Oil & the Destruction of Iraq
Iraq emerged from 8 years of fruitless war with Iran which had accomplished little more than provide arms companies a massive income stream. Iraq ended the war with an enormous foreign debt burden of $65 billion. This was in stark contrast at the beginning of the war when Iraq had $50 billion in cash, and no debts!
In June 1989, a top-level business delegation from the US came to Baghdad on the request of Saddam Hussein. He wanted to discuss post-war plans to rebuild his country’s agricultural and industrial potential. The most important delegate was Alan Stoga of Kissinger Associates. Saddam Hussein knew where real power lay, by spending 3 hours alone with Alan Stoga.
Stoga told Saddam that he must first restructure his foreign debts, and agree to privatize Iraq’s oil resources. In other words, let the Rockefeller oil companies gain concessions in Iraq’s oil industry. According to the best geophysical calculations, Iraq is the largest unexplored oil region in the world. Iraq would later prove to have between 150-200 billion barrels of oil in place!
Predictably, Saddam refused the American “offer” to surrender sovereignty in exchange for vague assurances on future loans and industrial and technological inputs. Stoga then warned Saddam that if he denied the Rockefeller Group access to Iraq’s oil, then New York would deny the benefits of Iraq’s oil to its leader and its people. Six weeks later, on 2nd August, the money pipeline from Washington to Iraq was cut-off. The cut-off of credit followed a series of sensational articles in the London Financial Times (a Rothschild paper), which claimed that the monies were being used by Iraq to re-build its war machine. The combined effect of the Stoga talks and the media exposes was a total western bank credit cut-off to Iraq by early 1990.
Into this critical situation, Kuwait enters the picture. The Anglo-American game-plan was to lure Saddam into a trap he could not resist, in order to provide a pretext for military intervention from Britain and the US. In December 1989, Kuwait was told to flood the oil markets, in violation of agreed OPEC production ceilings –which would stabilize world oil prices following the debacle of 1985/87. By July 1990, Kuwait succeeded in drawing oil prices down to $9 from $16 a barrel. Since Iraq was exporting 1 billion barrels a year, this meant a loss of $7 billion to Iraq’s economy.
Repeated Iraqi diplomatic efforts to persuade Kuwait to stop the deliberate economic pressure on Iraq fell on deaf years. Iraq was not able to service its old debts or finance needed food imports. In February 1990, Saddam gave a speech in which he warned that the Arab world was faced with special dangers, pointing out that the US military presence in the Gulf were on the increase.
On 2nd August Saddam invaded Kuwait, after receiving a “green light” from the US ambassador to Baghdad. Saddam Hussein fell into the trap. Within hours of the Kuwaiti invasion, the Bank of England and the US government acted to freeze all Kuwaiti assets held in the world’s largest single sovereign investment fund, at that time, the Kuwait Investment Office, or the KIO. Its total asset value was $165 billion. Within weeks, this portfolio was plundered by the Rockefeller Empire. Many of its banks were in a slow-motion death spiral. They were collapsing into bankruptcy. In November, Citicorp went bust, and was taken over by the US government. By February, the looted money from the KIO was used to re-capitalise many Rockefeller banks, including Citicorp, and Rockefeller companies.
In short, due to the precarious state of the Rockefeller banks, and the denial to the Rockefeller Group of Iraq’s oil, the Rockefeller Empire went to war against Iraq. It used all its proxies and allies under its control, in total- 26 nations, to fight its war.
A secondary target of this war against Iraq was Europe and Japan. The US saw that to avoid falling into a decline similar to that of the Soviet Union, it had to keep pace with potential adversaries of the future. They include Japan and a Europe united around German economic power. The US could not accept the idea of a Europe that can not only manage quite happily without America, but one which had the potential to be economically and technologically more powerful. For this reason, besides others, America turned its attention on the Middle East oil reserves, and on gaining control of the Arab oil tap on which Europe and Japan depends upon.
Starting with the success of Desert Storm, in February 1991, the American stock market began its upward climb, from 2140 points to some 11450 points by June 2001!
Operation Desert Storm did incalculable damage to Iraq, Kuwait, and to the world economy, but there were signs that it had not accomplished its prime objective of bringing Europe firmly under control of the two families.
