‘Unsustainable Deficits’ and Bond Boycotts: Panic at the Fed or Back to Financial Normalcy?

The decision of the US Federal Reserve to raise its key interest rate was definitely not a sign of confidence in the US economic recovery or a signal that Fed policy is slowly returning to normal as claimed.

It was rather a signal of panic over the weakness in US Government bond markets, the heart of the dollar financial system.

Financial markets have reacted with jubilation, by buying dollars and selling Euros, at the decision by the Fed to raise rates for the first time since 2006 for its so-called Discount Rate, going from 0.5% to 0.75%. The Discount Rate is the interest rate charged for banks to borrow from the central bank. At the same time the Fed left its more important short-term Fed Funds rate unchanged and historically low -- between 0.0% and 0.25%.

In its official statement the Board of Governors said the rate move was intended to push private banks back into the private inter-bank borrowing market and away from reliance on Federal Reserve subsidized money which had been provided since the financial crisis began in August 2007.

The decision, in plain words, was framed so as to give the impression of a ‘return to business as usual.’ At the same time, financial players like George Soros continue to speak openly about the fundamental weakness of the Euro. This has the effect of taking speculative pressure away from fundamentally worse economic and financial fundamentals within the dollar zone at the expense of the Euro. The reality is that the dollar world is anything but returning to ‘normal.’

‘Unsustainable deficits’

The conservative President of the St. Louis Federal Reserve Bank, Thomas Hoenig recently warned in a little-reported speech that if the size of the Federal Budget deficit is not dramatically and urgently reduced, public debt will soon look like that of Italy or Greece, exceeding 100% of GDP. In a recent speech Hoenig noted,

“The fiscal projections for the United States are so stunning that, one way or another, reform will occur. Fiscal policy is on an unsustainable course. The US government must make adjustments in its spending and tax programs. It is that simple. If pre-emptive corrective action is not taken regarding the fiscal outlook, then the United States risks precipitating its own next crisis….”

Translated into laymen’s language, that means savage cuts in Government spending at a time when real unemployment is running in the range of an unofficial 23% of the workforce, and the states are struggling to cut their own spending, as Federal dollars disappear.

In brief, the United States economy, though no one is willing to say so, is caught in a Third World-style ‘debt trap.’

If the Government cuts the deficit, the economy sinks deeper into depression.

But if it continues to print money and sell debt, buyers of US Treasury debt will at a certain point refuse to buy, meaning US interest rates could be forced severely high in the midst of depression conditions—equally catastrophic to the economy.

Bond boycott?

The second option, a boycott by buyers of US bonds, may have already begun.

On February 11, the US Treasury held an auction of $16 billion worth of 30-year bonds and securities to finance its exploding deficits. In a little-reported feature of a sale which did not go well in terms of demand, foreign central banks reduced their share of purchases from a recent average of 43% of the total to a mere 28%.

The largest foreign central bank buyers of US debt in recent years have been China and Japan.

Secondly, it appears that the Federal Reserve itself was forced to buy the slack demand, some 24% of the total of bonds sold versus 5% only a month before.

The Federal deficit will reach an estimated $1.6 trillion in the current fiscal year that ends September 2010 and will continue next year and for at least another decade, above $1 trillion annually.

The situation will be further aggravated because the largest generation born after the Second World War, the so-called Baby Boom generation born between 1945-1966, has just begun retiring in huge numbers.

That deprives the Federal Government of their Social Security tax revenues, which will now go from an asset in the Federal budget to a liability, as the Government must pay out their monthly retirement pensions.

This will hugely aggravate the size of the deficits over the next decade and longer.

The highly-touted Clinton era Budget ‘surplus’ was in reality not the result of anything done by Clinton or his Treasury Secretaries Robert Rubin and Larry Summers. Rather it was because of the deceptive practice of counting on the Social Security tax revenues from that generation as US Government surplus revenue during their peak earning years in the late 1990s.

That tax inflow has now begun to turn into what will be a huge outflow over the next decade.

A new ‘China syndrome’

However, in the face of all this the White House seems to be implementing a series of foolish policies, with one action in direct contradiction to another. This is the case in terms of recent Washington behaviour towards China, the largest holder of US Government bonds, at least until this past month.

The Obama White House has recently approved punitive import tariffs on Chinese auto tires. Then it increased friction in relations with its largest creditor by announcing a provocative new arms sale of billions of dollars to Taiwan over strong Chinese protest. In addition, Secretary of State Hillary Clinton has meddled in internal Chinese Internet regulation by openly criticizing China for alleged censorship.

Then, as if to rub salt in a wound, despite further official Chinese protest, US President Obama officially met with the Dalai Lama in a Washington ceremony on February 18. Genuine concern for the well-being of Tibetan monks was not likely the reason.

It was to signal heightened US pressure on China. Officially, to date, Beijing has reacted calmly, if firmly. Its real response, however, might be coming in a financial arena, not a political one, something that the ancient Chinese military philosopher, Sun Tzu, would have no doubt suggested.

It appears that the Chinese government has already begun to react to the ill-timed US pressures on China by boycotting US Treasury debt buying. In December the Chinese were net sellers of US Government bonds, selling more than $ 43 billion worth of US debt. Given its huge annual trade surplus from its export earnings, the National Bank of China currently holds reserves of foreign currencies and other assets, including gold, worth $ 2.4 trillion.

At least 60% of that is believed to be in US Treasury and other Government-guaranteed debt, perhaps some $1.4 trillion. If China continues to dump US debt onto international financial markets, the dollar will plunge and a full panic will ensue in Wall Street and beyond.

To try to reverse this trend of boycotting US bond purchases by foreign central banks and others was likely the real reason that the Bernanke Fed now suddenly raised a key interest rate, despite the worsening of the domestic economy in real terms.

They seem to be engaged in a colossal market game of bluff, trying to convince that “the worst is over.”

That Fed move, as well as recent hedge fund and Wall Street attacks on the Euro in the context of the Greek events, are looking more and more like covert economic warfare for the future survival of the US dollar as world reserve currency.

As my latest book, Gods of Money: Wall Street and the Death of the American Century explains, US global power since 1945 has depended on having the dollar as undisputed world reserve currency and the US military as the world’s dominant power. If the dollar falls away, the over-extended military becomes vulnerable as well.

The Fed is in a desperate situation of trying to avert a full bond market selling panic that would trigger such a financial chain reaction collapse. This is why it raised one rate while leaving the more important Fed Funds rate at zero. It’s a desperate bluff. So far the lemmings in the financial markets appear to have bought the trick. How long that will last is unclear.

As the Greek crisis is resolved and it becomes clear that the situation, however difficult, in Spain and Portugal and Italy are not about default, as their problems are no where near terminal, the prospects for the dollar and euro could change dramatically.

In this situation China’s central bank holds major power to decide the possible outcome. One possible outcome of the growing global impasse is the prospect that the People’s Bank of China will dramatically increase its purchases of gold and silver reserves. That, in turn, could serve China far better than buying more US debt, and serve as a basis to establish a future role of its currency in regional trade and international business independent of the dollar or the euro.

A golden opportunity

China’s gold reserves until recently have been relatively low compared to the size of its reserves. Official Chinese central bank gold reserves were 1,054 tons as of March 2009, worth about $37 billion at today's prices. That represents a mere 1.5% of its total reserves, and that is itself up by 76% since 2003.

On average, international central banks hold about 10% of their reserves in gold. The German Bundesbank holds some 3,400 tons of gold, the second largest after the US Federal Reserve. To even get to that 10% level, China would have to buy more than $200 billion worth - about two years' global mine output.

Silver is not a significant part of most countries' reserves, but China is historically an exception, since in Imperial times before 1900 it was on a silver standard rather a gold standard, and so retained substantial silver reserves. One aim of the 1840’s British ‘Opium Wars’ against China was to drain the Chinese state of its entire silver currency reserves to the advantage of the British gold standard.

In 2001 and 2002 China was a major seller of silver, selling a total of 100 million ounces at its then-price of less than $5 an ounce. Since then, it has stopped selling silver. Last September 2009, the Chinese government passed a decree encouraging Chinese savers to buy silver, explaining that buying silver was a good deal since the gold/silver price ratio at 70-to-1 was historically very high, offering them convenient small-value ingots with which to buy it, and prohibiting the export of silver from China.

This was almost certainly a move designed to dampen stock-market speculation and reduce money supply growth, since bank deposits converted into silver would effectively be sterilized. What's more, if the long-awaited Chinese banking crisis ever developed, the effect on the long-suffering Chinese public would be mitigated if people held substantial wealth in the form of readily negotiable silver ingots.

It's likely that China is now a very large buyer of silver, possibly even more than gold.

Thus, a selloff in People's Bank of China holdings of US Treasuries could be offset by purchases of gold for its own account and of silver to supply to the Chinese public.

Economic and Social Crisis in America

Burglarious Stimulus
Paul Volker has recently said, "Well, we’ve got a problem in governing in this country…, our inability to deal with very large evident problems is apparent."

Indeed we do, and the problem is not new. The problem became evident to many long before Mr. Volker's term as Chairman of the FED, and he, along with many others, are complicit in perpetuating it.

There are two beliefs held by America's powerful elite that make solving social problems impossible. In fact these beliefs exacerbate existing problems and continually create new ones.

Much of America's political and economic communities hold the belief that government exists to promote private-sector business which will in turn use its ingenuity, expertise, and the profit motive to solve society's problems, relieving the government of that responsibility. Politicians of both parties, more or less, have adopted this view.

