VEON FINANCIAL SERVICES, INC.
A Registered Investment Advisor - Investments offered through Mutual Service Corporation, A member of NASD, SIPC
|301/924-2056 Combined Issue - June and September, 1998 Vol. 12, No. 2 & 3|
unedited version -
|THE REAL GAME: THE FINAL THRUST FOR GLOBAL ECONOMIC POWER|
Although this newsletter is greatly delayed, it's content is timely. While the research for this newsletter began in April, I did not begin the indepth analysis until August. Because of the complexity of current events, it has recently become more difficult to write each newsletter. I first have to accumulate newspaper and magazine articles. Then I review and summarize each in abstract form. The research, for example, for the recent Asian crisis newsletter resulted in 40 pages of abstract. For this newsletter, I prepared over 70 pages of abstract and reviewed a dozen speeches from Alan Greenspan, Robert Rubin, and Lawrence Summers as well as press releases from the IMF/World Bank meetings I attended and information from C-span and radio. One of the reasons for its unusual length is to provide you with enough information to "connect the dots" between the national and international financial situation. Unfortunately, our news media is not providing people with a sufficient frame of reference to see the BIG picture.
As a result of events that occurred during the last week of October, I could not have presented you with a full picture had I written it any sooner. I believe that the market volatility was created for the sole purpose of providing more power for the International Monetary Fund to intervene in currency markets; extend lines of credit (like a credit union) to troubled countries; supervise the national banks, brokerage firms, and insurance companies of the world (this is why the Glass-Steagall Act must be repealed - see December 1996 and combined March/June 1997 newsletters); and create a world bankruptcy court. In addition, the recent Omnibus Spending Bill sets up a special commission comprised of five former U.S. Treasury secretaries to study the possibility of merging the IMF/World Bank and World Trade Organization. These actions comprise the "final thrust" for global economic sovereignty. What Americans should be asking themselves is: "Why is our Congress doing all this to facilitate a global economic infrastructure above our national infrastructure?" We are at a turning point in all of history. Our economic sovereignty is being extinguished before our very eyes.
While I recommended that a number of you move to cash in late August/early September, it was because it was really hard to determine if the volatility indeed was real or if it was planned. While I strongly suspected as early as mid-September that the volatility was planned, it was not until I attended the IMF/World Bank meeting October 4-8 that I felt my assumption was correct. When you review the "Chronology of Political and Economic News and the Market's Response" (found at the end of this newsletter), note that there are a number of occasions in which the market's response does not line up with its previous response to a similar situation.
However, that is not to say that our economy is without worries, as the dollar has dropped substantially against the German deutsche mark and the Japanese yen in recent weeks. While newspapers say it is because of our rising deficits, other news articles reveal that the Japanese have stopped buying our Treasury bills and are redirecting their monies to Europe. This loss of Japanese investment is exacerbating the liquidity problems we are already having. The Federal Reserve has reduced interest rates to increase consumer spending. However, as Japanese investment in our Treasury bills decreases and as other foreign investors redirect their monies to Europe, the Fed will have to raise interest rates as an incentive to keep those monies here. Perhaps we could say that the Fed, and our economy, are between a rock and a hard place. For this reason, caution is still recommended.
The funding of the International Monetary Fund was on the lips of Bill Clinton, Alan Greenspan, and Robert Rubin for the last twelve months as they stressed most vigorously the need for U.S. taxpayer dollars to fund the expansion of the IMF. In his speech at the October 6 opening of the Annual Meeting of the IMF/World Bank, Clinton said, "The world faces perhaps its most serious financial crisis in half a century. The U.S. must fulfill IMF obligations. We must modernize and reform the international financial system to make it ready for the 21st century. The institutions built at Bretton Woods must be updated for 24-hour global markets" (emphasis mine). On October 20, Congress approved $18B in new monies for the IMF. The stock markets opened October at 7843, only to close up 15% at 8592; this has not happened since 1987. Is it a coincidence?
Lastly, the October 31 headlines read, "G-7 Leaders Hint Worst Is Over in Global Crisis" (Washington Post-WP, 10/31/98, G1. The article said that "the heads of the Group of Seven countries hailed 'significant steps taken over recent weeks to strengthen confidence in the world economy." It went on to say that a "new approach, proposed by Clinton a month ago, would provide large international lines of credit to countries threatened by financial contagion." Really. Clinton made this same proposal on October 6. Why did it take a month to make headlines? What changed the tune of the G-7? Nothing less than $18B of taxpayer money! The G-7 now says the worst is over. Not really. W hen a country loses economic sovereignty, its troubles have only just begun.
I have had it. I am tired of hearing about the Redskins. When it comes to football, our priorities are all wrong! Some fans "lose themselves" in the game by forgetting all decorum, and I am appalled at what people think is important. Having grown up in Wisconsin when the Greenbay Packers under Vince Lombardi were No. 1 and having lived in Pittsburgh when Lynn Swan, Terry Bradshaw, and Franco Harris were there to help the Steelers "strive for five" Superbowls, I should have developed some kind of respect for the game, but I have not.
The recent public behavior with regard to the Redskins 7-0 record early in the season shows where Americans spend their energy. Commenting on the taunts and jeers from Redskins fans, 16-year veteran Darrell Green said, "We have hit a tough time, but in all my career I have never seen this type of personal attack on any player or coach. To me that's an indication of the society we live in. No human being deserves that." However, the jeering is not as important as the press coverage. Reporting on the Redskins dilemma, The Washington Times took two full pages to discuss and explain it.
By contrast, our economy, which is the life blood of our nation - how well we live, whether or not we have the funds to educate our children and retire in comfort - is in trouble. People are unaware that we are at a major turning point in history. While we hear a little bit here and a little bit there, I have yet to see a newspaper take two full pages to explain to the American people what is happening to our country's economy and how it will affect our future.
This past year Veon Financial Services, Inc. reported to you on the Asian crisis ("Don't Scuttle the Pacific," December 1997) and on economic regionalism (March 1998). In March, we discussed the economic moves that are taking place to divide the world into economic spheres comprised of: the Americas-- Canada, the U.S., Mexico, Central and South America; Europe-- Economic and Monetary Union (EMU), 11 countries; APEC-- the Asian Pacific Economic Community (in the process of evolving), as well as other forthcoming regions in Africa and the Middle East. I wrote in that newsletter that with the coming euro, there would be a shift out of the dollar to the euro by governments and corporations. That has happened (see page 11 of that newsletter). The current liquidity crisis is a result of the withdrawal by foreigners of their U.S. Treasury investments. In order to understand the market, its conditions, and when and where to invest, the following information will be discussed in this newsletter:
(1) A review of the economic, financial, and market changes of 1990 -1998 with regard to international treaties, tax laws, and major world happenings.
(2) The current domestic situation with regard to market volatility and patterns, recession and its components, and the decline of America in world power and position; the move to position and empower Europe as the sole world power.
(3) The new global infrastructure for the 21st century, which basically is the final power grab by the international bankers (world central banks and others) for complete control over the banking system, stock markets, brokerage firms, and insurance companies of the world. Along with the "final thrust" comes control and loss of economic sovereignty, which complements the loss of political sovereignty.
I. ECONOMIC REVIEW 1990-1998
The beginning of the last decade leading up to the 21st century begins with 1990. What are the major changes--the politics and economics--which comprise the "final thrust"?
