The OBOMBA illusions, smoke and mirrors Galore

The economic elite have escalated their attack on the U.S. public by surging military operations in Afghanistan and Pakistan.

http://alethonews.wordpress.com/2009/12/18/world-depression-regional-wars-and-the-decline-of-the-us-empire-2/

As Obama announced plans for escalating the war effort, it has become clear that the Obama Illusion has taken yet another horrifying turn. Before explaining how the Af-Pak surge is a direct attack on the US public, let’s peer through the illusion and look at the reality of the situation.

Now that the much despised George W. Bush is out of the way and a more popular figurehead is doing PR for Dick Cheney’s right-hand military leader Gen. Stanley McChrystal, who is leading his second AF-Pak surge now, and with long time Bush family confidant Robert Gates still running the Defense Department, the masters of war have never had it so good.

Barack Obama, the anti-war candidate, has proven to be a perfect decoy for the military industrial complex. Consider all the opposition and bad press Bush received when he announced the surge in Iraq. Then consider this:

I: TROOP DEPLOYMENTS and " Al-CIAda ".....

The Bush surge in Iraq deployed an extra 28,000 US troops. Under Obama, back in March, a surge in Afghanistan, that also further escalated operations inside Pakistan, deployed an extra 21,000 troops. However, in an unannounced and underreported move, Obama added 13,000 more troops to that surge to bring the total to 34,000 troops. Obama actually outdid Bush’s surge by 6000 troops and brought the overall number of US troops in Afghanistan to 68,000, double the number there when Bush left office.

Where opposition was fierce to Bush’s surge, barely any opposition was expressed during Obama’s surge. Part of the reason for so little political and public backlash was the cleverly orchestrated psychological operation to announce the beginning of US troop withdrawal from Iraq. While the drawdown in Iraq has been greatly exaggerated in the US mainstream media, as of October, Obama still had 124,000 troops deployed in Iraq (not counting private military contractors).

When Obama casts the illusion of a 2011 withdrawal from Afghanistan, one just needs look at the reality of the situation with the over-hyped withdrawal in Iraq.

Now, with Obama’s latest surge announcement he will again be adding a minimum of another 30,000 US soldiers. This means that Obama has now led a bigger surge than Bush… on two separate occasions within the past nine months of his new administration.

Obama has now escalated deployments in the Af-Pak region to 98,000 US troops. So in Af-Pak and Iraq, he will now have a total of 222,000 US troops deployed, 36,000 more than Bush ever had - 186,000 was Bush’s highest total.

PRIVATE MILITARY AND NATO DEPLOYMENTS

The amount of private military contractors deployed in Iraq and Afghanistan is rarely reported on in the US mainstream press, but a Congressional Research Service investigation into this revealed that a record high 69% active duty soldiers are in fact private mercenaries.

Although the administration is yet to disclose how many private mercenaries will be deployed in the latest surge, it is believed that the 69% ratio will remain in tact.

The Pentagon released a report showing that Obama already had a total of 242,657 private contractors in action, as of June 30th. 119,706 of them in Iraq, 73,968 in Afghanistan, with 50,061 active in “other US CENTCOM locations.”

Back in June, Jeremy Scahill reported on these findings: “According to new statistics released by the Pentagon, with Barack Obama as commander in chief, there has been a 23% increase in the number of ‘Private Security Contractors’ working for the Department of Defense in Iraq in the second quarter of 2009 and a 29% increase in Afghanistan….”

Plus, we must mention, the immense dangers of having private military contractors as 69% of our fighting force. For those of you unaware, private military contractors are hired from all over the world. Any former soldier, from any country, is welcome to come and fight for a salary - a salary that is often significantly more than what we pay our own US soldiers.

These mercenaries have a vested interest in prolonging the war, for as long as there is a war, they have a well paying job. So it is easy to infer that a significant percentage of these contractors will not have the US soldiers, or US taxpayers, best interests at heart.

Obama continues to feed this out of control private army by pouring billions of taxpayer dollars into shady and scandalous companies like Blackwater, who recently changed their name to Xe Services, because they destroyed their reputation by committing numerous war crimes in Iraq. A recent investigation by Jeremy Scahill revealed the extent to which Blackwater is involved in covert operations inside Afghanistan and Pakistan. In some cases, Blackwater is not working for the US, but were hired by covert elements inside Pakistan. When it comes to private contractors, the fog of war grows ominous, exactly who is fighting for whom is unclear. The crucial factor is who paid them the most that particular day.

The US military can give them $1000 today, and an enemy can give them $1000 tomorrow, when you have people who fight for a payday and not for a country, you get chaos. This leads to a breakdown in the chain of command, effectively turning a military operation into a covert intelligence operation, where you’re never really sure if the person you are fighting with is on your side or not.

A federal investigation by the Commission on Wartime Contracting in Iraq and Afghanistan, revealed in June: “More than 240,000 contractor employees, about 80 percent of them foreign nationals, are working in Iraq and Afghanistan to support operations and projects of the U.S. military, the Department of State, and the U.S. Agency for International Development. Contractor employees outnumber U.S. troops in the region. While contractors provide vital services, the Commission believes their use has also entailed billions of dollars lost to waste, fraud, and abuse due to inadequate planning, poor contract drafting, limited competition, understaffed oversight functions, and other problems.”

Before this latest surge, there were over 123,000 US and NATO troops in the Af-Pak region, and 200,000 Afghan security forces, supporting the US effort. According to US intelligence sources the total number of Taliban and al-Qaida fighters in the region was estimated to only be about 25,000, giving the US led forces a minimum of a 12 to 1 troop advantage.

When you add in estimated private soldiers, you get an approximate minimum of a 17 to 1 advantage.

Although Obama opened his war speech by mentioning al-Qaida as the main justification for this war, consider this AP report: “national security adviser James Jones said last weekend that the al-Qaida presence has diminished, and he does not ‘foresee the return of the Taliban’ to power. He said that according to the maximum estimate, al-Qaida has fewer than 100 fighters operating in Afghanistan without any bases or ability to launch attacks on the West.”

Does it seriously take a surge of hundreds of thousands of troops to contain what amounts to “less than 100″ al-Qaida members?

