Derivatives and the Government Shutdown

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Derivatives and the Government Shutdown: Wall Street Bets One Thousand Trillion Dollars of Everybody Else’s Money

Derivatives Market Worth Over 16 Times Gross World Product

By Glen Ford

Global Research, October 10, 2013

Black Agenda Report 9 October 2013

Theme: Global Economy

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The clock is ticking, we are told, on the “good faith and credit” of the United States government, which might technically be unable to pay its bills after October 17 if the two corporate parties don’t make a deal on the debt limit. Congressional Republicans and the White House are “playing Russian roulette with the global economy,” says an editorial in the Dallas Morning News, warning of impending “economic Armageddon” as financial markets “crater,” the economy stalls and interest on future federal borrowing skyrockets.

Given that capitalism has entered a terminal stage of acute and escalating crises, the Dallas editorialists may be right; anything could set off another spasm of financial mayhem in a system that is ever more unstable. However, it is the “markets” – a euphemism for the financial capitalist class – that are the ultimate source of instability, the folks who play Russian roulette 24-7 and have dragged humanity to a place where an actual Armageddon is only a twirl of the chamber away. In this game, everybody’s head is in play.

It is proper that the corporate press speak of the impending fiscal threat – a minor one, in the maelstrom of crises that beset the system – in gambling terms. An increase of interest rates by a few basis points (fractions of a percent) on trillions of borrowed dollars amounts to quite a chunk of public money, to be paid directly into the accounts of these very same private “markets” that are supposedly biting their nails with anxiety over the budget. The Dallas Morning News and its fellow corporate propaganda spores spread the myth that the “markets” (bankers, hedge funds, etc.) crave stability, when the vital statistics of the real world of finance capitalism scream the opposite.

The Lords of Capital (the “markets”) are pure gamblers who have transformed the global financial marketplace into a machinery of perpetual uncertainty, in which all the wealth of the world is bet many times over by people who don’t actually own it, in a casino whose operators scheme against each other as well as their patrons, most of whom are not even aware that they are in the game – much less, that it is Russian roulette.

The notional value of derivative financial instruments is now estimated at $1.2 quadrillion – that is, one thousand two hundred trillion dollars. This statistic is fantastic in every sense of the word, amounting to 16.7 times the Gross World Product, which is the value of all the goods and services produced per year by every man, woman and child on the planet: $71.83 trillion. Derivatives are valued at six times more than the total accumulated wealth of the world, including all global stock markets, insurance funds, and family wealth: $200 trillion.

The great bulk of known derivative deals are held by banks that are considered too big to be allowed to fail, with the top four banks accounting for more than 90 percent of the exposure: J.P. Morgan Chase, Citibank, Bank of America, and Goldman Sachs.

We are told that derivatives are simply bets between knowledgeable partners – hedges against loss – and that every time one of these financial institutions loses, another gains, so that there is no net loss or threat of global collapse. But that’s a lie. Never in the history of the world has finance capital so dominated the real economy, and only in the past two decades have derivatives been so central to finance capitalism. The players do not know what they are doing, nor do they care. The meltdown of 2008 was caused primarily by derivatives, requiring a bailout in the tens of trillions of dollars that is still ongoing, with the Federal Reserve buying up securities that no one would purchase – that is, bet on – otherwise. Yet, the universe of derivatives deals has grown much larger than in 2008, effectively untouched by President Obama’s so-called financial reforms.

The casino has swallowed the system. The sums the players are betting are not only far larger than the value of the rest of their portfolios, but six times larger than the combined assets of every human institution and family on Earth, and almost 17 times bigger than the worth of humankind’s yearly output. Even if the whole planet were offered as collateral, it could not cover Wall Street’s bets.

The events of 2008 demonstrated that derivatives collapses, like other speculative financial events, behave as cascades of consequences, rather than orderly “resolutions.” Derivatives deals infest or overhang every nook and cranny of the U.S. and other “mature” economies, poisoning pension systems and municipal finance structures. Detroit has been rendered a failed city by the full range of derivatives and securitization. When the casino is the economy, everyone is forced to play, and the poor go broke first.