Nineteen ninety was a year in which the dynamics equalled an Indiana Jones movie-- something was always happening. Interestingly enough, if 1990 was an indication of how fast and tumultuous the 90s would be, it has proven to be on target!
As a result of the August invasion of Kuwait, the stock market dropped to 2462 and oil rose to $45bbl. as the dollar fell against world currencies. The Japanese stock market dropped from 38916 to 20000 on October 1, 1990. This drop was precipitated by the fact that Kuwait, which banked in Japan, sold a large portion of Japanese stocks. Exacerbating Japan's problem was the fact that its real estate prices increased 20 times in value between 1977 and 1990. And ever since the Kuwait War Japan has been wrestling with lower stock prices and inflated real estate prices. But in order to understand the real irony behind Japan's situation, consider what they invest in the United States! In 1990, Japan purchased about $50B of our stocks and treasury bills.
By the end of the Kuwait War, the Dow had succeeded in crossing the historic 3000 level. In December the Federal Reserve slashed the discount rate to a 27-year low of 3.5%. George Bush passed the largest deficit-reduction package in U.S. history, raising taxes for every American. Its goals were to reduce the budget deficit by $500 billion. In order to do this, federal taxes were raised $137B over five years. Bank regulators started to enforce a 7.25% capital ratio required by international agreement. Entitlement comprised more than 60% of the budget. Also that year, we were told communism fell. Nelson Mandela was released from prison.
Billed as the "Year of the Recovery," 1991 was anything but recovery as it opened up with the governor of Rhode Island closing 45 credit unions and small banks after a private deposit insurer failed. Bank mergers began and the BCCI scandal, which involved the bilking of up to $10B in deposits, came to light. In addition, the Federal Reserve tried to "jump start" the economy by cutting the federal funds rate 14 times to a new low of 4.5%, which created a shift in investor money from bank savings accounts to stocks. The debt of America--federal, state, corporate, and consumer-- reached $14T. As a result of the economic slowdown, three U.S. auto manufacturers saw their production sink to its lowest level in 33 years. No tax law was passed that year.
In 1992, Bill Clinton was elected using one word, "CHANGE." If you look at the activities of 1992 and compare them with 1998, you will see many of the same patterns. The change he has created has been constant and continuous. If one were to study his part in the integration of the United States with the rest of the world, one would see that Clinton has accomplished far more than any other president since Franklin Roosevelt.
As a result of a slowed economy, the Fed tried to stimulate the economy by easing monetary policy 18 times in that year. The federal funds rate dropped to 3%, its lowest since 1963. As a result of lower interest rates, the stock market broke a historic record as $78.5B poured into stocks. The United Nations Conference on the Environment and Development was held in Rio de Janeiro. This conference signalled a complete philosophical change from the Judeo-Christian value of man ruling the earth to one in which the earth has dominance over man. The Los Angeles riots occurred, NAFTA was ratified, and $12B was approved for the IMF as part of an aid package for Russia. Trade deficits swelled to $6.97B, and lawmakers were delinquent in passing a funding bill for the savings and loan debacle, which cost taxpayers $2.5 million a day until a bill was passed. As a result, the dollar dropped to 125 on the yen and 155 on the Dmark. Another tax law, the Tax Fairness and Economic Growth Act of 1992, was passed. This law raised tax brackets, taxed luxury items, created a special opportunity for investors and businesses to receive tax incentives for creating jobs in 25 inner-city areas and 25 rural areas of high poverty. The government pays up to $3,000 of the wages for each person who lives and works in these areas.
The stock market continued to reach one historic high after another in 1993. In June, it was 3500, by August it was at 3600, and in November, it breezed past 3700. We are told the market rose because of declining interest rates, which brought more money in the market than at any other time in our history. Mergers reached all-time highs. As a side note, gold funds increased 70%, while Pacific stocks increased 43%. Barton Biggs, Morgan Stanley's chief investment officer, recommended investing in China, India, Thailand, Singapore, the Philippines, Hong Kong, Taiwan, and Indonesia. (Five years later we are strapped with structural changes taking place on all fronts.) The Revenue Reconciliation Act of 1993 was passed the first of January, 1994, making it the biggest tax bill since 1930, and the second largest increase in our history and taxing retroactively to January 1, 1993. That tax bill increased rates from 31% to 36%, levied a 43-cents-per-gallon tax on the transport of fuels, and increased taxes on Social Security income for those couples with taxable income over $44,000. Hillary tried to pass a national healthcare bill, which was defeated by special interest groups who were not happy with the bill and wanted to change it.
In 1994, the General Agreements on Trade and Tariffs was passed by a lame duck Congress. This global treaty on "open markets" is more than 26,000 pages. (If you want to have real "free trade," the agreement needs to be only two lines long!) The stock market reached historic highs while interest rates dropped to 30-year lows, only to turn around and begin to increase. In response, the dollar dropped to five-month lows against the Dmark and yen of 1.675 and 102.85 respectively. The Federal Reserve raised the prime lending rate SIX times to "pre-empt inflation." By April 29 the United States, faced with a potential "dollar crisis," stepped into the foreign exchange markets to halt the dollar's drop. I wrote in my May 1994 newsletter that with the fall of the dollar to equal one on the yen, "one of these days, the dollar will no longer be the reserve currency of the world and when that happens, there will be a great shifting of foreign monies away from the United States causing our market to fall. The only way the Federal Reserve will be able to keep some of those dollars is to raise our interest rates." I believe we are starting to see this shift. (See 1998.)
In 1995, there was an unprecedented $502B in mergers and acquisitions among American corporations. This was paramount in pushing the stock market to another historic point as it gained 33%! The Dow crossed 4000 in February and 5000 in October. Foreign investors bought a record total of U.S. Treasury notes and bonds, which was a 70% increase over 1994.
The stock market opened up at 5117 in 1996, and to the thinking of most experts, after 1995's gain of more than 33%, it could not happen again. It was the mergers and acquisitions that again opened the door for this rise. The Dow reached 6000 on October 15. Amid the highs were treacherous lows as the market started moving sporadically from 9 to 53 to 115 to 161 points in one day. For example, in July it plunged 212 points before climbing back 219 points. In December, the market gained 541 points or 9%. The value of U.S. stocks grew from $4.5T to $7.3T with investors pumping about $660B of new cash into stock mutual funds or three times the total assets in stock funds in 1990. Investment in 1996 totalled $235B. Mergers and acquisitions surged in 1996 to $1.15T worldwide, with most of the activity in banks, telecommunications, and electric utilities. While the Fed did not raise interest rates, it did begin to erase the line between banks and brokerage firms by increasing the amount of revenue that banks' securities affiliates can derive from underwriting corporate stocks and bonds. This was the beginning of the dismantling of the Glass-Steagall Act.
Congressman Jim Leach, chairman of the Committee on Banking and Financial Services, introduced a bill that would reform the Glass-Steagall Act. By eliminating the barriers between banks and brokerage companies, a new entity called a "financial conglomerate" will be created. Leach called this legislation, "the most exciting comprehensive banking bill of the century and more consequential than any prior legislation excepting perhaps the Federal Reserve Act in 1913" (speech given at ABA in May, 1996). Unfortunately, by merging banking, insurance, and brokerage activities under one roof, all laws regulating and supervising this new entity will have to be enacted. The regulator will be the Federal Reserve. As such, the Fed currently does not regulate insurance or brokerage activities, but with this legislation ALL financial activities will come under its domain. While this bill has been introduced every year since 1996, it is strongly felt that it will pass in 1999. It should be mentioned that Leach, like Congresswoman Morella from my district, is a member of the Global Parliamentarians, which works for world government through a parliamentarian form of government.