Any serious war strategist will tell you that the most effective way to combat the remains of the al-Qaida network, is through an intelligence operation, and statistics prove that escalating more troops into the region will only fuel further acts of terrorism.

DRONE DEPLOYMENTS

Speaking of fueling hatred toward the US, other than a huge troop increase, there has also been a sharp increase in the use of unmanned drones. The New Yorker reports: “According to a just completed study by the New America Foundation, the number of drone strikes has risen dramatically since Obama became President. During his first nine and a half months in office, he has authorized as many C.I.A. aerial attacks in Pakistan as George W. Bush did in his final three years in office.”

The unmanned drones have caused major controversy due to the high number of civilian causalities they cause. However, as the study stated, the Obama Administration continues to increasingly rely upon them.

So summing up these statistics, we have the most fierce and technologically advanced military force in history, vastly outnumbering what amounts to be a ragtag army of peasant farmers with guns, and our best option is supposed to be an increase in troop levels?

Obviously, something doesn’t add up.

After thinking about all of this, you begin to see through the smokescreen of what this war is said to be about and get a glimpse of some of the sinister forces at play here.

OVER EXTENDED TROOPS

With the rise in deployments, the US military is stretched to a breaking point. Obama is “deploying practically every available US Army brigade to war, leaving few units in reserve.”

As this war enters its 9th year, many soldiers are forced into deploying on their 3rd or 4th combat tours, and morale is fading fast.

The past year has seen a dramatic increase in US soldier deaths, with the number of wounded drastically rising as well. 928 US soldiers have died in Afghanistan thus far, with last month being the deadliest month since the start.

AP reports that “nearly four times as many troops were injured in October as a year ago. Amputations, burns, brain injuries and shrapnel wounds proliferate in Afghanistan, due mostly to crude, increasingly potent improvised bombs targeting U.S. forces…. Since 2007, more than 70,000 service members have been diagnosed with traumatic brain injury — more than 20,000 of them this year…”

US soldier suicides are also on the rise. In 2008, 197 army soldiers committed suicide. Thus far in 2009, there have been 211 army suicides.

McClatchy recently reported: “An Army task force has found that a growing number of soldiers serving in Afghanistan are suffering from some kind of mental stress and is urging the military to double the number of mental health professionals deployed there. The study, conducted by the Army Mental Health Advisory Team, found that soldiers’ morale in Afghanistan is ’significantly lower’ than it was in 2005 and 2007 studies…”

As wounded soldiers return from Afghanistan and Iraq, they are finding a healthcare system that is increasingly more difficult and costly to get care from. In fact, 2,266 US veterans died in 2008 due to lack of healthcare, and “researchers also found that, in 2008, 1,461,615 veterans between the ages of 18 and 64 lacked insurance.”

Despite all of this, in another devastating example of how the economy is unraveling US society, military enlistment levels have reached a high. In a report by the Washington Post headlined: “A Historic Success In Military Recruiting” they reveal:

“For the first time in more than 35 years, the U.S. military has met all of its annual recruiting goals, as hundreds of thousands of young people have enlisted despite the near-certainty that they will go to war.

The Pentagon… said the economic downturn and rising joblessness, as well as bonuses and other factors, had led more qualified youths to enlist. The military has not seen such across-the-board successes since the all-volunteer force was established.…

‘We delivered beyond anything the framers of the all-volunteer force would have anticipated,’ Bill Carr, deputy undersecretary of defense for military personnel policy, said at a Pentagon news conference.

Overall, the Defense Department brought in 168,900 active-duty troops, or 103 percent of the goal for the fiscal year….”

What we are witnessing here with such high enlistment levels during this economic crisis has many parallels to Germany in the 1930’s. Just like the United States now, the German economy in the 1930’s was devastated by an economic crisis brought on by Wall Street. With rising unemployment and poverty, German men turned to the military for income and health benefits that their family severely needed. With over 25 million US citizens unemployed and underemployed, over 50 million with no healthcare, and over 50 million living in poverty, military service is now a last resort for a growing number of desperate Americans as well. The record-breaking enlistment numbers are expected to continue to rise as the economy continues to decline.

“Such a perfect democracy constructs its own inconceivable foe, terrorism. Its wish is to be judged by its enemies rather than by its results.”
– Guy DeBord, Comments On the Society of the Spectacle, 1988

II: THE MILITARIZED ECONOMY

The amount of money necessary to keep the US military machine growing has reached astonishing levels. Considering the increasing amount of troops and contractors, the White House estimates that it spends one million dollars per soldier, per year in Afghanistan, “not including the added expense of training and maintaining a security force.”

According to these calculations, 30,000 troops for this latest surge will add an additional $30 billion to the annual budget, just in troop related costs. Also consider the price of moving fuel around, AFP reports: “Moving soldiers and supplies across the rugged Afghan landscape costs more than in Iraq, with the military consuming 83 liters or 22 gallons of fuel per soldier per day.” The Hill adds: “Pentagon officials have told the House Appropriations Defense Subcommittee a gallon of fuel costs the military about $400 by the time it arrives in the remote locations in Afghanistan where U.S. troops operate.”

Other than in Iraq and Afghanistan, you have an unprecedented number of military bases spread throughout the world. Officially there are “900 military facilities in 46 countries and territories (the unofficial figure is far greater). The US military owns or rents 795,000 acres of land, with 26,000 buildings and structures, valued at $146bn. The bases bristle with an inventory of weapons whose worth is measured in the trillions and whose killing power could wipe out all life on earth several times over. The official figures exclude the huge build-up of troops and structures in Iraq and Afghanistan over the past decade, as well as secret or unacknowledged facilities in Israel, Kuwait, the Philippines and many other places. In just three years of the Iraq and Afghanistan wars, £2bn was spent on military construction.”

There was public outcry when Bush drastically raised an already bloated military budget to record highs. But in comes the admired anti-war candidate Obama, in the middle of a severe economic crisis, and what happens? Obama drastically increased Bush’s record budget to $651 billion in 2009. Yes, during a severe economic crisis, Obama actually increased Bush’s budget. US military spending is higher than the rest of the world combined. The 2010 budget, which doesn’t account for war-related spending yet, is already set to grow to $680 billion.

