Friday, November 21, 2008



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In this fast-moving age, it is so easy to take your eye of the prize. Short-term trends can easily throw one 'off track'. For every analyst who will tell you a stock or commodity is going up, there is another one who will tell you it is going down in price.

Who to believe?

When in doubt, consult the longer term charts! On my website I provide a collection of about 20 long-term charts that help me (and will help you), to keep your eye on the prize!

These charts are updated at regular intervals and there is no charge for looking.

One powerful force that is currently causing many people to take their eye off the prize is the outcry of deflation. While there can be no doubt that there is 'asset deflation' going on, (houses, used cars, stocks and many commodities) are tumbling downhill as people panic. There is however no 'monetary deflation' going on. On the contrary, there is currently unprecedented 'monetary INFLATION' taking place, and never before in history have so many countries inflated the various money supplies with this much additional money in such a short period of time.

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The Federal Reserve has just updated its latest Adjusted Monetary Base chart (courtesy St. Louis Fed). Since early September the increase is 650 billion. On an annualized basis this is an increase of 450%. The reason this monetary inflation has (not yet) shown up in consumer price is for two reasons. First, too many people are mesmerized by the assets deflation that is going on around them and second, it takes time for money to work its way through the system.

If history is a guide (and it is), then you can bet the farm that monetary inflation ALWAYS results in price inflation down the road.

Here is a partial listing of countries that have been down this road. (Thanks to Jim Sinclair – for this list.

Angola 1991-1999
Argentina 1981 – 1992
Belarus 1993 – 2008
Bolivia 1984 – 1986
Bosnia – Herzegovina 1992 – 1993
Brazil 1986 -1994
Chile 1971 – 1981
China 1948 – 1955
Georgia 1993 -1995
Germany 1919 -1923
Greece 1943 – 1953 At the high point prices doubled every 28 hours. Greek inflation reached a rate of 8.5 billion percent per month.
Hungry 1944 – 1946
Israel 1971 – 1985 (price controls instituted)
Japan 1934 – 1951
Nicaragua 1987 – 1990
Peru 1987 – 1991
Poland 1990 – 1994
Romania 1998 – 2006
Turkey 1990 – 2001
Ukraine 1992 – 1995
USA 1773 – not worth a Continental
Yugoslavia 1989 – 1994
Zaire 1989 – present (now the Congo)
Zimbabwe – 2000 to present. November of 2008 – inflation rate of 516 quintillion percent

From Republic

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The photograph shows a German young lady using worthless paper money to heat her home in 1923.

The above list does not include a number of countries that saw hyper-inflation as a result of World War II.

Why does history repeat? The answer is human nature. The officials in charge of the money supply, whether is was the Czar, the King, Caesar or the head of a central bank, simply cannot resist the 'easy way out' of a monetary crisis, by adding to the money supply.

Here is an example of the consequence of monetary inflation. Imagine yourself in an auction hall. Just before the auction begins, a rich man walks in with a briefcase filled with hundred dollar bills. He hands a few to each of the patrons, till his briefcase is empty. What do you think is going to happen to the prices at the auction? This is exactly what happens in the larger economy.

How do you protect yourself from the ravages of monetary inflation? You buy the things that government cannot produce, such as: income property in an area where prices are stable, or have just come down in price. Stock in companies that produce goods that we cannot live without, including oil and gas producers, since we are a long way from converting to alternate sources of energy.

Finally, and this is the simplest protection against monetary inflation: Buy some gold and silver.

For some 5,000 years gold has provided a safe haven against the ravages of inflation.

While there are periods when it behooves the investor to cash in his gold, during periods of monetary inflation (like now), gold and silver are a must in any portfolio.

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Featured is a 100 year chart that shows you when to be 'in gold' and when to be 'out of gold'. Clearly now is a time to be 'in gold', and not to worry about the daily fluctuations!

This is the most important chart any investor needs, to look at for the long-term direction of both the DOW and gold.

Those of you with a shorter time-frame, might like to keep an eye on 'real interest rates'. Real rates are T-bills less the cost of living, or CPI. While the official CPI is usually less than totally reliable, (due to massaging of numbers), we will use the chart provided by the St. Louis Federal Reserve Bank for this article, and for those who are skeptical, we would recommend using the information provided by John Williams at

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Chart courtesy St. Louis Fed.

As seen by this chart, the 'official real rate' of interest is currently -3.5%. Gold always flourishes while rates are negative. While some will argue that inflation expectations will be lowered due to the lower oil and wholesale prices of agricultural commodities, we must remember that the effect of 'negative real interest rates' take a long time to change peoples investing behavior. 'Real rates' would have to be positive for a year or more before the effects of negative rates would be erased.


The World Gold council has just issued a report with some very bullish 'nuggets'.

  • Dollar demand reached an all-time quarterly record of US $332 Bn in Q3/08.
  • This figure was 45% higher than the previous record set in Q2/08.
  • ETF's are sitting on 382 tonnes, double last year's tonnage.
  • Retail investment demand rose 121% to 232 tonnes in Q3/08.
  • Demand in Greater China rose 18% to 109 tonnes, with the majority of this increase attributable to a strong rise in demand in mainland China (+16 tonnes).
  • Jewelry demand in the Middle East rose 47% to US $2.8B in Q3/08.
  • Gold supply was down 9.7% from year ago levels.

My sources in Switzerland reported this morning that two Swiss banks (UBS and Credit Suisse) have written off US$60 billion dollars. You know it's bad when even the conservative Swiss bankers are having problems.

There are also rumors, as yet unconfirmed, that the Swiss no longer keep financial information secret from the IRS. If this turns out to be factual, it will cause money to move from Swiss bank accounts into gold.

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Chart courtesy

We close with the daily gold chart. Price has put in an ABC bottom. The RSI and MACD are positive. A close above the blue arrow sets up a target at the green arrow. My Gold Direction Indicator is at +85% this morning. While this article is focused on gold, the fundamentals for silver are even more bullish than for gold. The ratio between gold and silver has widened to 83:1, while the historical ratio is 15:1, and my research leads me to conclude that the ratio will narrow to 10:1 over time.

Jobless claims jump unexpectedly to 16-year high

Jobless claims jump unexpectedly to 16-year high


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New claims for unemployment benefits jumped last week to a 16-year high, the Labor Department said Thursday, providing more evidence of a rapidly weakening job market expected to get even worse next year.

The government said new applications for jobless benefits rose to a seasonally adjusted 542,000 from a downwardly revised figure of 515,000 in the previous week. That's much higher than Wall Street economists' expectations of 505,000, according to a survey by Thomson Reuters.

That is also the highest level of claims since July 1992, the department said, when the U.S. economy was coming out of a recession.

The four-week average of claims, which smooths out fluctuations, was even worse: it rose to 506,500, the highest in more than 25 years.

In addition, the number of people continuing to claim unemployment insurance rose sharply for the third straight week to more than 4 million, the highest since December 1982, when the economy was in a painful recession.

The financial markets fell on the news. The Dow Jones industrial average dropped about 160 points in morning trading, and broader indexes also fell.