The Looting & Rape of Russia
Russia is the largest country on earth, and extends from Europe in the West to Japan in the East, and encompasses Central Asia. It is spread over 11 time zones. It is a country rich in a wide range of natural resources. Russia, under communist rule, was a disaster.
In 1990, London and New York put into motion a plan to drain Russia of its wealth. The place for Russia on the economic landscape was for it to serve as a raw materials supplier, and not as a potential economic competitor, or even a military one. In short, the aim was to reduce Russia to the level and status of a Third World country. The difference with Russia was that she was the 2nd largest nuclear power on earth.
Russia had no consumer-oriented society. The productive potential of the country was geared to heavy industry and the military. The result was that ordinary citizens had plenty of money, with nothing to spend it on. The two families concocted various schemes to rob Russia blind. The story is long, and told in detail, in a forthcoming article, titled “The Geopolitics of Russia”. A brief rundown of the game – plan is as follows:
- The Russian Central Bank had 2,000 tons of gold reserves. During the chaos of the transition, this gold vanished. Senior Russian intelligence operatives, working in conjunction with British Intelligence and the CIA, spirited this gold out of Russia, and into the West. The value of the gold at that time (1991) was an estimated at $25 billion.
- Hyper-inflation ensued shortly after, with the central bank printing vast amounts of money, with no corresponding increase in the production of goods. The majority of the savings of the Russian masses vanished, with their value of their savings becoming worthless.
- Huge amounts of all sorts of raw materials, from gold, diamonds, oil, timber , platinum, etc., being exported out, and no money coming in. The proceeds of this remained in western banks.
- Finally, all Russian companies were owned by the state. In various rigged auctions, most of these were sold for between 1 – 10% of its value.
All in all, it has been estimated that around $50-100 billion per year was drained out of Russia, for about 9 years. In total, about $400-800 billion was drained out of Russia. The world’s richest country was brought to its knees.
Wall Street and the City of London needed the income streams from this Russian raid to maintain their precarious financial situation. In addition, they managed to remove Russia as a major geopolitical opponent in the Eurasian space. By the end of 1999, with the coming to power of Vladimir Putin, things began to change. Russia began to embark on a policy of rebuilding its physical infrastructure. It began making strides in moving away from the Anglo-American orbit that had brought Russia to ruin. It was no more prepared to toe the line of the two families. Russia turned nationalistic under its new leader, Vladimir Putin. Russia was destined to become a force in global geopolitics over the next two decades. Whether it will succeed, only time will tell.
The Takedown of Japan Inc, and the “Asian Tigers”
From 1859 till 1935, Japan was a colony of the Rothschilds. In 1935, nationalist factions assassinated many leading businessmen and bankers-all of whom were allied to the Rothschilds. Then Japan lost to America in the 2nd World War. From that point on, in 1945, till the present, Japan has been in the Rockefeller orbit. In return for being a Rockefeller vassal, the Americans guaranteed Japan’s oil supply, and a market for its finished goods. In return, the country’s financial resources were put to use by the Rockefeller Group. Japan and its leaders escaped retribution for their war-crimes, by bribing the Rockefeller Group with part of the loot stolen during its conquests of various Asian countries during the war. The loot ran into several tens of billions, and came to be known as “Yamashita’s Gold”.
American Cold War dominance of the non-communist world had been based on the perceived global threat of Soviet and potentially Chinese Communist aggressions. Once that threat ended at the end of the 1980’s, as Washington well knew, restraints on its major military allies were gone. The allies were potential economic rivals. Japan and East Asia, as well as the European Union, were emerging as major economic challengers to American hegemony. That economic challenge was to be the focus of U.S. geopolitics after 1990.
Armed with the Gospel of free market reform, privatization and dollar democracy, and backed by the powerful Wall Street financial firms, the Clinton Administration began a process of extending the dollar and U.S. influence into domains which had previously been closed to it. It was to include any and every major part of the world that continued to try to develop its own resources, independent of the mandate of the IMF or the dollar world. The process also involved bringing every major oil region of the world under more or less direct U.S. control, from the Caspian Sea to Iraq to West Africa and Colombia. It was an ambitious undertaking. Critics termed it imperial; the Clinton Administration called it the extension of market economy and human rights. It was definitely not what most of the world were hoping for as the Cold War drew to an end.