It accounts for the government's unwillingness to tax corporations and the wealthy, for both the Congress' ability to find money for corporations and war but rarely for people, and for the Republican assault on social programs, even social security. Republicans claim that all such programs should be privatized. Let the private sector handle social problems. It matters not that more than two hundred years of history proves the view to be misguided, perhaps something that Mr. Volker has come to finally recognize.

No known instance of the private sector's addressing and solving a social problem exists. Social problems abound in all societies that have from time to time adopted this view. Since the fall of communism in Bulgaria, unsolved murders have become epidemic, and look at what happened in Russia and Israel after they abandoned communism and socialism respectively. Crime and poverty have become widespread while billionaires have crawled from the woodwork.

The reason this always happens lies in another view held by the same elite: private-sector companies have one and only one responsibility—the pecuniary interests of their stockholders. Private-sector companies have no social responsibilities. The chief proponents of this view are the late Milton Friedman and the Chicago school of economics, although the view is quite widespread and was formulated long ago. It is sophistically called economic freedom.

That these two notions are incompatible should be obvious.

The first places the responsibility of solving social problems on the private sector and the latter removes that responsibility from the very same private sector. The result is that neither the private sector nor the government takes responsibility for the solution of the "very large evident problems" that Mr. Volker now recognizes.

But these notions also account for why the government's stimulus packages are not working.

The original stimulus that gave almost a trillion dollars to the investment and automotive communities has produced meager results. Now the administration is proposing a "jobs bill" that merely consists of giving small businesses that hire new workers tax breaks, which is just another instance of the government's promoting private-sector businesses in an effort to solve a social problem.

These programs are burglarious. The people are made to take on debt to pay for their own jobs.

There is much forthright criticism of these programs. See Obama's disco-era jobs bill
, but the Congress will pay no attention; the dogma will prevail, and the economic problem with all of its associated social problems will persist in greater or lesser form.

A number of pieces have appeared which describe the stimulus as a failure. Conn Carroll of the Heritage Foundation writes , "Congress does not have a vault of money waiting to be distributed. Every dollar Congress injects into the economy must first be taxed or borrowed out of the economy. No new spending power is created. It is merely redistributed from one group of people to another. . . . Yes, government spending can put under-utilized factories and individuals to work–but only by idling other resources in whatever part of the economy supplied the funds.

If adding $1 billion would create 40,000 jobs in one depressed part of the economy, then losing $1 billion will cost roughly the same number of jobs in whatever part of the economy supplied Washington with the funds. It is a zero-sum transfer regardless of whether the unemployment rate is 5 percent or 50 percent."

But why Carroll and others like him fail to notice that the same thing happens when the government subsidizes private-sector business ventures is logically incomprehensible. Any subsidy comes from somewhere and goes somewhere else. All governments engage in the practice of transferring money from one group to another. From whom the money should be taken and to whom it should be given is the essential question. That it should be taken from the poorest and given to the richest is what contradicts all known moral principles and has provoked the common widespread opposition to the stimulus.

And the Wall Street Journal reports in The Stimulus Didn't Work that "The data show government transfers and rebates have not increased consumption at all." But only an economist would ever have expected it to. Birds won't feed if the birdseed in sprinkled over the dog's food. Transferring money to vendors does not increase consumption.

Job creation is the measure everyone seems to be looking at, but merely creating jobs is itself not helpful. Anyone who has looked at the way the unemployment rate is calculated knows that it is bogus. It is not mathematically possible for the number of jobs lost in a month to be greater than the number gained and have the unemployment rate drop.

Two plus two never equals three. Furthermore, it is perfectly conceivable for a society to have full employment and widespread poverty.

All that is required is sufficiently low wages. Widespread poverty is a social problem that is worse than unemployment. In fact, if merely reducing the unemployment rate were the goal, given the way the employment rate is calculated, the goal could be accomplished more quickly by just paying the unemployed enough to take them off the rolls of jobseekers. Some economists, Stiglitz for instance, have claimed that the reason employment is a lagging indicator is that wages are not reduced fast enough in economic downturns to stimulate it. But lowering wages creates rather than solves social problems.

The powerful elite in America who object to social programs for the people, otherwise known as entitlements, apparently don't recognize that subsidizing the private sector is itself an entitlement.

The private sector knows that it can expect these subsidies and feels it is entitled to them, and when some companies are deemed "to big to fail," the entitlement becomes absolutely necessary. The result is that the government exists for the benefit of the private sector and not for the people.

The private sector endures while the people perish. It results in the absurdity of the nation's having thousands of empty houses while homeless families live on the streets along with their hungry children. See Suburban homeless: Rising tide of women, families. Is this how the greatness of America is to be measured? Is this how we want the world to view us? Is this the kind of world we want to live in?

So what is the upshot of all of this? There are only three logical possibilities.

1· One is that the private sector be required to take on the responsibility for solving social problems, exacting severe penalties from those companies that don't assume it.

2· Another is that the government abandon the view that the private sector can or will solve social problems and assume that responsibility itself.

3· The third is to do nothing, making clear that the government assumes the attitude of William H. Vanderbilt who said, "The public be damned!"

I suspect that those who make up America's power-elite would prefer the last but lack Vanderbilt's honesty.

These people are, of course, evil through and through.

But I wonder which alternative Mr. Volker would select, and whether he's honest enough to even confront the issue.

We'll never know of course, for Mr. Volker along with everyone else in this elite class have adopted Pascal's view that "the best defense against logic is ignorance," and they maintain their ignorance by ignoring all critics.

U.S. Intensifies Threats To Russia And Iran

Washington and its NATO allies launched two of the three major wars in the world over the past eleven years in March – against Yugoslavia in 1999 and against Iraq in 2003. The war drums are being pounded anew and the world may be headed for a catastrophe far worse than those in Yugoslavia, Afghanistan and Iraq.

The United States, separately and through the military bloc it controls, the North Atlantic Treaty Organization, is accelerating military deployments and provocations throughout Eurasia and the Middle East.

Embroiled with fellow NATO members in the largest-scale military offensive of the joint war in Afghanistan launched eight years ago last October and well on the way to both extending and replicating the Afghan aggression in the Horn of Africa and the Arabian Peninsula [1], Washington and its allies are also taunting and threatening Russia as well as surrounding Iran with military forces and hardware preparatory to a potential attack on that nation.

The rapid pace of the escalation – almost daily reports of missile shield expansion in Eastern Europe, the Caucasus, the Persian Gulf and Turkey; heightened and progressively more bellicose words and actions directed against Iran – is occurring at a breakneck and almost dizzying speed, drawing in larger and larger tracts of Europe and Asia.

On January 12 new U.S. ambassador to Bulgaria James Warlick, speaking “at his first public event in the country,” announced that Washington is entering into negotiations with the Bulgarian government to station interceptor missile facilities, most likely at one of the three new military bases the Pentagon has acquired there in the past four years. “The US military already has bases in Romania and Bulgaria that were created some years ago for delivering troops and cargo to Iraq and Afghanistan….” [2]

“The United States is planning to expand its European missile shield to other parts of Europe” and “will consult closely with Bulgaria and other NATO allies on the specific options to deploy elements of the defense system in those regions,” according to the American envoy. [3]

During the same speech Warlick also “called on Bulgaria to find other alternatives to stop its dependence on Russian gas,” [4] a reference to sabotaging the Russian South Stream project to transport natural gas from the eastern end of the Black Sea to Bulgaria and from there to Austria and Italy.

An analyst at a pro-NATO think tank in Bulgaria said of the proposed missile shield components that “They can be deployed virtually anywhere. Naturally they will need special infrastructure that provides logistical processes, and technically everything should be enforced by NATO standards.” [5]

The news of including Bulgaria in U.S. and NATO missile shield plans came eight days after a comparable announcement was made by Romanian President Traian Basescu that his country, where the U.S. has four new military bases, will host land-based U.S. interceptor missiles.

The news from Romania in turn came only two weeks after Poland disclosed that a U.S. Patriot Advanced Capability-3 anti-ballistic missile battery will be stationed 35 miles from Russian territory as early as March. [6]

The head of the Russian lower house of parliament’s Committee on International Affairs, Konstantin Kosachev, responded to the latest news by saying it is “not in line with the ‘reset’ of US-Russia relations,” [7] an almost unintentionally comic understatement, and other Russian officials have pointed out that the Bulgarian report, as with those relating to Poland and Romania, came to their attention by reading of it in the press. Moscow’s American friend doesn’t feel constrained to notify Russia of its intention to base missile shield installations near the latter’s borders or across the Black Sea from it.

Former Joint Chief of Staff of the Russian Armed Forces retired general Leonid Ivashov was less restrained in his reaction. He recently told a major Russian radio station that U.S. missile strategy “remains unchanged” vis-a-vis that of the former George W. Bush administration and missiles in Romania are an integral component of Washington’s plan to “neutralize Russia as a geopolitical competitor” [8] in the Black Sea and in general.

In fact Washington’s plans are to destroy the strategic balance in the European continent two and a half months after the expiration of the Strategic Arms Reduction Treaty (START). Recent announcements concerning U.S. missile deployments near Russia have been interpreted by some observers as intentionally designed to bury START negotiations and any hope for a treaty for the limitation and reduction of strategic offensive arms.

