para. 20, p. 8).

Crippling Domestic Enterprises

The freeze on credit demanded by the IMF has contributed to crippling the construction industry and the services economy: “banks are increasingly reluctant to provide loans to businesses while bracing for the central bank’s tighter money supply” ( Sah Dong seok, “Credit Woes Cripple Business Sectors”, Korea Times, 28 December 1997). According to one observer, more than 90 percent of construction companies (with combined debts of $20 billion dollars to domestic financial institutions) are in danger of bankruptcy” (Song Jung tae, “Insolvency of Construction Firms rises in 1998”, Korea Herald, 24 December 1997).

The contraction of domestic purchasing power (i.e. lower wages and higher unemployment) has also sent “chills through the nations perennially cash-thirsty small businesses”. The government concurs that “quite a number of smaller enterprises [which rely on the internal market] will go under in the coming months”. (Korean Herald, 5 December 1997). Some 15,000 bankruptcies are expected in 1998. Western Business Goes on a Shopping Spree.

Korea’s high tech and manufacturing economy is up for grabs. Western corporations have gone on a shopping spree with a view to buying up industrial assets at rock-bottom prices. The devaluation has already depressed the dollar value of Korean assets, the IMF sponsored reforms should contribute to a further slide.

Already, the Hanwha Group is selling its oil refineries to Royal Dutch/Shell after having sold half its chemical joint venture to BASF of Germany.”( Michael Hudson, op cit). “Samsung Electronics, the world’s largest producer of computer memory chips, has seen its market value fall to $2.4 billion, down from $6.75 billion at the beginning of October before the crash was engineered… It’s now cheaper to buy one of these companies than buy a factory-and you get all the distribution, brand-name recognition and trained labor force free in the bargain”… (Michael Hudson, op cit).

Destroying National Currencies

Since the onslaught of the debt crisis in the early 1980s, the IMF has played a central role in exchange rate policy often requiring indebted Third World countries to devalue their currency by 50 percent as a “pre-condition” for the subsequent negotiation of a loan agreement. IMF sponsored currency devaluation has invariably resulted in abrupt price hikes and a dramatic compression of real earnings.

What is distinct in the cases of Korea, Indonesia and Thailand is that the devaluation (which preceded the bailout agreement and the imposition of sweeping macro-economic reforms) had not been explicitly demanded by the Washington based bureaucracy. Rather it was the result of speculative pressures on currency markets exerted by the large merchant banks and financial institutions (through the use of a variety of speculative instruments).

In the context of the Asian financial crisis, “institutional speculators” (rather than the IMF) have come to play an indirect role in the process of macro-economic reform. In other words, international banking and financial institutions have (in a de facto sense) dictated country-level foreign exchange policy, –i.e. through the deliberate manipulation of currency markets. In this context, “institutional speculators” are involved in “setting the stage” for the subsequent IMF bailout operation. They are also involved in routine consultations with the Bretton Woods institutions pertaining to the various components of the macro-economic reform package included in the bail-out agreements (e.g. the deregulation of Korea’s financial sector and the opening up of Seoul’s bond market to foreign capital).

In turn, the same Western and Japanese financial and banking institutions (routinely involved in currency and stock market speculation) are the creditors of Asia’s central banks. They also hold large amounts of short-term debt and have, therefore, a vested interest in averting loan default by Asian financial institutions. Not surprisingly, these same Western and Japanese financial institutions have pressured G7 governments to implement the bail-out operations of which they are the ultimate beneficiaries, –i.e. the 57 billion dollars under the IMF sponsored agreement with the Seoul government will be used to reimburse Korea’s creditors.

How will these multi-billion dollars operations be financed? The contribution of the Bretton Woods institutions and the Asian Development Bank (ADB) constitutes but a fraction of the total. The largest contributions to the bailouts are from G7 governments, requiring the issuing of vast amounts of public debt.

In other words, G7 governments have come to the rescue of the merchant and commercial banks by accepting to finance the bail-out, yet to undertake this objective, G7 national treasuries are obliged to issue large amounts of public debt which is invariably underwritten by the large merchant banks. In other words, the “beneficiaries” of the bailout are also the underwriters of the public debt operation required to finance the bailout. An absurd situation: G7 governments are “financing their own indebtedness”…

While the bail-outs are conducive to the building up of public debts (in both the Asian and G7 countries) –thereby reinforcing the stranglehold of the creditors over the conduct of economic policy-tens of billions of dollars of public money are transferred into the hands of private financial institutions leading to an unprecedented accumulation of private wealth. In turn, the macro-economic reforms imposed in the context of the IMF sponsored bailouts are conducive to a dramatic collapse of the real economy leading to the impoverishment of millions of people. (Michel Chossudovsky, “The IMF Korea Bailout,” 1997, downloaded from, 15 Aug. 2007.)

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