The Clinton Administration and its Wall Street allies had brought one region after the other into its direct orbit during the 1990’s, with the promise of the free market as the road to wealth and prosperity. The catch word was “globalization,” and in reality it was globalization of American power, consolidated through American banking and finance and corporate power.
Few realized it might be part of a well thought-out strategy, until the process was well advanced. Free trade had traditionally been the demand of the superior economic power on its weaker partners. By the time it became clear what the Washington agenda was, America had largely disarmed potential opponents, and built a new ring of military bases around the world to defend its gains, a guarantee that the new converts to free market did not lose the faith, and try to revert to older economic forms.
After 1990 Washington faced a significant problem. What bogeyman could it find to justify such acts of foreign policy in the future, now that the danger of Godless communism could no longer be used as a rationale? The answer was to take until the new millennium, more than a decade.
In the meantime, the U.S. establishment had prepared a full plate to dish out to an unsuspecting world, starting in Japan. Washington knew its continued global dominance depended on how it dealt with Eurasia, from Europe to the Pacific. Former Presidential adviser and geostrategist, Zbigniew Brzezinski, put it bluntly, “…in terminology that hearkens back to the more brutal age of 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.’” It was an ambitious agenda.
Japan: Wounding the Lead Goose
One of the most pressing challenges to the United States’ role in the post-Cold War world was the enormous new economic power of its Japanese ally, over world trade and banking. Japan had built up its economic power during the postwar period through careful steps, always with an eye to its military protector, Washington.
By the end of the 1980’s Japan was regarded as the leading economic and banking power in the world. People spoke about the “Japan that can say no,” and the “Japanese economic challenge.” American banks were in their deepest crisis since the 1930’s, and U.S. industry had become over-indebted and under-competitive. It was a poor basis to build the world’s sole remaining superpower, and the Bush Administration knew it.
Japan has industrialized but not Westernized, its capitalism is quite different from the Western version, and is not based on the formal concepts of the individual. It has accepted selectively only the concepts associated with the state, economic wealth accumulation and technocratic rationalism. In short, the Japanese model, which was tolerated during the Cold War as a counterweight geopolitically to Chinese and Soviet power, was a major problem for Washington once that Cold War was over. Japan was soon to learn how major.
No other country had supported the Reagan era budget deficits and spending excesses during the 1980’s more loyally and energetically than Washington’s former foe, Japan. Not even Germany had been so supportive of Washington demands. As it appeared to Japanese eyes, Tokyo’s loyalty and generous purchases of US Treasury debt, real estate and other assets, were rewarded in the beginning of the 1990’s, by one of the most devastating financial debacles in world history. Many Japanese businessmen privately believed it was a deliberate Washington policy, taken to undercut Japanese economic influence in the world. At the end of the 1980’s, Harvard economist and later Clinton Treasury Secretary, Lawrence Summers, warned, “an Asian economic bloc with Japan at its apex is in the making…raising the possibility that the majority of American people who now feel that Japan is a greater threat to the U.S. than the Soviet Union, are right.”
The Plaza Hotel Accord of the G-7 industrial nations in September of 1985 was officially designed to bring an overvalued dollar down to more manageable levels. To accomplish this, the Bank of Japan was pressured by Washington to take measures that would increase the yen’s value against the US dollar. Between the Plaza Accord, the Baker-Miyazawa Agreement a month later, and a Louvre Accord in February 1987, Tokyo agreed to “follow monetary and fiscal policies which will help to expand domestic demand and thereby contribute to reducing the external surplus.” Baker had set the stage.
As Japan’s most important export market was the United States, Washington was able to put Japan under intense pressure. And it did. Under the 1988 Omnibus Trade and Competitiveness Act, Washington listed Japan for “hostile” trade practices and demanded major concessions.
