“Overdose: The Next Financial Crisis” Pt 6/6: “The clock is ticking and time is not in our favor”

No 60 Posted by fw, September 05, 2010

Following is a transcription of the commentary from Part 3 of a three-part video documentary film, Overdose: The Next Financial Crisis, which is available for viewing here on the Information Clearing House. I have transcribed most but not all of the commentary from these three parts. Each video part is about 15-minutes long.

2010

Obama: “One year later the worst of the storm has passed.” Do you believe him? Do you trust him?

Barack Obama – [State of the Union speech, January 2010. Loud applause and cheering]. One year ago I took office amid two wars, an economy rocked by a severe recession, a financial system on the verge of collapse, and a government deeply in debt. Experts from across the political spectrum warned that if we did not act we might face a second depression. So we acted, immediately and aggressively. And one year later the worst of the storm has passed.

Narrator – There are positive signs. This is the Hamptons outside of New York, a classy playground for Manhattan’s elite. A house by the Atlantic like this one costs $30 million. And a hotdog bun with lobster salad costs $18. Fast food, Hampton style. The crisis has made its mark here too. There are fewer private jets at the airport. Instead the Porsches jostle the Mercedes on the turnpike to New York.

David M. Walker – New York City, Washington, DC and Los Angeles California don’t represent the real world. They also don’t represent the real part of America, the so-called “Main Street of America”.

The Mother of All Bailouts — $10 thousand billion!

Narrator – The U.S. government has launched bailouts, stimulus packages and guarantees to the tune of $10 thousand billion. That’s more than the total cost to the U.S. government for World War 1, World War 2, the Korean War, the Vietnam War, the invasion of Iraq, the New Deal, the Marshall Plan and the moon landing. Bush almost racked up more U.S. debt than all presidents before him combined, from George Washington to Bill Clinton. And Obama is almost creating greater debt than all presidents before him, including George W. Bush. But it’s not just the U.S. that’s increasingly looking like a house of cards. During the crisis many governments went deeply into debt. Estimates say that the average debt in the richest nations will exceed 100 percent by the year 2011. These are loans taken at currently low interest rates. Should the interest rate rise by 1 percent, the U.S. interest payments will rise by $100 billion per year. That’s more than the annual cost for the Vietnam War. It sounds absurd to even think that the United States, the world’s economic super power might crash. After all, they get the highest ratings from the credit rating agencies.

David M Walker

David M. Walker – One of the lessons that we must learn from the mortgage-related sub-prime is you have to take credit ratings with a big grain of salt. Because as we saw with the mortgage-related securities, they went from triple-A rating to junk bond pretty fast once people understood the true situation. Today the United States is rated triple-A, but if it doesn’t start taking steps to put its financial house in order that triple rating will be lost. It’s only a matter of when and how quickly.

If the worst of the storm has passed, why are new bubbles popping up everywhere?

Narrator – In September 2008, the bankruptcy of one large investment bank brought the world economy to its knees. The fate of Lehman Brothers raised the question of who was next in line. So everyone avoided doing business with banks. How will the world react if the next entity to declare bankruptcy is a nation? Who is next in line if that were to happen? Some houses of cards have already started falling. This is Iceland, until recently, one of the richest nations in the world. When the crisis hit, the Icelandic banks collapsed. The Icelandic stock market crashed leaving the debt with a small population. For the first time in 50 years this peaceful country saw riots.

This is Greece. Here deficits have hit a record high. The national debt is approaching 135 percent of GDP. The market wants higher interest rates for Greek loans, increasing the pressure on its strained economy. Italy, Spain, Portugal and Great Britain are other EU nations with similar problems.

Dr Karen Horn – We have new bubbles everywhere. So I am pretty worried about what’s going to happen.

Peter Schiff – If you don’t want bubbles to burst, then don’t blow them up in the first place because all bubbles burst.

The $Trillion question: What will pop the Bailout Bubble?

