The Total Collapse » Andrew Gavin Marshall

An Imperial Strategy for a New World Order: The Origins of World War III

TheTotalCollapse.com — Sun, 18 Oct 2009 10:09:37 +0000

Part 1

by Andrew Gavin Marshall

Introduction

In the face of total global economic collapse, the prospects of a massive international war are increasing. Historically, periods of imperial decline and economic crisis are marked by increased international violence and war. The decline of the great European empires was marked by World War I and World War II, with the Great Depression taking place in the intermediary period.

Currently, the world is witnessing the decline of the American empire, itself a product born out of World War II. As the post-war imperial hegemon, America ran the international monetary system and reigned as champion and arbitrator of the global political economy.

To manage the global political economy, the US has created the single largest and most powerful military force in world history. Constant control over the global economy requires constant military presence and action.

Now that both the American empire and global political economy are in decline and collapse, the prospect of a violent end to the American imperial age is drastically increasing.

This essay is broken into three separate parts. The first part covers US-NATO geopolitical strategy since the end of the Cold War, at the beginning of the New World Order, outlining the western imperial strategy that led to the war in Yugoslavia and the “War on Terror.” Part 2 analyzes the nature of “soft revolutions” or “colour revolutions” in US imperial strategy, focusing on establishing hegemony over Eastern Europe and Central Asia. Part 3 analyzes the nature of the imperial strategy to construct a New World Order, focusing on the increasing conflicts in Afghanistan, Pakistan, Iran, Latin America, Eastern Europe and Africa; and the potential these conflicts have for starting a new world war with China and Russia.

Defining a New Imperial Strategy

In 1991, with the collapse of the Soviet Union, US-NATO foreign policy had to re-imagine its role in the world. The Cold War served as a means of justifying US imperialist expansion across the globe with the aim of “containing” the Soviet threat. NATO itself was created and existed for the sole purpose of forging an anti-Soviet alliance. With the USSR gone, NATO had no reason to exist, and the US had to find a new purpose for its imperialist strategy in the world.

In 1992, the US Defense Department, under the leadership of Secretary of Defense Dick Cheney [later to be George Bush Jr.’s VP], had the Pentagon’s Under Secretary of Defense for Policy, Paul Wolfowitz [later to be George Bush Jr.’s Deputy Secretary of Defense and President of the World Bank], write up a defense document to guide American foreign policy in the post-Cold War era, commonly referred to as the “New World Order.”

The Defense Planning Guidance document was leaked in 1992, and revealed that, “In a broad new policy statement that is in its final drafting phase, the Defense Department asserts that America’s political and military mission in the post-cold-war era will be to ensure that no rival superpower is allowed to emerge in Western Europe, Asia or the territories of the former Soviet Union,” and that, “The classified document makes the case for a world dominated by one superpower whose position can be perpetuated by constructive behavior and sufficient military might to deter any nation or group of nations from challenging American primacy.”

Further, “the new draft sketches a world in which there is one dominant military power whose leaders ‘must maintain the mechanisms for deterring potential competitors from even aspiring to a larger regional or global role’.” Among the necessary challenges to American supremacy, the document “postulated regional wars against Iraq and North Korea,” and identified China and Russia as its major threats. It further “suggests that the United States could also consider extending to Eastern and Central European nations security commitments similar to those extended to Saudi Arabia, Kuwait and other Arab states along the Persian Gulf.”[1]

NATO and Yugoslavia

The wars in Yugoslavia throughout the 1990s served as a justification for the continued existence of NATO in the world, and to expand American imperial interests in Eastern Europe.

The World Bank and IMF set the stage for the destabilization of Yugoslavia. After long-time dictator of Yugoslavia, Josip Tito, died in 1980, a leadership crisis developed. In 1982, American foreign policy officials organized a set of IMF and World Bank loans, under the newly created Structural Adjustment Programs (SAPs), to handle the crisis of the $20 billion US debt. The effect of the loans, under the SAP, was that they “wreaked economic and political havoc… The economic crisis threatened political stability … it also threatened to aggravate simmering ethnic tensions.”[2]

In 1989, Slobodan Milosevic became President of Serbia, the largest and most powerful of all the Yugoslav republics. Also in 1989, Yugoslavia’s Premier traveled to the US to meet President George H.W. Bush in order to negotiate another financial aid package. In 1990, the World Bank/IMF program began, and the Yugoslav state’s expenditures went towards debt repayment. As a result, social programs were dismantled, the currency devalued, wages frozen, and prices rose. The “reforms fueled secessionist tendencies that fed on economic factors as well as ethnic divisions, virtually ensuring the de facto secession of the republic,” leading to Croatia and Slovenia’s succession in 1991.[3]

In 1990, US the intelligence community released a National Intelligence Estimate (NIE), predicting that Yugoslavia would break apart, erupt in civil war, and the report then placed blame on Serbian President Milosevic for the coming destabilization.[4]

In 1991, conflict broke out between Yugoslavia and Croatia, when it, too, declared independence. A ceasefire was reached in 1992. Yet, the Croats continued small military offensives until 1995, as well as participating in the war in Bosnia. In 1995, Operation Storm was undertaken by Croatia to try to retake the Krajina region. A Croatian general was recently put on trial at The Hague for war crimes during this battle, which was key to driving the Serbs out of Croatia and “cemented Croatian independence.” The US supported the operation and the CIA actively provided intelligence to Croat forces, leading to the displacement of between 150,000 and 200,000 Serbs, largely through means of murder, plundering, burning villages and ethnic cleansing.[5] The Croatian Army was trained by US advisers, and the general on trial was even personally supported by the CIA.[6]

The Clinton administration gave the “green light” to Iran to arm the Bosnian Muslims and “from 1992 to January 1996, there was an influx of Iranian weapons and advisers into Bosnia.” Further, “Iran, and other Muslim states, helped to bring Mujihadeen fighters into Bosnia to fight with the Muslims against the Serbs, ‘holy warriors’ from Afghanistan, Chechnya, Yemen and Algeria, some of whom had suspected links with Osama bin Laden’s training camps in Afghanistan.”

It was “Western intervention in the Balkans [that] exacerbated tensions and helped to sustain hostilities. By recognising the claims of separatist republics and groups in 1990/1991, Western elites – the American, British, French and German – undermined government structures in Yugoslavia, increased insecurities, inflamed conflict and heightened ethnic tensions. And by offering logistical support to various sides during the war, Western intervention sustained the conflict into the mid-1990s. Clinton’s choice of the Bosnian Muslims as a cause to champion on the international stage, and his administration’s demands that the UN arms embargo be lifted so that the Muslims and Croats could be armed against the Serbs, should be viewed in this light.”[7]

During the war in Bosnia, there “was a vast secret conduit of weapons smuggling though Croatia. This was arranged by the clandestine agencies of the US, Turkey and Iran, together with a range of radical Islamist groups, including Afghan mojahedin and the pro-Iranian Hizbullah.” Further, “the secret services of Ukraine, Greece and Israel were busy arming the Bosnian Serbs.”[8] Germany’s intelligence agency, the BND, also ran arms shipments to the Bosnian Muslims and Croatia to fight against the Serbs.[9]

The US had influenced the war in the region in a variety of ways. As the Observer reported in 1995, a major facet of their involvement was through “Military Professional Resources Inc (MPRI), a Virginia-based American private company of retired generals and intelligence officers. The American embassy in Zagreb admits that MPRI is training the Croats, on licence from the US government.” Further, The Dutch “were convinced that US special forces were involved in training the Bosnian army and the Bosnian Croat Army (HVO).”[10]

As far back as 1988, the leader of Croatia met with the German Chancellor Helmut Kohl to create “a joint policy to break up Yugoslavia,” and bring Slovenia and Croatia into the “German economic zone.” So, US Army officers were dispatched to Croatia, Bosnia, Albania, and Macedonia as “advisers” and brought in US Special Forces to help.[11] During the nine-month cease-fire in the war in Bosnia-Herzegovina, six US generals met with Bosnian army leaders to plan the Bosnian offensive that broke the cease-fire.[12]

In 1996, the Albanian Mafia, in collaboration with the Kosovo Liberation Army (KLA), a militant guerilla organization, took control over the enormous Balkan heroin trafficking routes. The KLA was linked to former Afghan Mujaheddin fighters in Afghanistan, including Osama bin Laden.[13]

In 1997, the KLA began fighting against Serbian forces,[14] and in 1998, the US State Department removed the KLA from its list of terrorist organizations.[15] Before and after 1998, the KLA was receiving arms, training and support from the US and NATO, and Clinton’s Secretary of State, Madeline Albright, had a close political relationship with KLA leader Hashim Thaci.[16]