The Bank of Japan cut interest rates to a low of 2.5% by 1987, where they remained until May 1989. The lower interest rates were intended to spark more Japanese purchases of US goods, something which never happened. Instead, the cheap money found its way to quick gains in the rising Tokyo stock market, and soon a colossal bubble was inflating. The domestic Japanese economy was stimulated, but above all, the Nikkei stock market and Tokyo real estate prices were pumped up. In a preview of the later US New Economy bubble, Tokyo stock prices rose 40% or more annually, while real estate prices in and around Tokyo ballooned in some cases by 90% or more, as a new gold rush fever gripped Japan.
Within months after the Plaza Accord, the yen had appreciated dramatically. It rose from 250 to only 149 yen to a dollar. Japanese export companies compensated for the yen’s impact on export prices by turning to financial speculation, dubbed “zaitech,” to make up for currency losses in export sales. Japan overnight became the world’s largest banking center. Under new international capital rules, Japanese banks could count a major share of their long-held stocks in related companies, the keiretsu system, as bank core assets. As the paper value of their stock holdings in other Japanese companies rose, bank capital rose with it.
By 1988, as the stock bubble roared ahead, the ten largest banks in the world all had Japanese names. Japanese capital flowed into US real estate, golf courses, and luxury resorts, into US government bonds and even into more risky US stocks. The Japanese obligingly recycled their inflated yen into dollar assets, thereby aiding the Presidential ambitions of George H.W. Bush, who succeeded Ronald Reagan in 1988. Commenting on Japan’s success during the 1980’s, New York financier, George Soros, remarked, “…the prospect of Japan’s emerging as the dominant financial power in the world is very disturbing…”
Japanese euphoria over becoming the world’s financial giant was short-lived. The inflated Japanese financial system, with banks awash with money, led as well to one of the world’s greatest stock and real estate bubbles, as stocks on the Nikkei index in Tokyo rose 300% in a space of three years after the Plaza Accord. Real estate values, the collateral of Japanese bank loans, rose in tandem. At the peak of the Japan bubble, Tokyo real estate was valued in dollar terms greater than that of the entire United States real estate. The nominal value of all stocks listed on the Tokyo Nikkei Stock Exchange accounted for more than 42% of world stock values, at least on paper. Not for long.
By late 1989, just as the first signs of the collapse of the Berlin Wall surfaced in Europe, the Bank of Japan and Ministry of Finance began a cautious effort to slowly deflate the alarming Nikkei stock bubble. No sooner did Tokyo act to cool down speculative juices, than major Wall Street investment banks, led by Morgan Stanley and Salomon Bros., began using exotic new derivatives and financial instruments. Their aggressive intervention turned the orderly decline of the Tokyo market into a near panic sell-off, as the Wall Street bankers made a killing on shorting Tokyo stocks in the process. The result was that no slow, orderly correction by Japanese authorities was possible.
By March 1990 the Nikkei had lost 23% or well over $1 trillion from its peak. Japanese government officials privately recalled a May 1990 Washington meeting of the IMF Interim Committee, where a heated debate over Japanese proposals to finance the economic reconstruction of the former Soviet Union was drawing strong opposition, from Washington and the Bush Treasury Department. They saw that meeting as a possible reason behind the speculative Wall Street attack on Tokyo stocks. It was only partly true.
The Japanese Ministry of Finance had issued a report to the IMF, arguing that, far from being a problem, as argued by Washington, Japan’s huge capital surplus was urgently needed by a world needing hundreds of billions of dollars in new rail and other economic infrastructure investment following the end of the Cold War. Japan proposed its famous MITI model for the former communist economies. Washington was unenthused, to put it mildly. The MITI model involved a heavy role for the state in guiding national economic development. It had proven remarkably successful in South Korea, Malaysia and other East Asian countries. As the Soviet Union collapsed, many began eagerly looking to Japan and South Korea as better alternatives to the U.S. “free market” model. That was a major threat to Washington plans as the Cold War drew to an end.
The Bush Administration was less than eager to accept a leading role from Japan in rebuilding Eastern Europe and the Soviet Union. Washington had other plans for its former Cold War adversary, and creation of a Japanese-financed economic bloc with Russia was not on the list. To drive the point home in Tokyo, George Bush sent his Defense Secretary, Dick Cheney, to Tokyo in early 1990 to “discuss” drastic U.S. troop reductions in the Asia-Pacific rim, a theme calculated to raise Japanese military security anxieties. Cheney’s barely concealed blackmail mission followed on the heels of a January trip by Japan’s Prime Minister Kaifu to Western Europe, Poland and Hungary, to discuss the economic development of the former communist countries of Eastern Europe. The message was clear— “do as Washington says, or we leave you poorly defended.”