Narrator – If enough things can go wrong, some of them probably will. The question is just which needle will burst this bubble? Will it be new credit losses as banks take on greater risks knowing that the government considers them too big to fail? Or falling stock prices as interest rates rise and the steroids wear off. Will it be the Chinese economy overheating? Or will it be a collapse of confidence in the U.S. dollar?

David M. Walker – If we lose the confidence of our foreign lenders – and we must not allow that to happen – but if that were to happen then there would be a dramatic decline in the dollar, a dramatic increase in interest rates, significant fueling of inflation, a very, very deep recession and possible depression that would be felt around the world. We must not allow that to happen.

The solution is the problem

“The solution is the problem.”

Narrator – When the next bubble bursts, you cannot use the same emergency measures. You can’t lower interest rates that are already at rock bottom. You can’t stimulate the economy with borrowed money if an excess is the cause of the crisis. The governments could save the banks but who can save the governments?

Peter Schiff – Ultimately there’s going to be a price all around the world to be paid for this. And the longer it continues, the bigger that price is going to be.

David M. Walker – You know, this really is a moral question. I mean I can give you plenty of big and bad numbers. You know when you talk about tens of trillions of dollars it’s just hard to imagine. But you have to put a face on it. And to me, I put my children’s and my grand children’s face on it. It’s their future that we’re mortgaging.

“People don’t want to believe the worst is yet to come.”

Gerald Celente — When we tell people that there’s going to be a bailout bubble and they see the world’s equity markets up 50, 60 percent, they don’t want to believe it’s another bubble. They want to step right up back to that table and throw their dice and try to win their hand at the wheel of fortune that Wall Street’s spinning. So people still don’t want to believe that the worst is yet to come.

Narrator – It’s easy to think of these predictions as much too gloomy. But that is exactly what people said the last time. When these experts – Gerald Celente, Peter P. Schiff, and David M. Walker – predicted the 2008 financial crisis they were laughed at by the media.

David M. Walker – We can do it. But we need to do it soon because the clock is ticking and time is not working in our favour.

“Overdose: The Next Financial Crisis” Pt 5/6: It’s déjà vu all over again

No 59 Posted by fw, September 05, 2010

Following is a transcription of the commentary from Parts 2 and 3 of a three-part video documentary film, Overdose: The Next Financial Crisis, which is available for viewing here on the Information Clearing House. I have transcribed most but not all of the commentary from these three parts. Each video part is about 15-minutes long.

Obama’s great giveaway – Different name, same game

Narrator – While the Fed lowers interest rates, President-elect, Barack Obama, prepares an enormous stimulus package meant to get the U.S. economy going.

Barack Obama – The American Recovery and Reinvestment Act that I will sign today, a plan that meets the principles that I laid out in January, is the most sweeping economic recovery package in our history.

Narrator – On February 7^th, 2009, Obama approved a stimulus package worth $787 billion. With a Bush stimulus package from the year before, U.S. politicians have now spent close to $1 trillion dollars to stimulate the U.S. economy. The money is spent on roads, airports, education, unemployment and other benefits.

$600,000 to combat homelessness in a town with no homeless

Narrator – The town of Union is located a few hours from the Canadian border. This is where the computer company, IBM, got its start and grew to be the biggest in the world. The factories are now empty but the town has acquired a small-town rhythm. So there was a surprise when $600,000 from the stimulus package arrived to combat homelessness.

Dennis F. Hannon, Mayor of Union – You know, on occasion our police officers may run across someone and they try to take the person to an area where the individual can get some shelter and get something to eat. But it’s not a problem here.

$1 million to repave Rodeo Drive in Beverly Hills

Narrator – This is Rodeo Drive in Beverly Hills, probably the world’s most famous upscale shopping district. It was here, for example, that Julia Roberts went shopping in Pretty Woman. Stimulus money has made its way here as well. These streets are to be repaved to the tune of $1 million. Sure there are potholes in the asphalt, but is this really the economy that needs to be stimulated?