A Russian military analyst, Alexander Pikayev, said of the above dynamic that “US/Russia relations were improving but these proposals really don’t help the situation. This situation is a time bomb. If these plans go ahead it could cause big problems in five to ten years time.” [9]

The White House and Pentagon explain the drive to deploy a solid wall of interceptor missile bases along Russia’s western borders as an alleged defense against Iranian, North Korean and even Syrian missile threats, the argument used by the last American administration in furtherance of plans to place ground-based midcourse missiles in Poland and an X-band missile radar site in the Czech Republic.

The rationale was false then and remains so now. How short-to-medium-range missiles in Poland can in any manner be a response to Iran is unexplained – because it is unexplainable.

Ivashov refuted this transparent lie by stating “Iran will never be first to deliver a military strike.” [10]

On January 12 the Polish parliament took the next step and approved the deployment of 100 U.S. troops, the first foreign forces to be based on its soil since the end of the Warsaw Pact almost twenty years ago, to staff the missile battery near Russia’s border.

Regarding the addition of Bulgaria to the expanding range of American missile shield sites – not the last as will be seen below – Konstantin Sivkov, First Vice President of the Russian Academy for Geopolitical Problems, said that the move “directly threatens Russia.” A news account of his comments added “that after Bulgaria, the next country to make a similar announcement may be Georgia, which has already expressed similar desires.” [11]

He also anticipated the statement of the former top Russian military commander cited above in asserting “the argument that the US missile defense in Europe will be directed against missiles from Iran and North Korea is ridiculous as neither of the two states has the capacity to carry out such strikes.”

In his owns words, Sivkov warned: “The US missile defense in Europe is being created in order to level down Russian operational and tactical missile weapons. The USA has started creating a military infrastructure for exerting military pressure on Russia.” [12]

Another geopolitical analyst, Maxim Minaev of the Russian Center for Political Affairs, said of the new and continent-wide European missile shield system planned by the U.S. and NATO that “In its scope it envisages a much stronger structure than the one that was supposed to be in located in the Czech Republic and Poland,” [13] one which logically will include Georgia and Azerbaijan on Russia’s southern border.

Poland became a full NATO member in 1999 and Bulgaria and Romania five years later. On the day U.S. ambassador Warlick first revealed plans to extend interceptor missile plans to Bulgaria, Prime Minister Boiko Borissov hastened to add “My opinion is that we have to show solidarity. When you are a member of NATO, you have to work towards the collective security.” [14]

To indicate the extent to which U.S. missile shield provocations in Eastern Europe are linked with NATO’s drive east into former Soviet space, fraught as that strategy is with heating up so-called frozen conflicts and the very real threat of hot wars, this year’s developments in Poland, Romania and Bulgaria immediately gave rise to dangerous military prospects east of the Black Sea.

The latest news from Romania was coupled with the announcement that “the Czech Republic is in discussions with the Obama administration to host a command center for the United States’ altered missile-defense plan,” [15] and on February 18 the Romanian government began bilateral discussions with neighboring Moldova “on U.S. missile defense plans in Europe….” [16]
The former Soviet republic of Moldova has been coveted by Romania since the breakup of the Soviet Union in 1991 and the current, Western-supported post-”Twitter Revolution” government is more than willing to oblige its patrons in Bucharest and Washington.

Recently Vladimir Voronin, president of Moldova until last September 11th, spoke of the Romanian president’s disclosure that he would allow the stationing of U.S. missiles in his country and, drawing a parallel with Romania’s World War II fascist dictator, said

“The steps taken by Basescu are similar to the agreements to form an anti-Soviet coalition reached by Antonescu and Hitler.”

Voronin added, “Moldovan society is against basing U.S. anti-missile defense systems in Romania. Strained Moldovan-Romanian relations will become worse. We do not accuse Romania for this decision as we are aware of its unionist policy. [Absorbing Moldova into Romania.] Romania cannot accept that Moldova exists as an independent state.” [17]

“Though the Americans said the rockets are designed to prevent dangers from Iran, the essence is different. These events remind one of Europe’s return to the Cold War of the last century.” [18]

On February 11 Moldovan political analyst Bogdan Tsirdia warned that the U.S. “is very consistently moving NATO infrastructure in Russia’s direction,” specifically mentioning American bases in Romania and Kyrgyzstan, and added “the US wants to create another base in Georgia.”

He added in relation to the Black Sea in particular that “in the near future the US will have a conventional arms advantage over Moscow in the region….The United States is turning the Black Sea into an American lake to control transit in the region.” [19]

On February 15 Transdniester, formerly part of the Moldovan Soviet Socialist Republic but independent since 1990 and a war with Moldova two years later – and which fears that Romanian incorporation of Moldova would be a prelude to armed attacks to subjugate it – offered to host a Russian missile defense system to counter the American one in Romania.

Transdniester’s president, Igor Smirnov, said “we could deploy what Russia needs” as the stationing of U.S. interceptor missiles “will not be a stabilizing factor.” [20]

His country is bordered by Ukraine to the east and has been blockaded by that nation after the U.S.-backed “orange revolution” in Ukraine in late 2004 and early 2005. The recent presidential election has rid the nation and its people of the “orange” duo of Viktor Yushchenko and Yulia Timoshenko, and incoming head of state Viktor Yanukovich pledged that “There is no question of Ukraine joining NATO,” [21], thereby renouncing one of the two major objectives of his pro-Washington opponents: Pulling Ukraine into the military bloc against the will of the overwhelming majority of its population and ousting the Russian Black Sea fleet from Sevastopol in Crimea.

The outgoing Yushchenko regime recently assigned Ukrainian troops to the global NATO Response Force and hosted NATO Military Committee Chairman Admiral Giampaolo Di Paola who presented a draft cooperation plan for 2010-2011.

A member of the new president’s Party of Regions, Vasil Hara, deputy chairman of the party’s parliamentary group, recently stated “that by offering to deploy U.S. anti-missile systems on its territory, Romania is turning Ukraine into a risk zone.”

He also affirmed that incoming President Yanukovich “will not leave Transdnestr without support.” [22]

NATO expansion not only allows nations increasingly closer to Russia and Iran to be used for global interceptor missile facilities. The eastward drive of the bloc is expressly intended to secure such bases and related sites for that purpose.

Recent developments, however, signal a new advance in U.S. and NATO strategy to neutralize potential adversaries’ ability to respond to military aggression from the West. The extension of missile shield deployments and technology to the Black Sea and from there further east and south marks the confluence of hostile intentions toward Russia and Iran simultaneously.

In the third public warning on NATO expansion since last month, Iranian President Mahmoud Ahmadinejad recently said “The West’s ultimate goal is not Iran, but India and China” and “named the recent concentration of NATO forces around India and unrest in Pakistan as an argument.” He added that NATO now “almost completely surrounded Russia” and advocated that “Russia should respond to the deployment of NATO forces along its borders.” [23]

Earlier this month former president Hashemi Rafsanjani issued a similar warning, saying “the deployment of NATO forces in Iraq, Afghanistan, and Azerbaijan will constitute a serious threat to Iran….” [24]

In discussing Western pressure not to provide Iran with S-300 surface-to-air missiles for defense against prospective U.S. and Israeli attacks, Russian Security Council Deputy Secretary Vladimir Nazarov recently said, “This deal is not restricted by any international sanctions, because these are merely defensive weapons,” and recalled earlier Russian concerns about the U.S. and its NATO allies arming Georgia on the eve of the August 2008 war with Russia.

But, Nazarov rued, “Our calls were ignored. It should be recalled that the Georgian aggression resulted in deaths among Russian servicemen and Russian civilians.” [25]

Russian concerns have not abated in the face of recent news.

The website of the U.S. Air Forces in Europe divulged that American airmen from the Ramstein Air Base in Germany have arrived at the modernized, massively upgraded Krtsanisi National Training Center in Georgia, “a forward operating base of sorts,” to join American Marines there training the Georgian armed forces on a “mission that involves providing a top-notch service to fellow warfighters.” [26]

The Marines have been in the nation and at the Krtsanisi base since last August, and in October conducted the latest Immediate Response war games. Immediate Response 2008, which also included U.S. Marines, ended the day before Georgia invaded South Ossetia and triggered a five-day war with Russia.

U.S. Special Envoy for Afghanistan and Pakistan Richard Holbrooke will arrive in Georgia on February 22 on a visit “devoted to the Georgian military contingent’s participation in the peacekeeping mission in Afghanistan.”

Holbrooke was in the Persian Gulf on February 15 and while speaking in Qatar said of Afghanistan “We cannot make the disastrous mistake of 1989. The international community must stay in Afghanistan to help it,” [27] meaning 1992 presumably, when the U.S.’s Mujahideen clients took over the nation, and “The U.S. has led and won similar wars in Kosovo and Bosnia….” [28])

Georgia is to send another 700 troops trained by U.S. Marines to Afghanistan to serve under American command shortly. Leading Georgian officials have unapologetically acknowledged that the training and combat experience provided them by the U.S. can be used for subjugating South Ossetia and Abkhazia. Any such attempt would guarantee another and far larger war with Russia which has expanded its military presence in both nations since the 2008 war. [29]

Georgia can also be used by the U.S. for military strikes against Iran by providing surveillance radar, air bases and its Black Sea waters for cruise missile launches.

The Russian Itar-Tass news agency revealed on February 12 that in addition to supplying Georgia with aerial drones, Israel is delivering a large consignment of arms and ammunition to the nation.