By the time the Japanese Prime Minister met the American President in Palm Springs that March, he had gotten the point. Japan was not to compete with American dollars in Eastern Europe. Within months, Japanese stocks had lost nearly $5 trillion in paper value. Japan Inc. was badly wounded.
Hunting the “Asian Tigers”
The second phase of breaking up the Japan model involved destroying the East Asian economic sphere, a highly successful model to challenge the American dictates of free market rugged individualism. The Japanese model, as Washington knew well, was not limited to Japan. In the postwar period it had been nurtured in South Korea, Thailand, Malaysia, Indonesia and other East Asian economies. In the 1980’s these fast-growing economies were labeled the Tiger states.
East Asia had been built up during the 1970’s and especially the 1980’s, by Japanese state development aid, large private investment, and MITI support. While it was done with little fanfare, in effect the booming economies of East Asia in the 1980’s owed much to a deliberate regional division of labor, in which Japan was at the center, and Japanese companies outsourced manufacturing processes to East Asian centers. They were referred to in Asian business circles as the yen bloc countries because of the close ties to Japan’s economy.
Those Tiger economies were a major embarrassment to the IMF free market model. Their very success in blending private enterprise with a strong state economic role was a threat to the IMF free market agenda. So long as the Tigers appeared to succeed with a model based on a strong state role, former communist states and others could argue against taking the extreme IMF course.
In East Asia during the 1980’s, economic growth rates of 7 to 8% per year, rising social security, universal education and a high worker productivity, were all backed by state guidance and planning, albeit in a market economy, an Asian form of benevolent paternalism. Even more than Soviet central planning, the self-sufficient Asian Tiger economies were an obstacle to the global spread of the dollar free market system being demanded by Washington in the 1990’s.
Beginning in 1993, at the Asia Pacific Economic Cooperation (APEC) Summit, as Japan’s banks struggled with the collapse of their stock and real estate markets, Washington officials began to demand East Asian economies open up their controlled financial markets to free capital flows, in the interest of “level playing fields,” they argued. Previously, the debt-free economies of East Asia had avoided reliance on IMF loans, or foreign capital other than direct investment in manufacturing plants, usually as part of a long-term national goal. Now they were told to open their markets to foreign capital flows and short-term foreign lending.
Once capital controls were eased and foreign investment was allowed to flow freely, in and out, South Korea and other Tiger economies were awash in a sudden flood of foreign dollars. The result was creation of speculative bubbles in luxury real estate, local stock values and other assets between 1994 and the onset of the attack on the Thai baht in May 1997.
Once the East Asian Tiger economies had begun to open up to foreign capital, but well before they had adequate controls over possible abuses in place, hedge funds went on the attack. The secretive funds first targeted the weakest economy, Thailand. American speculator, George Soros, acted in secrecy and armed with an undisclosed credit line from a group of international banks including Citigroup. They bet that Thailand would be forced to devalue the baht and break from the peg to the dollar. Soros, head of Quantum Fund, Julian Robertson, head of the Tiger Fund , unleashed a huge speculative attack on the Thai currency and stocks. By June, Thailand had capitulated, the currency was floated, and it was forced to turn to the IMF for help. In swift succession, the same hedge funds and banks hit the Philippines, Indonesia and then South Korea. They pocketed billions as the populations sank into economic chaos and poverty.
Chalmers Johnson described the result in blunt terms: “The funds easily raped Thailand, Indonesia and South Korea, then turned the shivering survivors over to the IMF, not to help the victims, but to insure that no Western bank was stuck with non-performing loans in the devastated countries.- – – as the strategy of targeting East Asian markets (was) in place, the U.S. Administration was in a strong position to take advantage of the financial crisis to promote liberalization of trade, finance and institutional reforms through the IMF.”