Both the CIA and German intelligence, the BND, supported the KLA terrorists in Yugoslavia prior to and after the 1999 NATO bombing of Yugoslavia. The BND had KLA contacts since the early 1990s, the same period that the KLA was establishing its Al-Qaeda contacts.[17] KLA members were trained by Osama bin Laden at training camps in Afghanistan. Even the UN stated that much of the violence that occurred came from KLA members, “especially those allied with Hashim Thaci.”[18]

The March 1999 NATO bombing of Kosovo was justified on the pretense of putting an end to Serbian oppression of Kosovo Albanians, which was termed genocide. The Clinton Administration made claims that at least 100,000 Kosovo Albanians were missing and “may have been killed” by the Serbs. Bill Clinton personally compared events in Kosovo to the Holocaust. The US State Department had stated that up to 500,000 Albanians were feared dead. Eventually, the official estimate was reduced to 10,000, however, after exhaustive investigations, it was revealed that the death of less than 2,500 Albanians could be attributed to the Serbs. During the NATO bombing campaign, between 400 and 1,500 Serb civilians were killed, and NATO committed war crimes, including the bombing of a Serb TV station and a hospital.[19]

In 2000, the US State Department, in cooperation with the American Enterprise Institute, AEI, held a conference on Euro-Atlantic integration in Slovakia. Among the participants were many heads of state, foreign affairs officials and ambassadors of various European states as well as UN and NATO officials.[20] A letter of correspondence between a German politician present at the meeting and the German Chancellor, revealed the true nature of NATO’s campaign in Kosovo. The conference demanded a speedy declaration of independence for Kosovo, and that the war in Yugoslavia was waged in order to enlarge NATO, Serbia was to be excluded permanently from European development to justify a US military presence in the region, and expansion was ultimately designed to contain Russia.[21]

Of great significance was that, “the war created a raison d’être for the continued existence of NATO in a post-Cold War world, as it desperately tried to justify its continued existence and desire for expansion.” Further, “The Russians had assumed NATO would dissolve at the end of the Cold War. Instead, not only has NATO expanded, it went to war over an internal dispute in a Slavic Eastern European country.” This was viewed as a great threat. Thus, “much of the tense relations between the United States and Russia over the past decade can be traced to the 1999 war on Yugoslavia.”[22]

The War on Terror and the Project for the New American Century (PNAC)

When Bill Clinton became President, the neo-conservative hawks from the George H.W. Bush administration formed a think tank called the Project for the New American Century, or PNAC. In 2000, they published a report called, Rebuilding America’s Defenses: Strategy, Forces, and Resources for a New Century. Building upon the Defense Policy Guidance document, they state that, “the United States must retain sufficient forces able to rapidly deploy and win multiple simultaneous large-scale wars.”[23] Further, there is “need to retain sufficient combat forces to fight and win, multiple, nearly simultaneous major theatre wars,”[24] and that “the Pentagon needs to begin to calculate the force necessary to protect, independently, US interests in Europe, East Asia and the Gulf at all times.”[25]

Interestingly, the document stated that, “the United States has for decades sought to play a more permanent role in Gulf regional security. While the unresolved conflict with Iraq provides the immediate justification, the need for a substantial American force presence in the Gulf transcends the issue of the regime of Saddam Hussein.”[26] However, in advocating for massive increases in defense spending and expanding the American empire across the globe, including the forceful destruction of multiple countries through major theatre wars, the report stated that, “Further, the process of transformation, even if it brings revolutionary change, is likely to be a long one, absent some catastrophic and catalyzing event – like a new Pearl Harbor.”[27] That event came one year later with the events of 9/11. Many of the authors of the report and members of the Project for the New American Century had become officials in the Bush administration, and were conveniently in place to enact their “Project” after they got their “new Pearl Harbor.”

The plans for war were “already under development by far right Think Tanks in the 1990s, organisations in which cold-war warriors from the inner circle of the secret services, from evangelical churches, from weapons corporations and oil companies forged shocking plans for a new world order.” To do this, “the USA would need to use all means – diplomatic, economic and military, even wars of aggression – to have long term control of the resources of the planet and the ability to keep any possible rival weak.”

Among the people involved in PNAC and the plans for empire, “Dick Cheney – Vice President, Lewis Libby – Cheney’s Chief of Staff, Donald Rumsfeld – Defence Minister, Paul Wolfowitz – Rumsfeld’s deputy, Peter Rodman – in charge of ‘Matters of Global Security’, John Bolton – State Secretary for Arms Control, Richard Armitage – Deputy Foreign Minister, Richard Perle – former Deputy Defence Minister under Reagan, now head of the Defense Policy Board, William Kristol – head of the PNAC and adviser to Bush, known as the brains of the President, Zalmay Khalilzad,” who became Ambassador to both Afghanistan and Iraq following the regime changes in those countries.[28]

Brzezinski’s “Grand Chessboard”

Arch-hawk strategist, Zbigniew Brzezinski, co-founder of the Trilateral Commission with David Rockefeller, former National Security Adviser and key foreign policy architect in Jimmy Carter’s administration, also wrote a book on American geostrategy. Brzezinski is also a member of the Council on Foreign Relations and the Bilderberg Group, and has also been a board member of Amnesty International, the Atlantic Council and the National Endowment for Democracy. Currently, he is a trustee and counselor at the Center for Strategic and International Studies (CSIS), a major US policy think tank.

In his 1997 book, The Grand Chessboard, Brzezinski outlined a strategy for America in the world. He wrote, “For America, the chief geopolitical prize is Eurasia. For half a millennium, world affairs were dominated by Eurasian powers and peoples who fought with one another for regional domination and reached out for global power.” Further, “how America ‘manages’ Eurasia is critical. Eurasia is the globe’s largest continent and is geopolitically axial. A power that dominates Eurasia would control two of the world’s three most advanced and economically productive regions. A mere glance at the map also suggests that control over Eurasia would almost automatically entail African subordination.”[29]

He continued in outlining a strategy for American empire, stating that, “it is imperative that no Eurasian challenger emerges, capable of dominating Eurasia and thus of also challenging America. The formulation of a comprehensive and integrated Eurasian geostrategy is therefore the purpose of this book.”[30] He explained that, “Two basic steps are thus required: first, to identify the geostrategically dynamic Eurasian states that have the power to cause a potentially important shift in the international distribution of power and to decipher the central external goals of their respective political elites and the likely consequences of their seeking to attain them: [and] second, to formulate specific U.S. policies to offset, co-opt, and/or control the above.”[31]

What this means is that is it of primary importance to first identify states that could potentially be a pivot upon which the balance of power in the region exits the US sphere of influence; and secondly, to “offset, co-opt, and/or control” such states and circumstances. An example of this would be Iran; being one of the world’s largest oil producers, and in a strategically significant position in the axis of Europe, Asia and the Middle East. Iran could hold the potential to alter the balance of power in Eurasia if it were to closely ally itself with Russia or China, or both – giving those nations a heavy supply of oil as well as a sphere of influence in the Gulf, thus challenging American hegemony in the region.

Brzezinski removed all subtlety from his imperial leanings, and wrote, “To put it in a terminology that harkens back to the more brutal age of ancient empires, the three grand imperatives of imperial geostrategy are to prevent collusion and maintain security dependence among the vassals, to keep tributaries pliant and protected, and to keep the barbarians from coming together.”[32]

Brzezinski referred to the Central Asian republics as the “Eurasian Balkans,” writing that, “Moreover, they [the Central Asian Republics] are of importance from the standpoint of security and historical ambitions to at least three of their most immediate and more powerful neighbors, namely Russia, Turkey and Iran, with China also signaling an increasing political interest in the region. But the Eurasian Balkans are infinitely more important as a potential economic prize: an enormous concentration of natural gas and oil reserves is located in the region, in addition to important minerals, including gold.”[33] He further wrote that, “It follows that America’s primary interest is to help ensure that no single power comes to control this geopolitical space and that the global community has unhindered financial and economic access to it.”[34] This is a clear example of America’s role as an engine of empire; with foreign imperial policy designed to maintain US strategic positions, but primarily and “infinitely more important,” is to secure an “economic prize” for “the global community.” In other words, the United States is an imperial hegemon working for international financial interests.