Reformers of various stripes tell us that derivatives can either be regulated to a less lethal scale or abolished, altogether, while leaving Wall Street otherwise intact. That’s manifestly untrue. Finance capital creates nothing, reproducing itself through the manipulation of money. The derivatives explosion occurred because Wall Street needed a form of “fictitious” capital to continue posting ever higher profits, and ultimately, fictitious portfolios full of tradable bets. Derivatives deals are the ultimate expression‎ of financial capitalism: they are primarily bets on transactions, rather than investments in production. The rise of derivatives signals that capitalism has run its course, and can only do further harm to humanity. The derivatives economy – all $1.2 quadrillion of it – is the last stage of capitalism.

If the Occupy Wall Street movement had understood this, and articulated the necessity to overthrow and abolish Wall Street, its impact would have been far more profound. As it stands, Americans are directed to quake in fear as the clock ticks down to some technical federal budgetary deadline on October 17 – as if that’s the sword of Damocles hanging over the world.

BAR executive editor Glen Ford can be contacted at Glen.Ford@BlackAgendaReport.com /* */ .

 

Articles by: Glen Ford

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http://www.globalresearch.ca/derivatives-and-the-government-shutdown-wall-street-bets-one-thousand-trillion-dollars-of-everybody-elses-money-derivatives-market-worth-over-16-times-gross-world-product/5353867

IMF and US Treasury Warn about Catastrophic Debt Default

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Susanne Posel (OC) , - Christine Lagarde, director of the International Monetary Fund (IMF) spoke at George Washington University (GWU) and asserted that if the US Congress does not come to an accord to raise the debt ceiling, this “mission critical” could destroy America. The consequences would affect not only the US, but the global economy.

President Obama made similar comments earlier in the week: “As reckless as a government shutdown is, as many people as are being hurt by a government shutdown, an economic shutdown that results from default would be dramatically worse.”

At the World Bank (WB)/IMF Spring Meeting in Washington, Lagarde admonished American politicians to “settle their differences” before the country falls into “technical default”.

Lagarde said: “I have said many times before that the US needs to slow down and hurry up – by that I mean less fiscal adjustment today and more tomorrow. The world’s biggest economy needed to put its finances in order, but favored back-loaded measures to raise revenues and limit entitlement spending such as Medicare that did not jeopardize short-term growth. In the midst of this fiscal challenge, the ongoing political uncertainty over the budget and the debt ceiling does not help. The government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the US economy, but the entire global economy.”

For the sake of global markets, Lagarde urged the 188 members of the IMF to “complete the process of financial repair deemed necessary by the near-collapse of the global banking sector five years ago.”

Lagarde explained: “Under the old model, the financial sector took on outsized risk in pursuit of outsized rewards, causing outsized ruin – and precipitating the crisis we have been experiencing for the last five years. Since then, the international community has been struggling to build something better. This is not easy. It means throwing away old blueprints and designing new ones. It means dealing with the perverse incentives of financial firms and the inability or unwillingness of authorities to act. How is this transition doing? In the IMF’s assessment, it remains a case of ‘mission not yet accomplished’.”

Economists are warning about the debt ceiling as being the possible nail in the coffin of the US as the US Treasury is slated to “run out of cash” at the end of this month.

Sean Snaith, director of the Institute of Economic Competiveness (IEC) at the University of Central Florida commented: “Financial markets are already being impacted in the short-run as a result of heightened uncertainty. There would be greater long-term damage due to the spending cuts that would occur. The fiscal shock treatment of having to eliminate the deficit in one fell swoop would reduce GDP by more than 5% and cause a severe recession.”

In 2012, Jay Carney said: “I can say that this administration does not believe that the 14th Amendment gives the president the power to ignore the debt ceiling — period.”

Earlier this year, Obama invoked his self-proclaimed authority through threats of executive orders to resolve the debt ceiling issue with Congress. Obama said that “Social Security benefits and veterans’ checks will be delayed” should congressional leaders flounder and try to demand cuts in government spending in exchange for a resolution.

The President stated that “we are not a deadbeat nation” and “I will not have that conversation with a gun at the head of the American people.”

Obama said that there is “a small group in the House” that is attempting to “hijack the process” by which he can influence the Congress to follow his lead as Communist in Chief.