Amid the Asian crisis in July, our stock market reached historic highs. In 1997, the mergers and acquisitions continued--between banks, brokerage firms, and insurance companies. There was a push for consolidation of power worldwide through bank mergers and acquisitions and the repeal of the Glass- Steagall Act. Mergers were not only by country but were also cross-global mergers, like Spain and Brazil. Our trade deficit grew to $187.7B. The dollar rose to a 31-month high-- a 50% increase against the yen and 20% increase against theDmark--since its low in April, 1995, when the dollar dropped to .80 yen and 1.35 Dmarks. A strong dollar provides foreign manufacturers with significant advantages over American manufacturers and products. In order to join the Euro, countries had to qualify, and the number of countries eligible to join was realized. As a result, many countries and corporations will, in order to do business in Europe, switch business contracts from the dollar to the euro. There have also been discussions to switch oil contracts to euros from dollars. On the global level, a total global support system was beginning to be realized through a global accounting system, a global custody operation, a global settlement system, and a global customs agreement. Finally, a number of global exchanges were consolidated to pave the way for the global stock exchange to be located (probably) in London.
This year has been one of great surprise. Surprise with regard to the stock market and the unanticipated loss of up to $3T in paper gains, Bill Clinton's level of honesty and integrity, and recklessness of a Congress that would allow a president to commandeer the passage of a $500B ($1/2T) spending bill, which is 4800 pages long, under duress in order to keep the government funded!!!!
The stock market reached what may be its last historic high on July 17 when it climbed to 9337. Due to a number of situations that the market determined to be dangerous, the market dropped back to 7539, the low for the year. Mergers and acquisitions have continued at a fury and were on hold during the volatile summer months. They are now back in full force. As of June, mergers had already exceeded the volume for 1997!
On October 20, our Congress, which ran two weeks over, passed a 40-pound Omnibus Spending Bill that takes 48 pages to list where taxpayer monies are being spent! The $18B for the IMF, which was requested by Alan Greenspan, Robert Rubin and President Clinton, is included. These monies will be used as leverage for contributions from other countries to raise an additional $100B for the IMF to lend to countries in distress, which in turn makes them more attractive to transnational corporations. This constitutes part of the "final thrust," as the IMF will now have control over which country "qualifies" for additional help through lines of credit. The question should be asked if the IMF needed more monies from U.S. taxpayers. It was shown by Rep. James Saxton that the IMF already has $98B to lend, which includes quota reserves of $43B, $32B in gold, and lines of credit of $32B.
This spending bill also sets up the International Financial Institution Advisory Commission, which will consist of five former U.S. Treasury secretaries who will help determine the future role and responsibilities of the IMF and the merits and costs related to the consolidation of the organization, management, and activities of the IMF, World Bank, and World Trade Organization (WTO). Within six months of their report, President Clinton will call for another "Bretton Woods Conference." All of this continues to set the stage for the "final thrust."
I think one of the most telling speeches that I have heard from the House floor was on the night of October 20 by Representative David McIntosh, who said:
"Eleven years ago, in 1987, a Democratic Congress sent President Reagan a massive omnibus spending bill that weighed about 24 pounds and had 2100 pages. In his State of Union address, Reagan took the bill, slammed it on the table, and said, 'Congress shouldn't send these bills and if you do I will not sign it.' A Democratic president is forcing this Congress to pass a massive omnibus bill on a veto threat that if we spend anything less, he will veto it and shut down the government. Ten years ago that omnibus bill cost the tax payers $604B. This year's bill cost them $577B. Ten years ago it was 2100 pages. This year it's 4800 pages. The bottom line is that Clinton has effectively denied a tax cut for the families. For two weeks Clinton sent up one demand after another for a billion here and a billion there, all to be spent in Washington. We need a balanced budget, spend more on a strong national defense to protect our shores and help small business survive by cutting the red tape rather than the rules/regulations that go with it."
A. The Big Picture
On the following page is a chart entitled "Overview of Key Economic Indicators 1990-1998" which summarizes economic and political activity since 1990. The changes taking place in America are more than structural, they are philosophical--a fight for total control through deficit spending. For example, while our county has undergone severe banking problems in the early 90s and several dollar crises, we are also in the process of "going global." In 1990, when the United States went to war in Kuwait, Bush had to ask the permission of the United Nations. When he did, he referred to the changes taking place in the world as "the new world order." Several years later in 1992, the United States entered into a very extensive
agreement with the North American Free Trade Association (NAFTA) and we also signed the General Agreement on Trade and Tariffs (GATT) in 1994, which is more than 26,000 pages and designed to tear down our borders for "free trade." At the same time, we have had some of the most oppressive tax bills passed, while our trade deficits have skyrocketed and the Federal Reserve has fiddled with interest rates to jump start the economy (1990-1993), only to change its mind and increase interest rates in 1994 when the dollar had a crisis and dropped to historic lows against the Japanese yen. Now under the guise of "modernizing banking laws" by repealing the Glass-Steagall Act, banks, brokerage firms, and insurance companies will now be able to do business in each other's industry, thus becoming one. As such, the proposed law to modernize banking laws will bring all three under the control of the Federal Reserve, a private corporation and out of the supervision of the U.S. government!
B. The "Pretty" Picture
In studying the above, the picture you see is not pretty. All too often we whitewash the truth. Let's take an example of what appears to be a very successful businessman. He has what appears to be a very thriving operation. His personal gift is his sales ability. He really knows how to "pitch" his product and/or service and get the sales. As a result, he is very busy as he has a lot of back orders. From all appearances it would look as if everything is okay, but it is not because he does not know how to manage money. Suppliers are knocking on his door for the money he just spent on the new corporate jet, the bonus he deserved, and the expansion of the plant to meet the new orders. He knows that if he cannot keep up the flow of orders, his inability to handle money will catch up with him. What kind of lies and manipulation will he resort to? If he and his corporation don't make it, only those doing business with him will be affected. But if the government does not make it, what happens to our society?
C. The Real Picture
The real picture is that we are standing on a global economic precipice. It appears Asia is having a severe economic problem while the transnational corporations and banks are buying its assets for a song. The slowdown from Asia is being felt globally, the U.S. trade deficit is going up, the dollar is dropping against the yen and deutsche mark, and the consumer is being told to continue spending so that the recession doesn't worsen. The answer to all these woes, we are told, is a "new international economic architecture" for the 21st century, which will solve all these problems. All of the current clamoring and orchestrations are leading to the "final thrust."
D. The Changing Picture
Interestingly enough it is Bill Clinton who started many of the changes to the international infrastructure. At the 1995 Group of Seven meeting in Naples, Italy, Clinton said, "Mexico taught us that the world clearly needs better tools to identify problems like this so they can be prevented." On January 30, 1998, The Washington Post wrote, "Now in the midst of the Asian Financial Crisis, this famed speculator George Soros and the U.S. Treasury Secretary have concluded that the system is broken and needs fixing." Lawrence Summers identified in February, 1998, that the "Clinton Administration has been working....to build a global economic system ready for the 21st century--a system in which trade, capital and know-how can flow freely. The shape of this new system....is not yet fixed." (Note: When you haven't figured out what you are doing, it is never fixed.)