Brzezinski also warned that, “the United States may have to determine how to cope with regional coalitions that seek to push America out of Eurasia, thereby threatening America’s status as a global power,”[35] and he, “puts a premium on maneuver and manipulation in order to prevent the emergence of a hostile coalition that could eventually seek to challenge America’s primacy.” Thus, “The most immediate task is to make certain that no state or combination of states gains the capacity to expel the United States from Eurasia or even to diminish significantly its decisive arbitration role.”[36]

The War on Terror and Surplus Imperialism

In 2000, the Pentagon released a document called Joint Vision 2020, which outlined a project to achieve what they termed, “Full Spectrum Dominance,” as the blueprint for the Department of Defense in the future. “Full-spectrum dominance means the ability of U.S. forces, operating alone or with allies, to defeat any adversary and control any situation across the range of military operations.” The report “addresses full-spectrum dominance across the range of conflicts from nuclear war to major theater wars to smaller-scale contingencies. It also addresses amorphous situations like peacekeeping and noncombat humanitarian relief.” Further, “The development of a global information grid will provide the environment for decision superiority.”[37]

As political economist, Ellen Wood, explained, “Boundless domination of a global economy, and of the multiple states that administer it, requires military action without end, in purpose or time.”[38] Further, “Imperial dominance in a global capitalist economy requires a delicate and contradictory balance between suppressing competition and maintaining conditions in competing economies that generate markets and profit. This is one of the most fundamental contradictions of the new world order.”[39]

Following 9/11, the “Bush doctrine” was put in place, which called for “a unilateral and exclusive right to preemptive attack, any time, anywhere, unfettered by any international agreements, to ensure that ‘[o]ur forces will be strong enough to dissuade potential adversaries from pursuing a military build-up in hope of surpassing, or equaling, the power of the United States’.”[40]

NATO undertook its first ground invasion of any nation in its entire history, with the October 2001 invasion and occupation of Afghanistan. The Afghan war was in fact, planned prior to the events of 9/11, with the breakdown of major pipeline deals between major western oil companies and the Taliban. The war itself was planned over the summer of 2001 with the operational plan to go to war by mid-October.[41]

Afghanistan is extremely significant in geopolitical terms, as, “Transporting all the Caspian basin’s fossil fuel through Russia or Azerbaijan would greatly enhance Russia’s political and economic control over the central Asian republics, which is precisely what the west has spent 10 years trying to prevent. Piping it through Iran would enrich a regime which the US has been seeking to isolate. Sending it the long way round through China, quite aside from the strategic considerations, would be prohibitively expensive. But pipelines through Afghanistan would allow the US both to pursue its aim of ‘diversifying energy supply’ and to penetrate the world’s most lucrative markets.”[42]

As the San Francisco Chronicle pointed out a mere two weeks following the 9/11 attacks, “Beyond American determination to hit back against the perpetrators of the Sept. 11 attacks, beyond the likelihood of longer, drawn-out battles producing more civilian casualties in the months and years ahead, the hidden stakes in the war against terrorism can be summed up in a single word: oil.” Explaining further, “The map of terrorist sanctuaries and targets in the Middle East and Central Asia is also, to an extraordinary degree, a map of the world’s principal energy sources in the 21st century. The defense of these energy resources — rather than a simple confrontation between Islam and the West — will be the primary flash point of global conflict for decades to come.”

Among the many notable states where there is a crossover between terrorism and oil and gas reserves of vital importance to the United States and the West, are Saudi Arabia, Libya, Bahrain, the Gulf Emirates, Iran, Iraq, Egypt, Sudan and Algeria, Turkmenistan, Kazakhstan, Azerbaijan, Chechnya, Georgia and eastern Turkey. Importantly, “this region accounts for more than 65 percent of the world’s oil and natural gas production.” Further, “It is inevitable that the war against terrorism will be seen by many as a war on behalf of America’s Chevron, ExxonMobil and Arco; France’s TotalFinaElf; British Petroleum; Royal Dutch Shell and other multinational giants, which have hundreds of billions of dollars of investment in the region.”[43]

It’s no secret that the Iraq war had much to do with oil. In the summer of 2001, Dick Cheney convened an Energy Task Force, which was a highly secret set of meetings in which energy policy was determined for the United States. In the meetings and in various other means of communication, Cheney and his aides met with top officials and executives of Shell Oil, British Petroleum (BP), Exxon Mobil, Chevron, Conoco, and Chevron.[44] At the meeting, which took place before 9/11 and before there was any mention of a war on Iraq, documents of Iraqi oilfields, pipelines, refineries and terminals were presented and discussed, and “Saudi Arabian and United Arab Emirates (UAE) documents likewise feature a map of each country’s oilfields, pipelines, refineries and tanker terminals.”[45] Both Royal Dutch Shell and British Petroleum have since received major oil contracts to develop Iraqi oilfields.[46]

The war on Iraq, as well as the war on Afghanistan, also largely serve specifically American, and more broadly, Western imperial-strategic interests in the region. In particular, the wars were strategically designed to eliminate, threaten or contain regional powers, as well as to directly install several dozen military bases in the region, firmly establishing an imperial presence. The purpose of this is largely aimed at other major regional players and specifically, encircling Russia and China and threatening their access to the regions oil and gas reserves. Iran is now surrounded, with Iraq on one side, and Afghanistan on the other.

Concluding Remarks

Part 1 of this essay outlined the US-NATO imperial strategy for entering the New World Order, following the break-up of the Soviet Union in 1991. The primary aim was focused on encircling Russia and China and preventing the rise of a new superpower. The US was to act as the imperial hegemon, serving international financial interests in imposing the New World Order. The next part to this essay examines the “colour revolutions” throughout Eastern Europe and Central Asia, continuing the US and NATO policy of containing Russia and China; while controlling access to major natural gas reserves and transportation routes. The “colour revolutions” have been a pivotal force in geopolitical imperial strategy, and analyzing them is key to understanding the New World Order.

Endnotes

[1] Tyler, Patrick E. U.S. Strategy Plan Calls for Insuring No Rivals Develop: A One Superpower World. The New York Times: March 8, 1992. http://work.colum.edu/~amiller/wolfowitz1992.htm

[2] Louis Sell, Slobodan Milosevic and the Destruction of Yugoslavia. Duke University Press, 2002: Page 28

Michel Chossudovsky, Dismantling Former Yugoslavia, Recolonizing Bosnia-Herzegovina. Global Research: February 19, 2002: http://globalresearch.ca/index.php?context=va&aid=370

[3] Michel Chossudovsky, Dismantling Former Yugoslavia, Recolonizing Bosnia-Herzegovina. Global Research: February 19, 2002: http://globalresearch.ca/index.php?context=va&aid=370

[4] David Binder, Yugoslavia Seen Breaking Up Soon. The New York Times: November 28, 1990

[5] Ian Traynor, Croat general on trial for war crimes. The Guardian: March 12, 2008: http://www.guardian.co.uk/world/2008/mar/12/warcrimes.balkans

[6] Adam LeBor, Croat general Ante Gotovina stands trial for war crimes. The Times Online: March 11, 2008: http://www.timesonline.co.uk/tol/news/world/europe/article3522828.ece

[7] Brendan O’Neill, ‘You are only allowed to see Bosnia in black and white’. Spiked: January 23, 2004: http://www.spiked-online.com/Articles/0000000CA374.htm

[8] Richard J. Aldrich, America used Islamists to arm the Bosnian Muslims. The Guardian: April 22, 2002: http://www.guardian.co.uk/world/2002/apr/22/warcrimes.comment/print

[9] Tim Judah, German spies accused of arming Bosnian Muslims. The Telegraph: April 20, 1997: http://www.serbianlinks.freehosting.net/german.htm

[10] Charlotte Eagar, Invisible US Army defeats Serbs. The Observer: November 5, 1995: http://charlotte-eagar.com/stories/balkans110595.shtml

[11] Gary Wilson, New reports show secret U.S. role in Balkan war. Workers World News Service: 1996: http://www.workers.org/ww/1997/bosnia.html

[12] IAC, The CIA Role in Bosnia. International Action Center: http://www.iacenter.org/bosnia/ciarole.htm

[13] History Commons, Serbia and Montenegro: 1996-1999: Albanian Mafia and KLA Take Control of Balkan Heroin Trafficking Route. The Center for Cooperative Research: http://www.historycommons.org/topic.jsp?topic=country_serbia_and_montenegro

[14] History Commons, Serbia and Montenegro: 1997: KLA Surfaces to Resist Serbian Persecution of Albanians. The Center for Cooperative Research: http://www.historycommons.org/topic.jsp?topic=country_serbia_and_montenegro

[15] History Commons, Serbia and Montenegro: February 1998: State Department Removes KLA from Terrorism List. The Center for Cooperative Research: http://www.historycommons.org/topic.jsp?topic=country_serbia_and_montenegro