The jobless figures come as the Senate is expected to vote Thursday on legislation that would extend unemployment benefits. The White House said President George W. Bush would quickly sign the bill.

The measure would provide seven additional weeks of payments to those who have exhausted their benefits. Those in states where the unemployment rate is above 6 percent would be eligible for an additional 13 weeks beyond the 26 weeks of regular benefits. Benefit checks average about $300 a week nationwide.

Without the legislation, its proponents say, 1.1 million people will have exhausted their unemployment insurance by the end of the year.

Elsewhere Thursday, the New York-based Conference Board said its monthly forecast of economic activity declined 0.8 percent in October, worse than the 0.6 percent decrease analysts expected. The economy's health worsened last month as stocks, building permits and consumer expectations all fell, the private research group said. Over the last seven months, the index declined at a 4.7 percent annual rate, faster than any decline since 2001.

The high level of continuing unemployment claims partly reflects growth in the labor force, which has increased by about half since the early 1980s. The percentage of workers continuing to receive benefits _ which is different from the unemployment rate _ increased to 3 percent, the highest since June 2003. Less than half of unemployed workers receive unemployment insurance.

Joshua Shapiro, chief U.S. economist at MFR Inc., a consulting firm, said the four-week average of continuing claims is 49 percent higher than it was a year ago. That "indicates that those who are unemployed are finding it increasingly difficult to get re-employed."

Shapiro wrote in a note that the number of claims indicates that net job reductions by employers could top 400,000 this month, up from 240,000 in October, when the unemployment rate reached 6.5 percent. Companies have cut 1.2 million jobs so far this year.

Many economists expect unemployment to reach 7 percent by early next year and 8 percent by the end of 2009. Last year the rate averaged 4.6 percent.

The Federal Reserve on Wednesday released projections that the jobless rate will climb to between 7.1 percent and 7.6 percent next year, according to documents from the Fed's Oct. 29 closed-door deliberations on interest rate policy.

Initial claims have been driven higher in the past several months by a slowing economy hit by the financial crisis, and cutbacks in consumer and business spending.

Economists consider jobless claims a timely, if volatile, indication of how rapidly companies are laying off workers. Employees who quit or are fired for cause are not eligible for benefits.

Companies from a wide range of sectors have announced layoffs recently, including Citigroup Inc., Union Pacific Corp., Boeing Co., Wyeth, Sun Microsystems Inc., and poultry maker Pilgrim's Pride Corp.

Bankers Shakedown G20

Bankers Shakedown G20

By Michael Hudson

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The financial press has been negligent in reporting how last week’s two top financial stories are linked: first, the testimony by Treasury Secretary Henry Paulson and his evasive Interim Assistant Secretary Neel Kashkari defending why they followed a completely different giveaway plan to the banks (their own Wall Street constituency) than what Congress authorized; and second, the G-20 standoff among the world’s leading finance ministers this weekend.

The dollar glut is one of the key factors that has aggravated the junk-mortgage problem in recent years. Looking forward, if foreign countries are no longer to invest their dollar inflows in Fannie Mae, Freddie Mac and toxic packaged mortgage derivatives, what are they to do with these dollars? The U.S. Government refuses to let foreign government funds acquire anything but financial junk such as the plunging Citibank shares that Arab oil sheikhs have bought.

Here’s the problem that faced global finance ministers this weekend: The U.S. payments deficit has been pumping excess dollars into foreign economies, whose recipients have turned them over to their central banks. These central banks have saved their currencies from rising (and thus losing foreign markets by making their exports more expensive) by buying Treasury bonds so as to support the dollar’s exchange rate by recycling their dollar inflows back to the United States – enough to finance most of our federal budget deficit, and indeed much of Fannie Mae’s mortgage lending as well.

Mr. Bush for his part would like to shape the global financial system so that foreign economies continue giving the United States a free lunch. U.S. officials control the International Monetary Fund and World Bank and use these institutions to impose neoliberal privatization policies on foreign countries, thereby destroying the post-Soviet economies, Australia and New Zealand since the 1990s, just as they destroyed Third World economies from the 1960s through the ’80s. That’s why, until last month, the IMF had lost its clients and was almost universally shunned. French President Nicolas Sarkozy led foreign calls for a “new Bretton Woods,” by which he meant not just an upgrading of U.S. dollar hegemony but a different world order – more regulated with a fairer quid pro quo. And as the Financial Times reported: “Spain’s governing Socialist party summed up the heady mood in some parts of Europe in an internal document, seen by El Mundo, that identified the summit as a moment of historic change. ‘The origins of this crisis lie in neoliberal and neoconservative ideology,’ it said.”

Mr. Paulson and other U.S. officials have long been promising foreign finance ministers that Fannie Mae and Freddie Mac securities are as good as U.S. Treasury bonds while yielding higher interest. The resulting investment in these two mortgage-packaging agencies was a major factor in their $200 billion bailout. Letting their securities go under would have ended Dollar Hegemony for good. So getting foreign acquiescence in financing future U.S. balance-of-payments deficit is inextricably bound up with how to resolve the U.S. financial and real estate bubble.

Its bursting has prompted Congress to authorize $700 billion supposedly to re-inflate the property market. The Troubled Asset Relief Program (TARP) gives Wall Street money in the hope that it will lend enough to start inflating asset prices again, enable borrowers to get rich by going into debt again – “wealth creation” Alan Greenspan-style. It is as if the neoliberal bubble years 2002-07 were a golden age to be recovered, not the road to financial perdition. In doing this, Mr. Paulson is using junk economics to cope with the junk mortgage problem that in turn was based on junk mathematical models. His problem is to keep the fantasy going.

Congress has caught onto the game being played. Now that the bailout looks like a last-minute giveaway to insiders while the giving is good, Congress held hearings last week to ask why the Treasury abandoned its plan to buy the “troubled assets” (junk mortgages) that Mr. Paulson had originally said was the problem. Why has the Treasury bought $250 billion of ersatz “preferred common stock” in banks at prices far above what private investors such as Warren Buffett paid?

Drawing a picture of a just-pretend world to rationalize Wall Street’s free lunch, Mr. Paulson sought to deflect the issue by postulating a series of “ifs.” The Treasury’s $250 billion in bank stock would give lenders money that might be used to re-inflate the credit supply if banks chose to re-enter the commercial paper market and provide more mortgages on easier terms. This trickle-down patter talk is what passes for neoliberal economic theory these days. The fantasy is for banks to restore “balance” by granting more credit, increasing the indebtedness of bank customers so as to restore the housing market to its former degree of unaffordability.

Congressional interrogators pointed out that banks were not lending more money. Mortgage interest rates have risen, not fallen, even though the Fed is supplying banks with credit at only a quarter of a percentage point (an average of about 0.30 per cent last week). Credit standards (understandably) have been tightened to require prospective buyers to put up more of their own money. Foreclosures and evictions are up and real estate prices continue to plunge. Also plunging almost straight down has been the Dow Jones Industrial Average, sinking below the 8000 mark last week to the lowest levels in years. Nothing is working out the way Mr. Paulson promised.