Citing sources in the Russian secret services, the report revealed: “Under an effective contract Israel’s Ropadia company, registered in Cyprus, plans to supply through Bulgaria’s Arsenal firm 50,000 AKS-74 automatic rifles, about 1,000 grenade launchers RPG-7 and nearly 20,000 40-millimeter shells for them, as well as about 15,000 5.56-millimeter assault rifles….The hardware and ammunition was ready for shipment back several days ago.” [30]

In line with recent announcements that Washington is building up both land-based and sea-based interceptor missile capabilities in the Persian Gulf, the same combination as will be deployed along Russia’s western frontier from the Baltic Sea to the Black Sea and from the latter into the South Caucasus, Georgia and neighboring Azerbaijan are key components in the strategy to prevent Iranian retaliation in the event of U.S. and Israeli attacks. American and NATO bases in Bulgaria and Romania were used for the 2003 war against Iraq and are for the war in Afghanistan to the current day.

Azerbaijan, which has consolidated military ties with the U.S., NATO and Israel, is on Iran’s northwest border. [31]

Recently an official with the Azerbaijan president’s Academy of Public Administration spoke at a conference titled Azerbaijan’s Integration into Europe: Problems and Prospects, organized by the NATO International School in Azerbaijan. He advocated NATO intervening in the Nagorno Karabakh conflict with Armenia as the military bloc had “in the early 1990s in the Balkans, Bosnia,” when NATO deployed 400 warplanes in a bombing campaign against Bosnian Serb positions.

According to the official, Elman Nasirov, “the main aim of Azerbaijan in integrating into NATO and European structures is to provide security and restore its territorial integrity,” [32] meaning the military conquest of Karabakh.

Azerbaijan can be a major base for operations against Iran, where ethnic Azeris comprise as much as a quarter of the population. The Bosnia model has been alluded to above on two occasions.

On February 16 NATO Secretary General Anders Fogh Rasmussen hosted Major General Yaylym Berdiyev, the defense minister of Turkmenistan, Iran’s northeastern neighbor, at the Alliance’s headquarters in Brussels. As the French Voltaire Network wrote five days before,

“NATO has encircled Iran almost entirely: it has a foothold in Afghanistan, Pakistan, Abu Dhabi, Saudi Arabia, Kuwait, Iraq, Turkey, Armenia and Azerbaijan. It just needs one in Turkmenistan for the siege to be complete.” [33]

To Iran’s west, Turkey’s Zaman newspaper wrote on February 17 that U.S. Secretary of State Hillary Clinton spoke in the Persian Gulf state of Qatar and while identifying Iran as a “long-term threat” because of its “nuclear weapons,” said that the U.S. interceptor missile system being steadily expanded from Eastern Europe to locations east and south “would protect into the Caucasus and down to Turkey, would provide some additional guarantee against threatening behavior.”

(NATO Deputy Secretary General Claudio Bisogniero was in Qatar on February 8 and 9 to consolidate military partnerships with members of the Istanbul Cooperation Initiative and the Mediterranean Dialogue: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates, Algeria, Egypt, Israel, Jordan, Mauritania, Morocco and Tunisia. [34])

The same Turkish source quoted U.S. Defense Secretary Robert Gates: “The dialogue on what Turkey could do within NATO to counter the proliferation of ballistic missiles via a missile defense system continues. We have discussed the possibility of erecting two radar systems in Turkey.” [35]

The Pentagon is simultaneously deploying land-based and ship-based interceptor missiles throughout the Persian Gulf to render Iran incapable of retaliation against massive missile attacks and bombing runs from the U.S. and its allies. [36]

After a five-day tour to Afghanistan and Pakistan to oversee the escalation of the wars in both nations, U.S. National Security Adviser James Jones – former Marine Commandant and NATO Supreme Allied Commander – said that Washington was pursuing tighter sanctions against Iran and revealed what the true purpose of such economic warfare is: “We are about to add to that regime’s difficulties by engineering, participating in very tough sanctions,” which “could trigger regime change.” [37]

On February 14 Chairman of the U.S. Joint Chiefs of Staff Admiral Michael Mullen arrived in Israel to meet with Israeli Defense Minister Ehud Barak and military Chief of the General Staff Lieutenant-General Gabi Ashkenazi, and stated that the option of war against Iran “is still on the table.” [38]

During his trip it was reported that “Mullen’s visit follows a visit last month by U.S. National Security Adviser James Jones and a leaked secret visit two weeks ago by Central Intelligence Agency director Leon Panetta.” [39]

In a masterful analysis of the current crisis in Yemen, American professor Robert Prince examined that nation’s role in American plans for armed hostilities against Iran.

In addition to “countering Chinese access to Middle East and African oil and gas moves, in the long run Yemen offers the United States strategic access to the Horn of Africa – Somalia, Sudan, Kenya – all of which are in varying degrees of turmoil and opens the door for expanding the roles of either AFRICOM or NATO – not only in the Middle East, but in Africa.

“There is another possible strategic consequence to US bases in Yemen, hypothetical but not out of the range of possibility: a US air base in Yemen could be used as a launching pad for an air attack on Iran, not only for US planes but for the Israelis as well.” [40]

On February 15 the earlier-cited Vladimir Nazarov, deputy secretary of Russia’s Security Council, warned that “Any military action against Iran will explode the situation, will have extremely negative consequences for the entire world, including for Russia, which is a neighbor of Iran.” [41]

On the 17th Chief of the General Staff of the Russian Armed Forces General Nikolai Makarov was quoted by his nation’s Interfax news agency as stating, “The U.S. is currently conducting two military operations – in Afghanistan and in Iraq. A third one would be a disaster for them. So, as they’re tackling their tasks in Iraq and Afghanistan, they could deliver a strike against Iran.” [42]

Washington and its NATO allies launched two of the three major wars in the world over the past eleven years in March – against Yugoslavia in 1999 and against Iraq in 2003. The war drums are being pounded anew and the world may be headed for a catastrophe far worse than those in Yugoslavia, Afghanistan and Iraq.

Notes

1) U.S., NATO Expand Afghan War To Horn Of Africa And Indian Ocean Stop NATO, January 8, 2010
http://rickrozoff.wordpress.com/2010/01/08/u-s-nato-expand-afghan-war-to-horn-of-africa-and-indian-ocean-2
2) Russia Today, February 15, 2010
3) RTT News, February 12, 2010
4) Ibid
5) Focus News Agency, February 16, 2010
6) With Nuclear, Conventional Arms Pacts Stalled, U.S. Moves Missiles And Troops To Russian Border Stop NATO, January 22, 2010
http://rickrozoff.wordpress.com/2010/01/22/with-nuclear-conventional-arms-pacts-stalled-u-s-moves-missiles-and-troops-to-russian-borde r
7) Voice of Russia, February 16, 2010
8) Russia Today, February 15, 2010
9) Sky News, February 17, 2010
10) Ibid
11) Sofia News Agency, February 13, 2010
12) Ibid
13) Ibid
14) Sofia Echo, February 12, 2010
15) Prague Post, February 10, 2010
16) Russian Information Agency Novosti, February 18, 2010
17) Info-Prim Neo (Moldova), February 13, 2010
18) Ibid
19) The Messenger (Georgia), February 15, 2010
20) Russian Information Agency Novosti, February 15, 2010
21) Russian Information Agency Novosti, February 12, 2010
22) Nezavisimaya Gazeta/Gazeta.ru, February 15, 2010
23) Trend News Agency, February 16, 2010
24) Jomhouri-e Eslami, February 10, 2010
25) Interfax, February 14, 2010
26) U.S. Air Forces in Europe, February 16, 2010
27) Reuters, February 15, 2010
28) Tanjug News Agency, February 17, 2010
29) U.S. Marines In The Caucasus As West Widens Afghan War Stop NATO, September 3, 2009
http://rickrozoff.wordpress.com/2009/09/04/u-s-marines-in-the-caucasus-as-west-widens-afghan-war
30) Itar-Tass, February 12, 2010
31) U.S. Marines In The Caucasus As West Widens Afghan War, Stop NATO, September 3, 2009
http://rickrozoff.wordpress.com/2009/09/04/u-s-marines-in-the-caucasus-as-west-widens-afghan-war
Azerbaijan And The Caspian: NATO’s War For The World’s Heartland Stop NATO, June 10, 2009
http://rickrozoff.wordpress.com/2009/08/31/azerbaijan-and-the-caspian-natos-war-for-the-worlds-heartland
32) News.AZ, February 16, 2010
33) Voltaire Network, February 11, 2010
http://www.voltairenet.org/article164004.html
34) NATO’s Role In The Military Encirclement Of Iran, Stop NATO, February 10, 2010
http://rickrozoff.wordpress.com/2010/02/10/natos-role-in-the-military-encirclement-of-iran
35)Today’s Zaman, February 17, 2010
36) U.S. Extends Missile Buildup From Poland And Taiwan To Persian Gulf, Stop NATO, February 3, 2010
http://rickrozoff.wordpress.com/2010/02/03/u-s-extends-missile-buildup-from-poland-and-aiwan-to-persian-gulf
37) Deutsche Presse-Agentur, February 15, 2010
38) Jewish Telegraphic Agency, February 14, 2010
39) Ibid
40) Robert Prince, Houthi Rebellion in Yemen has the Saudis Nervous
February 11, 2010
http://robertjprince.wordpress.com/2010/02/11/yemen-5-houthi-rebellion-in-yemen-has-the-saudis-nervous
41) PanArmenian.net, February 15, 2010 42) Interfax-Military, February 17, 2010

Economic Fiat End-Times?