David M. Walker – We had a $787 billion stimulus bill. But only about one-third of it was truly stimulus. By that I mean, timely, targetted and temporary. The other two-thirds were things that people wanted to do, have been wanting to do for a long time, but they didn’t want to have to pay for it. They wanted to do it as part of emergency legislation and charge it to the national credit card.

“King of Pork” Murtha Airport gets $800,000 to repave seldom-used runway

Narrator – The Johnstown Pennsylvania Airport has three scheduled flights a day. Other than that it’s quite empty.

Airport General Manager — When you have the flights coming, that’s when the people are here. Other than that, it’s empty.

Narrator – But one face is everywhere – Congressman John Murtha – the airport’s name sake. He’s been called the King of Pork, and has gotten $200 million for Murtha Airport from Washington. Earlier this year the Airport got a new source of revenue, $800,000 from the stimulus package to repave this backup landing strip. The head of the airport insists that the landing strip is safe. So why does it need repaving if it’s not a safety issue? [The airport manager breaks into a grin and then laughs].

“Cash for Clunkers” gets a cool $billion and then some

Narrator — One of the biggest stimulus programs was aimed at the auto industry — Cash for Clunkers. Turn in your old car and get cash towards a new one from the government. It was so popular that its $1 billion budget ran out in a week, so more money was quickly injected. Many countries offered similar programs. Germany had the biggest one and handed out almost $7 billion to those who scrapped any car more than 9 years old while buying a new one.

Dr Karen Horn

Dr Karen Horn, Auto industry analyst – Our government seemed to think that the German auto industry is so important that we have to support it in some ways and therefore they created this bonus.

[End of video 2. Start of video 3]

Not to be outdone, Germany kicks in $7 billion ‘scrapping bonus’ – Ooops, make that ‘environmental bonus’

Dr Karen Horn – Our government seemed to think that German auto industry is so important we have to support it in some ways and therefore these bonds. They didn’t call it a “scrapping bonus” because I think they knew just how ridiculous that was. So they called it an “environment bonus”.

Narrator – Karen Horn is a doctor of economics at a German economics institute.

Dr Karen Horn – And of course people took advantage of that. It worked as long as it was on, the program worked. But now it’s out, it’s over and of course the numbers are dropping. People are feeling that they ran into additional debt due to that bonus that they wanted to take advantage of and they’re having trouble that they didn’t anticipate.

Narrator – So Germany spent almost $7 billion to scrap fully functioning cars and to maintain excessive auto factory output. Once the program ended the industry was right back in the doldrums.

Dr Karen Horn – I was just very surprised that people would accept the idea so readily. That they would accept the money was something else. Who wouldn’t? But that they would find this a solution that they deemed viable doesn’t givc me a very good impression of the rationality of the voter and taxpayer I must say.

It’s déjà vu all over again

Peter Schiff

Peter Schiff – And that’s where we are. I think at this point the problem is now so big that government stimulus is not going to buy us another 5 or 6 years of phony growth like it did last time. Because we have to accumulate so much debt now because the bigger the problem gets, the more we have to stimulate to get that short-term boost. But now the bigger the bust – because now we have a bigger stimulus – you know, to get out of the economy.

Narrator – About a year after the worst economic crisis in modern history Lehman Brothers is gone. But apart from that, Wall Street looks much the same. Many banks are reporting record profits. The world’s stock markets have skyrocketed. The market is finally breathing a sigh of relief. But isn’t it somewhat uncomfortable? Haven’t we been here before? All of the measures that we have taken to save the economy – the low interest rates, the massive debt, the safety net for the financial industry – these are the very things that led us into a crisis in the first place. We’ve been saved from the consequences of one burst bubble by inflating a hundred new ones all over the world.