The word being used most by Treasury officials these days is “unexpected.” At his subcommittee hearing on Friday, Nov. 14, Dennis Kucinich asked Mr. Paulson’s sidekick, Neel Kashkari, whether the Treasury’s lack of realistic foresight was an innocent error or a case of bait and switch. Mr. Kashkari stonewalled by repeating a “talking point” loop-tape claiming that giveaways were the way to get the economy “moving” again. The banks would use their newfound power to help customers run back into debt even more deeply, presumably at the exponential rates needed to re-inflate property and stock prices

Republican Congressman Darrill Issa asked just when the Treasury decided to dump the law as written and pursue an alternative giveaway to Wall Street rather than help defaulting homeowners. Why hasn’t it done what the law that Mr. Paulson himself insisted that Congress agree to – arrange orderly debt write-downs by using the promised $50 billion of public money to buy mortgages headed for foreclosure, and re-set unrealistically high mortgages to reflect current price levels? Renegotiating bad mortgages down to this price for existing owner-occupants – or selling the property to a buyer who could afford fair terms – would avert the distress sales that are poisoning local property markets Isn’t this what the Congressional plan called for, after all?

Mr. Kashkeri kept trying to run out the time clock by explaining rote Treasury procedure. He assured the committee that he worried each night about the fate of homeowners, and said that Mr. Paulson also was wringing his hands in empathy, but they had found it much better to give money to the banks in the hope that they would show similarc concern for their customers. The committee members simply gave up when it became apparent that the Treasury officials were stonewalling, just as the Fed has stonewalled Congress by refusing to give any details of the $850 billion giveaway it’s been conducting under its own cash-for-trash program. On November 12, Mr. Paulson gave his excuse: “We changed our strategy when the facts changed.”

What were these facts? For starters, the Federal Reserve found that it was able to pump an even larger amount into the “cash for trash” program than the Treasury originally was to have provided. The Treasury plan would have obliged the banks to take a loss by selling their “troubled assets” (junk mortgages) at today’s post-bubble prices. Bankers don’t like to take losses. That’s what the government is supposed to do. The Fed can do anything it wants in order to “stabilize markets,” under an umbrella clause inserted into its Act for just such purposes. Applying the “privatize the profits, socialize the losses” rationale that bank lobbyists have polished over the past century, it has decided that the best way to “stabilize the economy” is to swap Treasury bonds for high-risk junk assets at face value, saving the banks from having to take a loss.

The more wealth that is concentrated at the top of the economic pyramid and the more banks that can be consolidated into just a market-setting few, the more “stable” markets will be. This is the neoliberal economic doctrine used to justify the Fed’s purchase of junk mortgages, junk bonds and the bad gambles in insuring derivatives that A.I.G. had drawn up. One can only conclude that Mr. Paulson was knowingly deceptive when he told Congress on November 12 that the government has found a better way for the giveaway to trickle down from the banks to the credit markets than to buy their bad loans. It has indeed been doing just this, but via the Fed at full price and in secret, away from the prying eyes of Congress rather than through the Treasury program that Congress authorized under more current market-oriented terms intended to protect “taxpayer interests.” The Fed values junk mortgages at the high fantasy prices that banks, A.I.G. and other companies had bought them for, saving them from having to take a loss. Hedge funds and speculators who had bought junk-insurance from A.I.G. were made whole, and A.I.G. stockholders were saved by the infusion of government capital so that players would not have to take losses in the Wall Street casino.

Now that the Fed is doing this, the Treasury can turn to its own form of giveaway: buying bank stocks at far above their market price (that is, the price paid by investors such as Warren Buffett for Goldman Sachs stock), on terms that permit the banks to turn around and use the money to buy other banks, pay out as dividends to shareholders or pay high executive salaries rather than helping mortgage debtors. “I don’t think the government should put money into failing institutions,” Mr. Kashkari assured Congress, explaining that the bailout of A.I.G., Fannie Mae and Freddie Mac would be in vain without yet further government bailouts. Rep. Kucinich’s final remark to Mr. Kashkari was: “That statement that you just made, you will hear about for the rest of your career.

The internal contradiction here is that why the Republican logic of breaking up Fannie Mae and Freddie Mac into smaller companies does not apply to the commercial banking system. Rather than consolidating the banking system in the hands of New York and East Coast banks, why shouldn’t the government break up financial institutions “too big to fail”? Instead, the Treasury is simply investing in stocks of banks, leaving existing stockholders in place rather than wiping them out.

Mr. Paulson under George Bush in 2008 is looking like the U.S. counterpart to Anatoly Chubais under Boris Yeltsin in 1996. Just as Russian neoliberals led by Chubais were promoted by Clinton Treasury Secretary Robert Rubin of Goldman Sachs, today’s Wall Street power grab to replace the government as the economy’s central planner is being orchestrated by another Treasury Secretary from Goldman Sachs, empowered to decide which kleptocrats are to receive what public resources and on what terms, aided by “Helicopter” Ben Bernanke at the Federal Reserve. Mr. Bernanke’s famous quip about helicopters dropping money to get the economy moving seems to be limited to Wall Street for use in buying financial assets, not real goods and services for the population at large.

The road to G-20

Speaking on Thursday, November 13, before the Manhattan Institute, a lobbying organization for finance and real estate, President Bush repeated the myth that foreign countries recycle so many dollars to America because of our “strong economy” and free markets.

The reality is quite different. There is no such thing as a “free market.” For a few days after announcement of the $700 billion giveaway, some knee-jerk opponents of government spending accused this of being “socialism,” but they quickly discovered that not all government spending is socialist. Regardless of what economic system is followed, all markets are planned, and have been ever since calendars were developed back in the Ice Age. Most market structures throughout history have been organized in a way that provides the vested interests with a free lunch. This remains the essence of post-feudal capitalism – or as some have expressed it, corporativism.

What happens in practice is that foreign central banks recycle the dollars that their exporters and asset sellers receive because (as noted above) their currencies would rise if they failed to do this. That would price their exports out of world markets, leading to unemployment. Foreign countries thus are in a dollar trap. They send their savings to finance the domestic U.S. Government budget deficit instead of helping their own domestic economics, because they have not been able to create an alternative to the dollar. Next to Treasury debt, real estate mortgages are the only category large enough to absorb the excess dollars being thrown off by the U.S. payments deficit – thrown off, that is, by U.S. military spending abroad, consumer spending to swell the trade deficit, and investment outflows as investors here and abroad diversified their holdings outside of the United States. The upshot is that world monetary reserves have come to consist of central bank loans to finance the U.S. bubble economy. But the knee-jerk deregulatory philosophy of the Clinton and Bush eras has killed the U.S. investment market.