The Federal Reserve decided Thursday to boost the rate banks pay for emergency loans. The action is part of a broader move to pull back the extraordinary aid it provided to fight the worst financial and economic crisis since the 1930s. The move won't directly affect borrowing costs for millions of Americans.

But with the worst of the financial crisis over, it brings the Fed's main crisis lending program closer to normal. The Fed decided to bump up the so-called "discount" lending rate by one-quarter point to 0.75 percent. The increase takes effect Friday. The central bank said the action should not be viewed as a signal that it will soon boost interest rates for consumers and businesses.

Record-low borrowing costs near zero are still needed to foster the recovery, it said. The Fed repeated its pledge to keep interest rates at "exceptionally low" levels for an "extended period." - Yahoo/AP

Dominant Social Theme: Don't worry. Everything is under control.

Free-Market Analysis: Recently we have written about how America's - and the world's - fiat financial system could change and even unravel. We have noted that there is generally a fiat-money crisis around the world and that every single global player seems to be struggling with its money and its economy.

This is taking place in a fairly easy money environment. But what if money becomes more expensive, as we think it may in the near future? We foresee a very unhappy time indeed. The choices will be difficult. Loosen and allow the possibility of tremendous price inflation - leading to a good deal of social unrest. Or continually tighten and face a good deal of social unrest.

You can see two other articles here:

How Global Fiat Money Dies

Depression 2102 - Western Fiat-Money Finished?

The AP article excerpted above, announcing the first tentative contraction of monetary policy by the Federal Reserve may well be the first shot in the tightening campaign. We do not believe it will be the last. But having written this, we also want to draw your attention, dear reader, to just how sensitive the Fed is about its tiny tightening.

Here's some more from the article:

The central bank said the action should not be viewed as a signal that it will soon boost interest rates for consumers and businesses. Record-low borrowing costs near zero are still needed to foster the recovery, it said.

The Fed repeated its pledge to keep interest rates at "exceptionally low" levels for an "extended period."

The Fed had signaled for weeks that an increase in the discount rate was coming. It made its announcement Thursday after the financial markets had closed. Investors, however, viewed the bump-up in the emergency lending rate as a step toward broader credit tightening. In after-hours trading, the dollar strengthened, yields on two-year Treasury securities rose and stock futures dipped.

The Fed portrayed its action as moving its emergency program for banks closer to normal. But the markets saw it initially as a prelude to higher borrowing costs across the board.

"I think one man's normalization is another man's tightening," said T.J. Marta, market strategist and founder of Marta on the Markets, a financial research firm, explaining the market's reaction.

Notice the sensitivity? The Fed in no way wants to encourage the perception that money will grow dearer.

Why not? The considerations in our opinion may be as much political and social as they are monetary. People the world over, and in America, too, are out of work and out of hope. Were the Fed to signal a strong tightening move, the current grass-roots Tea Party rebellion would likely grow taller than ever, and in a hurry.

The leaders of the Fed are probably also conscious that they are square in the sights of those who are unhappy with the system. There have been hard times before, most notably in the 1970s (in the recent past) but the difference today is that people have a way of informing themselves about what is going on that they didn't have before.

Lose your job? Go on line and try to figure out what's going on with the economy.

Just lose a lot of your savings? Go on line and try to figure out how that happened. You will find PLENTY of information.

To simply believe, therefore, that the current economic crisis will gradually resolve itself as others have may be somewhat naïve.

First of all, this is a very deep crisis, one that has affected every part of the globe and every major Western (and Asian) nation.

Second, after 100 years of an increasingly concentrated central banking economy worldwide, people we believe are increasingly tired of the crises and of the constant worry associated with a boom-bust business cycle . Finally, as we have just pointed out, there is the Internet and the ability that people have to use it to find out alternatives to the current system.

These three factors are why we have come to think that substantial economic upheavals (and economic unrest) may be a bit closer than we used to think and more powerful as well. Two years ago, before the crisis, we might have put major upheavals out 10 years or more. Even a year ago, or less, we didn't foresee the dollar being dumped anytime soon, or the US with its phenomenal military power being challenged economically.

But now? The euro-chaos, combined with what we see going on in Japan (and China as well by our estimation) has made us reevaluate our timeline. Fiat currencies are in trouble all over the world, and by extension central banking as a dominant social theme is losing credibility.

It is in fact an indefensible financial mechanism. The idea that a group of individuals, no matter how wise or experienced, can set the price of money is ludicrous. Price-fixing simply does not work, so why should it work for money stuff itself?

Price fixing always distorts the economy. Either there is too much of something, which cheapens the product - whatever it is - or too little which causes a queue and additional scarcity and expense. In the case of the current mercantilist central banking regime, the world is first inundated with cheap money and then experiences endless withdrawal and regret (and various forms of ruin).

We are in the withdrawal stage now. And regret, this time round, is turning into something more generally worrisome for those who stage-manage the economy worldwide. We believe it is turning into profound anger.

This anger is percolating, but it has not yet begun to boil. It would likely boil over when the cheap money of the past decade turns more expensive. This is surely what the Federal Reserve is worried about it and why it is being careful to explain that its initial tightening is NOT a tightening.

The EU, meanwhile, is faced with the specter of tightening the monetary policies of the entire southern half of its enterprise. Japan can stimulate no further and China just dumped hundreds of billions of yuan into its economy and its leaders are probably just as worried about price inflation at this point as they are about future growth.

It is inevitable now that there will be either very expensive money, and then perhaps an explosion of price inflation. Free-market economics tells us that the inflation has already taken place because the money has been printed. But it has not yet transformed into price inflation.

History also tells us that central bankers can only tighten for so long before the politicians - or the citizens themselves - get upset and force an easing. And what an easing that would be given the amount of money that central banks have printed in the past year or so!

People are angry in America and increasingly in Europe. Their anger will increase if fiat money becomes dearer. And their anger will increase if fiat money becomes less dear, initiating price inflation. Central bankers actively seek to be known for their intelligent and conservative manipulations of currency.

They want credit for their strategic efforts. In the next decade they will not have to try too hard to be noticed. They may find, after all, they do not like the attention.

Conclusion: Will the system degenerate so far and fast that a precious metals standard of some sort is readopted? Well, macro-predictions are a risky business. We do believe a day of reckoning is closer now than we thought previously for the world's shaky fiat-money system as a whole.

The problems are greater and they are globally prevalent. Fiat money is a slender reed in the best of times. And these are not the best of times.

If one major currency goes down, so might they all, and surely the dollar would not be immune.

Are US Taxpayers Bailing Out Greece?

Last week we were reminded that ours is not the only country suffering from severe economic turmoil.

The Greek government is the latest to come close to default on their massive public debt. Greece has insufficient funds in their treasury to make even the minimum payments that are now coming due. Their debt level is about 120 percent of their gross domestic product and their public sector absorbs what amounts to 40 percent of GDP.

Any talk of cutting costs and spending is met with violent protests from the many Greeks heavily dependent on government payments. Mounting fears of default have sent shockwaves through their creditors and all of the eurozone countries.

But there have been statements made by the European Central Bank to calm fears and give assurances that Greece will get the aid it needs. Details of agreements are not forthcoming.

Is it possible that our Federal Reserve has had some hand in bailing out Greece? The fact is, we don't know, and current laws exempt agreements between the Fed and foreign central banks from disclosure or audit.

Greece is only the latest in a series of countries that have faced this type of crisis in recent memory. Not too long ago the same types of fears were mounting about Dubai, and before that, Iceland. Several other countries (Spain, Portugal, Ireland, Latvia) are approaching crisis levels with public debt as well.

Many have strong ties to Goldman Sachs and the case could easily be made that default could have serious implications for big US banking cartels. Considering the ties between the Fed and these big banks, it is not outlandish to wonder if the US taxpayer is secretly bailing out the entire world, country by country, even as our real unemployment tops 20 percent.
Unless laws are changed to allow a complete and meaningful audit of the Federal Reserve, including its agreements with foreign central banks, we might never know if this is occurring or not.

This global financial crisis is a predictable result of secretive central banking and unsound fiat currency. Governments are entirely committed to this system of fiat money and fractional reserve banking for obvious reasons: it enables them to do what they love most, namely, spend hoards of money with near impunity. Without the limitations of sound money, governments will spend without limit.

They will spend money to hire their cronies, pay off special interests, give out favors, create dependence and generally distract from the terrible job they do at their chief mandate, which is to protect the liberties of the people. Fiat money is a blank check to government, which is very dangerous, and we are witnessing the death throes of the system as the bills come due and the underlying capital is squandered away.

Because of our globe-straddling empire and lingering reserve currency status, perhaps no one has a more vested interest in keeping this system cobbled together than our own government and the Federal Reserve.

The agreements that Iceland and Dubai and Greece have negotiated can amount to little more than kicking the can down the road, as their overall spending habits remain largely intact, fiat currencies are still legal tender and more debt is issued on top of unsustainable debt.

The American people have the right to know if they are going to be the ones holding the bag in the end because the Federal Reserve secretly put them on the hook for it. This knowledge would be a key factor in peacefully dismantling this immoral and unconstitutional system

Wall Street’s War Against Main Street America

Former Treasury Secretary Hank Paulson wrote an op-ed in The New York Times (Feb. 16) outlining how to put the U.S. economy on rations. Not in those words, of course. Just the opposite:

If the government hadn’t bailed out Wall Street’s bad loans, he claims, “unemployment could have exceeded the 25 percent level of the Great Depression.” Without wealth at the top, there would be nothing to trickle down.