[16] Marcia Christoff Kurop, Al Qaeda’s Balkan Links. The Wall Street Journal: November 1, 2001: http://www.freerepublic.com/focus/fr/561291/posts

[17] Global Research, German Intelligence and the CIA supported Al Qaeda sponsored Terrorists in Yugoslavia. Global Research: February 20, 2005: http://globalresearch.ca/index.php?context=va&aid=431

[18] Michel Chossudovsky, Kosovo: The US and the EU support a Political Process linked to Organized Crime. Global Research: February 12, 2008: http://globalresearch.ca/index.php?context=va&aid=8055

[19] Andrew Gavin Marshall, Breaking Yugoslavia. Geopolitical Monitor: July 21, 2008: http://www.geopoliticalmonitor.com/content/backgrounders/2008-07-21/breaking-yugoslavia/

[20] AEI, Is Euro-Atlantic Integration Still on Track? Participant List. American Enterprise Institute: April 28-30, 2000: http://www.aei.org/research/nai/events/pageID.440,projectID.11/default.asp

[21] Aleksandar Pavi, Correspondence between German Politicians Reveals the Hidden Agenda behind Kosovo’s “Independence”. Global Research: March 12, 2008: http://www.globalresearch.ca/index.php?context=va&aid=8304

[22] Stephen Zunes, The War on Yugoslavia, 10 Years Later. Foreign Policy in Focus: April 6, 2009: http://www.fpif.org/fpiftxt/6017

[23] PNAC, Rebuilding America’s Defenses. Project for the New American Century: September 2000, page 6: http://www.newamericancentury.org/publicationsreports.htm

[24] Ibid. Page 8

[25] Ibid. Page 9

[26] Ibid. Page 14

[27] Ibid. Page 51

[28] Margo Kingston, A think tank war: Why old Europe says no. The Sydney Morning Herald: March 7, 2003: http://www.smh.com.au/articles/2003/03/07/1046826528748.html

[29] Brzezinski, Zbigniew. The Grand Chessboard: American Primacy and its Geostrategic Imperatives. Basic Books, 1997: Pages 30-31

[30] Brzezinski, Zbigniew. The Grand Chessboard: American Primacy and its Geostrategic Imperatives. Basic Books, 1997: Page xiv

[31] Brzezinski, Zbigniew. The Grand Chessboard: American Primacy and its Geostrategic Imperatives. Basic Books, 1997: Page 41

[32] Brzezinski, Zbigniew. The Grand Chessboard: American Primacy and its Geostrategic Imperatives. Basic Books, 1997: Page 40

[33] Brzezinski, Zbigniew. The Grand Chessboard: American Primacy and its Geostrategic Imperatives. Basic Books, 1997: Page 124

[34] Brzezinski, Zbigniew. The Grand Chessboard: American Primacy and its Geostrategic Imperatives. Basic Books, 1997: Page 148

[35] Brzezinski, Zbigniew. The Grand Chessboard: American Primacy and its Geostrategic Imperatives. Basic Books, 1997: Page 55

[36] Brzezinski, Zbigniew. The Grand Chessboard: American Primacy and its Geostrategic Imperatives. Basic Books, 1997: Page 198

[37] Jim Garamone, Joint Vision 2020 Emphasizes Full-spectrum Dominance. American Forces Press Service: June 2, 2000:
http://www.defenselink.mil/news/newsarticle.aspx?id=45289

[38] Ellen Wood, Empire of Capital. Verso, 2003: page 144

[39] Ellen Wood, Empire of Capital. Verso, 2003: page 157

[40] Ellen Wood, Empire of Capital. Verso, 2003: page 160

[41] Andrew G. Marshall, Origins of Afghan War. Geopolitical Monitor: September 14, 2008:
http://www.geopoliticalmonitor.com/content/backgrounders/2008-09-14/origins-of-the-afghan-war/

[42] George Monbiot, America’s pipe dream. The Guardian: October 23, 2001:
http://www.guardian.co.uk/world/2001/oct/23/afghanistan.terrorism11

[43] Frank Viviano, Energy future rides on U.S. war. San Francisco Chronicle: September 26, 2001:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/09/26/MN70983.DTL

[44] Dana Milbank and Justin Blum, Document Says Oil Chiefs Met With Cheney Task Force. Washington Post: November 16, 2005:
http://www.washingtonpost.com/wp-dyn/content/article/2005/11/15/AR2005111501842_pf.html

[45] Judicial Watch, CHENEY ENERGY TASK FORCE DOCUMENTS FEATURE MAP OF IRAQI OILFIELDS. Commerce Department: July 17, 2003: http://www.judicialwatch.org/printer_iraqi-oilfield-pr.shtml

[46] TERRY MACALISTER, Criticism as Shell signs $4bn Iraq oil deal. Mail and Guardian: September 30, 2008: http://www.mg.co.za/article/2008-09-30-criticism-as-shell-signs-4bn-iraq-oil-deal

Al-Jazeera, BP group wins Iraq oil contract. Al Jazeera Online: June 30, 2009: http://english.aljazeera.net/news/middleeast/2009/06/200963093615637434.html

Entering the Greatest Depression in History: More Bubbles Waiting to Burst

TheTotalCollapse.com — Wed, 19 Aug 2009 18:39:08 +0000

by Andrew Gavin Marshall

Global Research, August 7, 2009

Introduction

While there is much talk of a recovery on the horizon, commentators are forgetting some crucial aspects of the financial crisis. The crisis is not simply composed of one bubble, the housing real estate bubble, which has already burst. The crisis has many bubbles, all of which dwarf the housing bubble burst of 2008. Indicators show that the next possible burst is the commercial real estate bubble. However, the main event on the horizon is the “bailout bubble” and the general world debt bubble, which will plunge the world into a Great Depression the likes of which have never before been seen.

Housing Crash Still Not Over

The housing real estate market, despite numbers indicating an upward trend, is still in trouble, as, “Houses are taking months to sell. Many buyers are having trouble getting financing as lenders and appraisers struggle to figure out what houses are really worth in the wake of the collapse.” Further, “the overall market remains very soft [...] aside from speculators and first-time buyers.” Dean Baker, co-director of the Center for Economic and Policy Research in Washington said, “It would be wrong to imagine that we have hit a turning point in the market,” as “There is still an enormous oversupply of housing, which means that the direction of house prices will almost certainly continue to be downward.” Foreclosures are still rising in many states “such as Nevada, Georgia and Utah, and economists say rising unemployment may push foreclosures higher into next year.” Clearly, the housing crisis is still not at an end.[1]

The Commercial Real Estate Bubble

In May, Bloomberg quoted Deutsche Bank CEO Josef Ackermann as saying, “It’s either the beginning of the end or the end of the beginning.” Bloomberg further pointed out that, “A piece of the puzzle that must be calculated into any determination of the depth of our economic doldrums is the condition of commercial real estate — the shopping malls, hotels, and office buildings that tend to go along with real- estate expansions.” Residential investment went down 28.9 % from 2006 to 2007, and at the same time, nonresidential investment grew 24.9%, thus, commercial real estate was “serving as a buffer against the declining housing market.”

Commercial real estate lags behind housing trends, and so too, will the crisis, as “commercial construction projects are losing their appeal.” Further, “there are lots of reasons to suspect that commercial real estate was subject to some of the loose lending practices that afflicted the residential market. The Office of the Comptroller of the Currency’s Survey of Credit Underwriting Practices found that whereas in 2003 just 2 percent of banks were easing their underwriting standards on commercial construction loans, by 2006 almost a third of them were relaxing.” In May it was reported that, “Almost 80 percent of domestic banks are tightening their lending standards for commercial real-estate loans,” and that, “we may face double-bubble trouble for real estate and the economy.”[2]

In late July of 2009, it was reported that, “Commercial real estate’s decline is a significant issue facing the economy because it may result in more losses for the financial industry than residential real estate. This category includes apartment buildings, hotels, office towers, and shopping malls.” Worth noting is that, “As the economy has struggled, developers and landlords have had to rely on a helping hand from the US Federal Reserve in order to try to get credit flowing so that they can refinance existing buildings or even to complete partially constructed projects.” So again, the Fed is delaying the inevitable by providing more liquidity to an already inflated bubble. As the Financial Post pointed out, “From Vancouver to Manhattan, we are seeing rising office vacancies and declines in office rents.”[3]