However, these budget numbers are deceiving because the Obama Administration has been getting better at hiding extra spending in other budget items. The actual total 2009 budget was over $1 trillion.

And much like the staggering giveaway to the economic elite in the Wall Street banker bailout, no one is really sure where a significant percentage of this money is actually going. On September 10, 2001, Donald Rumsfeld announced that $2.3 trillion in military spending was unaccounted for. As CBS News reported: “$2.3 trillion - that’s $8,000 for every man, woman and child in America.”

At that time, Pentagon auditors admitted that they couldn’t account for a staggering 25% of all military spending. And the budget has exploded since then, with fewer people accounting for where this money is going.

Once again, just like the $23.7 trillion that went into propping up the Wall Street elite - which totals $80,000 for every American - you have trillions more in taxpayer money vanishing and very few regulating and accounting for it.

Other than this staggering loss of taxpayer money, any serious economist will tell you “that military spending increases unemployment and decreases economic growth.”

Economists Joseph E. Stiglitz and Linda J. Bilmes, in their book “The Three Trillion Dollar War,” report that military spending on the war in Iraq has created over a trillion dollars in loses to the US economy.

On top of all the looting of taxpayer money that is occurring, “several powerful House committee chairmen have proposed a surtax on Americans to pay the future military costs.”

With the country already operating at a record $12 trillion deficit, members of congress don’t know how we can afford increasing an already huge war expenditure.

WEAPONS SALES

In this struggling economy, weapon sales have become one of America’s most booming businesses. US weapon sales have hit a record level under the Obama administration. Foreign Policy In Focus reports:

“In fiscal year 2008, the foreign military sales program sold $36 billion in weapons and defense articles, an increase of more than 50% over 2007. Sales for the first half of 2009 reached $27 billion, and could top out at $40 billion by the end of the year. In contrast, through the early 2000s, arms sales averaged between $8-13 billion per year….

But last year, the United States sold arms or military services to well over 100 nations….

… the majority of U.S. arms sales to the developing world went to countries that our own State Department defined as undemocratic regimes and/or major human rights abusers. And over two-thirds of the world’s active conflicts involved weapons that had been supplied by the United States.”

Selling all these weapons, especially during the biggest global financial crisis, will lead to one thing… terrorism.

Given these statistics, it shouldn’t be a surprise to hear how US taxpayer dollars are still funding the Taliban. Prior to the 9/11 attacks, the Taliban government was funded by the US taxpayer. In fact, the Taliban still receives a significant portion of their funding courtesy of the US taxpayer. As The Nation recently reported: “It is an accepted fact of the military logistics operation in Afghanistan that the US government funds the very forces American troops are fighting. And it is a deadly irony, because these funds add up to a huge amount of money for the Taliban. ‘It’s a big part of their income,’ one of the top Afghan government security officials told The Nation in an interview. In fact, US military officials in Kabul estimate that a minimum of 10 percent of the Pentagon’s logistics contracts–hundreds of millions of dollars–consists of payments to insurgents.”

As former CIA Station Chief John Stockwell explained: “Enemies are necessary for the wheels of the US military machine to turn.”

With the war in Afghanistan now entering it’s 9th year, senior military commanders and a growing number of experts have come to the conclusion that this war is unwinnable and will fuel terrorism.

However, they all seem to be missing the point, before explaining this in more detail, let me start by referring you to a quote from a journalist who had firsthand experience operating inside a militaristic empire:

“The war is not supposed to be winnable, it is supposed to be continuous… all for the hierarchy of society… The essential act of war is destruction, not necessarily of human lives, but of the products of human labor. War is a way of shattering to pieces, or pouring into the stratosphere, or sinking in the depths of the sea, materials which might otherwise be used to make the masses too comfortable, and hence, in the long run, too intelligent… it helps to preserve the special mental atmosphere that a hierarchical society needs. War… is now a purely internal affair.” — George Orwell

III: MASTERS OF WAR

“Come you masters of war
You that build all the guns
You that build the death planes
You that hide behind walls
You that hide behind desks
I just want you to know,
I can see through your mask…”

Many of the weapons manufactures and private military contractors are seen as the primary war profiteers. For an example of grotesque war profiteering, let’s look at Dick Cheney’s former company Halliburton. In a report headlined: “U.S. War Privatization Results in Billions Lost in Fraud, Waste and Abuse,” Jeremy Scahill reports on KBR, a Halliburton subsidiary.

“KBR has been paid nearly $32 billion since 2001. In May, April Stephenson, director of the Defense Contract Audit Agency, testified that KBR was linked to ‘the vast majority’ of war-zone fraud cases and a majority of the $13 billion in ‘questioned’ or ‘unsupported’ costs. According to Agency, it sent the inspector general ‘a total of 32 cases of suspected overbilling, bribery and other violations since 2004.

According to the Associated Press, which obtained an early copy of the commission’s report, ‘billions of dollars’ of the total paid to KBR ‘ended up wasted due to poorly defined work orders, inadequate oversight and contractor inefficiencies.’

KBR is at the center of a lethal scandal involving the electrocution deaths of more than a dozen US soldiers, allegedly as a result of faulty electrical work done by the company. The DoD paid KBR more than $80 million in bonuses for the very work that resulted in the electrocution deaths.”

With numerous scandals over KBR operations, Halliburton ended it’s relationship with the company. However, “Halliburton reported $4 billion in operating profits in 2008, while KBR recently said its first quarter revenues in 2009 were up 27%, for a total of $3.2 billion. Its sales in 2008 were up 33%, and according to the Financial Times, the company had $1 billion in cash, no debt, and was looking for acquisitions.”

Beyond these blatant examples of war profiteering, there are more insidious forces at play that most people don’t see. These war profiteering companies are funded by the same banks that have destroyed the US economy.

Consider this example concerning Alliant Techsystems and Textron, two manufactures of cluster bombs, the controversial civilian killing WMDs. The Guardian reported:

“The deadly trade in cluster bombs is funded by the world’s biggest banks who have loaned or arranged finance worth $20bn to firms producing the controversial weapons, despite growing international efforts to ban them…

Goldman Sachs, the US bank which made £3.19bn profit in just three months, earned $588.82m for bank services and lent $250m to Alliant Techsystems and Textron…

Last December 90 countries, including the UK, committed themselves to banning cluster bombs by next year. But the US was not one of them. So far 23 countries have ratified the convention.”