The reality, of course, is that bailing out casino capitalist speculators on the winning side of A.I.G.’s debt swaps and CDO derivatives didn’t save a single job. It certainly hasn’t lowered the economy’s debt overhead. But matters will soon improve, if Congress will dispel the present cloud of “uncertainty” as to whether any agency less friendly than the Federal Reserve might regulate the banks.

Mr. Paulson spelled out in step-by-step detail the strategy of “doing God’s work,” as his Goldman Sachs colleague Larry Blankfein sanctimoniously explained Adam Smith’s invisible hand. Now that pro-financial free-market doctrine is achieving the status of religion, I wonder whether this proposal violates the separation of church and state.

Neoliberal economics may be a travesty of religion, but it is the closest thing to a Church that Americans have these days, replete with its Inquisition operating out of the universities of Chicago, Harvard and Columbia.

If the salvation is to give Wall Street a free hand, anathema is the proposed Consumer Financial Protection Agency intended to deter predatory behavior by mortgage lenders and credit-card issuers. The same day that Mr. Paulson’s op-ed appeared, the Financial Times published a report explaining that “Republicans say they are unconvinced that any regulator can even define systemic risk. … the whole concept is too vague for an immediate introduction of sweeping powers. …

"Republican Senator Bob Corker from Tennessee was willing to join with the Democrats “to ensure ‘there is not some new roaming regulator out there … putting companies unbeknownst to them under its regime.’”

Mr. Paulson uses the same argument: Because the instability extends not just to the banks but also to Fannie Mae and Freddie Mac, Lehman Brothers, A.I.G. and Wall Street underwriters, it would be folly to try to regulate the banks alone! And because the financial sector is so far-flung and complex, it is best to leave everything deregulated.

Indeed, there simply is no time to discuss what kind of regulation is appropriate, except for the Fed’s familiar protective hand: “delays are creating uncertainty, undermining the ability of financial institutions to increase lending to businesses of all sizes that want to invest and fuel our recovery.”

So Mr. Paulson’s crocodile tears are all for the people. (Except that the banks are not lending at home, but are shoveling money out of the U.S. economy as fast as they can.)

As Mr. Obama’s chief of staff Emanuel Rahm put it, a crisis is too good a thing to waste.

It’s a con man’s old trick to pressure the victim to make a decision fast. Having created the crisis, Wall Street wants to use its momentum to knock out any potential checks to its power.

“No systemic risk regulator, no matter how powerful, can be relied on to see everything and prevent future problems,” Mr. Paulson explained. “That’s why our regulatory system must reinforce the responsibility of lenders, investors, borrowers and all market participants to analyze risk and make informed decisions,”

In other words, blame the victims! The way to protect victims of predatory bank lending (and crooked sales of junk securities) is not new regulations but just the opposite: “to simplify the patchwork quilt of regulatory agencies and improve transparency so that consumers and investors can punish excesses through their own informed investing decisions.” Simplification means the Fed, not a Consumer Financial Protection Agency.

Moving in for the kill, Mr. Paulson explains that the Treasury is bare, having used $13 trillion to bail out high finance in 2008-09. So he warns the government not to run a Keynesian-type budget deficit.

The federal budget should move into balance or even surplus, even if this accelerates the rise in unemployment and decline in wage levels as the economy moves deeper into recession and debt deflation.

“We must also tackle what is by far our greatest economic challenge — the reduction of budget deficits — a big part of which will involve reforming our major entitlement programs: Medicare, Medicaid and Social Security.”

The economy thus is to be sacrificed to Wall Street rather than reforming finance so that it serves the economy more productively. It is simple mathematics to see that if the government cannot raise taxes, it must scale back Social Security, other social welfare spending and infrastructure spending.

What is remarkably left out of account is that today’s financial crisis centered on public debts is largely fiscal crisis.

It is caused by replacing progressive taxation with regressive taxes, and above all by untaxing finance and real estate.

Take the case of California, where tears are being shed over the dismantling of the once elite University of California system. Since American independence, education has been financed by the property tax. But Proposition 13 has “freed” property from taxation – so that its rental value can be borrowed against and turned into interest payments to banks.

California’s real estate costs are just as high with its property taxes frozen, but the rising rental value of land has been paid to the banks – forcing the state to slash its fiscal budget or else raise taxes on labor and consumers.

The link between financial and fiscal crisis – and hence the need for a symbiotic fiscal-financial reform – is just as clear in Europe. The Greek government has pre-sold its tax revenues from roads and other infrastructure to Wall Street, leaving less future revenue to pay its public debt. To cap matters, paying income tax is almost voluntary for wealthy Greeks.

Tax evasion is hardly necessary in the post-Soviet states, where property is hardly taxed at all. (The flat tax falls almost entirely on labor.)

Throughout the world, scaling back the 20th century’s legacy of progressive taxation and untaxing real estate and finance has led to a public debt crisis. Property income hitherto paid to governments is now paid to the banks.

And although Wall Street has extracted $13 trillion in bailouts just since October 2008, the thought of raising taxes on wealth to pay just $1 trillion over an entire decade for Social Security or health insurance is deemed a crisis that would lead Wall Street to shut down the economy.

It is telling governments to shift to a regressive tax system to make up the fiscal shortfall by raising taxes on labor and cutting back public spending on the economy at large. This is what is plunging economies from California to Greece and the Baltics into fiscal and financial crisis.

Wall Street’s solution – to balance the budget by cutting back the government’s social contract and deregulating finance all the more – will shrink the economy and make the budget deficits even more severe.

Financial speculators no doubt will clean up on the turmoil.

The Chinese are fed up with U.S. debt

The big news yesterday was that China was dumping its US Treasury debt. Behind this story is another story.

The government said Tuesday that foreign demand for US Treasury securities fell by the largest amount on record in December with China reducing its holdings by $34.2 billion.

The reductions in holdings, if they continue, could force the government to make higher interest payments at a time that it is running record federal deficits.

The Treasury Department reported that foreign holdings of US Treasury securities fell by $53 billion in December, surpassing the previous record of a $44.5 billion drop in April 2009.

The big drop in China's holdings meant that it lost the top spot in terms of foreign ownership of US Treasuries, dropping to second place behind Japan.

Japan also reduced its holdings of US Treasuries, cutting them by $11.5 billion to $768.8 billion in December, but that amount was still more than China's December total of $755.4 billion.

The $53 billion decline in holdings of Treasury securities came primarily from a drop in official government holdings, which fell by $52.3 billion. The holdings of foreign private investors fell by $700 million during the month of December.

For all of 2009, foreign holdings of US Treasuries dipped by $500 million. In 2008, foreigners had increased their holdings of US Treasuries by $456 billion as a global financial crisis triggered a flight to the safety of US government debt.

China is cutting back on US debt purchases. So is Japan. And so are the big bond funds, such as PIMCO, the biggest in the world. Who will buy US bonds?

Where will the US get the money it needs to squander on wars for the young and pills for the old?

The number of potential buyers is getting dangerously low...to the point where an auction of Treasury debt could fail for lack of interest.

What this seems to mean...on the surface...is that treasury yields will rise. Less demand. More supply. Prices fall. Yields rise. In fact, that is what seemed to be underway yesterday. Prices on 30-year Treasury debt fell.

If yields rise significantly you can say goodbye to any hope of a recovery. Rising yields make it harder for investors and businesses to make money. New projects will be cancelled; new workers will be fired even before they are hired, and investors will move their money out of investments that are ‘risky.’

Especially hard hit will be Japan. Japan will slip suddenly into inflation...and then hyperinflation.

Yesterday also brought news that the feds’ stimulus program has been a big success. Barack Obama says so. The New York Times, via columnist David Leonhardt, says so. So does the Financial Times’ lead economist, Martin Wolf.

The feds spent a lot of money. The world didn’t end. So, the feds – and their cheerleaders in the press – say they saved the world. ..But did they? No.

As to the actual state of the economy, the evidence is mixed and confusing. Yesterday, for example, stocks rose another 40 points on the Dow...but volume is low and another big drop could begin any day.

The NAHB announced that its index rose in February – but it was still the 6th worst reading for the housing index in the last 25 years. Meanwhile, mortgage applications are down. But housing starts are up.

Manufacturing is improving. Corporate profits are way up. But people don’t have jobs...and there is not much hope of finding them any time soon.

Besides, the world wasn’t coming to an end in 2008. All that was happening was that people who had made mistakes were getting what they had coming. Instead, the feds stepped in to save them...by ‘socializing’ their errors. Now, we’ll all pay for their errors. And pay much more. Not only are the private debts still there – more or less – now, we have trillions more in public debts to pay too. ....Way to go, feds...

Japan...and what happens to government debt:

All you have to know about Japan is that its population is aging and shrinking, Japanese companies have fewer Japanese customers this year than they had last year. And next year they will have fewer still.

That dooms the entire economy to a kind of permanent recession – which is what Japan has had for the last 20 years. The only sector that is not in recession is the export sector. They make a lot of good things which they export to America and to China. But if the growth stops in China...or the recovery doesn’t come about in the US...these exporters are doomed too.

Meanwhile, the Japanese government has been fighting the recession by borrowing huge amounts of money from the Japanese public and using the money for various public works projects. What you have to realize is that because the population is falling, the Japanese GDP – per person – has actually been positive for the last 10 years.

