Jerry Robinson Interviews Economist and Author, F. William Engdahl

Listen as Jerry Robinson talks with F. William Engdahl about his ground-breaking new book, Gods of Money: Wall Street and the Death of the American Century. You may be surprised by Mr. Engdahl’s take on the recent Euro crisis. Click here to hear this week’s entire radio show.

Enjoy the clips and have a great weekend!

PART 1

PART 2

PART 3

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Number of the Week: Euro Zone Debt Is Coming Due

By Mark Whitehouse | Wall Street Journal

$1.65 trillion: Euro zone bank debt coming due in 2010 and 2011.

Throughout the recession and recovery, many European banks have sought to sweep their problems under the carpet in the hopes that they could solve them in a better and more profitable future. Now, though, they’re running out of time.

As investors fret about European banks’ exposures to Greece and other financially troubled countries, those banks’ borrowing costs are rising sharply. That wouldn’t be a problem if they didn’t need to borrow, but as it happens they need to borrow quite a lot: This year and next, some $1.7 trillion in euro-area bank debt will come due, far more than among banks in the U.S., the U.K. or elsewhere.

If banks are forced to renew those borrowings at high interest rates, the resulting debt-service costs will make it still more difficult for them to earn their way out of their troubles. If they choose not to refinance, they’ll have to sell assets and cut back on lending — anathema to European economies still struggling to recover.

Given the stakes involved, it’s surprising that European bank regulators aren’t being more forthcoming with details of the stress tests aimed at restoring confidence in the region’s banking system. So far, investors are being left in the dark as to what many of the key assumptions in the tests’ various scenarios will be — including how much debt holders will lose if Greece, Spain and other countries default on their government bonds.

For the sake of the banks and the broader economy, a little more openness would be a good idea.

Germany focuses on cutting spending

Financial Times | By Ralph Atkins in Frankfurt and Peggy Hollinger in Aix-en-Provence

Published: July 4 2010 22:11 | Last updated: July 4 2010 22:11

Germany’s cabinet is poised this week to approve a 2011 budget as part of a four-year programme of public spending cuts meant to serve as an example to other European governments without jeopardising the country’s increasingly robust economic recovery.

Briefing papers for Wednesday’s cabinet meeting, released by Berlin on Sunday, argue that by curbing spending – rather than increasing taxes – the €80bn ($100.3bn, £66bn) savings programme would differ “fundamentally” from previous fiscal squeezes and offer “noticeable, better growth possibilities”.

The comments appeared aimed at heading off international criticism that German fiscal austerity would hit Europe’s growth prospects.

Germany’s economy is enjoying an industry-led growth spurt, with engineers rehiring workers and returning production almost to pre-crisis levels.

The stronger-than-expected growth and falls in unemployment were making it significantly easier for Germany to reduce its public sector deficit.

Jean-Claude Trichet, European Central Bank president, moved on Sunday to boost confidence in global economic prospects. He said: “It is clear we are experiencing a confirmed recovery, not just in the emerging world but also in the industrialised world.”

Mr Trichet also backed fiscal retrenchment by European governments. He told Rencontres économiques, an annual gathering of the world’s top economists in Aix-en-Provence, France: “We have to reinforce confidence and that means having budgetary policies that are balanced and sustainable in everyone’s eyes.” He said growth was “not preordained” and structural economic reforms were “absolutely fundamental”.

His upbeat comments came in spite of signs last week that the global recovery was losing momentum, with manufacturing growth faltering in China and other parts of the world.

Germany’s fiscal consolidation plans met with international concern when outlined last month. But the budget briefing document said that of €11.2bn in savings envisaged next year, more than half would come by cutting spending. The same would also be the case in 2012. As such, the package “would differ fundamentally from earlier consolidation efforts”, avoiding “growth-hindering tax increases”.

The biggest cuts next year will fall on the labour and social affairs ministry, where spending will fall 8 per cent, and on transport, which will see a 5 per cent cut. But spending on education and research will rise more than 7 per cent – consistent with a pledge by Angela Merkel, chancellor, to protect investment in education.

Overall government spending is seen as falling 3.8 per cent next year, with smaller reductions in subsequent years before federal elections in 2013.

Among revenue-raising measures, Berlin hopes to raise €2bn a year from 2012 with a financial-market transaction tax. That could depend on agreement with EU partners on a continent-wide initiative.

The briefing papers say: “What is certain is that we will make sure that the financial sector makes a substantial contribution towards budget consolidation.”