Stating that Congress was inferring with government spending and likening it to a “ransom in exchange for not crashing the economy”, Obama said at the end of his 1st term as president that “the full faith and credit of the United States of America is not a bargaining chip. And they better decide quickly because time is running short.”

Obama said that Congress “can act responsibly and pay its bills, or act irresponsibly.” He threatened to cut social programs such as payment of wages to our troops, social security being delayed, Medicare and Medicaid being cut.

Obama’s scheme is to punish the American public to force Congress to comply with his agendas.

At the press conference, when Obama was asked if he would invoke the 14th Amendment to order the debt ceiling raised without Congressional approval, Obama replied: “If Congress wants to have a debate about, maybe we shouldn’t go out to dinner next time . . . that’s fine. But, you don’t say, in order for me to control my appetites, I’m going to not pay the people who already provided me services, the people who lent me the money. That’s not showing any discipline; all that’s doing is not meeting your obligations. That’s not a credible way to run this government … we’ve got to stop lurching from crisis to crisis to crisis when there’s a clear path ahead of us.”

The 14th Amendment, Section 4, reads: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.”

Susanne Posel via Occupy Corporatism

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About the Author

Susanne Posel - Susanne Posel is the Chief Editor of OccupyCorporatism and a globally syndicated host of the Region 10 Report broadcast on American Freedom Radio. Susanne Posel is a productive writer of news, opinion and analysis on a wide range of subjects, including globalism, corporatism and the New World Order. Other subjects include eugenics, climate change controversies, martial law, the technocratic banking elite and second amendment rights. Susanne Posel is a political and social activist, believing in non-compliance. Susanne Posel´s articles are widely published in independent or alternative media. She has been featured on radio shows such as The Hagman & Hagman Report, Wide Awake News with Charlie McGrath, Red Ice Radio, Lorrie´s Talk News Radio, The Vinny Eastwood Show, SGT Report, The Corbett Report, United We Strike Monthly Marathon. Susanne Posel began contributing to nsnbc international in June 2013. She can be contacted by e-mail at occupycorporatism@gmail.com

http://nsnbc.me/2013/10/05/imf-us-treasury-warn-catastrophic-debt-default/

Martial Law and the Economy: Is Homeland Security Preparing for the Next Wall Street Collapse?

By Ellen Brown

Global Research, October 07, 2013

EllenBrown.com

Region: USA

Theme: Global Economy, Police State & Civil Rights

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Reports are that the Department of Homeland Security (DHS) is engaged in a massive, covert military buildup. An article in the Associated Press in February confirmed an open purchase order by DHS for 1.6 billion rounds of ammunition. According to an op-ed in Forbes, that’s enough to sustain an Iraq-sized war for over twenty years. DHS has also acquired heavily armored tanks, which have been seen roaming the streets. Evidently somebody in government is expecting some serious civil unrest. The question is, why?

Recently revealed statements by former UK Prime Minister Gordon Brown at the height of the banking crisis in October 2008 could give some insights into that question. An article on BBC News on September 21, 2013, drew from an explosive autobiography called Power Trip by Brown’s spin doctor Damian McBride, who said the prime minister was worried that law and order could collapse during the financial crisis. McBride quoted Brown as saying:

If the banks are shutting their doors, and the cash points aren’t working, and people go to Tesco [a grocery chain] and their cards aren’t being accepted, the whole thing will just explode.

If you can’t buy food or petrol or medicine for your kids, people will just start breaking the windows and helping themselves.

And as soon as people see that on TV, that’s the end, because everyone will think that’s OK now, that’s just what we all have to do. It’ll be anarchy. That’s what could happen tomorrow.

How to deal with that threat? Brown said, “We’d have to think: do we have curfews, do we put the Army on the streets, how do we get order back?”

McBride wrote in his book Power Trip, “It was extraordinary to see Gordon so totally gripped by the danger of what he was about to do, but equally convinced that decisive action had to be taken immediately.” He compared the threat to the Cuban Missile Crisis.

Fear of this threat was echoed in September 2008 by US Treasury Secretary Hank Paulson, who reportedly warned that the US government might have to resort to martial law if Wall Street were not bailed out from the credit collapse.

In both countries, martial law was avoided when their legislatures succumbed to pressure and bailed out the banks. But many pundits are saying that another collapse is imminent; and this time, governments may not be so willing to step up to the plate.