The bottom line: The apparent market volatility is masking the final loss of economic sovereignty for both the United States and the other countries of the world. To help you make wise choices, the BIG picture is presented here.
II. THE NATIONAL LEVEL
America on the Edge
The idea of world government goes back to the Tower of Babel. Other than the Tower, there have been many great empires--Babylon, Assyria, the Egyptians, Greece and Rome. In this century, there have been concerted efforts to unify the world through the United Nations. Currently the balance of world power is being shifted from the United States as the dominant economic force to Europe. How could this happen? While America still has a very strong and powerful economy, it is our debt that is pulling us down. If you refer back to the "Overview of Key Economic Indicators 1990-1998," you will see how the massive national debt has grown, the number of tax bills repressing growth, the bankruptcies, and how the orchestrations of the Federal Reserve to stimulate the economy and encourage consumers to spend have all contributed to today's situation. Compounding this is America's lack of liquidity.
When the market first became volatile, investors moved from stocks to bonds. As a result of the hedge fund bailout, they then moved again from bonds to cash. The move to cash has exacerbated the amount of funds available for lending. The liquidity crisis in Asia, however, is far worse than ours. It is and has been the American economy that has always been used to jump start the world economy when there has been a problem. Today it is extremely important that Americans continue to spend. If we stop spending, the music stops--for the world! In order to keep that from happening, the Federal Reserve has recently reduced interest rates so that the American consumer will continue to be enticed to spend.
Lastly, the American economy has a history of being sacrificed for the sake of other economies. By making the dollar stronger, our exports become more expensive so that other countries can sell their products because they are cheaper. By weakening the dollar, imports are cheaper and cheap labor competes with American-made products, which are higher priced as a result of our standard of living. For the last two years, the dollar has been strong, putting our exports at a disadvantage. Now with a substantially weakened dollar, cheaper imports will be even cheaper.
We are a debtor nation not only to ourselves but to our creditors (the Federal Reserve, the Japanese government, and other foreign governments)!!!! Where will this lead? At a minimum, to recession and to a weakened position in world dominance. While all of the above is transpiring, the "final thrust" for financial and economic control of the world is being orchestrated on the global level.
A. The U.S. Stock Market
In light of the market volatility, what are the experts saying?
"This is volatility with a capital 'V.'" Jeremy Hawkins chief economist, Bank of America, London
"This has been the most disquieting and risky set of circumstances I have seen in my professional career." John Lipsky, chief economist at Chase Manhattan Bank
"Investors have really been in denial. It's a bear market. The only question is how long it lasts." Ed Yardeni, Deutsche Bank
"A form of debt liquidation is now in progress--in the harshest terms--in Russia, Japan, and Asia. It would be foolish to believe this chaotic process will be over quickly." Henry Kaufman
"People are having problems with liquidity and are running scared from anything they can't turn into cash quickly," Steve Slifer, economist with Lehman Brothers Holdings, Inc.
"What is failing the world is not capitalism but globalism. We are reaping the harvest of having tried to weld the world's national economies, in disparate stages of development into one global economy." Pat Buchanan
1. Global Market Volatility
On July 17, 1998 the United States stock market reached an all-time high of 9337, the highest ever in the history of the Dow Jones. What followed in the three months afterwards has been more than astonishing. Suddenly, like a cyclone, the Asian crisis created three months of global market volatility. If you study the response of the market from July 17 to October 31, you will see that there is no coherent rhyme or reason for its movements.
At the end of this newsletter you will find a "Chronology of Political and Economic News," which reflects the markets response to political and economic happenings. My observations are:
1. In 1997, the world stock market, we are told, had a near meltdown. The Dow dropped 554 points to 7161, which was a 7% correction.
2. From April, 1998 to July 17, 1998, the market continued to climb to new highs, crossing 9000 for the first time in April and 9300 July 17. During that time, mergers and acquisitions continued. The world appeared to be fine even though Asia had been going though a crisis.
3. Greenspan's word determines market direction. See June 15, July 22-23, September 24, October 2, and October 8. (Just who is Greenspan that global markets shake?)
4. The week of July 22, world markets tumbled on Greenspans remarks about IMF funding and by the end of the week, dropped 401 points to 8937. A correction? Yes. An adjustment? Yes. Indication of seriousness? No.
5. The week of August 4, the market dropped 396 points as a result of weak economic indicators. A correction? Yes. An adjustment? Yes. Indication of seriousness? No.
6. The week of August 11 was one of surprise as British Petroleum announced it was buying Amoco, Clinton was ready to admit the truth about Lewinsky, stocks globally were getting nervous and fears about Russia gained awareness. The market closed down 150 points. A correction? Nothing really showed that. An adjustment? Yes. Indication of seriousness? No, because what happens in Russia really has no real bearing on America as Germany has far more loans extended to them than America.
7. The week of August 26, the stock market rose 36 points but turned ugly as a crisis in Russia took shape with Yeltsin refusing to step down amid the turmoil. Our markets dropped almost 500 points to a low of 8051.
8. That following Monday, September 1, the global economic woes over Russia continued with a further drop of another 513 points to 7539. All gains for the year were wiped out. Again, what happens in Russia does not affect us. Why now?
9. On September 25, the hedge fund, Long-Term Capital Management, went belly up and was saved only after the Federal Reserve Bank intervened (first in history) with a bailout. The market dropped almost 600 points and the dollar started to drop against the yen.
10. The week of October 1, the Feds 1/4-point rate cut failed to lift the markets as the Dow plunged. This is because 1/4 point really has no effect. It is not enough to make a difference. Investors sold bonds and fled to cash. A correction? Yes. An adjustment? Yes. Indication of seriousness? Mixed. 11. The week of October 8, an impeachment inquiry opened for the first time since Richard Nixon and for the third time in our history. The dollar dropped 8% against the yen in the worst one-day drop in 25 years, for a total drop of 20% since August. The stock market reacted by going down 10 points. THIS MAKES NO SENSE WHEN YOU CONSIDER THE STOCK MARKET DROPPED ALMOST 500 POINTS FOR THE PROBLEMS IN RUSSIA AND SAYS THE WEAK DOLLAR AND IMPEACHMENT MEAN NOTHING!!!! A correction? Yes. An adjustment? Yes. Indication of seriousness? Should have been.
12. Congress passed the $500B Omnibus Spending Bill (10/20/98), which included $18B for the IMF. In response, the Fed reduced interest rates 1/4 of 1% in a surprise move. The market rose 330 points to 8299. (If you compare the market response to Greenspan in Nos. 3 and 10 with 12, there appears to be a "wobble effect" with various responses that don't add up. Who has the power?)
13. The last week of October topped off the previous three months' market volatility by closing up 15% from the low. This was in spite of Yeltsin being confined to a sanatorium (Nos. 6-8) while a communist hardliner replaced him. Perhaps we should ask if the market was celebrating the return of communism to Russia or the empowerment of the IMF, which is part of the "final thrust?"