The finance ministry also expects €1bn in savings from reform of the armed forces to kick in from 2013, rising to €3bn in 2014.

The budget plans are intended to fit with Germany’s “debt guillotine”, which requires a maximum structural deficit of just 0.35 per cent of gross domestic product by 2016.

The documents prepared for Wednesday’s meeting argue that Germany is setting “an example” within the eurozone and that there is “no alternative” to Berlin’s deficit-cutting plans: “For the stability of our currency and likewise for shaping our future, a solid finance policy is the central task in all EU member states.”

Ambrose Evans-Pritchard: Its starting to feel like 1932

With the US trapped in depression, this really is starting to feel like 1932

The US workforce shrank by 652,000 in June, one of the sharpest contractions ever. The rate of hourly earnings fell 0.1pc. Wages are flirting with deflation.

By Ambrose Evans-Pritchard
Published: 9:33PM BST 04 Jul 2010

People queue for a job fair in New York

People queue for a job fair in New York. The share of the US working-age population with jobs in June fell from 58.7pc to 58.5pc. The ratio was 63pc three years ago. Photo: EPA

“The economy is still in the gravitational pull of the Great Recession,” said Robert Reich, former US labour secretary. “All the booster rockets for getting us beyond it are failing.”

“Home sales are down. Retail sales are down. Factory orders in May suffered their biggest tumble since March of last year. So what are we doing about it? Less than nothing,” he said.

California is tightening faster than Greece. State workers have seen a 14pc fall in earnings this year due to forced furloughs. Governor Arnold Schwarzenegger is cutting pay for 200,000 state workers to the minimum wage of $7.25 an hour to cover his $19bn (£15bn) deficit.

Can Illinois be far behind? The state has a deficit of $12bn and is $5bn in arrears to schools, nursing homes, child care centres, and prisons. “It is getting worse every single day,” said state comptroller Daniel Hynes. “We are not paying bills for absolutely essential services. That is obscene.”

Roughly a million Americans have dropped out of the jobs market altogether over the past two months. That is the only reason why the headline unemployment rate is not exploding to a post-war high.

Let us be honest. The US is still trapped in depression a full 18 months into zero interest rates, quantitative easing (QE), and fiscal stimulus that has pushed the budget deficit above 10pc of GDP.

The share of the US working-age population with jobs in June actually fell from 58.7pc to 58.5pc. This is the real stress indicator. The ratio was 63pc three years ago. Eight million jobs have been lost.

The average time needed to find a job has risen to a record 35.2 weeks. Nothing like this has been seen before in the post-war era. Jeff Weninger, of Harris Private Bank, said this compares with a peak of 21.2 weeks in the Volcker recession of the early 1980s.

“Legions of individuals have been left with stale skills, and little prospect of finding meaningful work, and benefits that are being exhausted. By our math the crop of people who are unemployed but not receiving a check amounts to 9.2m.”

Republicans on Capitol Hill are filibustering a bill to extend the dole for up to 1.2m jobless facing an imminent cut-off. Dean Heller from Vermont called them “hobos”. This really is starting to feel like 1932.

Washington’s fiscal stimulus is draining away. It peaked in the first quarter, yet even then the economy eked out a growth rate of just 2.7pc. This compares with 5.1pc, 9.3pc, 8.1pc and 8.5pc in the four quarters coming off recession in the early 1980s.

The housing market is already crumbling as government props are pulled away. The expiry of homebuyers’ tax credit led to a 30pc fall in the number of buyers signing contracts in May. “It is cataclysmic,” said David Bloom from HSBC.

Federal tax rises are automatically baked into the pie. The Congressional Budget Office said fiscal policy will swing from
a net +2pc of GDP to -2pc by late 2011. The states and counties may have to cut as much as $180bn.

Investors are starting to chew over the awful possibility that America’s recovery will stall just as Asia hits the buffers. China’s manufacturing index has been falling since January, with a downward lurch in June to 50.4, just above the break-even line of 50. Momentum seems to be flagging everywhere, whether in Australian building permits, Turkish exports, or Japanese industrial output.

On Friday, Jacques Cailloux from RBS put out a “double-dip alert” for Europe. “The risk is rising fast. Absent an effective policy intervention to tackle the debt crisis on the periphery over coming months, the European economy will double dip in 2011,” he said.

It is obvious what that policy should be for Europe, America, and Japan. If budgets are to shrink in an orderly fashion over several years – as they must, to avoid sovereign debt spirals – then central banks will have to cushion the blow keeping monetary policy ultra-loose for as long it takes.