The Next Time WILL Be Different

What triggered the 2008 crisis was a run, not in the conventional banking system, but in the “shadow” banking system, a collection of non-bank financial intermediaries that provide services similar to traditional commercial banks but are unregulated.  They include hedge funds, money market funds, credit investment funds, exchange-traded funds, private equity funds, securities broker dealers, securitization and finance companies. Investment banks and commercial banks may also conduct much of their business in the shadows of this unregulated system.

The shadow financial casino has only grown larger since 2008; and in the next Lehman-style collapse, government bailouts may not be available. According to President Obama in his remarks on the Dodd-Frank Act on July 15, 2010, “Because of this reform, . . . there will be no more taxpayer funded bailouts – period.”

Governments in Europe are also shying away from further bailouts. The Financial Stability Board (FSB) in Switzerland has therefore required the systemically risky banks to devise “living wills” setting forth what they will do in the event of insolvency. The template established by the FSB requires them to “bail in” their creditors; and depositors, it turns out, are the largest class of bank creditor. (For fuller discussion, see my earlier article here.)

When depositors cannot access their bank accounts to get money for food for the kids, they could well start breaking store windows and helping themselves. Worse, they might plot to overthrow the financier-controlled government. Witness Greece, where increasing disillusionment with the ability of the government to rescue the citizens from the worst depression since 1929 has precipitated riots and threats of violent overthrow.

Fear of that result could explain the massive, government-authorized spying on American citizens, the domestic use of drones, and the elimination of due process and of “posse comitatus” (the federal law prohibiting the military from enforcing “law and order” on non-federal property). Constitutional protections are being thrown out the window in favor of protecting the elite class in power.

 The Looming Debt Ceiling Crisis

 The next crisis on the agenda appears to be the October 17th deadline for agreeing on a federal budget or risking default on the government’s loans. It may only be a coincidence, but two large-scale drills are scheduled to take place the same day, the “Great ShakeOut Earthquake Drill” and the “Quantum Dawn 2 Cyber Attack Bank Drill.” According to a Bloomberg news clip on the bank drill, the attacks being prepared for are from hackers, state-sponsored espionage, and organized crime (financial fraud). One interviewee stated, “You might experience that your online banking is down . . . . You might experience that you can’t log in.” It sounds like a dress rehearsal for the Great American Bail-in.

Ominous as all this is, it has a bright side. Bail-ins and martial law can be seen as the last desperate thrashings of a dinosaur. The exploitative financial scheme responsible for turning millions out of their jobs and their homes has reached the end of the line. Crisis in the current scheme means opportunity for those more sustainable solutions waiting in the wings.

Other countries faced with a collapse in their debt-based borrowed currencies have survived and thrived by issuing their own. When the dollar-pegged currency collapsed in Argentina in 2001, the national government returned to issuing its own pesos; municipal governments paid with “debt-canceling bonds” that circulated as currency; and neighborhoods traded with community currencies. After the German currency collapsed in the 1920s, the government turned the economy around in the 1930s by issuing “MEFO” bills that circulated as currency. When England ran out of gold in 1914, the government issued “Bradbury pounds” similar to the Greenbacks issued by Abraham Lincoln during the US Civil War.

Today our government could avoid the debt ceiling crisis by doing something similar: it could simply mint some trillion dollar coins and deposit them in an account. That alternative could be pursued by the Administration immediately, without going to Congress or changing the law, as discussed in my earlier article here. It need not be inflationary, since Congress could still spend only what it passed in its budget. And if Congress did expand its budget for infrastructure and job creation, that would actually be good for the economy, since hoarding cash and paying down loans have significantly shrunk the circulating money supply.

 Peer-to-peer Trading and Public Banks

 At the local level, we need to set up an alternative system that provides safety for depositors, funds small and medium-sized businesses, and serves the needs of the community.

Much progress has already been made on that front in the peer-to-peer economy.  In a September 27^th article titled “Peer-to-Peer Economy Thrives as Activists Vacate the System,” Eric Blair reports that the Occupy Movement is engaged in a peaceful revolution in which people are abandoning the established system in favor of a “sharing economy.” Trading occurs between individuals, without taxes, regulations or licenses, and in some cases without government-issued currency.