2. Market Patterns
Up until October, the market has traded in a 500- point trading ban. It has now recovered 1100 points in the same month that the Congress passed one of its largest spending bills. Was the real reason for the sudden volatility the restructuring of the global economic architecture?
It should be remembered that in order to "fix" something the way someone wants it, it needs to be "broken" first. This is what is occurring now. While nothing is really broken, it currently appears to be, so that more power can be transferred from the national level to the global level, which is the "final thrust."
B. Recession = Debt, Loss of Liquidity, and a Weak Dollar
While it appears that the market volatility may have been orchestrated in order to have sufficient reason to change and empower the global level, there are some long-standing real problems that are possibly exacerbating the plan to "fix" the system. They are debt, loss of liquidity (federal and corporate), the value of the dollar (trade deficits), and a switch to the euro. Any of these could put the economy into a deep, long-term recession (debt, liquidity, and a weak dollar lead to recession or an economic loss of power and position). This is all part of the decline of America in world power and position. It should be noted that one of the indicators of recession is a drop in commodity prices. In mid-August, the Chicago- based Commodity Research Bureau Index of 17 leading commodity prices fell to its lowest level since 1977. In the last 12 months, international prices of nickel and copper have fallen about 40%. Prices for timber, rice, rubber, and vegetable oils have also dropped, in some cases dramatically (FT, 8/31/98, 13).
(a) Debt Owed to the Federal Reserve
In England's past, when someone borrowed money and could not pay it back, they were tossed into debtor's prison. In America, our debtor's prison is called the Federal Reserve. In 1913, Congress passed the Federal Reserve Act, which created a new system of money management in the United States by using a private corporation, the Federal Reserve. Unfortunately, the Fed is not federal and it has no reserves. The Treasury and the Congress gave up all responsibility for our monetary system to a private corporation comprised of international bankers. If the Fed wants to create growth in America, they increase the amount of money available to borrow. If the Fed wants to create recession, they withdraw money from the system, which forces interest rates to go up and slows the economy. How do Americans borrow from the Fed? Our government issues Treasury bills, notes, and bonds. (For an excellent account of the Federal Reserve, please send $10.00 to Wisconsin Report, P. O. Box 45, Brookfield, WI 53008. You will receive their Special Edition and a six-month subscription.)
(b) Consumer Debt
Whenever the Fed needs money, it creates it out of thin air and charges America interest on the money it has borrowed. Why is it that the American people cannot forgive ourselves the interest on the Federal debt? We do not owe it to ourselves but a private corporation. In 1995, the interest on the national debt comprised 14% of the federal budget. Today our federal deficit is over $5T. In 1980, it was less than $1T. The interest is not paid to the Treasury but to the Federal Reserve, a private corporation!
Back in the 1940s and 50s, it was almost a shame for people to go to the bank for a loan. It was not done unless a person was in dire straights with no other options. Today, credit is extended on the spot with very few questions asked. Lines of credit and credit cards are mailed to consumers on a regular basis. In the 1980s, bankruptcy was streamlined, making it less difficult to file. The result has been a large increase since that time in bankruptcy filings. Today we face a situation where household debt is $5.7T and the amount of household income equals that amount. As a result of corporate downsizing, delinquencies are up. Most Americans are living on the edge financially as they have bought the "big house," the yuppie automobile, and all of the accessories. A slump in the U.S. economy would compound everyone else's problems. Even though the Fed has reduced rates by 1/2 of 1%, mortgage rates are rising.
Recently Alan Greenspan voiced his concern over the economy: "As dislocations abroad mount feeding back into our financial markets, restraint is likely to intensify." Clearly a spending reduction will not have a positive effect, as spending is needed to stimulate the economy. With regard to the market and volatility, Greenspan said, "In 50 years of looking at the American economy on a day-to-day basis, I have never seen anything like this" (WT, 10/19/98, A18). When people have too much debt, they stop spending. When Americans stop spending, the "party is over." In order for the world to avoid a serious recession, it is vitally important that Americans continue to spend. However, they can only spend if they feel they have the ability to spend. If they think they will lose their job or have any other concerns, they will not buy. It appears that the Fed is trying to prevent a full-blown liquidity crisis by lowering the interest rates. As you can see from the 1990-1998 economic review, the Fed has been trying to stimulate consumer spending for quite some time. One of these days it just won't work because consumers will say, "I can't spend anymore no matter how attractive the prices or interest rates!"
(2) Loss of Liquidity
Liquidity is the ability of a country, government, business, or consumer to spend. It is the ability to spend and the ability to have credit, if there is no cash. A loss of liquidity can happen on all three levels. The two levels we will discuss here are the federal level and the corporate level.
As mentioned above, when Americans buy U.S. Treasury bills, notes, and bonds, they are supporting our federal deficit. The Federal Reserve buys and sells U.S. Treasuries to determine how much liquidity is in the system. The fact that Japan has been one of the largest purchasers of our Treasury notes over the years says that they have been banking with us because we are reliable. However, they are in trouble and have had a number of problems. What happens when someone needs money? They go to their bank. I started to question the unusual volatility in late July and August of last year. It appeared that there was one major problem in the stock market per week and that the market was being taken down, little by little. As I analyzed this action, it appeared that the action was enough to get the fainthearted (or smart) out of the market. If America is broke, then what was happening is that the only place to free up any kind of money would be the stock market. And what did you hear last summer? You should invest in Treasuries!! It appears that our Government has no money.
(b) Japan Switches to Eurobonds from Dollars
In April, there was a very large sale of our Treasury bills by the New York Federal Reserve for an unnamed seller, who traders strongly feel is Japan, since their currency was under siege at the time. Most recently it was announced that Japan sold another large block of Treasury bills.
In the March 1998 newsletter, I pointed out that as the euro comes on line there would be a shift in global monies from the dollar to the euro. It was reported on October 29, 1998, that the Japanese purchase of U.S. Treasuries has fallen in the last 12 months from 82% as a proportion of all bond purchases to 45%, and that it is expected to fall below 30%. According to Avinash Persaud, head of currency research at J.P. Morgan, "What we are seeing is a clear long-term reweighting of Japanese portfolio investments from the dollar into the eurozone. This is happening at quite a fast pace." More importantly, according to Tim Bond, an economist at Barclays Capital, "the Japanese have realised that EMU will bring liquidity" (FT, 10/29/98, 17).
Liquidity is the availability of investor monies for corporations to borrow. Corporations only have two ways to raise monies. One way is to float bonds in the market place and the other is to borrow from banks, which is more expensive. However, bonds are only useful when investors are willing to purchase them. As a result of recent market volatility, investors have decided to sell bonds and move to cash, which has created a vacuum and a loss of liquidity. This action reflects a loss of investor confidence. When investors buy bonds, they are providing the funds for corporations to continue with their operations. When there is no source of money for them to borrow, the system drys up and corporations have to curtail operations. In order to keep the whole system moving, the grease needed to keep the system moving is people investing in bonds. A share, bond, or currency is worth what someone is willing to pay for it. When the balance of buyers and sellers is upset, it can lead to very sharp movements in prices, such as those that bargain hunters find at the January sales (FT, 10/10-11/98, 6).
Debt and loss of liquidity are two key reasons why the U.S. could very well be on the verge of recession. The third is the switch from the dollar to the euro as a reserve currency for the world.