In April of 2009, it was reported that, “Office vacancies in U.S. downtowns increased to 12.5 percent in the first quarter, the highest in three years, as companies cut jobs and new buildings came onto the market,” and, “Downtown office vacancies nationwide could come close to 15 percent by the end of this year, approaching the 10-year high of 15.5 percent in 2003.”[4]
In the same month it was reported that, “Strip malls, neighborhood centers and regional malls are losing stores at the fastest pace in at least a decade, as a spending slump forces retailers to trim down to stay afloat.” In the first quarter of 2009, retail tenants “have vacated 8.7 million square feet of commercial space,” which “exceeds the 8.6 million square feet of retail space that was vacated in all of 2008.” Further, as CNN reported, “vacancy rates at malls rose 9.5% in the first quarter, outpacing the 8.9% vacancy rate registered in all of 2008.” Of significance for those that think and claim the crisis will be over by 2010, “mall vacancies [are expected] to exceed historical levels through 2011,” as for retailers, “it’s only going to get worse.”[5] Two days after the previous report, “General Growth Properties Inc, the second-largest U.S. mall owner, declared bankruptcy on [April 16] in the biggest real estate failure in U.S. history.”[6]

In April, the Financial Times reported that, “Property prices in China are likely to halve over the next two years, a top government researcher has predicted in a powerful signal that the country’s economic downturn faces further challenges despite recent positive data.” This is of enormous significance, as “The property market, along with exports, were leading drivers of the booming Chinese economy over the past decade.” Further, “an apparent rebound in the property market was unsustainable over the medium term and being driven by a flood of liquidity and fraudulent activity rather than real demand.” A researcher at a leading Chinese government think tank reported that, “he expected average urban residential property prices to fall by 40 to 50 per cent over the next two years from their levels at the end of 2008.”[7]

In April, it was reported that, “The Federal Reserve is considering offering longer loans to investors in commercial mortgage-backed securities as part of a plan to help jump-start the market for commercial real estate debt.” Since February the Fed “has been analyzing appropriate terms and conditions for accepting commercial mortgage-backed securities (CMBS) and other mortgage assets as collateral for its Term Asset-Backed Securities Lending Facility (TALF).”[8]

In late July, the Financial Times reported that, “Two of America’s biggest banks, Morgan Stanley and Wells Fargo … threw into sharp relief the mounting woes of the US commercial property market when they reported large losses and surging bad loan,” as “The disappointing second-quarter results for two of the largest lenders and investors in office, retail and industrial property across the US confirmed investors’ fears that commercial real estate would be the next front in the financial crisis after the collapse of the housing market.” The commercial property market, worth $6.7 trillion, “which accounts for more than 10 per cent of US gross domestic product, could be a significant hurdle on the road to recovery.”[9]

The Bailout Bubble

While the bailout, or the “stimulus package” as it is often referred to, is getting good coverage in terms of being portrayed as having revived the economy and is leading the way to the light at the end of the tunnel, key factors are again misrepresented in this situation.

At the end of March of 2009, Bloomberg reported that, “The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year.” This amount “works out to $42,105 for every man, woman and child in the U.S. and 14 times the $899.8 billion of currency in circulation. The nation’s gross domestic product was $14.2 trillion in 2008.”[10]

Gerald Celente, the head of the Trends Research Institute, the major trend-forecasting agency in the world, wrote in May of 2009 of the “bailout bubble.” Celente’s forecasts are not to be taken lightly, as he accurately predicted the 1987 stock market crash, the fall of the Soviet Union, the 1998 Russian economic collapse, the 1997 East Asian economic crisis, the 2000 Dot-Com bubble burst, the 2001 recession, the start of a recession in 2007 and the housing market collapse of 2008, among other things.
On May 13, 2009, Celente released a Trend Alert, reporting that, “The biggest financial bubble in history is being inflated in plain sight,” and that, “This is the Mother of All Bubbles, and when it explodes [...] it will signal the end to the boom/bust cycle that has characterized economic activity throughout the developed world.” Further, “This is much bigger than the Dot-com and Real Estate bubbles which hit speculators, investors and financiers the hardest. However destructive the effects of these busts on employment, savings and productivity, the Free Market Capitalist framework was left intact. But when the ‘Bailout Bubble’ explodes, the system goes with it.”

Celente further explained that, “Phantom dollars, printed out of thin air, backed by nothing … and producing next to nothing … defines the ‘Bailout Bubble.’ Just as with the other bubbles, so too will this one burst. But unlike Dot-com and Real Estate, when the “Bailout Bubble” pops, neither the President nor the Federal Reserve will have the fiscal fixes or monetary policies available to inflate another.” Celente elaborated, “Given the pattern of governments to parlay egregious failures into mega-failures, the classic trend they follow, when all else fails, is to take their nation to war,” and that, “While we cannot pinpoint precisely when the ‘Bailout Bubble’ will burst, we are certain it will. When it does, it should be understood that a major war could follow.”[11]

However, this “bailout bubble” that Celente was referring to at the time was the $12.8 trillion reported by Bloomberg. As of July, estimates put this bubble at nearly double the previous estimate.

As the Financial Times reported in late July of 2009, while the Fed and Treasury hail the efforts and impact of the bailouts, “Neil Barofsky, special inspector-general for the troubled asset relief programme, [TARP] said that the various US schemes to shore up banks and restart lending exposed federal agencies to a risk of $23,700bn [$23.7 trillion] – a vast estimate that was immediately dismissed by the Treasury.” The inspector-general of the TARP program stated that there were “fundamental vulnerabilities . . . relating to conflicts of interest and collusion, transparency, performance measures, and anti-money laundering.”

Barofsky also reports on the “considerable stress” in commercial real estate, as “The Fed has begun to open up Talf to commercial mortgage-backed securities to try to influence credit conditions in the commercial real estate market. The report draws attention to a new potential credit crunch when $500bn worth of real estate mortgages need to be refinanced by the end of the year.” Ben Bernanke, the Chairman of the Fed, and Timothy Geithner, the Treasury Secretary and former President of the New York Fed, are seriously discussing extending TALF (Term Asset-Backed Securities Lending Facility) into “CMBS [Commercial Mortgage-Backed Securities] and other assets such as small business loans and whether to increase the size of the programme.” It is the “expansion of the various programmes into new and riskier asset classes is one of the main bones of contention between the Treasury and Mr Barofsky.”[12]

Testifying before Congress, Barofsky said, “From programs involving large capital infusions into hundreds of banks and other financial institutions, to a mortgage modification program designed to modify millions of mortgages, to public-private partnerships using tens of billions of taxpayer dollars to purchase ‘toxic’ assets from banks, TARP has evolved into a program of unprecedented scope, scale, and complexity.” He explained that, “The total potential federal government support could reach up to 23.7 trillion dollars.”[13]

Is a Future Bailout Possible?

In early July of 2009, billionaire investor Warren Buffet said that, “unemployment could hit 11 percent and a second stimulus package might be needed as the economy struggles to recover from recession,” and he further stated that, “we’re not in a recovery.”[14] Also in early July, an economic adviser to President Obama stated that, “The United States should be planning for a possible second round of fiscal stimulus to further prop up the economy.”[15]

In August of 2009, it was reported that, “THE Obama administration will consider dishing out more money to rein in unemployment despite signs the recession is ending,” and that, “Treasury secretary Tim Geithner also conceded tax hikes could be on the agenda as the government worked to bring its huge recovery-related deficits under control.” Geithner said, “we will do what it takes,” and that, “more federal cash could be tipped into the recovery as unemployment benefits amid projections the benefits extended to 1.5 million jobless Americans will expire without Congress’ intervention.” However, any future injection of money could be viewed as “a second stimulus package.”[16]

The Washington Post reported in early July of a Treasury Department initiative known as “Plan C.” The Plan C team was assembled “to examine what could yet bring [the economy] down and has identified several trouble spots that could threaten the still-fragile lending industry,” and “the internal project is focused on vexing problems such as the distressed commercial real estate markets, the high rate of delinquencies among homeowners, and the struggles of community and regional banks.”

Further, “The team is also responsible for considering potential government responses, but top officials within the Obama administration are wary of rolling out initiatives that would commit massive amounts of federal resources.” The article elaborated in saying that, “The creation of Plan C is a sign that the government has moved into a new phase of its response, acting preemptively rather than reacting to emerging crises.” In particular, the near-term challenge they are facing is commercial real estate lending, as “Banks and other firms that provided such loans in the past have sharply curtailed lending,” leaving “many developers and construction companies out in the cold.” Within the next couple years, “these groups face a tidal wave of commercial real estate debt — some estimates peg the total at more than $3 trillion — that they will need to refinance. These loans were issued during this decade’s construction boom with the mistaken expectation that they would be refinanced on the same generous terms after a few years.”