What makes this dynamic unstable is that U.S. exports become even less competitive as higher housing costs and debt-service charges push up the cost of living and doing business. The more dollars foreign countries recycle, the less the U.S. economy will be able to work off its debts by exporting more. So the dynamic is guaranteed to be a losing game for foreign governments – unless anyone can explain how the United States can generate the $4 trillion to repay its debt to the world’s central banks. To make matters worse, the dollar’s downward drift against the euro and sterling obliges foreign creditors to take a loss on their dollar holdings as denominated in their own currencies.

kNobody has found a “market-oriented” solution to this problem. That is what doomed the G-20 meetings this weekend to failure, just as there could be no agreement at the G7 meetings a few weeks ago. In the face of U.S. Treasury dreams of re-inflating the mortgage market, Europe is trying to draw the line at financing a losing proposition. But now that gold no longer is the means of settling balance-of-payments deficits, foreign central banks lack an alternative to the U.S. dollar to hold their monetary reserves. This leaves them with (1) U.S. Treasury securities, and (2) U.S. mortgage securities. Recent years have seen a further diversification via “sovereign wealth funds” into (3) direct ownership of mineral resources, industrial companies, privatized national infrastructure and other equity investment rather than debt. But rather than welcoming this, the U.S. Government seeks to limit foreign central banks to buying junk mortgages, junk bonds and other financial garbage. To call this “market equilibrium” is to indulge in the feel-good argot that fogs today’s international financial dialogue.

To put matters bluntly, the issue at the G-20 meetings is mistrust of the unregulated U.S. banking system and, behind it, government “regulators” who refuse to regulate. China and other foreign dollar recipients have been treating the dollar like a hot potato, trying to spend it on buying foreign minerals, fuels and other assets from any country that will accept payment in dollars. Most of the takers are third world countries still committed to paying the heavy dollarized debts owed to the World Bank and other global creditors. The price of their remaining in the Bretton Woods system is to sacrifice their public domain in a kind of pre-bankruptcy sale rather than repudiating their debts under the “odious debt” and “fraudulent conveyance” escape valves. What is needed is not to “reform” the World Bank and IMF, but to replace them. But that is another story, one that other countries dared not even bring up at the November 15-16 meetings.

Euroland is officially in a recession for the first time since the birth of the single currency. Part of the reason is that its member countries have felt obliged to use their monetary surpluses to support the dollar – and hence, the U.S. Treasury’s budget deficit – instead of supporting their own domestic economies. Just before flying to America this weekend, French President Nicolas Sarkozy announced his position: “‘The dollar, which at the end of World War II was the only world currency, can no longer claim to be the sole world currency … What was true in 1945 can no longer be true today.’” Stating this fact was not a matter of ‘courage,’ but ‘good sense.’” Italian Prime Minister Silvio Berlusconi made a point of defending Russia, criticizing the US for “provoking” Moscow with its missile defense shield. But Mr. Paulson insisted that the global financial crisis was “no nation’s fault.”

U.S. officials chose to brazen it out, including a new wave of American protectionism for the auto industry in what may be a foretaste of economic nationalism to come. “Bankers complain that the financial rescue plans put in place in many countries distort competition because they operate on very different terms while others say that the bail-outs under consideration for U.S. carmakers represent a classic effort to protect national champions that could inspire copycat efforts elsewhere.”. So wrote Krishna Goha in the Financial Times, describing why, when G-20 finance ministers reaffirmed their support for free trade, they were talking largely at cross-purposes.

The past eight years have demonstrated the folly of imagining that the stock market and real estate can provide steady rates of return that compound into exponential increases in savings sufficient to pay retirement income and make homeowners and small investors rich without really having to work. Money managers advertise “Let your money work for you,” but only people actually work. Financial returns are paid in the form of command over labor power – workers “doing time.” What banks do provide is debt, and this remains in place after the force of asset-price inflation is spent and market prices fall below liabilities to cause Negative Equity. That is how economic bubbles operate. But to hear Wall Street’s neoliberals tell the story, it is not necessary to pay retirees out of what is produced. Finance capitalism can replace industrial capitalism without a “real” economic base at all.

Who Really Gets the “Free Lunch”?

So much for the material conditions of production! We can all live free as financial engineering replaces industrial engineering. The Treasury is now reported to b discussing bailouts for credit card issuers by taking over their bad debts. The banks presumably would even be able to charge the government for the accumulation of exorbitant penalty fees.

The banks and Wall Street are threatening to wreck the economy by “going on strike” and creating a credit squeeze forcing foreclosures and economic collapse, if Congress and the Federal Reserve don’t save them from taking a loss on their bad loans and financial derivatives. Foreigners also must play a subordinate role in this game, or the international financial system itself will be collapsed. Financial customers must absorb the loss.

The most reasonable response to this brazen stance may be to return the Federal Reserve’s monetary functions to the U.S. Treasury. This is where they were conducted with great success prior to 1913. Back in the 1930s the “Chicago Plan,” put forth in the wreckage of the banking system’s and Wall Street misbehavior that aggravated the Great Depression, proposed to turn commercial banking into classic-style savings banks with 100 per cent reserves. A modernized version is put forth in the American Monetary Institute’s proposed Monetary Reform Act as an alternative to the dysfunctional high finance that Wall Street lobbyists have created as a Frankenstein debt-selling machine. The U.S. economy has been living on a combination of foreign dollar recycling and bank credit that has been used simply to “create wealth” by inflating asset prices, not by financing new capital formation.

As matters have turned out, the banks have gone broke doing this. The Treasury has given them trillions of dollars of aid, and even more as special tax favoritism, loan and deposit insurance guarantees. This can only continue as long as banks can make the inevitable collapse of compound interest schemes appear to be unthinkable. That attempt is what doomed the G-20 meetings this weekend, and it will doom any future U.S. administration that tries to follow in its footsteps.

Michael Hudson is a former Wall Street economist He has advised the U.S., Canadian, Mexican and Latvian governments, as well as the United Nations Institute for Training and Research (UNITAR). He is a professor at University of Missouri, Kansas City (UMKC) and the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) He can be reached via his email,

Grassroots Group Fights NAFTA Superhighway

Grassroots Group Fights NAFTA Superhighway

New documentary highlights grassroots movement to kill the NAFTA superhighway.

By Mark Anderson

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The focus of the new edition of the film documentary “Truth Be Tolled” is the Texas Department of Transportation’s (TxDOT) blatant bias and extralegal actions in its highly publicized Keep Texas Moving campaign—designed to sell the public on expensive tolls roads as the wave of the future of state transportation, while relentlessly pushing the Trans Texas Corridor (TTC).


Videotaped depositions of TxDOT officials included in the film show them admitting a number of things, while hedging on other points, all indicating that the neutrality expected and required from an executive agency is, by and large, not evident. Furthermore, TxDOT documents obtained by toll road opponents show that TxDOT officials view the citizenry with an uncomfortable degree of hostility. “Keep calm,” states a Keep Texas Moving training document shown in the film, referring to toll road-TTC opponents. “Leave the wrestling to the pigs. They always end up looking like pigs.”

American Free Press attended the film’s debut screening Oct. 30 at the Palladium Theater, where this writer interviewed producer-director Bill Molina, as well as Texans Uniting for Reform and Freedom (TURF) leader Terri Hall, both of whom spoke on camera for AFP news videos.