The Fed is already eyeing the printing press again. “It’s appropriate to think about what we would do under a deflationary scenario,” said Dennis Lockhart for the Atlanta Fed. His colleague Kevin Warsh said the pros and cons of purchasing more bonds should be subject to “strict scrutiny”, a comment I took as confirmation that the Fed Board is arguing internally about QE2.

Perhaps naively, I still think central banks have the tools to head off disaster. The question is whether they will do so fast enough, or even whether they wish to resist the chorus of 1930s liquidation taking charge of the debate. Last week the Bank for International Settlements called for combined fiscal and monetary tightening, lending its great authority to the forces of debt-deflation and mass unemployment. If even the BIS has lost the plot, God help us.

Asian millionaires overtake Europeans

Jerry’s Comments: Here’s more proof of the fact that global power shift is gaining speed. The West is suffering a slow and painful death. The Far East is the direct beneficiary. The Middle East can also benefit dramatically if they can learn how to better harness their immense oil wealth as well as to integrate economically and politically. In the meantime, China’s rise to status of global empire is not surprising. They are no stranger in the history of empires.

By Ellen Kelleher in London

Published: June 22 2010 20:32 | Last updated: June 22 2010 20:32

The net wealth of Asian millionaires has eclipsed that of rich Europeans for the first time, largely because of the relative health of stock markets in Hong Kong, India and China last year, according to a new survey.

The annual Merrill Lynch Wealth Management /Capgemini analysis of investors with $1m or more in assets found that as of late last year, there were 3m millionaires in both the Asia-Pacific and Europe. The survey quantified the wealth held in Asia at $9,700bn, compared with $9,500bn in Europe.

Nick Tucker, head of Merrill Lynch Wealth Management’s operations for the UK and Ireland, said: “It’s not a bubble. Asia has caught up with Europe in terms of its high-net worth population and their wealth.”

The survey defines millionaires as people with net financial wealth of more than $1m, excluding their primary residence.

The rise of Asian millionaires is being tracked by the industry that manages the fortunes of rich individuals, with banks moving senior staff to Singapore and Hong Kong to chase new clients.

After taking a hit in 2008 during the financial crisis, the wealth of the world’s millionaires recovered last year with the upswing in stock markets, rising 19 per cent to $39,000bn.

North Americans are still the best-off. At the end of last year, the continent was home to 3.1m millionaires worth $10,700bn.

The US, Japan and Germany produce about half of all millionaires, who were numbered at 10m in 2009. China was ranked fourth, boasting 477,000 individuals with $1m or more in their accounts. India is catching up, having seen the number of millionaires rise more than 50 per cent to 126,756 in 2009.

Though the UK economy shrank, British millionaires swelled to 448,100, up 24 per cent from 2008. Russian millionaires also saw their ranks rise to 117,700.

The Middle East struggled, with the United Arab Emirates losing 19 per cent of its millionaires in 2009 as the Dubai property crisis took its toll.

Investments by the wealthy in fixed-income instruments crept up to 31 per cent from 29 per cent in 2008 and allocations to equities also increased slightly to 29 per cent from 25 per cent in the previous year.

Cash holdings dropped, meanwhile, as investors grew dissatisfied with the poor rates on high street banks’ savings accounts.

Demand for art, coins, antiques and wines picked up again toward the tail end of last year, as the wealthy sought out collectibles with “tangible, long-term” value, the study said.

Gold to Jump to Record $1,300 as Investors Shun Euro

By Aya Takada and Yasumasa Song – Jun 18, 2010

Gold may climb to a record $1,300 an ounce this year as investment demand shifts from the euro and the dollar, said Bruce Ikemizu at Standard Bank Plc.

The U.S. and European currencies may lose their appeal as developed economies underperform emerging markets such as China, said Ikemizu, the head of commodity trading and managing director at the bank’s Tokyo branch. As there is no immediate replacement for the dollar and euro, demand for gold will grow, he said in an interview yesterday.

Gold for immediate delivery traded at $1,243.80 an ounce today, near its record $1,252.11 on June 8, as the dollar weakened on signs the U.S. recovery was slowing and on concern the European sovereign-debt crisis will persist. “We have just entered Act II,” billionaire investor George Soros said June 10, as Europe’s fiscal woes worsen and governments are pressured to curb budget deficits that may push the economy into recession.