In other words, the average person is producing more, even though the economy, in gross terms, has been slipping. In effect, the government hasn’t been fighting a business downturn. It’s been fighting a population downturn. Of course, it’s a losing battle.

In Japan, it’s probably a hopeless situation. The government owes too much money to its own people. Sooner or later it won’t be able to finance its deficits. But then, it really won’t make sense politically to default. The debts are in yen and the government controls the yen.

It will probably use quantitative easing – otherwise known as the printing press – to pay its debts. And at some point, people will realize what is going on and become desperate to get out of all Japanese government obligations. Inflation is just another form of default. But it is politically more acceptable than a direct default.

“The outcome for America is less clear. A determined government with a mandate to put the brakes on could probably rescue the situation – a bit like Maggie Thatcher did in England in the ‘70s or like Paul Volcker did in America in the early ‘80s. At some point America too will have a hard time funding its deficits. It will be in Greece’s situation, forced to choose between making cuts in order to appease lenders or, just resorting like the Japanese to wholesale money printing.”

It should be added that America’s leaders are getting very bad advice. Their advisors have the wrong theory. They think the problem is a lack of demand...and they believe that they need to replace demand from the private sector with demand from the public sector.

They think Japan failed to stop its 20-year recession because it was too timid about spending money (despite all the evidence to the contrary) and that the Great Depression was caused when the Roosevelt Administration turned off the stimulus too early. They’re determined not to repeat that mistake.

Most likely, they will continue to borrow and spend until the economy recovers...or goes broke...whichever happens first.

Europe's Five "Undeclared Nuclear Weapons States"

Are Turkey, Germany, Belgium, The Netherlands and Italy Nuclear Powers?

According to a recent report, former NATO Secretary-General George Robertson confirmed that Turkey possesses 40-90 "Made in America" nuclear weapons at the Incirlik military base.(en.trend.az/)

Does this mean that Turkey is a nuclear power?

"Far from making Europe safer, and far from producing a less nuclear dependent Europe, [the policy] may well end up bringing more nuclear weapons into the European continent, and frustrating some of the attempts that are being made to get multilateral nuclear disarmament," (Former NATO Secretary-General George Robertson quoted in Global Security, February 10, 2010)

"'Is Italy capable of delivering a thermonuclear strike?...

Could the Belgians and the Dutch drop hydrogen bombs on enemy targets?...

Germany's air force couldn't possibly be training to deliver bombs 13 times more powerful than the one that destroyed Hiroshima, could it?...

Nuclear bombs are stored on air-force bases in Italy, Belgium, Germany and the Netherlands — and planes from each of those countries are capable of delivering them." ("What to Do About Europe's Secret Nukes." Time Magazine, December 2, 2009)

The "Official" Nuclear Weapons States

Five countries, the US, UK, France, China and Russia are considered to be "nuclear weapons states" (NWS), "an internationally recognized status conferred by the Nuclear Non-Proliferation Treaty (NPT)". Three other "Non NPT countries" (i.e. non-signatory states of the NPT) including India, Pakistan and North Korea, have recognized possessing nuclear weapons.

Israel: "Undeclared Nuclear State"

Israel is identified as an "undeclared nuclear state". It produces and deploys nuclear warheads directed against military and civilian targets in the Middle East including Tehran.

Iran

There has been much hype, supported by scanty evidence, that Iran might at some future date become a nuclear weapons state. And, therefore, a pre-emptive defensive nuclear attack on Iran to annihilate its non-existent nuclear weapons program should be seriously contemplated "to make the World a safer place". The mainstream media abounds with makeshift opinion on the Iran nuclear threat.

But what about the five European "undeclared nuclear states" including Belgium, Germany, Turkey, the Netherlands and Italy. Do they constitute a threat?

Belgium, Germany, The Netherlands, Italy and Turkey: "Undeclared Nuclear Weapons States"

While Iran's nuclear weapons capabilities are unconfirmed, the nuclear weapons capabilities of these five countries including delivery procedures are formally acknowledged.

The US has supplied some 480 B61 thermonuclear bombs to five so-called "non-nuclear states", including Belgium, Germany, Italy, the Netherlands and Turkey. Casually disregarded by the Vienna based UN Nuclear Watchdog (IAEA), the US has actively contributed to the proliferation of nuclear weapons in Western Europe.

As part of this European stockpiling, Turkey, which is a partner of the US-led coalition against Iran along with Israel, possesses some 90 thermonuclear B61 bunker buster bombs at the Incirlik nuclear air base. (National Resources Defense Council , Nuclear Weapons in Europe , February 2005)

By the recognised definition, these five countries are "undeclared nuclear weapons states".

The stockpiling and deployment of tactical B61 in these five "non-nuclear states" are intended for targets in the Middle East. Moreover, in accordance with "NATO strike plans", these thermonuclear B61 bunker buster bombs (stockpiled by the "non-nuclear States") could be launched "against targets in Russia or countries in the Middle East such as Syria and Iran" ( quoted in National Resources Defense Council, Nuclear Weapons in Europe , February 2005)

Does this mean that Iran or Russia, which are potential targets of a nuclear attack originating from one or other of these five so-called non-nuclear states should contemplate defensive preemptive nuclear attacks against Germany, Italy, Belgium, the Netherlands and Turkey? The answer is no, by any stretch of the imagination.

While these "undeclared nuclear states" casually accuse Tehran of developing nuclear weapons, without documentary evidence, they themselves have capabilities of delivering nuclear warheads, which are targeted at Iran.

To say that this is a clear case of "double standards" by the IAEA and the "international community" is a understatement.

Details and Map of Nuclear Facilities located in 5 European "Non-Nuclear States"

The stockpiled weapons are B61 thermonuclear bombs. All the weapons are gravity bombs of the B61-3, -4, and -10 types.2 .

Those estimates were based on private and public statements by a number of government sources and assumptions about the weapon storage capacity at each base

.(National Resources Defense Council, Nuclear Weapons in Europe , February 2005)

Germany: Nuclear Weapons Producer

Among the five "undeclared nuclear states", "Germany remains the most heavily nuclearized country with three nuclear bases (two of which are fully operational) and may store as many as 150 [B61 bunker buster ] bombs" (Ibid). In accordance with "NATO strike plans" (mentioned above) these tactical nuclear weapons are also targeted at the Middle East.

While Germany is not categorized officially as a nuclear power, it produces nuclear warheads for the French Navy. It stockpiles nuclear warheads (made in America) and it has the capabilities of delivering nuclear weapons. Moreover, The European Aeronautic Defense and Space Company - EADS , a Franco-German-Spanish joint venture, controlled by Deutsche Aerospace and the powerful Daimler Group is Europe's second largest military producer, supplying .France's M51 nuclear missile.

Germany imports and deploys nuclear weapons from the US. It also produces nuclear warheads which are exported to France.

Yet it is classified as a non-nuclear state.

The Truth About Political Correctness

This candidacy will self-destruct in five seconds... Texas Republican gubernatorial candidate Debra Medina imploded on the Glenn Beck (pictured left) radio program ... when she said she didn't have an opinion on whether the US government was behind the 9/11 attacks.

Medina, who has literally come out of nowhere to quickly become a legitimate candidate in the Republican primary, first laughed when Beck said he had received emails from listeners saying she was a "9/11 truther." "That's the first time I've heard of that accusation," she said, not exactly denying the charge. So Beck asked her straight up:

"Do you believe the government was in any way involved in the bringing down of the World Trade Centers on 9/11?" Easy answer, right? Nope.

"I think some very good questions have been raised in that regard," Medina replied. "There are some very good arguments, and I think the American people have not seen all of the evidence there, so I have not taken a position on that." That answer caused a stir in the studio.

Beck quickly followed up by asking her if she would disavow any of her staff if they were "9/11 truthers." "Well, you know, that's a federal issue.

We're very focused on issues in Texas, on Texas state government," she said. "I'm certainly not into mind control or thought policing people. We've got a very diverse team in this state and that's because Texans are standing shoulder to shoulder to support and defend the Constitution.

I frankly don't have time, you know, to go through and do psychological testing on people and know every thought or detail that they have." - Christian Science Monitor

Dominant Social Theme: Crackpots come in all colors and sizes.

Free-Market Analysis: The Glenn Beck program has provided us with an instructive lesson on the nature of modern political correctness. This article will use Beck's behavior, as related above, as a jumping-off point to analyze the term within a 21st century context - at a time when the term, in fact, is a little less popular than it used to be.

Perhaps the leftwing of Anglo-American axis is less powerful than it used to be, and thus inspires less animosity, or perhaps other media concerns have become more compelling. But the point we want to make is most pertinent, we think, and much larger than points that have been made about political correctness in the recent past.

This is indeed a term that became very popular in the later 20th century and yet was in a sense indefinable except as a collection of mores that seemed vaguely leftwing. Of course back in the early 20th century political correctness was indeed a socialist and even communist preoccupation.

One WISHED to be political correct to fit into those organizations. The pejorative odor came later. We looked up political correctness in Wikipedia just to see how it was defined. Here's what we found:

Political correctness (adjectivally, politically correct; both forms commonly abbreviated to PC) is a term denoting language, ideas, policies, and behavior seen as seeking to minimize social offense in gender, racial, cultural, sexual orientation, handicap, and age-related contexts.

In current usage, the terms are almost exclusively pejorative, connoting "intolerant" and "intolerance" whilst the usage politically incorrect, denotes an implicitly positive self-description.