However, as a result of the credit crisis, “few developers can find anyone to refinance their debt, endangering healthy and distressed properties.” Kim Diamond, a managing director at Standard & Poor’s, stated that, “It’s not a degree to which people are willing to lend,” but rather, “The question is whether a loan can be made at all.” Important to note is that, “Financial analysts said losses on commercial real estate loans are now the single largest cause of bank failures,” and that none of the bailout efforts enacted “is big enough to address the size of the problem.”[17]

So the question must be asked: what is Plan C contemplating in terms of a possible government “solution”? Another bailout? The effect that this would have would be to further inflate the already monumental bailout bubble.

The Great European Bubble

In October of 2008, Germany and France led a European Union bailout of 1 trillion Euros, and “World markets initially soared as European governments pumped billions into crippled banks. Central banks in Europe also mounted a new offensive to restart lending by supplying unlimited amounts of dollars to commercial banks in a joint operation.”[18]

The American bailouts even went to European banks, as it was reported in March of 2009 that, “European banks declined to discuss a report that they were beneficiaries of the $173 billion bail-out of insurer AIG,” as “Goldman Sachs, Morgan Stanley and a host of other U.S. and European banks had been paid roughly $50 billion since the Federal Reserve first extended aid to AIG.” Among the European banks, “French banks Societe Generale and Calyon on Sunday declined to comment on the story, as did Deutsche Bank, Britain’s Barclays and unlisted Dutch group Rabobank.” Other banks that got money from the US bailout include HSBC, Wachovia, Merrill Lynch, Banco Santander and Royal Bank of Scotland. Because AIG was essentially insolvent, “the bailout enabled AIG to pay its counterparty banks for extra collateral,” with “Goldman Sachs and Deutsche bank each receiving $6 billion in payments between mid-September and December.”[19]

In April of 2009, it was reported that, “EU governments have committed 3 trillion Euros [or $4 trillion dollars] to bail out banks with guarantees or cash injections in the wake of the global financial crisis, the European Commission.”[20]

In early February of 2009, the Telegraph published a story with a startling headline, “European banks may need 16.3 trillion pound bail-out, EC document warns.” Type this headline into google, and the link to the Telegraph appears. However, click on the link, and the title has changed to “European bank bail-out could push EU into crisis.” Further, they removed any mention of the amount of money that may be required for a bank bailout. The amount in dollars, however, nears $25 trillion. The amount is the cumulative total of the troubled assets on bank balance sheets, a staggering number derived from the derivatives trade.

The Telegraph reported that, “National leaders and EU officials share fears that a second bank bail-out in Europe will raise government borrowing at a time when investors – particularly those who lend money to European governments – have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain to pay it back.”[21]

When Eastern European countries were in desperate need of financial aid, and discussion was heated on the possibility of an EU bailout of Eastern Europe, the EU, at the behest of Angela Merkel of Germany, denied the East European bailout. However, this was more a public relations stunt than an actual policy position.

While the EU refused money to Eastern Europe in the form of a bailout, in late March European leaders “doubled the emergency funding for the fragile economies of central and eastern Europe and pledged to deliver another doubling of International Monetary Fund lending facilities by putting up 75bn Euros (70bn pounds).” EU leaders “agreed to increase funding for balance of payments support available for mainly eastern European member states from 25bn Euros to 50bn Euros.”[22]

As explained in a Times article in June of 2009, Germany has been deceitful in its public stance versus its actual policy decisions. The article, worth quoting in large part, first explained that:

Europe is now in the middle of a perfect storm – a confluence of three separate, but interconnected economic crises which threaten far greater devastation than Britain or America have suffered from the credit crunch: the collapse of German industry and employment, the impending bankruptcy of Central European homeowners and businesses; and the threat of government debt defaults from loss of monetary control by the Irish Republic, Greece and Portugal, for instance on the eurozone periphery.

Taking the case of Latvia, the author asks, “If the crisis expands, other EU governments – and especially Germany’s – will face an existential question. Do they commit hundreds of billions of euros to guarantee the debts of fellow EU countries? Or do they allow government defaults and devaluations that may ultimately break up the single currency and further cripple German industry, as well as the country’s domestic banks?” While addressing that, “Publicly, German politicians have insisted that any bailouts or guarantees are out of the question,” however, “the pass has been quietly sold in Brussels, while politicians loudly protested their unshakeable commitment to defend it.”

The author addressed how in October of 2008:

[...] a previously unused regulation was discovered, allowing the creation of a 25 billion Euros “balance of payments facility” and authorising the EU to borrow substantial sums under its own “legal personality” for the first time. This facility was doubled again to 50 billion Euros in March. If Latvia’s financial problems turn into a full-scale crisis, these guarantees and cross-subsidies between EU governments will increase to hundreds of billions in the months ahead and will certainly mutate into large-scale centralised EU borrowing, jointly guaranteed by all the taxpayers of the EU.

[...] The new EU borrowing, for example, is legally an ‘off-budget’ and ‘back-to-back’ arrangement, which allows Germany to maintain the legal fiction that it is not guaranteeing the debts of Latvia et al. The EU’s bond prospectus to investors, however, makes quite clear where the financial burden truly lies: “From an investor’s point of view the bond is fully guaranteed by the EU budget and, ultimately, by the EU Member States.”[23]

So Eastern Europe is getting, or presumably will get bailed out. Whether this is in the form of EU federalism, providing loans of its own accord, paid for by European taxpayers, or through the IMF, which will attach any loans with its stringent Structural Adjustment Program (SAP) conditionalities, or both. It turned out that the joint partnership of the IMF and EU is what provided the loans and continues to provide such loans.

As the Financial Times pointed out in August of 2009, “Bank failures or plunging currencies in the three Baltic nations – Latvia, Lithuania and Estonia – could threaten the fragile prospect of recovery in the rest of Europe. These countries also sit on one of the world’s most sensitive political fault-lines. They are the European Union’s frontier states, bordering Russia.” In July, Latvia “agreed its second loan in eight months from the IMF and the EU,” following the first one in December. Lithuania is reported to be following suit. However, as the Financial Times noted, the loans came with the IMF conditionalities: “The injection of cash is the good news. The bad news is that, in return for shoring up state finances, the new IMF deal will require the Latvian government to impose yet more pain on its suffering population. Public-sector wages have already been cut by about a third this year. Pensions have been sliced. Now the IMF requires Latvia to cut another 10 per cent from the state budget this autumn.”[24]

If we are to believe the brief Telegraph report pertaining to nearly $25 trillion in bad bank assets, which was removed from the original article for undisclosed reasons, not citing a factual retraction, the question is, does this potential bailout still stand? These banks haven’t been rescued financially from the EU, so, presumably, these bad assets are still sitting on the bank balance sheets. This bubble has yet to blow. Combine this with the $23.7 trillion US bailout bubble, and there is nearly $50 trillion between the EU and the US waiting to burst.

An Oil Bubble

In early July of 2009, the New York Times reported that, “The extreme volatility that has gripped oil markets for the last 18 months has shown no signs of slowing down, with oil prices more than doubling since the beginning of the year despite an exceptionally weak economy.” Instability in the oil and gas prices has led many to “fear it could jeopardize a global recovery.” Further, “It is also hobbling businesses and consumers,” as “A wild run on the oil markets has occurred in the last 12 months.” Oil prices reached a record high last summer at $145/barrel, and with the economic crisis they fell to $33/barrel in December. However, since the start of 2009, oil has risen 55% to $70/barrel.

As the Times article points out, “the recent rise in oil prices is reprising the debate from last year over the role of investors — or speculators — in the commodity markets.” Energy officials from the EU and OPEC met in June and concluded that, “the speculation issue had not been resolved yet and that the 2008 bubble could be repeated.”[25]

In June of 2009, Hedge Fund manager Michael Masters told the US Senate that, “Congress has not done enough to curb excessive speculation in the oil markets, leaving the country vulnerable to another price run-up in 2009.” He explained that, “oil prices are largely not determined by supply and demand but the trading desks of large Wall Street firms.” Because “Nothing was actually done by Congress to put an end to the problem of excessive speculation” in 2008, Masters explained, “there is nothing to prevent another bubble in oil prices in 2009. In fact, signs of another possible bubble are already beginning to appear.”[26]

In May of 2008, Goldman Sachs warned that oil could reach as much as $200/barrel within the next 12-24 months [up to May 2010]. Interestingly, “Goldman Sachs is one of the largest Wall Street investment banks trading oil and it could profit from an increase in prices.”[27] However, this is missing the key point. Not only would Goldman Sachs profit, but Goldman Sachs plays a major role in sending oil prices up in the first place.