“The U.S. will never regain its dominance in the world economy” as growth is driven by emerging economies, said Ikemizu, who has spent 24 years trading gold since starting his career at Sumitomo Corp. “Gold is drawing attention” as it will take a long time for the dollar to be replaced by another currency in trade and investment, he added.

Initial U.S. jobless claims increased by 12,000 to 472,000 in the week ended June 12, according to Labor Department figures yesterday, signaling the labor market may not be improving and reducing prospects for a sustained recovery. Economists surveyed by Bloomberg News projected the number of applications would drop to 450,000, according to the median forecast.

Euro, Gold

The euro has slumped 14 percent against the dollar this year on concern Europe’s debt crisis may spread, while gold denominated in the U.S. currency has advanced 13 percent and is heading for its 10th annual gain.

Concern over the value of the U.S. and European currencies may spur central banks in China, Russia and India to add gold to their reserves as their holdings are small, Ikemizu said.

“It is risky for them to depend heavily on U.S. treasuries, given the possibility of a further decrease in the dollar,” he said. “Gold may be their option as it is nobody’s liability.”

Official sector sales of gold slumped by 82 percent to 41 tons last year from 232 tons in 2008, according to GFMS Ltd., a London-based research company. Central banks may turn to a net buyer of bullion this year, Ikemizu said. In November, India surprised markets with a $6.7 billion purchase from the International Monetary Fund’s bullion holdings.

Scrap Supply

An increase in prices may be gradual as scrap supply will grow, Ikemizu said. The metal may find support around $1,200 an ounce for the rest of the year as physical buying will increase below that level, he added.

Gold may drop to $1,180 an ounce this year if investment demand slows as rising prices curb consumption by jewelry makers and other fabricators, said Shuji Sugata, research manager at Mitsubishi Corp. Futures Ltd. in Tokyo.

Platinum is expected to trade between $1,500 and $1,800 an ounce for the remainder of the year as demand in vehicle emission-control devices will climb, he said.

“Car ownership in China and India will continue to expand,” he said. Demand for cars, sport-utility vehicles and multipurpose vehicles increased 26 percent from a year earlier to 1.04 million units in May on a wholesale basis, compared with a 33 percent jump in April, the China Association of Automobile Manufacturers said June 8.

Domestic sales of passenger cars in India rose 30.5 percent in May from a year ago, compared with a 39.5 percent growth in April, Society of Indian Automobile Manufacturers figures show. Platinum will be supported around $1,500 an ounce as a drop below that level will make about 80 percent of producers unprofitable, leading to output cuts, Ikemizu said.

Platinum for immediate delivery lost 0.3 percent to $1,573 an ounce at 4:07 p.m. in Tokyo.

Nightmare vision for Europe as EU chief warns ‘democracy could disappear’ in Greece, Spain and Portugal

By Jason Groves | Daily Mail UK
Last updated at 8:24 AM on 15th June 2010

  • EU begin emergency billion-pound bailout of Spain
  • Countries in debt may fall to dictators, EC chief warns
  • ‘Apocalyptic’ vision as some states run out of money

Democracy could ‘collapse’ in Greece, Spain and Portugal unless urgent action is taken to tackle the debt crisis, the head of the European Commission has warned.

In an extraordinary briefing to trade union chiefs last week, Commission President Jose Manuel Barroso set out an ‘apocalyptic’ vision in which crisis-hit countries in southern Europe could fall victim to military coups or popular uprisings as interest rates soar and public services collapse because their governments run out of money.

The stark warning came as it emerged that EU chiefs have begun work on an emergency bailout package for Spain which is likely to run into hundreds of billions of pounds.

Crisis point: Demonstrators protest cuts announced by the Government in Malaga last week in an echo of the Greek crisis

Crisis point: Demonstrators protest cuts announced by the Government in Malaga last week in an echo of the Greek crisis

A £650 billion bailout for Greece has already been agreed.

John Monks, former head of the TUC, said he had been ‘shocked’ by the severity of the warning from Mr Barroso, who is a former prime minister of Portugal.

Mr Monks, now head of the European TUC, said: ‘I had a discussion with Barroso last Friday about what can be done for Greece, Spain, Portugal and the rest and his message was blunt: “Look, if they do not carry out these austerity packages, these countries could virtually disappear in the way that we know them as democracies. They’ve got no choice, this is it.”

‘He’s very, very worried. He shocked us with an apocalyptic vision of democracies in Europe collapsing because of the state of indebtedness.’