Molina cast Ms. Hall as the main spokesperson in the film to shine a light on TxDOT’s apparent corruption and clarify the troubling issues involved. She is perhaps the most visible TTC-toll road opponent in Texas; he is an award-winning filmmaker whose earlier editions of Truth Be Tolled laid out the truth about the much-despised TTC, which is Texas’s portion of the NAFTA Superhighway.

The TTC could gobble up at least 584,000 acres of land and 4,000 new miles of right-of-way for an expressway designed for legions of trucks to pass through Texas with minimal on-off ramps and interchanges. Railroad and utility lines would follow the right-of-way, which could be 1,200 feet (a quarter-mile) wide in some areas—three times the width of a typical interstate. The median likely would have hotels, eateries and fueling stations, which would deny such business to providers off the TTC.

The TTC is mainly for delivering Asian-made products shipped across the Pacific on a route that would bypass secure U.S. ports at Long Beach and Los Angeles, Calif. Instead, the shoddy products would be shipped to Pacific Ocean ports in Mexico, especially the Lazaro Cardenas port that’s controlled by shady Chinese shipping companies. From there, everything is hauled north by truck and rail. Kansas City, smack dab in the middle of the U.S., is seen as a major customs “port,” as AFP learned in earlier travels.

Molina’s new film centers on TxDOT’s hiring of registered lobbyists against state law and its improper use of taxpayer money for marketing the TTC and toll roads, instead of giving impartial information on all transportation options, including mass transit and the normal use of gas taxes for freeway upkeep and new construction. But, as the film shows, TxDOT’s Keep Texas Moving “campaign” (TxDOT itself uses the word campaign) is a full-court press to promote tolls roads in general—which could squeeze out freeways altogether—and the TTC in particular.

Numerous points in the film chronicle TxDOT’s conduct and related matters. The following are among the most signficant:

* On U.S. 281, a north-south route that connects southernmost Texas with the San Antonio area, there is a seemingly relentless TxDOT effort to “toll” this freeway. Ms. Hall noted that the money from gas taxes is definitely there to maintain, repair and, if necessary, expand the freeway. “They’ve hijacked that road for five years—they’ve had the money for five years,” she stressed. She noted in past AFP interviews that the apparent tactic is to toll as many freeways as possible so there is no free competition if and when the planned mega-tollway, the TTC, is built.

* The tolls under consideration, said Ms. Hall, could be 25 cents a mile, based on “what the market will bear.” This stems from the idea that American roads are now seen as a profitable asset for the Wall Street crowd, rather than being a public investment/service where tolls only need to be high enough to reflect construction and maintenance costs and to retire related debts. Even 25 cents per mile is like adding another $5 to a gallon of gasoline, she explained. Comparatively, the combined federal-state gas tax comes out to only a few cents per mile in Texas.

* As TxDOT gathered public input across Texas in latter 2007 and into 2008, it held two types of meetings: “Town halls” and official public hearings. Hall, taking into account 12 town halls versus 46 public hearings, said that perhaps 200-300 people attended each hearing where their comments were actually recorded for the public record. But up to 1,000 people were apparently baited to attend each of the town halls so TxDOT could “take public input” on TTC 69, a part of the TTC charted to run north-northeast, first shadowing highways 281 and 77 (that run parallel from the Rio Grande Valley up to the greater Corpus Christi area). From there, TTC 69 would head toward Houston and way beyond along the highway 59 route. Ms. Hall estimated that TxDOT diverted 10,000 people, overall, into attending these phony town halls just so they could vent steam. “None of these [Town Hall] comments were actually part of the legal record,” she said.

* The SB 792 bill passed by the Texas Legislature that seemed to stop the TTC and other toll roads (as AFP initially assumed last year) did no such thing. This “counterfeit moratorium” imposed the “market valuation” method that paves the way for levying high tolls that far exceed actual road costs and debt retirement, according to Ms. Hall.

* TxDOT’s documents released for ongoing lawsuits filed by TURF—to argue that tax dollars are being illegally used to actually market and lobby for toll roads and the TTC—show evidence of manipulative “push-poll” methods being used to survey the populace about transportation issues. Push-poll questions are slyly worded to bring the reader to favored conclusions.

The film also stresses that the infamous 2005 Kelo vs. New London (Connecticut) U.S. Supreme Court decision that set the stage for “eminent domain” government land takings on behalf of private interests (instead of genuine public works) also set a major legal precedent for the Texas state government to engage in such takings, especially for the TTC. A special state panel would offer Texans money for their land, but takings are the next logical step toward those who refuse to sell, as officials hint on the film. On a more positive note, Waller County, Texas went on record against the TTC, not wanting to be in the path of this monster tollway that would gobble up huge tracts of prime ranch land that has been in the same families for generations.

Perhaps most damning of all, though, is the Texas Ethics Commission’s listing of Gary Bushell as a registered lobbyist. It turns out TxDOT hired him in an advisory/consultative function, although the Texas Government Code (556.005) fordids state agencies from hiring registered lobbyists regardless of the reason or function. Texas highway commissioner Jim Houghton, a master of doublespeak, did admit to the hiring of Bushell but, strangely, answered “no” when asked if he was concerned when he found out Bushell was a registered lobbyist.

Notably, state legislative committees have investigated TxDOT’s conduct. The legislature reconvenes early next year. AFP plans to attend key hearings whenever possible.

So much more could be said of the film’s latest edition, which gets into more TxDOT details than the previous edition which covered the “big picture” of the TTC. Check it out at the website Other sites include

Foreclosure Freeze Movement Takes on Wall Street

Foreclosure Freeze Movement Takes on Wall Street

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Earlier this summer, Countrywide Financial’s most famous troubled customer received an altruistic bailout that saved his home. Now months later, despite attention from the highest levels of government, hundreds of thousands of anxious homeowners are still waiting for their reprieve.

Back in August, high-profile developer Donald Trump purchased the 7,000 square-foot home of “Tonight Show” sidekick Ed McMahon. He then leased it back to the 85-year-old TV personality, allowing McMahon to avoid foreclosure. “How could this happen?” Trump asked at the time.

Not-so-famous homeowners across the country are asking the same question. Few are getting specific answers.

Foreclosures continue at a record pace, according to the latest data. Just last month, 84,000 homeowners lost their homes despite calls from Congress to freeze foreclosure activity, a $700 billion bailout that was intended to buy toxic debt and an $8.68 billion legal settlement with Countrywide Financial Corp., the country’s largest mortgage broker.

Undeterred, the grassroots Foreclosure Freeze Movement that started in San Diego, Calif. with a simple protest less than a year ago has enjoyed enough success to press on.

The progressive idea of stopping the glut of foreclosures seemed like the wishful thinking of a radical fringe that gathered in San Diego in December 2007 to protest Countrywide’s predatory lending practices. Faith Bautista, executive director of the Mahubay Alliance, organized the protest in the hope of drawing attention to victims of a coordinated plan to sell risky, high-cost loans.

“We want to send a message that it can be done here, that this pattern can be changed.” Bautista said. “The City Council has to realize that every half hour another family is losing its home and something needs to be done.”