Before going into further detail on how these banks make a lion’s share of war profits, let’s look back at the origins of these wars.

GEO-STRATEGIC OIL OPERATIONS

With all due respect to people who have been force-fed Pentagon propaganda by the US mainstream media, any serious observer of the Iraq and Af-Pak wars knows that these are geo-strategic conflicts based on controlling the world’s oil supply. Anyone in the “news” media who tells you otherwise is either unaware of what is actually going on, or is a well-paid propagandist working for the very people who profit off of them.

ORIGINS OF THE IRAQ OCCUPATION: CHENEY ENERGY TASK FORCE

As an AlterNet report put it: “In January 2000, 10 days into President George W. Bush’s first term, representatives of the largest oil and energy companies joined the new administration to form the Cheney Energy Task Force.”

Secret Task Force documents that were dated March 2001, which were obtained by Judical Watch in 2003 after a Freedom of Information Act lawsuit, contained “a map of Iraqi oilfields, pipelines, refineries and terminals, as well as two charts detailing Iraqi oil and gas projects…” They also had:

“… a series of lists titled ‘Foreign Suitors for Iraqi Oilfield Contracts‘ naming more than 60 companies from some 30 countries with contracts in various stages of negotiation.

None of contracts were with American nor major British companies, and none could take effect while the U.N. Security Council sanctions against Iraq remained in place. Three countries held the largest contracts: China, Russia and France — all members of the Security Council and all in a position to advocate for the end of sanctions.

Were Saddam to remain in power and the sanctions to be removed, these contracts would take effect, and the U.S. and its closest ally would be shut out of Iraq’s great oil bonanza.”

Project Censored highlighted a Judicial Watch report that stated: “Documented plans of occupation and exploitation predating September 11 confirm heightened suspicion that U.S. policy is driven by the dictates of the energy industry. According to Judicial Watch President, Tom Fitton, ‘These documents show the importance of the Energy Task Force and why its operations should be open to the public.’”

ORIGINS OF THE AFGHANISTAN OCCUPATION: “STRATEGY OF THE SILK ROUTE”

Up until 9/11, oil companies, with the help of the Bush administration, were desperately trying to work out a deal with the Taliban to build an oil pipeline through Afghanistan. One of the world’s richest oil fields is on the eastern shore of the Caspian sea just north of Afghanistan. The Caspian oil reserves are of top strategic importance in the quest to control the earth’s remaining oil supply. The US government developed a policy called “The Strategy of the Silk Route.”

The policy was designed to lock out Russia, China and Iran from the oil in this region. This called for U.S. corporations to construct an oil pipeline running through Afghanistan. Since the mid 1990s, a consortium of U.S. companies led by Unocal have been pursing this goal. A feasibility study of the Central Asian pipeline project was performed by Enron. Their study concluded that as long as the country was split among fighting warlords the pipeline could not be built. Stability was necessary for the $4.5 billion project and the U.S. believed that the Taliban would impose the necessary order. The U.S. State Department and Pakistan’s ISI, impressed by the Taliban movement to cut a pipeline deal, agreed to funnel arms and funding to the Taliban in their war for control of Afghanistan.

“Until 1999 U.S. taxpayers paid the entire annual salary of every single Taliban government official.”

The U.S., Saudi and Pakistan intelligence alliance that created the terrorist financing bank BCCI reunited to facilitate the rise of the Taliban. BCCI was a US intelligence bank, which served as the financing arm for the creation of the al-Qaida network. BCCI was involved in many covert operations throughout the 80’s. They played a pivotal role in arming Saddam in Iraq, creating the Iran hostage crisis, even selling drugs through Manuel Noriega and other top drug dealers. BCCI gave nuclear weapons to Pakistan, which led to North Korea and Iran obtaining pivotal nuclear secrets as well. BCCI was also a driving force behind the Savings and Loan scandals that were a precursor to our current economic crisis.

Focusing on the creation of the Taliban, let’s read an excerpt from a 2003 book, “ Modern Jihad: Tracing the Dollars Behind the Terror Networks,” by Loretta Napoleoni:

“The alliance between American capitalism and Islamist fundamentalism is not limited to the creation of the Taliban; it also produced business ventures designed to extract favours from the new regime. To strengthen its bargaining power with the newly formed Islamist state, Unocal joined the Saudi Delta Oil Corporation to create a consortium called CentGas. Delta Oil is owned by the bin Mahfouz and al-Amoudi families [pivotal BCCI players], Saudi clans which have strong links with Osama bin Laden’s family…. Mahfouz has been sponsoring charitable institutions used as fronts for bin Laden’s associates through the National Commercial Bank, which his family controls….

Naturally, as soon as George W. Bush was elected president, Unocal and [UK’s] BP-Amoco… started once again to lobby the administration, among whom were several of their former employees. Unocal knew that Bush was ready to back them and resumed the consortium negotiations. In January 2001, it began discussions with the Taliban, backed by members of the Bush administration among whom was Under Secretary of State Richard Armitage, who had previously worked as a lobbyist for Unocal. The Taliban, for their part, employed as their PR officer in the US Laila Helms, niece of Richard Helms, former director of the CIA and former US ambassador to Iran. In March 2001, Helms succeeded in bringing Rahmatullah Hashami, Mullah Omar’s adviser, to Washington…. As late as August 2001, meetings were held in Pakistan to discuss the pipeline business….

While negotiations were underway, the US was secretly making plans to invade Afghanistan. The Bush administration and its oil sponsors were losing patience with the Taliban; they wanted to get the Central Asian gas pipeline going as soon as possible. The ‘strategy of the Silk Route’ had been resumed….

Paradoxically, 11 September provided Washington with a casus belli to invade Afghanistan and establish a pro American government in the country. When, a few weeks after the attack, the leaders of the two Pakistani Islamist parties negotiated with Mullah Omar and bin Laden for the latter’s extradition to Pakistan to stand trial for the 11 September attacks, the US refused the offer….