Peer-to-peer trading happens largely on the Internet, where customer reviews rather than regulation keep sellers honest. It started with eBay and Craigslist and has grown exponentially since. Bitcoin is a private currency outside the prying eyes of regulators. Software is being devised that circumvents NSA spying. Bank loans are being shunned in favor of crowdfunding. Local food co-ops are also a form of opting out of the corporate-government system.

Peer-to-peer trading works for local exchange, but we also need a way to protect our dollars, both public and private. We need dollars to pay at least some of our bills, and businesses need them to acquire raw materials. We also need a way to protect our public revenues, which are currently deposited and invested in Wall Street banks that have heavy derivatives exposure.

To meet those needs, we can set up publicly-owned banks on the model of the Bank of North Dakota, currently our only state-owned depository bank. The BND is mandated by law to receive all the state’s deposits and to serve the public interest. Ideally, every state would have one of these “mini-Feds.” Counties and cities could have them as well. For more information, see http://PublicBankingInstitute.org.

Preparations for martial law have been reported for decades, and it hasn’t happened yet. Hopefully, we can sidestep that danger by moving into a saner, more sustainable system that makes military action against American citizens unnecessary.

Ellen Brown is an attorney, president of the Public Banking Institute, and author of twelve books, including the best-selling Web of Debt. In The Public Bank Solution, her latest book, she explores successful public banking models historically and globally. Her 200-plus blog articles are at EllenBrown.com.

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Articles by: Ellen Brown

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http://www.globalresearch.ca/martial-law-and-the-economy-is-homeland-security-preparing-for-the-next-wall-street-collapse/5353267

Public Banks Are Key to Capitalism

Ellen Brown, a lawyer, is the president of the Public Banking Institute and the author, most recently, of "The Public Bank Solution."

Updated October 2, 2013, 5:01 PM

To ask whether public banks would interfere with free markets assumes that we have free markets, which we don’t. Banking is heavily subsidized and is monopolized by Wall Street, which has effectively “bought” Congress. Banks have been bailed out by the government, when in a free market they would have gone bankrupt. The Federal Reserve blatantly manipulates interest rates in a way that serves Wall Street, lending trillions at near-zero interest and pushing rates so artificially low that local governments have lost billions in interest-rate swaps.

Banking, money and credit are not market goods but are economic infrastructure, just as roads and bridges are physical infrastructure.

State and municipal governments already have public lending programs, which are generally not seen as distortions of the free market. They exist because private banks are not lending in some sectors that need financing. Montana finances first-time ranchers and farmers; Sonoma County has its Energy Independence Program; and San Francisco has half a dozen mortgage lending and small business programs. Globally, public banks lend countercyclically, providing credit when and where other banks won’t. This does not crowd out private banks. Germany and Taiwan, which have strong public banking sectors, are among the most competitive banking markets in the world.

In North Dakota, the only state with its own “mini-Fed,” the state-owned Bank of North Dakota routes its public lending programs through community banks. The Bank of North Dakota cooperates rather than competes with local banks, aiding with capital and liquidity requirements. Its deposit base is almost entirely composed of the revenue of the state and state agencies. North Dakota has more banks per capita than any other state, because they have not been forced to sell to their Wall Street competitors. The North Dakota Bankers’ Association endorses the Bank of North Dakota, which has a mandate to support the local economy.

The Bank of North Dakota takes almost no individual deposits, but a national postal bank would, just as postal banks have done routinely in other countries without destabilizing free markets. One-fourth of American families are unbanked or underbanked. With $3 trillion in excess deposits, Wall Street doesn’t want these small depositors.

We actually need publicly owned banks for a capitalist market economy to run properly. Banking, money and credit are not market goods but are economic infrastructure, just as roads and bridges are physical infrastructure. By providing inexpensive, accessible financing to the free enterprise sector of the economy, public banks make commerce more vital and stable. Public banking is not a radical idea but has been practiced in the U.S. with excellent results for decades, and around the world for centuries.

Join Room for Debate on Facebook and follow updates on twitter.com/roomfordebate.

Topics: banking system, banks, economics, government

http://www.nytimes.com/roomfordebate/2013/10/01/should-states-operate-public-banks/public-banks-are-essential-to-capitalism