The terminal collapse of the western financial system
has moved into a new, desperate stage, as this article from the June 21, 2013 issue
of Executive Intelligence Review reports. Mike
Billington
Financial Turbulence
Signals Global Meltdown in Process
by EIR
Economics Staff
June 18—The
world financial system has entered a twilight zone of uncontrolled
hyperinflation, characterized by the fact that no amount of monetary expansion
can any longer sustain the rate of growth of the British Empire's cancerous
financial aggregates bubble. As a result, massive "unexpected" turbulence and
capital flows are rapidly spinning out of control.
The nature of
the problem can only be understood from the standpoint of Lyndon LaRouche's famous Typical
Collapse Function graphic, or triple curve. We have now entered the region
of that collapse function, where the rate of growth of financial
aggregates not only has dropped below the curve of the rate of growth of the
monetary pumping, but has begun to plunge rapidly downwards. In this new
geometry, massive monetary infusions such as quantitative easing (QE) both fail
to bail out the financial aggregates, and actually accelerate their meltdown,
all the while, driving the physical economy deeper into hell.
It's like a
heroin addict who is so hooked on the "fix" of the increasing QE of the last few
years, that it is no longer a matter of what happens when the QE stops. You
can't stop the QE; you can't talk about stopping it; and you
can't even think about the topic of eventually "tapering" it. In fact,
global markets today are already undergoing full-fledged junkie withdrawal
symptoms and wild contortions, even as the financial heroin continues to flow
freely.
Indeed, the
current system cannot be saved, nor does the ruling British-based financial
oligarchy intend to do so. As Lyndon LaRouche commented on June 14, the British
Empire has something different in mind, and is deliberately taking steps that
will mean mass death in the U.S., and elsewhere, very quickly. What will happen
when the food supplies are cut, when people can no longer eat? That is the
Queen's policy for reducing the population from 7 billion to 1
billion.
Symptoms
Abound
The symptoms
of the terminal illness of the system are myriad, from rising interest rates on
long-term government bonds in Japan and the United States, to huge market
volatility. The following reports are indicative:
-
Global bond
markets are collapsing, and this is "threatening to halt a global refinancing
wave," the Financial Times warned June 14. They noted that "US sales
of investment grade corporate debt ... have this week almost come to a
complete halt." The recent weekly average of such sales had been about $23.2
billion; this week it is only $3.2 billion—an almost 90% drop. The same thing
is happening in the junk bond market.
-
Massive
reverse carry-trade flows are underway out of the so-called emerging markets
(EM), such as Brazil. The World Bank has issued a statement warning of the EM
implosion, while the International Monetary Fund has demanded that the U.S.
Fed not even think about exiting from QE. In reporting on the EM crisis, the
Daily Telegraph's Ambrose Evans-Pritchard noted June 14 that "the
emerging market rout has become pervasive," with huge outflows occurring from
Brazil, Indonesia, Philippines, Thailand, Turkey, Mexico, etc. Brazil alone
has spent $5.7 billion in reserves this month to try to stop the capital
flight, and has also used derivatives contracts to do the
same.
Evans-Pritchard quoted a
Brazilian asset manager saying: "Brazil seems to be under speculative attack.
We are losing reserves very fast. We should not forget that Russia lost $210
billion in reserves in a few weeks during the Lehman crisis in 2008." Brazil
has $375 billion in reserves. In the last week they have dropped their 6% tax
on foreign bond investors, and lifted their 1% tax on currency
derivatives.
-
FT
Alphaville fretted June 14 that current levels of QE-smack are no longer
producing the desired high: "The smoke and mirrors are fading. What is
worrying, however, is that a move of this size has been prompted by simple
talk of tapering [the QE purchases]. If that's what tapering does, what will
the first hint of a proper QE exit inspire?"
-
Bloomberg
wire service demanded the same day that its dope distributor continue to
deliver the stuff, big time: "Bernanke needs to emphasize on June 19 [after
the next Federal Open Market Committee meeting] that 'policy will remain quite
accommodative.' "
The Fed Prints—for
Whom?
Bloomberg
vastly understated the pressure on the FOMC, which opens its meeting today. In
fact, recently released figures show that the Fed is currently playing the role
of Atlas, holding up the entire financial system by issuing liquidity—including
to the failing European banks.
According to
the reliable website ZeroHedge.com, the
Fed's flow-of-funds reports from the fourth quarter of 2012 and first quarter of
2013 show that the majority of the Federal Reserve's money-printing continues to
go to support the liquidity and cover the losses of European banks—and not to
lending.
The site
demonstrates that more than all net bank lending in the United States
in the first quarter was done by a single bank—the Federal Reserve! Its $303
billion increase in assets dwarfed the $158 billion increase in assets of the
whole banking system; in other words, all the other banks had a net
decline in lending by $145 billion. And again in the first quarter,
more than half of all of this "reserve creation" by the Fed went to the
U.S.-based branches of British and Eurozone banks.
On the U.S.
side, the Federal Reserve now holds 15% of all U.S. Treasury debt, as well as a
huge portfolio of mortgage-backed securities—pure bailouts for the Wall Street
banks. And when interest rates suddenly began to rise in May—without
any sign of a Fed "exit"—the central bank lost $155 billion in one month,
according to estimates by Forbes. This is three times its total equity
capital.
Since Jan. 1,
2011, the fiction has been created that the Fed never need recognize such
losses, but can simply book them as offsets to the interest payments which the
Treasury will make to it on those securities. For one thing, this means Fed
payments of its profits to the Treasury will stop, creating more U.S.
government debt.
More
importantly, the process will lead to a hyperinflationary meltdown, further
stripping the real economy, which is already bereft of productive credit.
LaRouche's Typical Collapse Function shows the process, which his Three-Step
Economic program—Glass-Steagall, a Hamiltonian credit system, and NAWAPA—can uniquely
stop
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