In November 2001… Hamid Karzai was elected [Afghanistan’s] prime minister… Yet very few people remember that during the 1990’s Karzai was involved in negotiations with the Taliban regime for the construction of a Central Asian gas pipeline from Turkmenistan through western Afghanistan to Pakistan. At that time he was a top adviser and lobbyist for Unocal… during the anti-Soviet jihad, Karzai was a member of the Mujahedin. In the early 1990’s, thanks to his excellent contacts with the ISI, he moved to the US where he cooperated with the CIA and the ISI in supporting the Taliban’s political adventure.”

So it is not all that surprising to see recent reports revealing that Hamid Karzai’s drug kingpin brother, Ahmed Wali Karzai, is also on the CIA payroll.

With this, a new Senate investigation just revealed evidence that Donald Rumsfeld made a conscious strategic decision to let Bin Laden escape. AFP reports:

“Osama bin Laden was within the grasp of US forces in late 2001 and could have been caught if then-defense secretary Donald Rumsfeld hadn’t rejected calls for reinforcements, a hard-hitting US Senate report says….

It points the finger directly at Rumsfeld for turning down requests for reinforcements as Bin Laden was trapped in caves and tunnels in a mountainous section of eastern Afghanistan known as Tora Bora.

‘The vast array of American military power, from sniper teams to the most mobile divisions of the marine corps and the army, was kept on the sidelines,’ the report said.”

So now that we see how these wars are driven by oil, let’s look at how the oil industry is benefiting from them. Since the invasion, the industry has experienced record profits across the board, setting new profit records quarter after quarter, year after year, as these wars rage on.

IRAQI OIL DEALS

With Exxon and Shell just signing new oil contracts in Iraq, it’s obvious why there are still over 100,000 troops in Iraq. In a Daily Mirror report headlined, “Oil Billions and Weapons of Mass Deception In Iraq,” they report on the new oil deals:

“Exxon-Mobil and Royal Dutch Shell won the development rights of a massive oil field — West Qurna near Basra in Iraq’s south. The two oil giants hope to boost daily production from the current 300,000 barrels to 2.3 million barrels a day at West Qurna, which the ousted and hanged Iraqi President Saddam Hussein wanted to give to a Russian oil company.

Last month, British Petroleum (BP) and the China National Petroleum Corporation (CNPC) won a contract to develop another oil field. The invitation to China to join the plunder of Iraq is probably a payoff by the US so that this Asian economic powerhouse and rising military power would not rock the pirates’ boat.”

Let’s look back over the years since the start of the War on Terror, here’s a 2005 MSNBC report:

“By just about any measure, the past three years have produced one of the biggest cash gushers in the oil industry’s history. Since January of 2002, the price of crude has tripled, leaving oil producers awash in profits. During that period, the top 10 major public oil companies have sold some $1.5 trillion worth of crude, pocketing profits of more than $125 billion.

“This is the mother of all booms,” said Oppenheimer & Co. oil analyst Fadel Gheit. “They have so much profit, it’s almost an embarrassment of riches. They don’t know what to do with it.

So an oil field that was profitable with oil selling for $20 a barrel is much more profitable with oil trading around $60…. Since January 2002, stocks of major oil companies have gained 88 percent; during that period the Standard and Poor’s 500 index has gained less than half as much.

Oil producers have also given investors a raise by gradually increasing the dividends paid out to shareholders.”

Here’s a 2007 Public Citizen report summing up oil company wartime profits:

“Since George Bush became President in 2001, the top five oil companies in the United States have recorded profits of $464 billion through the first quarter of 2007:

ExxonMobil: $158.5 billion
Shell: $108.5 billion
BP: $89.2 billion
ChevronTexaco: $60.9 billion
ConocoPhillips: $46.9 billion”

In Febuary 2008, CNN reported:

“Exxon shatters profit records

Oil giant makes corporate history by booking $11.7 billion in quarterly profit; earns $1,300 a second in 2007.

Exxon Mobil made history on Friday by reporting the highest quarterly and annual profits ever for a U.S. company, boosted in large part by soaring crude prices.

Exxon, the world’s largest publicly traded oil company, said fourth-quarter net income rose 14% to $11.66 billion, or $2.13 per share. The company earned $10.25 billion, or $1.76 per share, in the year-ago period.

The profit topped Exxon’s previous quarterly record of $10.7 billion, set in the fourth quarter of 2005, which also was an all-time high for a U.S. corporation.”

In January 2009, during a severe economic crisis, the Washington Post reported:

“Exxon Mobil finished a roller-coaster year in the oil markets with an all-time record $45.2 billion in profits…

The world’s most far-flung oil giant broke its own record for corporate profits in a year that saw oil prices climb to $147 a barrel in July… Exxon Mobil still beat analysts’ expectations by registering $7.82 billion in profits, or $1.55 a share, for the final quarter of the year. Exxon Mobil and Chevron’s revenue combined for 2008 exceeded the gross domestic product of all but 16 of the world’s nations, according to Bloomberg.

Royal Dutch Shell, Europe’s largest oil firm… posted a $26.3 billion profit for the year.”

Once again, beyond these blatant examples of war profiteering, there are more insidious forces at play that most people don’t see. When you take a closer look at the oil profits, you see the true driver and ultimate beneficiary of these profits are none other than the same people who benefited the most from the stock market collapse and the ensuing $23.7 trillion taxpayer “bailout.”

As the Washington Post reported, the huge oil profit margins were the result of the soaring price of a barrel of oil, reaching “$147 a barrel in July.”

The InterContinental Exchange (ICE)

In 2000, Goldman Sachs, Morgan Stanley and several oil companies “founded the InterContinental Exchange (ICE)…. ICE is an online commodities and futures marketplace. It is outside the US and operates free from the constraints of US laws. The exchange was set up to facilitate ‘dark pool’ trading in the commodities markets.”

A Congressional investigation into this exchange found that these companies were fraudulently inflating the price of oil by executing “round-trip” trades where one company would sell shares in oil to another company who would then sell the shares right back. This would drive the price of oil to however high they wanted it to go to. “No commodity ever changes hands. But when done on an exchange, these transactions send a price signal to the market and they artificially boost revenue for the company. This is nothing more than a massive fraud, pure and simple.”