Greece, Spain and Portugal, which only became democracies in the 1970s, are all facing dire problems with their public finances. All three countries have a history of military coups.

Greece has been rocked by a series of national strikes and riots this year following the announcement of swingeing cuts to public spending designed to curb Britain’s deficit.

Spain and Portugal have also announced austerity measures in recent weeks amid growing signs that the international markets are increasingly worried they could default on their debts.

General Francisco Franco
Georgios Papadopoulos
Ant¢nio-de-Oliveira-Salazar
Dictatorships: An end to democracy in Europe could see a return of figures ruling dictatorships. General Franco was dictator of Spain until 1975; Georgios Papadopoulos led a military junta until 1973; and Antonio de Oliveira Salazar ruled as Portugese president until 1968.

Other EU countries seeing public protests over austerity plans include Hungary, Italy and Romania, where public sector pay is to be slashed by 25 per cent.

Deputy Prime Minister Nick Clegg, who visited Madrid last week, said the situation in Spain should serve as a warning to Britain of the perils of failing to tackle the deficit quickly.

He said the collapse of confidence in Spain had seen interest rates soar, adding: ‘As the nation with the highest deficit in Europe in 2010, we simply cannot afford to let that happen to us too.’

Mr Barroso’s warning lays bare the concern at the highest level in Brussels that the economic crisis could lead to the collapse of not only the beleaguered euro, but the EU itself, along with a string of fragile democracies.

DICTATORSHIPS

GREECE: Georgios Papadopoulos was dictator from 1967 to 1974.
The Colonel led the military coup d’etat in 1967 against King Constantine II amid political instability. He was leader of the junta which ruled until 1974.

Papadopoulos was overthrown by Brigadier Dimitrios Ioannidis in 1973. Democracy was restored in 1975.
SPAIN: General Francisco Franco led Spain from 1936 until his death in 1975. At the end of the Spanish Civil War he dissolved the Spanish Parliament and established a right-wing authoritarian regime that lasted until 1978. After his death Spain gradually began its transition to democracy.

PORTUGAL: Antonio de Oliveira Salazar’s regime and its secret police ruled the country from 1932 to 1968. He founded and led the Estado Novo, the authoriatan, right-wing government that controlled Portugal from 1932 to 1974. After Salazar’s death in 1970, his regime persisted until it eventually fell after the Carnation Revolution.

But it risks infuriating governments in southern Europe which are already struggling to contain public anger as they drive through tax rises and spending cuts in a bid to avoid disaster.
Mr Monks yesterday warned that the new austerity measures themselves could take the continent ‘back to the 1930s’.
In an interview with the Brussels-based magazine EU Observer he said: ‘This is extremely dangerous.
‘This is 1931, we’re heading back to the 1930s, with the Great Depression and we ended up with militarist dictatorship.

‘I’m not saying we’re there yet, but it’s potentially very serious, not just economically, but politically as well.’
Mr Monks said union barons across Europe were planning a co-ordinated ‘day of action’ against the cuts on 29 September, involving national strikes and protests.

David Cameron will travel to Brussels on Thursday for his first summit of EU leaders since the election.
Leaders are expected to thrash out a rescue package for Spain’s teetering economy. Spain is expected to ask for an initial guarantee of at least £100 billion, although this figure could rise sharply if the crisis deepens.
News of the behind-the-scenes scramble in Brussels spells bad news for the British economy as many of our major banks have loaned Spain vast sums of money in recent years.

Germany’s authoritative Frankfurter Allgemeine Newspaper reported that Spain is poised to ask for multi-billion pound credits.

Mr Barroso and Jean-Claude Trichet of the European Central Bank are united on the need for a rescue plan.
The looming bankruptcy of Spain, one of the foremost economies in Europe, poses far more of a threat to European unity and the euro project than Greece.

Greece contributes 2.5 percent of GDP to Europe, Spain nearly 12 percent.

Yesterday’s report quoted German government sources saying: ‘We will lead discussions this week in Brussels concerning the crisis. It has intensified to the point that the states do not want to wait until the EU summit on Thursday in Brussels.”’

At the end of last month the credit rating agency Fitch downgraded Spain, triggering sharp falls on stock markets.

On Friday the administration in Madrid continued to insist no rescue package was necessary.  But Greece said the same thing before it came close to disaster.

Yesterday the European Commission and the statistics authority Eurostat met to consider Spain‘s plight as many EU countries consider the austerity package proposed by the Madrid administration insufficient to deal with the country‘s problems.