Wednesday 29 June 2011

Max Keiser: IMF uses Greece's assets as collater


At the time of writing there is a key vote in the Greek parliament on austerity measures while the French have agreed to roll over Greek debt presumably (according to the Guardian) making default less likely.

Whatever happens this week (and we have got used to manipulations at the last minute to keep the evil moment at bay), the moment of truth will come and this whole European (and global) sovereign debt crisis will come to a head - the Lehman Bros. moment that people have been talking about (and fearing) so much.

This week there was a key interview on Mike Ruppert’s Lifeboat Hour  with Max Keiser of RT’s Keiser Report.  These two between them brought a lot of clarity to the situation especially as it relates to the origin and the nature of the Greek crisis and how this relates to Peak Oil. 

 Unfortunately the interview was done on Skype and so the sound is quite unclear. I have tried to recap the ideas that came across from the Max Keiser interview.

Rebellion in Greece

At the moment the Greek government is trying to pass through the parliament austerity measures that are a precondition of a bailout from the EU and the IMF. The problem with Greece is that since 1939 they have it written into the constitution that no financial arrangements can be made with foreigners if this is going to harm the interests of Greek citizens.  This means that the Papandreou PASOK government, if they are to pass the austerities have to annul the constitution provisions.

Meanwhile, while one part of the Greek population is trying to go about its ordinary business a growing section of the population is furious and rebelling against the austerities.

There is now a camp set up on Constitution Square opposite the parliament and the demonstrations have been violent partially because police have dressed up as provocateurs and beat up Greek citizens.  This has been caught on camera.

This has been presented in the world media as a self-centred Greek population who are  unwilling to let go of their perks and pensions etc.  However when we look a little deeper there is a whole other story.

Background to the Greek debt crisis

In 2001 Greece entered the Euro zone.  This was done fraudulently with the help of Goldman Sachs by cooking the books and hiding debt so that Greece would qualify to enter the euro zone (itself a brainchild of the unaccountable and secret Bilderberg group).

1,000 million Euros entered the balance sheets from outside banks and like everywhere else during this era of easy credits money was borrowed;  Greece hosted the Olympic Games (and I remember at the time there were questions about the pressure this would put on the Greek economy.

All was fine until 2007/8 when global credit dried up (again due to criminal and fraudulent activities of US and other banks).  Greeks were now asked to pay up on debts that were not incurred by the people.

Greece and the Greek parliament are being held to ransom by the EU and the IMF in the same way that the US congress was held ransom by Hank Paulsen in 2008 - basically “agree to this or you’ll be responsible for the collapse of the entire financial system!”  

Also, as elsewhere Papandreou and his government are basically “in bed” with the banking industry in the same way that the Greek media is in the pocket of the banks - which means there is no real discussion going on (except for one alternative Contra  TV channel which is becoming increasingly popular).

The debt crisis and Peak Oil

After Nixon removed the USA off the gold standard and after the oil shocks of the 1970’s we saw the emergence of the petrodollar and a new round of global growth driven by super-cheap oil.  This coincided with exponential growth in credit on which the oil industry was heavily dependant.

In 2007/8 Peak Oil (which meant the end of cheap oil) came at the same time as Peak Credit, so that the reason for economic and financial collapse is that these two events happened at the same time.  The banks were not lending because there’s no loans to be made, no GDP growth, no underlying oil-centered economy to drive both the credit and oil industries.

Countries like Greece, Ireland and Portugal are in a predicament basically because there is not scenario you could construct that would allow them to repay their debts associated with growth because ultimately that growth is associated with oil.  Keiser says that there is insufficient oil to allow the growth necessary to fund the economic activity needed to pay off all the debt. 

Put another way there is not enough oil to pay for the 60 trillion dollar economy plus the 600 trillion in derivatives.

IMF uses Greece’s assets as collateral

The IMF, Keiser contends, is practically bankrupt. It has no money, so what they are basically doing is doing a hostile takeover -  which is what happened in the 80’s and 90’s - leveraged buyouts using the assets of the company as collateral to take over the company being targeted.

In this case the IMF is using Greece’s assets as collateral to arrange for more debt so it can take over Greece and sell the assets and hope that there is enough left over to take themselves a hefty fee.  Greece is left with its sovereignty in shatters and maybe even absorbed into another entity.
China sacrifices the dollar
With the recession we are getting demand destruction as the price of oil goes higher. With a reduction in supply prices are reaching higher, permanent plateaus.  Countries like China and India are able to leverage their local currency to buy energy and to sacrifice the dollar. In China’s case they have removed the peg to the dollar and the increased purchasing power of the renminbi means they can pay a higher price for energy without sacrificing the consumer.  The United States is more vulnerable because they are forced to pay for oil with dollars. 

Demand destruction in the US is not going to offset the increased price of oil.

Little political consciousness while credit expands

In relation to a question as to why with all the numerous scandals that have occurred - JFK, Watergate, Iran Contra, loans scandal, even 9/11 there has been no real change in political consciousness, Max Keiser answered by saying that while credit was expanding and it took $1 of debt to produce  $1 of GDP people could remain asleep.  Once the amount of debt increased to $7 or $8 to $1 of GDP in 2007-8 and the system started to break down people are starting to wake up.

Throughout the period of 40 years the banks were able to leverage up. In the early years of the century legislation was passed under Alan Greenspan that basically deregulated the finance sector and allowed the banks to increase their leverage from 12:1 to 30: 1 and the hedge funds like Goldman Sachs or Deutsche Bank were able to leverage up to 60:1 or even 70:1.

During this period the problems could always be papered over. There was always a bull market in bonds. 

That ended abruptly in 2007 with Peak Credit. Now, with every day, more people are realising that this is not just one episode in the history of credit but represents the end of credit.

Who will lose if Greece defaults?
In Keiser’s opinion bondholders in Europe that hold Greek debt will lose a lot of money but it is the Wall St banks that have sold a lot of credit default swaps that stand to lose the most.

Greek default, he says will lead to one of two things: a mad rush into the US dollar, or a mad rush into gold. 

From his knowledge of Wall Street people will choose the certainty of gold over the uncertainty of the dollar to invest the last 10% that constitutes their remaining wealth.

It will also lead to a multi-decade economic holocaust.

and from al-Jazeera

More coverage of public demonstrations from today's Guardian - Greece crisis: Athens erupts as government flogs assets in London

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