(3) The Dollar
(a) The Floating Dollar
Up until 1971, the monetary system of the world was always backed by some type of tangible good or currency. Going back to Biblical days and the ancient Asian and Middle Eastern trading routes, gold, silver, clothing, animals, and food were the currency of the day and medium of exchange. In August 1971, when Richard Nixon officially severed all connections the United States dollar had to gold, he changed forever how the countries of the world would effect commerce. No longer would any of the world's currencies, with the exception of the Swiss franc, be backed by gold. Currencies would now float against one another. As such, if any central bank or group of central banks, hedge funds, or speculators wish to bring a country to its knees, all they have to do is sell a country's currency all at the same time. Whenever you manipulate (mess) with the value of a country's currency, you are manipulating with their economic strength, which is as vital as the blood in our veins. All one has to do is look at what has occurred in Thailand, Malaysia, and Korea. In 1971, the dollar was the strongest currency in the world, as one dollar bought 3.66 deutsche marks and 3.57 yen. In 1985, the Group of Seven determined the dollar was too strong and agreed to devalue it by a third. Our dollar has continued to drop. By April 1995, the dollar had sunk 77% against both major currencies from its 1971-1973 high.
Interestingly enough, this flotation of value is used by corporations to play the currency of every country they manufacture or do business in according to what will benefit them. The volatility of the currency is seen in our newspapers and magazines on a daily basis. The headlines of the March 20, 1995 BusinessWeek read, "Hot Money. The dollar is crashing. Mexico is in a meltdown. The European currency system is collapsing, but for traders and investors, by instantly moving trillions of dollars around the globe, they fan the flames." The dollar was at .92 on the yen and 1.40 on the deutsche mark. Meanwhile, on May 5, 1997, BusinessWeek changed their tune and wrote, "Alarm bells have been going off in Detroit, and some in Washington, over the rise of the dollar--up 50% against the yen and 20% against the German mark over the past two years." Recent headlines said, "Global crisis hits declining dollar, deteriorating Dow as the greenback suffered its worst one-day loss in 25 years" (WT, 10/9/98, B11). Consider the following:
(b) The Dollar to be replaced by the Euro
In 1991, Daniel Burstein wrote, "A seismic shift is occurring in the composition of global wealth. It is convulsing the structure of international power relationships and changing the rules of international business competition. It is the Euroquake." He said that the challenge facing Europe was to "restore Europe [to the Europe] of 1914 when [it] was the biggest economic power in the world and had the best educated population, one that [will have] twice the population of the United States and four times the population of Japan." (Note: In a recent interview I did with Jean-Claude Trichett, Central Bank Minister from the Bank of France and the future "Alan Greenspan of the European Central Bank," he said the same things!) Burstein says that the three spheres comprised of the United States, Europe, and Japan (the Triad) will "hold the balance of military power, economic strength and political pull." He also saw America as the "odd man out in the Triad." Furthermore, he wrote that "The euro will become the common currency of the European Community by 1997. It will be backed by a 'EuroFed' central banking system." Furthermore he wrote that "The first-ever election for the 'president of Europe' will be held in the year 2000," and that "A new global currency agreement will be hammered out between 1995 and 1997. This agreement will be the 'New Bretton Woods.' Precipitated by the rise of the euro and the shift to nondollar pricing of raw materials, a global monetary realignment will also be influenced by a variety of factors (the EuroFed, strength of the yen, weakness of the dollar, ongoing U.S. deficits). The new exchange rates will reflect the economic strength achieved by Europe and Japan...Yen to dollar: 105, the DM to the dollar 1.2" (Daniel Burstein, Euroquake, Touchstone Books, Simon and Schuster, 1991; emphasis mine). Burstein provided the following comparison:
(c) The Decline of America in Power and Position
The underlined bold signifies America at the beginning of the 80s and roman type indicates America at the end of the 80s:
(1) The United States was the world's largest creditor. The United States became the largest debtor nation in history. Japan, meanwhile, replaced the U.S. as the world's leading creditor with West Germany second.
(2) Japan and the United States both suffered modest trade deficits while West Germany's traditional trade surplus was reduced nearly to zero as a result of the oil crisis that followed the Iranian revolution. Japan and Germany were neck and neck in the race to enjoy the world's biggest trade surplus. Their positive annual trade balances have ranged from $70B to nearly $100B in recent years--far, far ahead of other nations. The U.S. has consistently posted staggering annual trade deficits in the $100- $170B range.
(3) Despite a growing appetite for imported foreign goods, the U.S. was still the world's largest exporting nation. West Germany, with a work force less than one fourth the size of America's, caught up to the U.S. as the world's leading exporting nation in absolute terms.
(4) Americans invested twice as much abroad as foreigners invested in the United States. Foreign investors--principally European and Japanese-- invested almost exactly twice as much in the United States as Americans invested abroad in 1989.
(5) The two largest banks in the world were American banks Citicorp and Chase Manhattan. The world's ten largest banks were all Japanese, while the biggest non-Japanese banks were French and German. Citibank teetered on insolvency.
(6) The U.S. dollar was worth over 260 Japanese yen and 3.1 deutsche marks at various points in the first half of this decade. The dollar had fallen as low as 1.23 yen and 1.6 deutsche marks.
(7) The American economy was seen as the global "locomotive." American economic trends set the agenda for the world economy--sometimes causing "shocks" in Japan and Europe. Japan and Germany were increasingly acknowledged to be the leading stimulator of the rest of the world's economy. The U.S. government became reliant on Japanese and European investors to finance a third or more of Washington's annual budget deficit.
You can see that much of what Burstein wrote has happened or is in the process of happening. While his time frame appears to be off by about three years, it is apparent that the economic power of the United States will be reduced in order to bring Europe up in power and position. This shift has been facilitated domestically through deficit spending, taxation, debt, bankruptcies, and now globally as the countries and companies of the world shift from the dollar as a reserve currency to the euro.
d. European Federation
For a moment, let's analyze the philosophy behind a strong Europe. There have been many proponents of a "European Federation," which include Dante, William Penn, Jean Jacques Rousseau, and Giuseppe Mazzini. Another strong proponent, Winston Churchil,l said "our constant aim must be to build and fortify the strength of the United Nations. Under and within that world concept we must recreate the European family in a regional structure called, it may be, the United States of Europe. France and Germany must take the lead together. Great Britain, the British Commonwealth of Nations, mighty America, and I trust Soviet Russia--for then indeed all would be well--must be the friends and sponsors of the new Europe and must champion its right to live and shine" (Daniel S. Cheever, H. Field Haviland, Jr., Organizing for Peace, Houghton Mifflin Company, Boston, 1954, 767). (I interviewed Daniel Cheever in 1995. He was special assistant to Alger Hiss at the UN Organizational meetings in 1945. )
However, they were not the first. The prophet Daniel wrote about a ten-nation confederacy inside the Holy Roman Empire at the end of the Age. Perhaps what we are seeing is the fulfillment of what was written in the book of Daniel. It should be obvious that the above did not just happen.
Recession is basically a time of reduced economic activity. A recession can be brought on by a loss of investor confidence, a weak dollar, too much debt, or the inability of the central bank to stimulate the economy.