As Ed Wallace pointed out in an article in Business Week in May of 2008, Goldman Sachs’ report placed the blame for such price hikes on “soaring demand” from China and the Middle East, combined with the contention that the Middle East has or would soon peak in its oil reserves. Wallace pointed out that:

Goldman Sachs was one of the founding partners of online commodities and futures marketplace Intercontinental Exchange (ICE). And ICE has been a primary focus of recent congressional investigations; it was named both in the Senate’s Permanent Subcommittee on Investigations’ June 27, 2006, Staff Report and in the House Committee on Energy & Commerce’s hearing last December. Those investigations looked into the unregulated trading in energy futures, and both concluded that energy prices’ climb to stratospheric heights has been driven by the billions of dollars’ worth of oil and natural gas futures contracts being placed on the ICE—which is not regulated by the Commodities Futures Trading Commission.[28]

Essentially, Goldman Sachs is one of the key speculators in the oil market, and thus, plays a major role in driving oil prices up on speculation. This must be reconsidered in light of the resurgent rise in oil prices in 2009. In July of 2009, “Goldman Sachs Group Inc. posted record earnings as revenue from trading and stock underwriting reached all-time highs less than a year after the firm took $10 billion in U.S. rescue funds.”[29] Could one be related to the other?

Bailouts Used in Speculation

In November of 2008, the Chinese government injected an “$849 billion stimulus package aimed at keeping the emerging economic superpower growing.”[30] China then recorded a rebound in the growth rate of the economy, and underwent a stock market boom. However, as the Wall Street Journal pointed out in July of 2009, “Its growth is now fuelled by cheap debt rather than corporate profits and retained earnings, and this shift in the medium term threatens to undermine China’s economic decoupling from the global slump.” Further, “overseas money has been piling into China, inflating foreign exchange reserves and domestic liquidity. So perhaps it is not surprising that outstanding bank loans have doubled in the last few years, or that there is much talk of a shadow banking system. Then there is China’s reputation for building overcapacity in its industrial sector, a notoriety it won even before the crash in global demand. This showed a disregard for returns that is always a tell-tale sign of cheap money.”

China’s economy primarily relies upon the United States as a consumption market for its cheap products. However, “The slowdown in U.S. consumption amid a credit crunch has exposed the weaknesses in this export-led financing model. So now China is turning instead to cheap debt for funding, a shift suggested by this year’s 35% or so rise in bank loans.”[31]

In August of 2009, it was reported that China is experiencing a “stimulus-fueled stock market boom.” However, this has caused many leaders to “worry that too much of the $1-trillion lending binge by state banks that paid for China’s nascent revival was diverted into stocks and real estate, raising the danger of a boom and bust cycle and higher inflation less than two years after an earlier stock market bubble burst.”[32]

The same reasoning needs to be applied to the US stock market surge. Something is inherently and structurally wrong with a financial system in which nothing is being produced, 600,000 jobs are lost monthly, and yet, the stock market goes up. Why is the stock market going up?

The Troubled Asset Relief Program (TARP), which provided $700 billion in bank bailouts, started under Bush and expanded under Obama, entails that the US Treasury purchases $700 billion worth of “troubled assets” from banks, and in turn, “that banks cannot be asked to account for their use of taxpayer money.”[33]

So if banks don’t have to account for where the money goes, where did it go? They claim it went back into lending. However, bank lending continues to go down.[34] Stock market speculation is the likely answer. Why else would stocks go up, lending continue downwards, and the bailout money be unaccounted for?

What Does the Bank for International Settlements (BIS) Have to Say?

In late June, the Bank for International Settlements (BIS), the central bank of the world’s central banks, the most prestigious and powerful financial organization in the world, delivered an important warning. It stated that, “fiscal stimulus packages may provide no more than a temporary boost to growth, and be followed by an extended period of economic stagnation.”

The BIS, “The only international body to correctly predict the financial crisis … has warned the biggest risk is that governments might be forced by world bond investors to abandon their stimulus packages, and instead slash spending while lifting taxes and interest rates,” as the annual report of the BIS “has for the past three years been warning of the dangers of a repeat of the depression.” Further, “Its latest annual report warned that countries such as Australia faced the possibility of a run on the currency, which would force interest rates to rise.” The BIS warned that, “a temporary respite may make it more difficult for authorities to take the actions that are necessary, if unpopular, to restore the health of the financial system, and may thus ultimately prolong the period of slow growth.”

Of immense import is the BIS warning that, “At the same time, government guarantees and asset insurance have exposed taxpayers to potentially large losses,” and explaining how fiscal packages posed significant risks, it said that, “There is a danger that fiscal policy-makers will exhaust their debt capacity before finishing the costly job of repairing the financial system,” and that, “There is the definite possibility that stimulus programs will drive up real interest rates and inflation expectations.” Inflation “would intensify as the downturn abated,” and the BIS “expressed doubt about the bank rescue package adopted in the US.”[35]

The BIS further warned of inflation, saying that, “The big and justifiable worry is that, before it can be reversed, the dramatic easing in monetary policy will translate into growth in the broader monetary and credit aggregates,” the BIS said. That will “lead to inflation that feeds inflation expectations or it may fuel yet another asset-price bubble, sowing the seeds of the next financial boom-bust cycle.”[36]

Major investors have also been warning about the dangers of inflation. Legendary investor Jim Rogers has warned of “a massive inflation holocaust.”[37] Investor Marc Faber has warned that, “The U.S. economy will enter ‘hyperinflation’ approaching the levels in Zimbabwe,” and he stated that he is “100 percent sure that the U.S. will go into hyperinflation.” Further, “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”[38]

Are We Entering A New Great Depression?

In 2007, it was reported that, “The Bank for International Settlements, the world’s most prestigious financial body, has warned that years of loose monetary policy has fuelled a dangerous credit bubble, leaving the global economy more vulnerable to another 1930s-style slump than generally understood.” Further:

The BIS, the ultimate bank of central bankers, pointed to a confluence a worrying signs, citing mass issuance of new-fangled credit instruments, soaring levels of household debt, extreme appetite for risk shown by investors, and entrenched imbalances in the world currency system.

[...] In a thinly-veiled rebuke to the US Federal Reserve, the BIS said central banks were starting to doubt the wisdom of letting asset bubbles build up on the assumption that they could safely be “cleaned up” afterwards – which was more or less the strategy pursued by former Fed chief Alan Greenspan after the dotcom bust.[39]

In 2008, the BIS again warned of the potential of another Great Depression, as “complex credit instruments, a strong appetite for risk, rising levels of household debt and long-term imbalances in the world currency system, all form part of the loose monetarist policy that could result in another Great Depression.”[40]

In 2008, the BIS also said that, “The current market turmoil is without precedent in the postwar period. With a significant risk of recession in the US, compounded by sharply rising inflation in many countries, fears are building that the global economy might be at some kind of tipping point,” and that all central banks have done “has been to put off the day of reckoning.”[41]

In late June of 2009, the BIS reported that as a result of stimulus packages, it has only seen “limited progress” and that, “the prospects for growth are at risk,” and further “stimulus measures won’t be able to gain traction, and may only lead to a temporary pickup in growth.” Ultimately, “A fleeting recovery could well make matters worse.”[42]

The BIS has said, in softened language, that the stimulus packages are ultimately going to cause more damage than they prevented, simply delaying the inevitable and making the inevitable that much worse. Given the previous BIS warnings of a Great Depression, the stimulus packages around the world have simply delayed the coming depression, and by adding significant numbers to the massive debt bubbles of the world’s nations, will ultimately make the depression worse than had governments not injected massive amounts of money into the economy.