“Overdose: The Next Financial Crisis” Pt 4/6: Fast track to economic suicide

No 58, Posted by fw, September 05, 2010

Following is a transcription of the commentary from Part 2 of a three-part video documentary film, Overdose: The Next Financial Crisis, which is available for viewing here on the Information Clearing House. I have transcribed most but not all of the commentary from these three parts. Each video part is about 15-minutes long.

Big bailout. Big waste!

David M Walker

Narrator – David Walker was U.S. Comptroller General from 1998 to 2008. He quit because he was so worried about the U.S. economy that he wanted to have the freedom to warn about what may happen.

David M. Walker, Former Comptroller General – In my view, the bailout was necessary in certain regards but in many cases we wasted a lot of money because we didn’t do three things: first, have clearly defined objectives about what we were trying to achieve; secondly, have criteria established up front as to who would get the money and who wouldn’t get the money; and number three, have conditions established up front as to what they could and couldn’t do with the money. And as a result of not having those three things some people got the money that didn’t deserve it, other people got the money that didn’t make good use of it and as a result we had a lot of waste with regard to taxpayer money.

Auto industry exaggerated potential job losses

Richard Wagoner, CEO General Motors 2000-09 – What would it mean if the domestic industry were allowed to fail? You heard Senator Stabenow so I won’t repeat other than to say . . .

Narrator – As a result of the crisis, the situation for the U.S. auto industry had become critical. On November 19, their CEOs fly to Washington to demand money.

Megan McArdle

Megan McArdle, Business & Economics Editor, The Atlantic – The executives came out and they said if you don’t do this we are going to see a jobs holocaust. They issued extremely high estimates of how many jobs would be lost that included counting every single company that supplies them with anything.

Richard Wagoner – That’s why this is all about a lot more than just Detroit. It’s about saving the U.S. economy from a catastrophic collapse!

Narrator – A month later president Bush gives billions of dollars to General Motors and Chrysler. The money comes from the bailout package that was really only designed to save the financial industry.

GWB – Some U.S. auto executives say that their companies are nearing collapse. And that the only way they can buy time to restructure is with help from the federal government.

Narrator – Megan McArdle is a financial analyst for the Atlantic and has written extensively about the problems of the U.S. auto industry.

Megan McArdle – Congress wanted an excuse to bail out the auto workers and the executive gave them just enough political cover to say, “Ah, well I’m not really doing this because I want auto worker votes and I’m going to give them a huge amount of money. I’m really doing this for the American economy.” But if you look at how much money we gave them, you’re talking about almost a hundred billion dollars, is how much we’ll end up spending on this – you know even if you were saving millions of jobs it would have been cheaper to give every single one of those people a $100,000 to go out and find a new job.

Wall Street’s “cry-baby capitalists”

Gerald Celente – The big guys on Wall Street, they can’t take their losses. They’re cry-baby capitalists. Oh, they preach capitalism for everybody but themselves.

News announcement — The Federal Reserve has cut the interest rate to the lowest level on record. Fed Chairman Ben Bernanke and his colleagues also pledged to use all available tools to contain the widening crisis and the longest recession in a quarter century.

Narrator – December 16, 2008. It is time again to pour alcohol into the punch bowl. The Federal Reserve reduces interest rates to practically zero to restore investor confidence. Other central banks do the same.

Gerald Celente – Hey, have no credit, don’t worry about it. Just sign on the dotted line.

“Let’s have zero interest rates and drop money from helicopters”

Peter Schiff

Peter Schiff – The housing bubble that they inflated blew up with all the carnage and all the bankruptcies. And now, what is their solution? We’ll just do the same thing we did before. Instead of having interest rates at one percent, let’s have them at zero. And let’s buy everything we can. Let’s print money and buy mortgages. Let’s buy credit card debt, student loans. Let’s buy bonds and let’s drop money from helicopters to try to get the same risk taking, excessive gambling on Wall Street, let’s try to convince Americans who are already loaded up on debt to go out and buy more stuff — to go out and go deeper into debt. And if the banks don’t want to lend them money, let’s make them lend them money. I mean this is economic suicide.