The impact of the Asia crisis on the dollar was notable. The Bank for International Settlements General Manager, Andrew Crockett, noted that while the East Asian countries had run a combined current account deficit of $33 billion in 1996, as speculative hot money flowed in, “1998-1999, the current account swung to a surplus of $87 billion.” By 2002 it peaked $200 billion. Most of that surplus returned to the U.S. in the form of Asian central bank purchases of U.S. Treasury debt, in effect, financing Washington policies. Japan’s Finance Ministry had made a futile effort to contain the Asia crisis by proposing a $30 billion Asian Monetary Fund. Washington made clear it was not pleased. The idea was quickly dropped. Asia was to become yet another province of the dollar realm through the IMF. Treasury Secretary Rubin euphemistically termed “America’s strong dollar policy”.
The Russian Default & the LTCM Crisis
Ever since 1991, Russia has been walking a financial tightrope. In order to maintain funding of the Russian government, Moscow began to issue government bonds- known as GKO bonds. Russia was not prepared for the change from communism to capitalism, as the transition literally occurred overnight. As a result, it was lacking the necessary infrastructure to collect taxes. Furthermore, most of the companies in Russia were state-owned, and most of these were trading at a loss. The concept of profits was non-existent. Since not enough tax was being collected, and the government was in no position to continue subsidizing losses at these companies, Moscow was forced to borrow money.
As its economic and financial situation deteriorated, Moscow, in order to continue borrowing money, was forced to offer even higher interest rates. With the onset of the Asian Crisis in June 1997, the interest rates on GKO bonds was reaching 30%, with maturity periods of less than one year. It was a position that was not sustainable.
In the meantime, in New York City, a hedge fund called Long Term Capital Management, or LTCM, a Rothschild entity, was thriving in all this chaos and upheaval. It bet big on the interest rate yields of US Treasury bonds, and on GKO bonds. It was betting that yields on GKO bonds would come down, while the yields on US Treasuries will go up .Now, what happens next becomes interesting, as an example of the intertwining of Middle East politics with international finance.
On July 15th, 1998, Egyptian Foreign Minister Amr Mousa signed a strategic dialogue treaty with US President Bill Clinton. In the eyes of the White House, this treaty had the effect of elevating Egypt to the same level as Israel. During early 1998, a level of animosity and distrust existed between Clinton and Israeli Prime Minister Bibi Nethanyahu. When the Rothschilds found out, they were, predictably, furious. They instructed their banks and financial networks throughout the world to start dumping stocks on ALL the markets. The effect this would have on the carefully structured rescue plan crafted by Wall Street and Washington stood a good chance of unravelling.
As instructed, July 17th, was a red flag day for stock markets. Share prices started dropping, and dropping fast. In their fury, the Rothschilds became blind to certain other realities. And what followed was the unexpected consequence of that.
As markets crashed around the world, devastating currencies, money fled to the safe havens of New York, and into US Treasury bonds. In Russia, GKO bond yields shot up to 50%, with a maximum of 30-day maturities. On August 17th, Russia defaulted on its GKO bonds. Coming on top of falling markets, the impact of Russia’s default was serious, as the stability and solvency of many banks were hanging in the balance.
LTCM now had to pay the price of betting wrong. To add insult to injury, LTCM could not pay out its counterparties. It was by now obvious that LTCM was broke. It had a capital of $4 billion and a derivative book of $1.5 trillion – 375 times its capital base! At this point in time, the Rothschilds realized that they had made a huge mistake, and they scrambled to contain the damage.
Furthermore, the collapse of LTCM had created a nightmare of a problem on the inter-bank payment system. The interbank payment system is the arteries through which flow the smooth running of the international banking system. If it is disrupted, then the banking system would suffer a massive heart attack. In order to save the system from collapsing, the Federal Reserve pumped huge amounts of liquidity into the system. This was done to ensure that no gridlock ensued. Had that happened, the world would have entered into a new dark age. Michel Camdessus, the head of the IMF, in a private meeting with French bankers some two years later, stated that had there been a second hedge fund collapse, then nothing would have been able to save the international financial system. He said, “ we were staring into the abyss”.
Had the Fed and the banks not intervened to protect LTCM’s derivative exposure, LTCM would have defaulted on its debts the next day, blowing a trillion dollar hole in the derivatives markets, and likely setting off a chain-reaction of defaults which could have brought down the entire financial system.