So when oil was selling at $147 a barrel, the actual worth was most likely closer to half that price. Phil’s Stock World summed up the situation:

“How widespread are ’round-trip’ trades? The Congressional Research Service looked at trading patterns in the energy sector and this is what they reported: This pattern of trading suggests a market environment in which a significant volume of fictitious trading could have taken place. Yet since most of the trading is unregulated by the Government, we have only a slim idea of the illusion being perpetrated in the energy sector.

DMS Energy, when investigated by Congress, admitted that 80 percent of its trades in 2001 were ’round-trip’ trades. That means 80 percent of all of their trades that year were bogus trades where no commodity changed hands, and yet the balance sheets reflect added revenue…

…the InterContinental Exchange; that is, the online, nonregulated, nonaudited, nonoversight for manipulation and fraud entity run by banks in this country….

Under investigation, a lawyer for J.P. Morgan Chase admitted the bank engineered a series of ’round-trip’ trades with Enron….

ICE… turned commodity trading into a speculative casino game where pricing was notional and contracts could be sold by people who never produced a thing, to people who didn’t need the things that were not produced. And in just 5 years after commencing operations, Goldman Sachs and their partners managed to TRIPLE the price of commodities.

Goldman Sachs Commodity Index funds accounted for $60Bn out of $100Bn of all formula-managed funds in 2007 and investors in the GSCI lost 15% in 2006 while Goldman had a record year. John Dizard, of the Financial Times calls this process ‘date rape’ by Goldman Sachs…

It is not surprising that a commodity scam would be the cornerstone of Goldman Sach’s strategy. CEO Lloyd Blankfein, rose to the top through Goldman’s commodity trading arm J Aron, starting his career at J Aron before Goldman Sachs bought them over 25 years ago. With his colleague Gary Cohn, Blankfein oversaw the key energy trading portfolio. According to Chris Cook: ‘It appears clear that BP and Goldman Sachs have been working collaboratively – at least at a strategic level - for maybe 15 years now. Their trading strategy has evolved over time as the global market has developed and become ever more financialised. Moreover, they have been well placed to steer the development of the key global energy market trading platform, and the legal and regulatory framework within which it operates….

Before ICE, the average American family spent 7% of their income on food and fuel. Last year, that number topped 20%. That’s 13% of the incomes of every man, woman and child in the United States of America, over $1Tn EVERY SINGLE YEAR, stolen through market manipulation. On a global scale, that number is over $4Tn per year - 80 Madoffs! Why is there no outrage, why are there no investigations. Well the answer is the same - $4Tn per year buys you a lot of political clout, it pays to have politicians all over the world look the other way while GS and their merry men rob from the poor and give to the rich on such a vast scale that it’s hard to grasp the damage they have done and continue to do to the global economy.”

The congressional investigation into ICE concluded that they couldn’t do anything about it because the exchange was set up offshore.

How convenient!

So here we can see, that behind almost all of our societal problems and suffering, you have this small elite group profiting on destruction and misery at record highs.

When Goldman Sachs CEO Llyod Blankfien says that he is doing “God’s work,” one has to wonder, who is the God he is praying to?

Famed two-time Congressional Medal of Honor recipient US Brigadier General Smedley D. Butler accurately summed up the situation when he said: “I spent 33 years in the Marines, most of my time being a high-class muscle man for big business, for Wall Street and the bankers. In short, I was a racketeer for Capitalism…. The general public shoulders the bill. This bill renders a horrible accounting. Newly placed gravestones, Mangled bodies. Shattered minds. Broken hearts and homes. Economic instability. Back-breaking taxation for generations and generations.”

WHAT IT ALL COMES DOWN TO…

http://eclipptv.com/viewVideo.php?video_id=8756

In the global economy, the economic elite don’t need the US public anymore. When you see Obama taking trips to meet with the leader of China, and having his first official White House State Dinner in honor of the Prime Minster of India, you should know that the elite have moved on. There are billions of people in just these two countries that they believe can do all the work we do for much less pay. It is a race to the bottom, and we are considered obsolete to technocratic leaders who think it is better to hire cheaper workers in foreign lands.

As the US continues to collapse, the technocrats have already moved on to the next country to rape and pillage. The economic elite don’t have a home country, to them the entire globe is theirs, and the majority of the US can collapse into poverty for all they care, and that’s exactly what they want to happen.

The US working class is the biggest threat to them and they want us eliminated.

As the IMF would say, there has been a structural adjustment program in place, and the US working class is obsolete.

When you understand this, you can understand how the wars in Iraq, Afghanistan and Pakistan are wars against the US public. Wars that weaken and drain the US working class of vital resources and social safety nets.

In the overall picture, the technocratic elite see everyone as a number on a spreadsheet. To them you are what your economic net worth says you are. Considering this perspective, most in the US public have much more in common with an Afghanistan farmer than the billionaires on Wall Street. And the billionaires have put us in the same category as those in Afghanistan. To them it really doesn’t matter if it’s an American life ended or an Afghani life ended in the war, as long as the profits keep coming in… they can care less.

Common sense and statistics demonstrate that the more troops you send into war, the higher the causality count will be, and the more costs will rise, leading, of course, to higher profits.

So as the Obama illusion and the motives behind this war become exposed, and the massive theft by the economic elite becomes known to a critical mass, the elite are ramping up their psychological operations on the US public by turning up their mainstream media distraction machine.

PSYOPS: WAG THE DOG AND SHAKE THE MOHAMMED....and Malik HASSAN....

With the healthcare debate losing steam, and the people starting to understand that the final bill will do little to create much needed change, and as “health care reform” is exposed as another gift to insurance company executives, and as unemployment rates remain high, the Economic Death Squad vitally needs some new distractions.

Never mind the criminals on Wall Street: It’s time to… Wag the Dog and Shake the Mohammed

By Wag the Dog, I am of course referring to the old political trick of distracting public consciousness away from a crisis by starting, or in this case drastically escalating, a war.

Don’t worry about the $23.7 trillion of public wealth that was given to Wall Street as a reward for destroying the economy, we are at war and it’s time for you to support our troops.