After the last Great Depression, Keynesian economists emerged victorious in proposing that a nation must spend its way out of crisis. This time around, they will be proven wrong. The world is a very different place now. Loose credit, easy spending and massive debt is what has led the world to the current economic crisis, spending is not the way out. The world has been functioning on a debt based global economy. This debt based monetary system, controlled and operated by the global central banking system, of which the apex is the Bank for International Settlements, is unsustainable. This is the real bubble, the debt bubble. When it bursts, and it will burst, the world will enter into the Greatest Depression in world history.
Notes
[1] Barrie McKenna, End of housing slump? Try telling that to buyers, sellers and the unemployed. The Globe and Mail: August 6, 2009: http://www.theglobeandmail.com/report-on-business/end-of-housing-slump-try-telling-that-to-buyers-sellers-and-the-unemployed/article1240418/

[2] Gene Sperling, Double-Bubble Trouble in Commercial Real Estate: Gene Sperling. Bloomberg: May 9, 2009: http://www.bloomberg.com/apps/news?pid=20601110&sid=a.X91SkgOd8g

[3] AL Sull, Commercial Real Estate – The Other Real Estate Bubble. Financial Post: July 23, 2009: http://network.nationalpost.com/np/blogs/fpmagazinedaily/archive/2009/07/23/commercial-real-estate-the-other-real-estate-bubble.aspx

[4] Hui-yong Yu, U.S. Office Vacancies Rise to Three-Year High, Cushman Says. Bloomberg: April 16, 2009: http://www.bloomberg.com/apps/news?pid=20601087&sid=aegH6dXG8H8U

[5] Parija B. Kavilanz, Malls shedding stores at record pace. CNN Money: April 14, 2009: http://money.cnn.com/2009/04/10/news/economy/retail_malls/index.htm

[6] Ilaina Jonas and Emily Chasan, General Growth files largest U.S. real estate bankruptcy. Reuters: April 16, 2009: http://www.reuters.com/article/businessNews/idUSTRE53F68P20090417

[7] Jamil Anderlini, China property prices ‘likely to halve’. The Financial Times: April 13, 2009: http://www.ft.com/cms/s/0/9a36b342-280e-11de-8dbf-00144feabdc0.html

[8] Reuters, Fed Might Extend TALF Support to Five Years. Money News: April 17, 2009: http://moneynews.newsmax.com/financenews/talf/2009/04/17/204120.html?utm_medium=RSS

[9] Francesco Guerrera and Greg Farrell, US banks warn on commercial property. The Financial Times: July 22, 2009: http://www.ft.com/cms/s/0/3a1e9d86-76eb-11de-b23c-00144feabdc0.html

[10] Mark Pittman and Bob Ivry, Financial Rescue Nears GDP as Pledges Top $12.8 Trillion. Bloomberg: March 31, 2009: http://www.bloomberg.com/apps/news?pid=20601087&sid=armOzfkwtCA4

[11] Gerald Celente, The “Bailout Bubble” – The Bubble to End All Bubbles. Trends Research Institute: May 13, 2009: http://geraldcelentechannel.blogspot.com/2009/05/gerald-celente-bubble-to-end-all.html

[12] Tom Braithwaite, Treasury clashes with Tarp watchdog on data. The Financial Times: July 20, 2009: http://www.ft.com/cms/s/0/ab533a38-757a-11de-9ed5-00144feabdc0.html

[13] AFP, US could spend 23.7 trillion dollars on crisis: report. Agence-France Presse: July 20, 2009: http://www.google.com/hostednews/afp/article/ALeqM5iuL1HParBuO4WyHJIxw6rlOKdz-A

[14] John Whitesides, Warren Buffett says second stimulus might be needed. Reuters: July 9, 2009: http://www.reuters.com/article/pressReleasesMolt/idUSTRE5683MZ20090709

[15] Vidya Ranganathan, U.S. should plan 2nd fiscal stimulus: economic adviser. Reuters: July 7, 2009: http://www.reuters.com/article/newsOne/idUSTRE56611D20090707

[16] Carly Crawford, US may increase stimulus payments to rein in unemployment. The Herald Sun: August 3, 2009: http://www.news.com.au/heraldsun/story/0,21985,25873672-664,00.html

[17] David Cho and Binyamin Appelbaum, Treasury Works on ‘Plan C’ To Fend Off Lingering Threats. The Washington Post: July 8, 2009: http://www.washingtonpost.com/wp-dyn/content/article/2009/07/07/AR2009070702631.html?hpid=topnews

[18] Charles Bremner and David Charter, Germany and France lead €1 trillion European bailout. Times Online: October 13, 2009: http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4937516.ece

[19] Douwe Miedema, Europe banks silent on reported AIG bailout gains. Reuters: March 8, 2009: http://www.reuters.com/article/topNews/idUSTRE5270YD20090308

[20] Elitsa Vucheva, European Bank Bailout Total: $4 Trillion. Business Week: April 10, 2009: http://www.businessweek.com/globalbiz/content/apr2009/gb20090410_254738.htm?chan=globalbiz_europe+index+page_top+stories

[21] Bruno Waterfield, European bank bail-out could push EU into crisis. The Telegraph: February 11, 2009: http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4590512/European-banks-may-need-16.3-trillion-bail-out-EC-dcoument-warns.html

[22] Ian Traynor, EU doubles funding for fragile eastern European economies. The Guardian: March 20, 2009: http://www.guardian.co.uk/world/2009/mar/20/eu-imf-emergency-funding

[23] Anatole Kaletsky, The great bailout – Europe’s best-kept secret. The Times Online: June 4, 2009: http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article6426565.ece

[24] Gideon Rachman, Europe prepares for a Baltic blast. The Financial Times: August 3, 2009: http://www.ft.com/cms/s/0/b497f5b6-8060-11de-bf04-00144feabdc0.html

[25] JAD MOUAWAD, Swings in Price of Oil Hobble Forecasting. The New York Times: July 5, 2009: http://www.nytimes.com/2009/07/06/business/06oil.html

[26] Christopher Doering, Masters says signs of oil bubble starting to appear. Reuters: June 4, 2009: http://www.reuters.com/article/Inspiration/idUSTRE55355620090604

[27] Javier Blas and Chris Flood, Analyst warns of oil at $200 a barrel. The Financial Times: May 6, 2008: http://us.ft.com/ftgateway/superpage.ft?news_id=fto050620081414392593

[28] Ed Wallace, The Reason for High Oil Prices. Business Week: May 13, 2009: http://www.businessweek.com/lifestyle/content/may2008/bw20080513_720178.htm

[29] Christine Harper, Goldman Sachs Posts Record Profit, Beating Estimates. Bloomberg: July 14, 2009: http://www.bloomberg.com/apps/news?pid=20601087&sid=a2jo3RK2_Aps

[30] Peter Martin and John Garnaut, The great China bailout. The Age: November 11, 2008: http://business.theage.com.au/business/the-great-china-bailout-20081110-5lpe.html

[31] Paul Cavey, Now China Has a Credit Boom. The Wall Street Journal: July 30, 2009: http://online.wsj.com/article/SB10001424052970204619004574319261337617196.html

[32] Joe McDonald, China’s stimulus-fueled stock boom alarms Beijing. The Globe and Mail: August 2, 2009: http://www.globeinvestor.com/servlet/story/RTGAM.20090802.wchina02/GIStory/

[33] Matt Jaffe, Watchdog Refutes Treasury Claim Banks Cannot Be Asked to Account for Bailout Cash. ABC News: July 19, 2009: http://abcnews.go.com/Business/Politics/story?id=8121045&page=1

[34] The China Post, Bank lending slows down in U.S.: report. The China Post: July 28, 2009: http://www.chinapost.com.tw/business/americas/2009/07/28/218141/Bank-lending.htm

[35] David Uren. Bank for International Settlements warning over stimulus benefits. The Australian: June 30, 2009: http://www.theaustralian.news.com.au/story/0,,25710566-601,00.html

[36] Simone Meier, BIS Sees Risk Central Banks Will Raise Interest Rates Too Late. Bloomberg: June 29, 2009: http://www.bloomberg.com/apps/news?pid=20601068&sid=aOnSy9jXFKaY

[37] CNBC.com, We Are Facing an ‘Inflation Holocaust’: Jim Rogers. CNBC: October 10, 2008: http://www.cnbc.com/id/27097823

[38] Chen Shiyin and Bernard Lo, U.S. Inflation to Approach Zimbabwe Level, Faber Says. Bloomberg: May 27, 2009: http://www.bloomberg.com/apps/news?pid=20601110&sid=avgZDYM6mTFA

[39] Ambrose Evans-Pritchard, BIS warns of Great Depression dangers from credit spree. The Telegraph: June 27, 2009: http://www.telegraph.co.uk/finance/economics/2811081/BIS-warns-of-Great-Depression-dangers-from-credit-spree.html

[40] Gill Montia, Central bank body warns of Great Depression. Banking Times: June 9, 2008: http://www.bankingtimes.co.uk/09062008-central-bank-body-warns-of-great-depression/

[41] Ambrose Evans-Pritchard, BIS slams central banks, warns of worse crunch to come. The Telegraph: June 30, 2008: http://www.telegraph.co.uk/finance/markets/2792450/BIS-slams-central-banks-warns-of-worse-crunch-to-come.html

[42] HEATHER SCOFFIELD, Financial repairs must continue: central banks. The Globe and Mail: June 29, 2009: http://v1.theglobeandmail.com/servlet/story/RTGAM.20090629.wcentralbanks0629/BNStory/HEATHER+SCOFFIELD/

Andrew Gavin Marshall is a Research Associate with the Centre for Research on Globalization (CRG). He is currently studying Political Economy and History at Simon Fraser University.