The conservative-bent city council and mayor were less than enthusiastic supporters. But the city’s rogue city attorney, generally despised by the mayor, the conservative newspaper and the business organizations, enthusiastically joined the effort.

Aguirre, a Democrat, became the first city attorney to sue a major lender when he sued Countrywide along with attorneys general from Illinois and California. Many other states soon filed suits of their own.

A string of victories followed for “The Movement,” as Aguirre and others like to call it. States like Massachusetts and California approved legislation restricting lenders from foreclosing on homes without taking steps to mitigate the loss.

California Attorney General Jerry Brown then released “shocking new details” that outlined the extent of Countrywide’s fraudulent and institutionalized predatory lending practices.

Emboldened by the high-profile attention, The Greenlining Institute and The California Reinvestment Coalition dashed off a letter to Brown and to Bank of America Chief Executive Ken Lewis demanding a temporary moratorium on Countrywide foreclosures.

Though both Brown and Lewis spoke with The Greenlining Institute’s General Counsel Robert Gnaizda, neither supported a freeze on foreclosures.

But others did. The Federal Deposit Insurance Corp., which seized California-based mortgage lender IndyMac, gave national prominence to the foreclosure freeze philosophy. FDIC Chairwoman Sheila Bair initiated a temporary moratorium on foreclosures combined with a process of revising loans. In November, Bair told Congress the program had already helped more than 3,000 homeowners avoid foreclosure.

Sensing the momentum and frustrated by Brown’s unwillingness to act, Aguirre sided with Gnaizda and sought a temporary injunction in court against Countrywide foreclosures.

“Saving neighborhoods by keeping families in their homes is a better option than foreclosure,” Aguirre said, “and a national consensus supporting that wisdom is galvanizing. We are better served if we turn off the automatic foreclosure switch.”

Illinois Attorney General Lisa Madigan also sought an injunction, a move Brown refused to do.

“It’s really easy for Aguirre to make statements and what not,” Brown said, “but we have to act in a responsible way.”

But Aguirre wasn’t done. In September, he lobbied the San Diego City Council to declare a “foreclosure crisis.” The city attorney made his pitch during a council meeting, in which activists like Gnaizda and Bautista, a representative of the FDIC and members of the state Assembly spoke in favor of the resolution.

The council sent the issue back to a committee for further review. But, despite the setback, The Movement had expanded far beyond San Diego and the state of California.

Democratic Sens. Charles Schumer, Robert Menendez, Sherrod Brown and Bob Casey requested a temporary foreclosure freeze for Fannie Mae and Freddie Mac. The moratoriums, the letter stated, would allow “time to modify loans and make them affordable for struggling homeowners.”

Brown jumped back into the fray when he Madigan negotiated an $8.68 billion settlement with Bank of America, owners of Countrywide. Brown said the deal was the largest of its kind, far surpassing the $484 million settlement with Household Financial Corp. in 2002.

“This loan-modification program provides real relief for borrowers at risk of losing their homes,” Brown said.

Aguirre even called it “a home run.”

Aguirre followed his suit against Countrywide by suing Wachovia and Washington Mutual as well. Attorneys general from more than a dozen states issued a strong statement to 16 major lenders urging them to rework all predatory loans -- the threat of additional lawsuits a clear and present alternative should they resist. At one point, Gnaizda said as many as 75 to 90 percent of all looming foreclosures could be avoided if the momentum continued.

But, as could be expected, investors facing the loss of billions in revised loans met The Movement’s swift rise to prominence with fierce backlash. Lawyers representing hedge funds spoke out against loan modifications and Bank of America issued statements putting them at ease, downplaying the prominence of revising loans.

Then on Nov. 4, The Movement lost its biggest ally. Voters bounced Aguirre out of office. His successor, Republican Judge Jan Goldsmith, vowed to drop the lawsuits against the mortgage lenders.

“I was not anticipating getting the shit kicked out of me in the election,” Aguirre said. “I got it from every angle: North, South, East and West. I united people who never worked together before. Unfortunately, I united them against me.”

The fight continues in daily negotiations, court proceedings and Congressional actions. This week, Gnaizda of the Greenlining Institute, went to Washington, D.C. and met with FDIC’s Bair, Speaker of House Nancy Pelosi and Rep. Barney Frank to lobby for The Movement’s goals.

“We cannot accept the Bank of America settlement as the gold standard,” Gnaizda said he told the political leaders. “Despite what Attorney General Brown says, Bank of America only expects to address 20 percent of their troubled mortgages. They don’t have the power to address those in the hands of the investors and hedge funds.”

The Greenlining Institute wants Bair and Pelosi to push for a national temporary freeze on all foreclosure activity for a period of 120 days. Legislation to that end is expected to be introduced this week, Gnaizda said.

The Attorney General’s office dismissed concerns by Gnaizda and Aguirre, saying they distort the value of the settlement. The settlement includes language, according to California Deputy Attorney General for Consumer Law Benjamin Diehl, which assures a “substantial majority of investors” are in agreement.

“We have the investors on board,” Diehl said, “so we have a program that is going to save homes.”

Clearly Donald Trump won’t save everyone, so it’s the governments turn. How effective they are remains to be seen, but rarely has a progressive movement caught fire so rapidly and rose to such a high level of prominence.

Flunking the Electoral College

Flunking the Electoral College

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On Dec. 15, the United States will endure a quadrennial ritual born in the economics and politics of slavery and the quill-pen era. Members of the Electoral College are scheduled to meet in each of the 50 states and the District of Columbia to formally choose the next president.

There is no real doubt about how the electors will vote, but it is disturbing that they have any role at all in making this vital choice in the 21st century. The Electoral College is more than just an antiquated institution: it actively disenfranchises voters and occasionally (think 2000) makes the candidate with fewer popular votes president. American democracy would be far stronger without it.

There is no reason to feel sentimental about the Electoral College. One of the main reasons the founders created it was slavery. The southern states liked the fact that their slaves, who would be excluded from a direct vote, would be counted — as three-fifths of a white person — when Electoral College votes were apportioned.

The founders also were concerned, in the day of the wooden printing press, that voters would not have enough information to choose among presidential candidates. It was believed that it would be easier for them to vote for local officials, whom they knew more about, to be electors. It is hard to imagine that significant numbers of voters thought they did not know enough about Barack Obama and John McCain by Election Day this year.

And, while these reasons for the Electoral College have lost all relevance, its disadvantages loom ever larger. To start, the system excludes many voters from a meaningful role in presidential elections. If you live in New York or Texas, for example, it is generally a foregone conclusion which party will win your state’s electoral votes, so your vote has less meaning — and it can feel especially meaningless if you vote on the losing side. On the other hand, if you live in Florida or Ohio, where the outcome is less clear, your vote has a greatly magnified importance.

Voters in small states are favored because Electoral College votes are based on the number of senators and representatives a state has. Wyoming’s roughly 500,000 people get three electoral votes. California, which has about 70 times Wyoming’s population, gets only 55 electoral votes.