Ah, yes, another racket to pile up more of the economic poor.

Barack W. Obama, once again, bows to… the elite… and serves up yet another gift by sending more US citizens to the Af-Pak region.

50 million US citizens are already living in dire straights, so what’s the big deal if you just throw another 220,000 US lives onto the fire, not to mention the millions of Afghani, Pakistani and Iraqi lives.

But a war in a distant land just isn’t enough, is it?

American public opinion has long been saturated in the distraction of war, and given the severity of the economic crisis, the elite policy makers figured another surge in Eurasia just wouldn’t be enough of a distraction.

So the psychological operations PR department has decided to also Shake the Muhammad. Yes, bring the 9/11 “mastermind,” Khalid Sheikh Mohammed, back to the scene of the crime and create a New York media frenzy. Now that’s a distraction!

Not only will it cause a media frenzy, it will also reaffirm public opinion in the war effort… win, win!

I don’t know about you, but as someone who grew up a New Yorker and spent the last five years of my life living three blocks from Ground Zero, I have to say, take your psychological operations to a different location.

You are going to have the “9/11 mastermind” in a courtroom right around the corner from the biggest terrorists of all… Wall Street.

Khalid Sheikh Mohammed, Llyod Blankfien, Jamie Dimon and John Mack are all going to be in one place, at the same time! We will have the “9/11 mastermind,” Goldman Sachs, JP Morgan and Morgan Stanley all in the same zip code… HELLO!

Can you say here comes the next Timothy McVeigh?

Yes, the USA… is an insane asylum! So just Wag the Dog and Shake the Mohammed.

U.S. Insurgency: Violent, Strategic Dislocation Within U.S.

Will there be a violent insurgency within the US?

As a growing number of American lives are directly negatively impacted, media propaganda operations will lose their ability to confuse and distract. Studies of societal breakdowns prove that having such a large population experiencing severe and prolonged economic decline will result in violent outbrakes.

Other than the 50 million US civilians living in dire straights, what will happen as thousands of bitter soldiers and US intelligence agents — who have given their lives to these wars, only to return home to find an economy in ruins and a healthcare system that has thrown them overboard — begin to make these connections and understand that a small group of men on Wall Street are at the root of their suffering?

Well, some former military and intelligence agents, including a growing number of current serving members, have already made this connection, and they are organizing, training and strategizing tactical operations. They are factions inside a quickly growing - heavily armed - militia movement that now numbers over 200 active cells, within the US.

The mainstream press gives some passing attention to the fringe factions that make threats against Obama, but the more experienced soldiers understand that he is just a figurehead and they have connected all these dots and have come to the conclusion that this war is actually a war to create profits for the economic elite at the expense of the US public.

Llyod Blankfein, Jamie Dimon and John Mack can arm themselves and hire all the security they can get, but will it actually keep them safe when you have a population of millions living in dire straights as a direct result of their actions? At this point, even their own security members may be conspiring against them.

The Obama illusion is fading fast. Every time you see through it, you get a glimpse of them. The Economic Death Squad is exposed under the bright light of inspection and investigation.

Take a look at many of the major problems facing us today, as a country and as a species, and then you will understand that these problems exist because the economic elite are profiting off of them.

Obama is just their mask, an illusion to pacify the masses. The economic crisis and the wars have now shattered this illusion - it has come crashing down… upon us.

It has become clear that an opinion has emerged among a growing segment of the United States population: If the government will keep pouring money into banks and war, and won’t stop the theft of US taxpayer money by holding accountable those responsible for it, WE MUST.

And the question that arises after that: Can it be done non-violently?

I certainly hope it can.

However, this growing segment of the population uses strong rhetoric and is prepared to take up arms.

With over 200 active militia cells, who are equipped with weapons, training and strategizing, the government must take swift action to rein in the economic elite. Otherwise, we are heading to war, not in a distant foreign land, within the US.

The economic elite are well aware of the threat of a violent uprising within US borders. US Army documents have revealed that strategic plans are already formed for this situation. Chris Hedges explains:

“The military must be prepared, the document warned, for a ‘violent, strategic dislocation inside the United States,’ which could be provoked by ‘unforeseen economic collapse,’ ‘purposeful domestic resistance,’ ‘pervasive public health emergencies’ or ‘loss of functioning political and legal order.’ The ‘widespread civil violence,’ the document said, ‘would force the defense establishment to reorient priorities in extremis to defend basic domestic order and human security.’

‘An American government and defense establishment lulled into complacency by a long-secure domestic order would be forced to rapidly divest some or most external security commitments in order to address rapidly expanding human insecurity at home,’ it went on.

‘… this might include use of military force against hostile groups inside the United States. Further, DoD [the Department of Defense] would be, by necessity, an essential enabling hub for the continuity of political authority in a multi-state or nationwide civil conflict or disturbance,’ the document read.

In plain English… this translates into the imposition of martial law and a de facto government being run out of the Department of Defense. They are considering it. So should you.”

We could have a situation where the government deploys private soldiers, mostly foreign nationals, on US soil to fight against US citizens. Blackwater and DynCorp already had active duty soldiers deployed within the US when Hurricane Katrina hit.

In New Orleans, they were essentially a foreign occupying force.

LOSS OF FAITH IN POLITICAL PROCESS

In response to the report, “The Critical Unraveling of US Society,” readers primarily critiqued the part in which we call on readers to engage their representatives.

An irate majority of the responses have consistently stated that they have repeatedly contacted their representative through multiple forms of communication, and no action was taken. A growing segment of the US population has now lost all faith in our government and they are on the verge of taking violent action.

Personally, I believe that non-violent action is a much more strategic and effective move. We are 99% of the population, and the enemy is less than 1%. We are a sleeping giant; they are a small group of clueless greed-addicted people who desperately cling to the Administration, Treasury, Fed and a few other firms like Goldman Sachs and JP Morgan.

If we can take action on a mass non-violent scale, the rule of law and economic justice can be obtained. In our nation’s history, the stakes have never been higher. If we cannot organize a mass movement to non-violently oppose outright theft, then violence will ultimately tear our nation apart.

