Credit Default Swaps (CDS)—what are they? They’re compared to like buying fire insurance on your neighbour’s house — you create an incentive to burn down the house. Except its not the neighbour’s house but the debt the neighbour has taken on. The higher the debt, higher will be the insurance premiums. So in effect, the Banks who operate the CDS will lend more with the hope that the borrower will eventually default and they will be able to collect the insurance.
On 4 June 2010, the stock markets dropped with the Dow falling 3.15% or 325 points to below 10,000 points (to the October 2009 level) on the heels of the Euro crisis with the Euro falling below 1.20 to the US$. What exactly happened was the price of hedging French debt surged from $83000/ $10 million to $100,000/ 10 million debt. In other words the bookies were betting that France would default on its debt.
There is absolutely no control on casino style CDS. The whole world has shifted from a business like stock market in the 1970’s to the gambling style stock markets up to 2000 and now to even riskier CDS. Its pure greed driving the markets, very much like the pre-depression markets of 1920’s except that its on global scales. Globalization has become a curse.
Lets shift from Europe to USA. There should be no doubt in anyone’s mind that the US took the lead in CDS with the major US banks playing the key role in hedging the housing market through this infectious system. The disease as I call it, synonymous to an uncontrollable virus for which there is no known cure, travelled from the US to European financial markets and to Dubai. It became a global contagion and remains so to date. The principal culprit being Alan Greenspan, jumped the sinking ship and turned over the helm to Ben Bernanke and Timothy Geithner, who printed $780 billion IOUs to bail out their banker friends. The takers of the IOUs were China, India and Middle East countries. Dubai was bailed out by Abu Dhabi.
Lets look at another fact. The US gross debt has hit $13 trillion which is nearly 90% of the GDP; not a small sum by any standard. A recent study titled “The Aftermath of Financial Crises” (2009) by economists Carmen Rinehart & Kenneth Rogoff found that when this threshold of 90% is reached, the economic growth is lost by 1%/ year. So in fact the US GDP growth would be very significantly reduced in the coming years due to a nagging economic recovery. Interestingly Rinehart & Rogoff have cited financial crises for Austria, Spain, Iceland, Ireland, Hungary and the UK. Iceland is in the pits. Hungary, a member of EU but who does not use the Euro saw its currency Forint plunge on 4 June as soon as the Hungarian Prime Minister stated that “news of Hungarian default is not an exaggeration”. The Hungarian economy is sick but not as critically sick as that of Greece.
The debts of European countries are becoming unmanageable. Greece’s debt is 96% of its GDP; Portugal 85%; Ireland 75%; Italy has crossed the 100% mark; Spain 70%. Like USA, all these countries are part of NATO. And the recession has made the situation worse as GDPs have shrunk thereby increasing the debt to GDP ratio. As the recession lingers on and, very few doubt its over, the GDPs of G8 (except Canada) are in dire straits of recovery.
Returning to USA, I read a very interesting article on Countercurrents.org by Stephen Lendman titled “Illinois: A State in Crisis”. The economic picture of just this one state is in a pathetic condition. I do not want to quote the figures but grim as they’re, one wonders where is the USA headed to. California and Michigan are the other states which have been having fiscal problems since 2008. Alarm bells are being sounded on all economic fronts and all it seems is that the politicians have no clue about facts as they’re being obscured by its Zionist controlled banking and media industry who’re providing band-aids, dark goggles and ear plugs to the occupants of the White House and the law makers on Capitol Hill.
Canadian economist Michel Chossudovsky in his book “The Great Depression of the XXI Century: Collapse of the Real Economy” warned in 2008 in harmony with other economists like Nouriel Roubini that the US TARP (Troubled Asset Relief Program) will contribute to further destabilization of financial architecture. Basically TARP transfers large amounts of public money into the hands of private financiers at the expense of the taxpayers. Those warnings fell on deaf ears. Nobody in their right minds had disputed Chossudovsky’s assertion but the US Feds pushed ahead with the plan. A similar bailout—similar to TARP- by EEC and IMF to the tune of $1 trillion is not going to stop the bleeding in Europe either.
There is no denying that western economies are anaemic and if the debt contagion crisis caused by CDS is not fixed, the US and European economies are certainly not going to recover. What does all of this mean for the global financial security? I’m inclined to say not good unless the US-NATO fast come to the realisation that Afghanistan is the grave of empires and that they should pull out at the earliest before they face the same consequences as the Soviets. If they do not pull out and continue to push ahead, an act of desperation, in step with the Zionist agenda of hegemony, the world could be plunged into a disastrous global war which would dwarf WW2.