Today there already is some loss of investor confidence, as seen in the switch from bonds to cash. According to Richard Curtin, director of the consumer confidence survey conducted by the University of Michigan, "Consumers are quite concerned with growing international economic difficulties and [are] especially concerned about domestic spillover into employment prospects" (WP, 10/14/98, A12). I think the fact that the Federal Reserve cut interest rates before their meeting in November (while timed with the passage of $18B for the IMF), says a lot.
If the Fed is truly worried about a loss of investor confidence and the spending habits of Americans, then I think we should consider the "handwriting on the wall." It becomes more and more apparent that the Fed's desire for us to continue spending is not so much to keep us from a recession but to protect Europe!!!!
Consolidation of power on the global level affecting the domestic
Part and parcel of the "final thrust" is a massive consolidation of power on the international economic level in which the International Monetary Fund is being given the powers of a "global federal reserve" to have complete control of the supply and flow of money on a worldwide basis. There are also plans to consolidate the IMF, WTO, and World Bank. All of this is with the blessings of our Congress, which plans to give control of our insurance companies and brokerage firms to the Federal Reserve when they pass a banking modernization law in early 1999. And the final step in the consolidation of the currencies of the world will be a global currency.
III. THE INTERNATIONAL LEVEL
It is not enough to understand our economy at the national level. We must look up to the global level. Unfortunately Americans are being "dumbed down" when it comes to understanding anything higher than the local level. Over the years, there have been many calls for a "new international monetary system." Bill Clinton is credited with having started the ball rolling at the 1994 Group of Seven meeting in Naples, Italy. Today, the Group of Seven has adopted the need for a new global architecture as its mantra. The IMF, which is poised to become a world central bank, obviously approves. Other non-G-7 world leaders approve. Most "imminent" economists and thinkers approve. Everyone seems to approve, except the American people--who don't know or understand!
At the 1998 annual meeting of the IMF/World Bank, Michael Camdessus, Managing Director of the IMF said, "To extend the enormous progress of the last 50 years into the next half century, we need a new architecture for the international monetary system....To face [the new challenges and new crises], we need to move to a higher level of international cooperation....as we face simultaneously the difficult tasks of renovating the system while managing crisis....This new architecture must rest on five underlying principles: transparency, soundness of financial systems, involvement of the private sector, orderly liberalization of capital flows, and modernization of international markets harnessed with standards of best practices and means for enforcing them" (emphasis mine).
The new architecture has been evolving since its inception in 1944. I have identified four stages in its evolution. We are currently in the fourth.
B. The Steps Leading up to the "Final Thrust"
Zbignew Bzrezinski said at the Gorbachev State of the World Forum in 1995 that the "New World Order would come step by step and stone by stone." The following are the steps which have already been taken:
1. Phase 1-- 1940s
The creation of the Bretton Woods Monetary System (1944), which includes the World Bank (WB) and the International Monetary Fund (IMF). A year later, in 1945, the United Nations was formed and our Senate ratified the UN Charter in October of that year. The purpose of the World Bank was to make loans to war- torn countries to rebuild. The stated purpose of the IMF was to make loans and to monitor the global economy with regard to monetary stability. As a result of America's post-war strength, the dollar was deemed the reserve currency of the world. Both the World Bank and the International Monetary Fund have evolved substantially since the 1940s and perform a very wide and broad array of economic, financial, and market functions. As stated, part of the new architecture will be the replacement of the dollar as the world's reserve currency.
2. Phase II-- 1970s
As a result of the amount of dollars floating around overseas and their stated convertibility to gold, Richard Nixon, in August 1971, had no choice but to close and sever any remaining ties the United States dollar had to gold in order to protect what was left of our gold reserves. It was General Charles deGaulle who realized, as a result of the Vietnam War, that America's gold reserves were being depleted. He was the last leader to convert his United States dollars into gold. As a result of this drastic, never- been-done-before move, the monetary systems of the world began to "float" against one another in order to determine its new value. For the first time since Biblical days when gold, cattle, clothing and food were the medium of exchange, the countries of the world found that their money would only be worth what someone else was willing to pay for it.
3. Phase III-- 1980s
In 1980, the Congress passed the Monetary Control Act of 1980, which tore down financial borders between countries. At the same time similar legislation was passed in the other Group of Seven countries--Canada, Germany, Japan, Italy, Great Britain, and France. As a result of these laws, the process of "globalization" began. I have defined globalization to mean, "Through constant change, the blending together of economies, people, laws, politics, monies, and social ethics into one; the convergence or harmonization, i.e. homogenization of the world from individual nation-states to one world, 'a world without borders.'"
The Monetary Deregulation Act of 1980 is remembered by most Americans when you explain that they were paid up to 15% interest on their money market funds for a short period of time. Today that same law, by taking away the interest rate ceilings banks paid, allows banks to pay only 2-3% on savings accounts and charge up to 15-21% interest on credit cards! Under the guise of floating interest rates, the legislation was passed to create a level playing field on a global basis for money to seek the highest yield or fastest play to be found worldwide without any legal or economic barriers! Today more than $1.3T moves around the world on a daily basis looking for the highest/quickest profit and play. Some of these players, like George Soros, are called "rough traders" and are partly responsible for causing havoc in a lesser developed country by buying its currency with or without loans, using it for hedging and ultimately devaluating it when the country takes action to curb the investment to protect itself. Countries that have experienced the downside of this sophisticated form of financial rape are Indonesia, Malaysia, and Thailand.
4. Phase IV -- Today, The Final Thrust
The 1990s constitute the final thrust for control of the world's monetary system by giving the International Monetary Fund greater powers over the market and surveillance in the marketplace. These powers will make it a "global federal reserve." There are many other recommendations to empower the IMF as an international credit corporation, provide international bankruptcy protection, and enforce the Basle Core Principles on all countries. Eventually if a country does not comply, it will be fined or penalized in some way.
C. Economic Regionalism - The Foundation for Global Currency
In order to prepare for this new system, the regions of this world are being divided up into economic trading zones. They are: the Americas (Canada, U.S., Mexico, Central and South America, called the Free Trade Areas of the Americas)*, the EMU (Economic and Monetary Union of Europe--11 countries will become one on January 4, 1999), and APEC (Asian- Pacific Economic Council--in the process of being formulated). Robert Rubin is heading up the Finance Ministers of the Americas, who desire to fix the currencies of the Americas to the dollar. Obviously the euro will be a consolidation of eleven currencies into one. There is no doubt that a lead currency will arise out of Asia and it will be the Japanese yen.
Recently Michael Howell, managing director of Crossborder Capital, an investment advisory group, said that the division of the world into three currency blocs would be the best way of preventing hedge funds from causing chaos. Furthermore he said that "the problem is that there are too many currencies in the world" and that regional currencies would remove volatility (FT, 10/22/98, 22).
There is no doubt in my mind that once the regional currencies are set so that they are compatible with one another, they will be "harmonized" so that they will trade within five to ten percent of each other, making them, in essence, a GLOBAL CURRENCY.
*In order for the dollar to have the same value as the Colombian, Mexican, or Peruvian peso, the dollar has to drop in value while those currencies have to increase. In order for the euro to "fly," there will have to be a mass exit from the dollar to support this new currency. A double - whammy for the United States and Americans!!!
D. Consolidation of Power and Power Players
The following will explain the shifts in power and the empowerment of key players on the international level.