The head of the New York branch of the Federal Reserve hinted at this: “ Had LTCM been suddenly put into default, its counterparties would have immediately “closed out” their positions. However, if many firms rush to close out hundreds of billions of dollars in transactions simultaneously, they would be unable to liquidate collateral or establish offsetting positions at the previously existing prices. Markets would move sharply and losses would be huge. Several billion dollars in losses might have been experienced by some of LTCM’s more than 75 counterparties. As the losses spread to other market players and LTCM counterparties, this would lead to tremendous uncertainty about how low prices would move, and there was a likelihood that a number of credit and interest rates would cease to function for a period of 3 days or longer. This would cause a vicious cycle : a loss of investor confidence, leading to a rush out of private credits, leading to further liquidations of positions, and so on “. In short, a reverse-leverage chain reaction.
So, at any cost, LTCM had to be saved. Since it was New York, the king of America, David Rockefeller swung into action. A deal was done between David, and the head of the Rothschild family, Evelyn Rothschild. The gist of the deal was that a consortium of banks would take over LTCM, unwind its position across the board with its 75 counterparties, and eventually shut it down. The rescue costs came to somewhere in the region of $50 billion.
The deal hinged on a concession from the Rothschilds. And the concession was that Nethanyahu must resume talks with the head of the PLO, Yasser Arafat. Within a few hours after this conversation, , Nethanyahu called Arafat , and a meeting was scheduled between the two. Three months later, the Wye Accords were signed; this was to implement the terms of the 1993 Oslo Peace Accords . After the signing of the Wye Accords, Nethanyahu’s usefulness had outlived him, and the Rothschilds replaced him with Ehud Barak.
Stock market losses since 17 July through to 20 September 1998 were as follows: – Brazil $121 billion, Japan $317, Hong Kong $30 billion, Germany $165 billion, Russia $122 billion and the US $2 trillion. This is just a sampling of some of the countries, and is not the total list. Since mid-July, stock markets went into a freefall. Most of the major players in the financial markets place their bets on margin, or with borrowed money, greatly increasing their potential profits, through leverage. As long as the markets are rising, tremendous amounts of money can be made through leverage. But the reverse is also true. When the markets drop, the leverage goes into reverse, and losses grow even faster than did profits. When markets are dropping, players are often forced to sell assets at a loss to meet margin calls, and, the more the players are forced to sell, the faster prices drop, which in turn forces more selling. The effect of this reverse leverage is even greater in the derivatives markets.
Do remember, that markets are ruled by greed and fear, and fear was ruling the markets at that time.
To summarize briefly, here is what happened. In the 1990s, vast sums of foreign capital moved into the Third World. The money arrived in many forms: as investments in local stocks and bonds, as bank loans, as direct investments to build factories. Between 1990 and 1996, annual net inflows to all emerging markets averaged $150 billion, ten times the 1984-1989 average. Some investments were justified on the basis of rapid economic growth. Some were pure speculation.
All the foreign capital boosted local economies, or in the case of weak countries, such as Russia, prevented collapses. Bank lending rose; much of Asia underwent a construction boom of offices and factories. Local currencies were converted to import goods, and this stimulated the Japanese, European and US economies. Since mid-1997, the reversal of capital flows has proceeded in ferocious spasms. By September 1998, capital flight had become a global phenomenon driven by fear and the connections among financial markets.
Whatever the cause, capital flight usually entails similar economic consequences. Even if currencies don’t collapse, countries experiencing or fearing capital flight must often embrace economic austerity. Interest rates are raised to reward “investors” for not switching out of local bank deposits; higher interest rates also aim to slow economic growth, dampen imports and reduce trade deficits. But the price is the near-death of the local economy. Raising interest rates to combat currency depreciation merely slows the overall global economy. Nor can countries export their way out of trouble, because all the trading partners are in the same boat.
So, in conclusion, we find that the birth of the petro-dollar was beneficial to the Rockefeller Group and the US. Every other country was subjected to the ruthless enforcement of the “dollarization” policy. Our next article in this series deals with “Derivatives”; and the “BAC” cartel-a group of Anglo-American companies dominating food, oil and the raw materials markets.