The Electoral College also makes America seem more divided along blue-red lines than it actually is. If you look at an Electoral College map, California appears solidly blue and Alabama solidly red. But if you look at a map of the popular votes, you see a more nuanced picture. More than 4.5 million Californians voted for Mr. McCain (roughly as many votes as he got in Texas), while about 40 percent of voters in Alabama cast a ballot for Mr. Obama.

One of the biggest problems with the Electoral College, of course, is that three times since the Civil War — most recently, with George W. Bush in 2000 — it has awarded the presidency to the loser of the popular vote. The president should be the candidate who wins the votes of the most Americans.

The best way to abolish the Electoral College is to amend the Constitution. Until that happens, a national popular vote movement is working to get states representing a majority of the electoral votes to agree to award their votes to the candidate who has the most votes nationally. That would effectively end the Electoral College. Several states, including New Jersey and Illinois, have already enacted popular vote laws, and others are considering it.

When the 2012 presidential election approaches, efforts to reform the electoral system will be viewed through a partisan prism, with a focus on which party they would help or hurt. With the next election still four years away, now is an ideal time to get serious about abolishing the Electoral College.

Where That "Recycled" E-Waste Really Goes

Where That "Recycled" E-Waste Really Goes

Stephen Leahy

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Is your old TV poisoning a child in China? Or your old computer contaminating a river in Nigeria?

Without a law banning export of toxic electronic waste in the United States, there has been no way to know if old cell phones, computers or televisions originating there didn't end up in some poor village in the developing world, where desperate people pull them apart by hand to recover some of the valuable metals inside.

A small group of people have now allied with a few responsible recyclers to ensure e-waste can be treated responsibly by creating an e-Stewards certification programme. Announced this week, e-Stewards are electronics waste recyclers that are fully accredited and certified by an independent third party.

Such accreditation is crucial in an industry that often makes fraudulent claims. Currently even when e-waste (electronic trash) goes to a "green" recycler, the chances are high that toxic stuff from the developed world ended up in a huge pile in the middle of some village.

The U.S. generates an estimated three million tonnes of electronic waste, such as cell phones and computers, each year. U.S. citizens bought some 30 million television sets this year and that number will be higher next year as all U.S. TV networks switch to digital broadcasts Feb. 17.

So where do these old, unwanted TVs go?

One destination is Hong Kong, activists say.

"I recently watched shipping containers loaded in the U.S. being opened on the docks in Hong Kong," said Jim Puckett, coordinator of the Basel Action Network (BAN), an NGO named for the treaty that is supposed to stop rich countries from dumping toxic waste on poor ones.

"Inside they were packed with e-waste, including TVs and computer monitors," Puckett told IPS.

Puckett estimated that 100 containers of e-waste arrive in Hong Kong every day and are then smuggled into China. "It's all coming from the U.S. and Canada but I couldn't see everything that was going on," he said.

Much of this activity is illegal in China. But it is a very big and profitable industry so many officials in China and elsewhere are willing to look the other way, he said.

Sixty Minutes, a prominent weekly U.S. news programme, aired an investigative documentary film this week about Puckett's claims and tracked shipping containers from U.S. recyclers to Hong Kong to villages in China like Guiyu. "We were in Guiyu over six years ago and conditions are far worse today," he said.

The mountain of e-waste grows each day as new electronic devices are created to drive an economy rooted in endless growth. And consider that 85 percent of e-waste goes in landfills or is incinerated locally, contaminating the United States' groundwater and air. Millions more stockpiled computers, monitors and TV are sitting in basements, garages, offices and homes.

So what's a responsible person to do with their e-waste in the face of government negligence, manufacturers' irresponsibility and recyclers' greed?

"With little likelihood of a federal law under the [George W.] Bush administration we decided to work with the recycling industry," said Sarah Westervelt of BAN.

Together with the Electronics TakeBack Coalition and 32 electronics recyclers in the United States and Canada, BAN announced an e-Stewards programme this week. It will be the continent’s first independently audited and accredited electronic waste recycler certification programme. Dumping of toxic e-waste in developing countries, local landfills and incinerators will be forbidden, as will the use of prison labour to process e-waste.

"Right now it's impossible for people to know which recycler is doing the right thing," Westervelt told IPS.

Companies and organisations claiming to be green regularly misrepresent how the waste is being handled. "People are being duped by companies," she said.

"Ninety percent of companies in my estimation are defrauding their clients," agreed Bob Houghton, president of Redemtech, an e-waste recycler and member of the e-Stewards programme.

Many companies provide documents to companies or local governments claiming the e-waste has been processed safely but actually send it to the third world, Houghton said.

When the U.S. city of Denver wanted an e-waste recycler, it insisted on a no-cost recycler, and that's how Denver's e-waste ended up in China, as featured in the 60 Minutes documentary, says Mike Wright, CEO of Guaranteed Recycling Experts in Denver.

"It's impossible to recycle e-waste at no cost without exporting it," Wright told IPS.

Wright's company didn't win the Denver contract for that reason, and that's why he's a very strong supporter of the e-Stewards programme, which provides proof and assurance the waste is being handled properly.

"We want to see it up and running quickly," he said.

Westervelt says the programme will be thoroughly tested throughout 2009 and fully operational by 2010. In the meantime, the public can find participants in the programme who have pledged to meet its stringent standards at, she said.

But what about electronics manufacturers' responsibility? In Europe they are obligated under law to take back their old products and recycle them properly. While no such law exists in Canada or the U.S., some TV companies such as Sony, LG and Samsung and a number of computer manufacturers such as Dell, Lenovo and Toshiba take back their products free of charge. Some others charge a fee.

"With the digital conversion, a huge number of TVs will end up our dumps and overseas," said Barbara Kyle of Electronics TakeBack Coalition.

The costs of handling and recycling usually outweigh the value of the materials recovered, so most companies do not want to take them back, Kyle said in an interview.

And there is the worry that those companies taking back their products will simply ship them to developing countries.

"We're trying to get manufacturers to sign a commitment to act as if the U.S. is part of the Basel Convention," said Puckett.

The 1992 Basel Convention was specifically set up to prevent transfer of hazardous waste, including e-waste, from developed to less developed countries. The U.S. is one of the few countries in the world that did not sign on to the convention.

"So far only Sony has signed the commitment but we're hoping others soon will," he said.

Some electronics manufacturers, especially those making low-end products, continue to bitterly oppose any export bans, as does the multi-billion-dollar scrap metal industry. As a result, Canada, the U.S. and Japan continue to oppose them as well or find ways around the Basel rules.

Canada gets much of Puckett's wrath for its duplicity in pushing for the Basel agreement, and then creating loopholes in its laws and failing to prosecute when violators are caught red-handed.

That leaves three or four ordinary people at BAN and few others to create a gold-standard recycling programme to solve the national embarrassment of exporting to toxic materials to faraway places that can't properly deal with it and are too poor to refuse it.

Puckett hopes the new U.S. administration under Barack Obama will be more responsible and awaken some sense of responsibility in other countries.

"It would be helpful if governments stepped up," he said.