1. The Treasury Departments and Central Banks
In a speech before the Council for Foreign Relations* in September, Bill Clinton requested that G-7 finance ministers and central bankers meet to discuss the current international architecture. The treasury departments of the world have effectively become part of each country's central bank. For example, here in the United States, the Federal Reserve is a private corporation with the power to control and operate our monetary system, something they have been doing since 1913 when our Senate passed this evil legislation through deceptive orchestration. What Clinton in effect called for is a merger between the Department of the Treasury and the Federal Reserve. If you have noticed, you always see Robert Rubin and Alan Greenspan together. They testify together, they hold joint press briefings together and they participated in the IMF/World Bank meeting together. This is a coup de grace, as the private banking corporations of the world now have complete control over all aspects of a country's money.
*Since actions speak louder than words, I believe that it is possible to deduce that this "final thrust" is already in the implementation stage because The Council for Foreign Relations is the American branch of the British Royal Institute for International Affairs (RIIA). The objective of both of these groups is to bring America back under the control of the British. In America, this control will be finalized when the banking modernization act, known in the 1998 session as "HR10," is passed sometime in early 1999.
2. The Empowerment of Central Banks
For years the central banks only dealt with the monetary systems of their countries. They did not deal in commercial paper or bail out hedge funds. However, the central banks have been aiding the markets recently by buying commercial paper to increase the liquidity of their countries. For example, the Bank of Japan recently emerged as the biggest investor of their commercial paper. By the end of September they held about 40% of the amount outstanding in a market dominated by commercial banks as a result of the inability of those banks to extend credit to buyers (FT, 10/16/98, 1).
Recently it was announced that the Bank of England plans to accept bond issues by governments and companies from outside the United Kingdom as securities during its daily operations to provide liquidity to London's money markets. Currently the bank only accepts securities issued by the UK government. On October 26, 1998 it began accepting sterling denominated bonds issued by such institutions as the World Bank and the European Central Bank (ECB). The bailout of Long Term Capital Management, a hedge fund, orchestrated by the Federal Reserve Bank of New York is an American example.
3. The Empowerment of the International Monetary Fund as a World Central Bank
Over the past four or five years, there have been a number of recommendations with regard to the "financial architecture for the 21st century." Until the Asian crisis, there was not a NEED to "fix" the architecture. However, the crisis conveniently gives the framers of the world economic infrastructure the "real" excuse to now integrate (combine, consolidate, blend) the economic (and political) systems of the world into ONE. It was ex-German Chancellor Helmut Schmidt who said, "The proper role of a central bank depends upon the monetary system of the world" (Steve Solomon, The Confidence Game, Simon & Schuster, 1995,#497).
At this time the IMF is in the process of taking on a number of new responsibilities, which include "surveillance" of the world's banking systems and the flow of monies worldwide. As a result of new "accords" from the central bank's bank, the Bank for International Settlements in Basle, Switzerland, in the future there will be a supervisory inspection of all banks in the world by the World Bank and IMF. Any bank that is not compliant will be merged or shut down. In short, this is another takeover of our national banks via the Federal Reserve and IMF. The pending bank modernization bill, HR10, contains this measure.
(b) World Bankruptcy Court
In order to "protect" countries from bankruptcy, the global powers are looking to set up a World Bankruptcy Court through the IMF. One only wonders who will receive a bankrupt country's natural assets!
(c) Lines of Credit
It is thought that extending lines of credit to countries in jeopardy the same way a credit corporation does would help save afflicted countries from bankruptcy. This function would be an IMF responsibility. And such empowerment would basically make the IMF a "global federal reserve" with the powers of global banking supervision. The reason why Greenspan, Rubin, and Clinton demanded the $18B from Congress is to fund the IMF credit corporation.
(d) Create a Stabilization Intervention Fund
In order to keep currencies in balance, there is a recommendation for a "stabilization fund" to be set up in order to keep the exchange rates between countries (regions) within agreed-upon bounds. According to John Grieve Smith (FT, 10/7/98, 10), the need for a stabilization fund would go further than a "new Bretton Woods." The way to get to this point would be for each region to develop regional arrangements and manage the rates between them (see Economic Regionalism). Global management would then start by managing the relations between the dollar, the yen, and the euro/pound, perhaps aided by the IMF. This fund could be looked at like a "mutual fund" in that all countries would pool their resources. It would provide liquidity to or take it away from the currency markets, depending on the international capital flows to a country. It could buy emerging market currency when a panic outflow occurs and sell the currency when foreign capital inflows are strong. It would also be in a position to deter speculation and dampen currency market volatility (FT, 10/7/98, 10).
4. The Merger of the IMF/World Bank/World Trade Organization
There are moves to merge these organizations into one so that they can better carry out their mandates. As mentioned earlier, the recent Omnibus Spending Bill sets up a special commission comprised of five former U.S. Treasury secretaries who will study this merger. Within six months of the study's completion, Clinton will call for a "new Bretton Woods" Conference.
A similar recommendation on the table is to make the IMF Interim Committee a permanent working committee comprised of members from the World Bank and the World Trade Organization. This idea was supposedly the sole idea of Britain's Finance Minister, Gordon Brown, at the recent IMF/World Bank meeting. It appears that this recommendation fits in very nicely with the special commission to be established.
5. Emergency Trade Insurance Pool
Back in February, the Group of Seven discussed the creation of an emergency trade insurance pool to help cash-strapped Asian companies continue their manufacturing businesses. Most recently at the IMF/World Bank meeting, Clinton unveiled the newest measures that our government is going to put in place. The United States has taken the lead to make funds available to the Overseas Private Investors Corporation (OPIC) in order to create an insurance pool of monies so that third world countries can have trade insurance on their exports. This will be backed up by the Export-Import Bank of the United States (Ex-Im Bank). The most recent Omnibus Spending Bill provided $785,000,000 to Ex-Im Bank and $32,000,000 to the Overseas Private Investment Corporation. Furthermore, the other G-7 countries will combine their export credit agencies to work together on this insurance pool--another level of integration on the global level.
All of these are additional steps in changing the economic sovereignty of the of the world's countries as duties and responsibilities that belonged to individual states are now going to be taken away and given to a global authority.
Interestingly enough, it was "rough speculators" who, we are told, caused the Asian collapse. None of the above addresses their part in the volatility of the world's currency markets!
The fact that all currencies float against one another and that there is a large pool of speculative money that moves electronically around the world is evidence of the volatility that this kind of floating exchange system metes out to its participants. It is, in essence, a very sophisticated game of financial rape.
Alan Greenspan has admitted that the West is experiencing [the first] serious financial crunch in fifty years. As shown, we have to look at both the national and international levels. On the national level there are problems--America's debt and trade deficits, loss of Japanese investments, and loss of liquidity. All of this will impact our markets and our economy.
On the international level, we must look at what is being set in place. There is no doubt that the market volatility was caused for the sole purpose of empowering the International Monetary Fund and the World Bank to take a greater lead in international currency markets. This is a loss of national economic sovereignty. Once gone, it is gone forever.
What we have just shown is that there is more to the crisis than meets the eye. The real game of ball is not being played in a stadium but on the international level!
"God is our refuge and strength, a very present help in trouble. Therefore will not we fear, though the earth be removed, and though the mountains be carried into the midst of the sea...Be still, and know that I am God: I will be exalted among the heathen, I will be exalted in the earth." (Ps. 46: 1,2,10)