Examples include the conservative Politically Incorrect Guides published by the Regnery editorial house and the television talk show Politically Incorrect. Thus, "politically incorrect" connotes language, ideas, and behavior, unconstrained by orthodoxy and the fear of giving offense.

In Marxist-Leninist and Trotskyist vocabulary, correct was the common term denoting the "appropriate party line" and the ideologic/ "correct line". Likewise in the People's Republic of China, as part of Mao's declarations on the correct handling of "non-antagonistic contradictions". MIT professor of literature Ruth Perry traces the term from Mao Zedong's Little Red Book (1964).

The New Left later re-appropriated the term political correctness as satirical self-criticism; per Debra Shultz: "Throughout the 1970s and 1980s, the New Left, feminists, and progressives . . . used their term politically correct ironically, as a guard against their own orthodoxy in social change efforts".

Hence, it is a popular English usage in the underground comic book Merton of the Movement, by Bobby London, while ideologically sound, an alternative term, followed a like lexical path, appearing in Bart Dickon's satirical comic strips. Moreover, Ellen Willis says: " . . . in the early '80s, when feminists used the term political correctness, it was used to refer sarcastically to the anti-pornography movement's efforts to define a ‘feminist sexuality'."

Nobody really seems to like the idea of political correctness a whole lot.

Yet it can still be argued that the term even today defines what can and cannot be argued within the "mainstream" of the Anglo-American media (and European media as well, of course). Here are issues that we would argue ARE politically correct. Beck touched on one of them in the Medina interview: US government culpability for 9/11 is NOT up for discussion. Adding to the list, we would offer the following

(just for starters): That ...

•Al Qaeda IS a valid international terrorist force;

•Israel is NOT an aggressive and even hostile theocracy;

•the Anglo-American axis is NOT an aggressive force for war in the world;

•the wars in Iraq and Afghanistan WERE justified;

•national defense and national security CANNOT be a part time civil responsibility;

•the environment IS degrading;

•public education cannot EVER be eliminated;

•regulation WORKS;

•government is OBVIOUSLY necessary;

•public service is ALWAYS important;

•the world is TERRIBLY overpopulated;

•the world is on the BRINK of running out of food and water;

•public/private central banking CANNOT be eliminated;

•paying taxes is NEVER, finally, a waste of money;

•no CORE service provided by Western governments could be done better and more efficiently in a competitive and private manner.

We've listed the above areas of "political correctness" only to prove what regular readers of the Bell already have guessed: that our impression of political correctness (in the 21st century anyway) has to do with being careful not to contradict the dominant social themes of the power elite! Until only a month or two ago, we would have added global warming to the list, but as has been amply documented, global warming is one elite promotion that seems to be dying a lingering and public death.

To return to the lead of this article, there are plenty of PUBLIC red lines that media and government proposes, and in his Medina segment, Glenn Beck was very clear about one of them - you don't question whether the American government was involved in 9/11 if you want to run for public office. What is also clear is that after Beck conducted this interview, the backlash began. Medina has apparently surged in the Texas polls and Beck himself has been excoriated for "ambushing" Medina and asking her questions about an issue irrelevant to Texas politics.

And then there is this found in the feedback queue in response to a CBSNews.com story on the Medina Beck controversy, "Debra Medina Says Comments on Glenn Beck Show about More than 9/11:"

By Judiladybug February 12, 2010 4:28 AM EST ... A VERY interesting development happened right after Debra Medina's interview with Glenn Beck. Friends from Austin, Houston, Dallas & Fort Worth began getting robo calls from not only Perry but Hutch.

They started within an hour or so after the Glenn Beck radio show, guess what enlightening news they had to share? That Debra Medina was not a worthy candidate because she is a 9/11 Truther. Wow!! Isn't that interesting. How was Mr. Perry's team so ready to start a massive robo blitz with this new Truther news so quick?

Looks like someone is getting scared, and that he had a little help from a friend. Some coincidences are just too coincidental to be brushed aside. I am not any more of a Truther than Ms. Medina, but I have friends that feel that certain things don't add up with the 9-11 facts and questi ons OB's birth certificate. Everyone has a right, not an obligation to question everything going on in our country.

Throughout the 20th century, and into the 21st, power elite promotions were so powerful, threatening and effective, that people - businesses, too, and, of course, government - carefully self censored, even when they could not explain how and why they came to their self-censoring determinations.

This was the ultimate triumph of elite promotional memes - they exercised an iron-class hold over people's imaginations and internal life. Yet of course it would be the Bell's argument that all of that may be changing now as the Internet-driven conversation continues to rapidly expand.

Conclusion: The ongoing implosion of the global warming meme is perhaps a sign of what is to come. And so is the Medina interview on the Glenn Beck radio program. We've predicted that even the 9/11 meme would eventually come under fire, along with the endless and devious justifications for various Western national security and government military industrial complexes.

The idea that only big government, spending trillions on domestic spying and overseas military campaigns, can properly defend Western citizens against terror attacks is the most well funded and well promoted elite promotion of the 21st century. But even this dominant social theme may be destined for the fate of global warming. Just give it time. And Beck, too.

Dominant Social Theme

A dominant social theme is a belief system (usually concerning a purported social or natural problem) launched by the monetary elite that grows into an archetype or meme, usually after much repetition. The problem may be centered on people themselves (overpopulation) or caused by people (global warming).

Dominant social themes often are launched from the centers of the power elite's global architecture, including the United Nations, World Bank, World Trade Organization and World Health Organization, where the related problems are declared to be such. The themes are then rebroadcast by the mainstream media.

The hallmarks of a problem that drives a dominant social theme are:

• The problem is presented as one that can be solved only by those in authority.

• The prescribed solution requires action by, and greater authority for, social and political institutions that are distant from the societies they pretend to benefit.

• Reminders of the problem persist no matter how much evidence appears that the problem is fictitious, trivial or irremediable.

• The problem may co-exist in the public's mind with other purported problems with which it is inconsistent.

The United Nations is an example of an authority-based solution to a problem proposed by a dominant social theme.

The problem is international conflict, including war. The solution is for national governments to be made subject to a worldwide authority.

The European Union is the United Nations writ small. The problem is isolated national markets and a lack of economic cooperation. The solution is for the national governments of Europe to be made subject to a European authority.

Other examples of problems that support dominant social themes are:

Bird flu. Even though it is rarely communicable from human to human, the disease is promoted as an extraordinary problem by emphasizing the high rate of mortality among the few people infected.

This encourages the militarization of health care, supports planning for a "state of emergency" in Western countries and makes quarantining entire populations acceptable to the public. It also enriches Big Pharma and its shareholders by creating demand for vaccines and other drugs.

Swine flu. This disease is the thematic complement of bird flu. Even though the mortality rate is unremarkable by the standard of seasonal flu, the disease is promoted as an extraordinary problem by emphasizing the ease with which it is communicated from human to human.

This encourages the militarization of health care, supports planning for a "state of emergency" in Western countries and makes quarantining entire populations acceptable to the public. It also enriches

Big Pharma and its shareholders by creating demand for vaccines and other drugs.
Peak oil: Belief that oil supplies are on the verge of exhaustion justifies rising oil prices, for the benefit of producers, and provides a rationale for energy-efficiency regulations (to the benefit of certain manufacturers) and for subsidies for companies involved with "alternative energy" (biodiesel, solar, wind power and others).

It also supports the promotion of public companies associated with energy alternatives.

Central banking: The idea that depressions are caused by free markets and by constraints on the supply of money imposed by a redeemable currency support the necessity of giving unlimited discretionary power to central banks that preside over fiat currencies.

The manipulation of the fiat currencies can generate enormous wealth for favored parties.
The creation and exploitation of dominant social themes has been aided by the growth of modern, centralized mass media. The Internet, which decentralizes the power for mass communication, threatens the ability to invent and control dominant social themes.

Monetary Elite

The monetary elite consists of wealthy families and individuals who seek to expand their wealth and influence through the development and promotion of dominant social themes.

Such themes often issue from the institutional centers of the elite's global architecture, such as the United Nations, World Bank, World Trade Organization or World Health Organization. They then are broadcast by and elaborated upon by prominent segments of the mainstream media.

Thousands of opinion leaders may join in amplifying a theme. Thus the brainchild of a very few - the monetary elite -- can seem to be the work of many.

Once announced, themes such as bird flu, Islamofascism and peak oil are repeated relentlessly until much of the public accepts their fearful premises and demands action.

Those with the wherewithal to provide solutions - products, services and public stock offerings - may collect vast profits even if the problem is imaginary or exaggerated and regardless of whether the offered solutions provide any actual benefit to the public.

In modern times, the monetary elite is often referred to as the "power elite." The monetary elite has attracted little modern scholarly analysis, but there are several theories, some serious and some fanciful, as to its character and composition. They include:

•The monetary elite is identified with such elusive groups as the "Illuminati," the "black church" or the "black nobility."

•The core of the monetary elite consists of the European and American banking dynasties and certain titled families.

•The core of the monetary elite includes "sub-churches' within the Roman Catholic and/or Jewish religions.

•The monetary elite includes members who claim to trace their roots to ancient times, even to Babylon and beyond, a notion that supports the conceit that they properly stand apart from the "common herd."

It is not necessary to judge which, if any, of these theories is correct to detect the manufacturing of urgent problems that are presented as needing cures that can be provided only by an elite.

Signifiers of monetary elite activities include a disdain for (or ignorance concerning) free markets and an incorrigible persistence in promoting a theme even after it has been largely rejected by the public or discredited by facts that are widely known.