Global markets plunge on fears of deflation and depression

Global markets plunge on fears of deflation and depression

By Mike Head

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Further multibillion-dollar losses hit share markets worldwide over the past two days, driven by fears that a deflationary spiral could lead to global depression. While government and media commentators are still attempting to assure the public that there could be no repeat of the 1930s, the money markets are telling a different story.

Within the pages of the financial press, it is now being openly conceded that, for all the official assurances, every government intervention and bid for international coordination has failed to stem the economic meltdown. In the Wall Street Journal yesterday, Peter A. McKay observed that, “government is running out of ammunition to stabilize the financial system and the economy.”

In a similar vein, John Durie wrote in the Australian: “The word is finally out—NOTHING IS WORKING—and, as a result, global stock markets are in freefall.” Durie noted that the US administration and the Chinese leadership had each committed close to $1 trillion to rescue packages “and the world is still sinking”.

The rout continued when the CEOs of General Motors, Ford and Chrysler, as well as United Auto Workers (UAW) union bosses, failed to win US congressional backing for an unprecedented $25 billion bailout of the Big Three to avert collapse. After two days of talks in Washington, the bailout was rejected, at least in its initial form, despite all the participants, including the UAW, agreeing that autoworkers’ jobs and conditions must be further shredded in any rescue package.

On top of falls of more than 5 percent on Wednesday, US shares crashed at the end of the day Thursday, after earlier rising briefly on rumors of an auto agreement. By the end of a roller-coaster day, the Dow Jones industrial average had fallen almost 445 points, or 5.6 percent, to 7,552.29. The Standard & Poor's 500 Index plunged further, losing 54.14 points, or 6.7 percent, to 752.44—its lowest level in more than 11 years.

The wild swings expressed elements of sheer panic and instability. On Wednesday, the Chicago Board Options Exchange Volatility Index, known as Wall Street’s fear gauge, shot up 10.1 percent to 74.45, which indicated mounting distress.

Fueling the sell-off were concerns that the recession could not only be deeper and longer than previously feared, but could also enter what Sheryl King, senior US economist at Merrill Lynch, termed “a corrosive deflationary phase.” Deflation is seen as a precursor to depression, because falling prices can generate an ever-downward spiral of corporate losses, production cuts, mass layoffs and reduced demand.

As has been the case for the past 16 months, the US remained the epicenter of global turmoil, with new data showing accelerating job losses, plunging housing construction, falling consumer prices and crises afflicting financial giants such as Citigroup and GE. Minutes from the last Federal Reserve policy meeting predicted economic contraction at least until the end of the 2009. “It’s a perfect economic storm, which is a combination of an ordinary recession, housing collapse, the credit crisis and major asset deflation,” Barry Ritholtz, Fusion IQ’s CEO and director of equity research, told journalists.

The global dimensions of the slide into slump were highlighted by Japanese Finance Ministry data reporting that exports from the world’s second-largest economy declined 7.7 percent in October from a year earlier, their biggest drop in almost seven years. Underscoring the dependence of Japanese and Asian capitalism as a whole on the US market, the results helped send Asian stocks into a tailspin for a second successive day yesterday.

Tokyo’s benchmark Nikkei shed 570.18 points to 7,703.04, its lowest close since October 28—the day it touched a 26-year intraday low of 6,994.90. It was its biggest one-day percentage loss since October 22. So far, the Nikkei has lost 9 percent this week and 10 percent this month. Economists now predict another three quarters of contraction in Japan's economy, bringing the sequential decline to five straight quarters, the longest on record.

Battered by deeper mining and financial falls, Australia's S&P/ASX 200 ended 4.2 percent lower at 3,252.90, its lowest closing level since early 2004. Hong Kong’s Hang Seng Index closed 4.3 percent lower at 12,264.34. South Korea's Kospi ended down 6.7 percent at 948.69, marking its eighth straight losing session.

European stocks also fell as fears of a deepening recession hammered shares in banks and raw material producers. The FTSEurofirst 300 index of top European shares closed at 781.06 points, its lowest close since April 2003, with the losses led by the firms most exposed to the economy, like mines and banks, which were shaken after Citigroup shares tumbled and investors questioned the US bank's survival prospects.

ArcelorMittal the world's top steelmaker, dropped 12.4 percent. Aviva, the UK insurer that had £359 billion of assets under management at the end of June, dropped 15.5 percent. With oil futures skidding under $50 a barrel, producers including Royal Dutch Shell and utilities such as E.On dropped sharply.

Underscoring the grim trends, job cuts of between 1,400 and 2,700 each were announced on Thursday by AstraZeneca, Rolls Royce, Sandvik and Peugeot Citroen. In Britain, BAE Systems, building materials manufacturer SIG and investment firm Fidelity International also announced significant job cuts. British retail sales fell by another 0.1 percent in October.

It was the US, however, that continued to produce the worst news. The number of US workers filing new claims for jobless benefits rose by a larger-than-expected 27,000 last week to their highest level in 16 years, the Labor Department reported. Initial claims for state unemployment insurance benefits were a seasonally adjusted 542,000 in the week, from a revised 515,000 the previous week. That was higher than analysts' forecast for a reading of 505,000 new claims. Continuing claims stood at 4.012 million in the week ended November 8, the latest data available, up from 3.903 million the prior week and the highest since December 1982.

Minutes from the Federal Reserve's policy meeting showed, some officials believe, that unemployment could go as high as 8 percent by next year. (The official jobless rate reached 6.5 percent in October.)

The minutes revealed concerns of a deflationary spiral that the Fed would lack the power to counteract because interest rates are already so low. Such a development “would pose important policy challenges,” the Fed said. Further stoking those fears, consumer prices fell by 1 percent in October, the steepest drop since the government began monthly records in 1947, a Commerce Department report showed on Wednesday.

Housing figures were also bleak. US builders commenced homes at an annualized rate of 791,000 in October, the lowest number since the Census Bureau began tracking housing in 1959 when there were about 50 percent fewer households nationally. In September, there were 394,000 unsold new homes and more than 4 million existing homes on the market (many of the existing homes were foreclosed properties). Each number represents about 10 months of inventory

There were signs that the financial implosion is far from over. Citigroup shares sank 24.2 per cent to $4.85 yesterday, on top of a 23 percent fall the day before, after the bank took on more than $17 billion in dubious assets from structured investment vehicles. Citi also shut another hedge fund, which once had more than $4 billion in assets. The fund has since dwindled to less than $60 million, while its debt is about $880 million.

General Electric is to shrink GE Capital, a major provider of consumer credit, in a move that could lead to $2 billion in cost cuts, the sale of $90 billion in highly leveraged assets and thousands of redundancies among its 75,000 employees. JPMorgan Chase plans to cut 10 percent of its investment banking staff, or about 3,000 employees.

While these financial giants struggle to stay afloat by offloading their toxic liabilities, it is increasingly clear that world capitalism is experiencing a fundamental breakdown on the scale of the Great Depression of the 1930s, threatening to devastate the livelihoods and social conditions of hundreds of millions of working people on every continent.