The question on my mind: Can we swiftly mobilize such a heavily propagandized population to take mass non-violent action?

A growing population does not believe we can do so, and is on the verge of launching a heavily armed insurgency.

So in the months ahead, while they are Wagging the Dog and Shaking the Mohammed, the US public vitally needs to understand that the stakes have never been higher.

And the clock is ticking . . .....

TRUST is History everyone.....!!!

Trust? OMFG! For those people stupid enough to still have a mortgage on a house that's worth maybe, -on an almost impossibly good day- 40% of what they still owe on it, -gauging trust is simple. - Just call your banker, and ask them to trust you -that you'll catch-up on your mortgage after a few months, -you know- when the economy turns back around!

You all can trust in this: electing some black community organizing -mobster- with a forty-carat diamond inlaid into one of his front teeth -from South Side Chicago, is hardly going to provide anything -anyone might consider trust.

Mr. Obama's handlers are daily trying desperately to figure out how to sell -decriminalizing illegal immigration- to the Congress -so they can consolidate their tenuous hold on the voter-roll-reins of this reckless runaway Republic.

The aging and increasingly feeble Reverend Jesse Jackson said it best -when he was heard through an open mike to say of Barack Obama, "I'd like to cut his nuts off." -Thank you, Jesse.- I hope we all can trust that is not another one of your own -Buckleyisms-.

Trust in history.

Neither has a freight train ever been caught in mid-air after it went off a railroad bridge, nor, has any effort in the economic sphere ever even slowed-down the forty-story plunge of a full-blown economic depression, like we are living through today.

This is the BIG ONE. It was long over-due.

A lot of people in our Republic get rich through graft, corruption and crime syndicates though. That's what we're increasingly seeing. It's called a -bailout.

There's also a lot of money floating around looking to get doubled, -ostensibly to replace what got lost in the first wave of financial implosion-swindles.

Most people, -never learn. You can take that to the bank, but even that's not a safe bet today.

-Trust- is what makes the current atmospheric phenomenon so dangerous and so profitable for those people with deep voices, persistence and an anonymity of character. The common financial adviser today doesn't just -look and sound- like a used car salesman saying, "You own it, buddy. The warranty ended the moment you drove it off the lot."

Those people who trust in anything, -are the source of the funds that are doubling the money of so many of these con men.

Bernie Madoff even took Zsa Zsa Gabor's money. Poor Zsa Zsa. She'll have to go back to turning -tricks-.

I do not think more than a very small handful of people on the planet actually understand the extent of the depression-related-devastation that has occurred and continues to occur.

A depression is not merely an economic phenomenon.

A depression is much more of an epistemological implosion of all the wrongly assumed and the all too commonly untenable beliefs in society that have been built up through decades of puffing.

If your own beliefs are getting a little wobbly around the knees, -you can trust in this about government, and how the recovery-hype is going.

When you are told to do something, -you should do it, -because those orders when given by government -are ultimately backed up by some low-browed cretin with a very limited vocabulary and an even smaller cogent use of it, -most often wielding a side arm.

Just be thankful, even hopeful, you understood what it is he's telling you to do. That pistol quite often has dumdums in it, -and his Taser gun is set on "FULL CARDIAC ARREST".

The best quote I read recently was Lewis Mumford quoting Herman Melville. "Trust not good luck is judgment and discretion."

It's an able statement about the infinite complexity of reality, the backdrop against which -all our most cherished assumptions must be placed....

DUBAI in default we trust

http://onlinejournal.com/artman/publish/article_5807.shtml

You know about Dubai's economic crisis. But do you know the background to - and fallout from - the crisis?

A Brief History

Who did Dubai’s emir, Mohammed bin Rashid Al Maktoum, think he was kidding? He launched one of the biggest construction booms in history, erecting the Burj Dubai, which at 161 stories is the world’s tallest building. He built artificial islands in the Persian Gulf with lofty names like “The World” that are so big they are visible from space. He bought the legendary Queen Elizabeth II, a ship that holds many fond memories of transatlantic crossings for me, to convert into a floating hotel at unimaginable expense. The spending didn’t stop there. His spending binge went global, taking a partnership role in the Las Vegas City Center, which became the worst commercial real estate project since the Tower of Babel. The problem is that all of these acquisitions were done on credit, with only a fig leaf of equity, and the wind is now blowing with hurricane force. Dubai property values have slid 50% in a year, and the plunge shows no sign of abating. No surprise then that development arm Dubai World has defaulted on $59 billion in debt. The spendthrift emir spent way too much time on horse racing and not enough on research. Sure, turning Dubai into the next Hong Kong was a laudable goal, but did anyone think this through? While the former crown colony is backed by the sweating masses of China, tiny Emirate is surrounded on two sides by 2,000 miles of sand and on the other two by the not so friendly maritime neighbors of Iran and Iraq. Oil, you may ask? My Caesar salad has more oil than Dubai. Haven’t they heard of peak oil? I always thought Dubai would revert to a ghost town once the neighborhood ran out of Texas tea. Now that Dubai’s debt has been correctly marked down to junk the big question is who else this hubris gone wild is going to take down. The shareholders of the UK’s Standard Chartered Bank and HKSB, the lead lenders, are going to take a body blow, and a rash of hickies will spread among the many syndicate members. Greece and Ireland could be next, as the premiums for their credit default swaps have skyrocketed. Things could get ugly in Dubai when the country’s 360,000 migrant Indian workers find out they aren’t going to get paid. How do you say “domino theory” in Arabic?

Historically, Dubai had an oil-based economy....?

But because Dubai's oil reserves were declining, the government - led by Sheikh Muhammed Al Maktoum - decided to diversify into other areas, especially tourism and commerce. See this and this.

That's why Dubai built the world's only 7 star hotel, a series of luxury islands, and the world's largest tower.

But the global property bubble is bursting.

As I wrote last December:

Housing bubbles are now bursting in China, France, Spain, Ireland, the United Kingdom, Eastern Europe, and many other regions.

And the bubble in commercial real estate is also bursting world-wide. See this.

But Dubai got hit the hardest.

As Bloomberg notes:

Dubai suffered the world’s steepest property slump in the global recession, with home prices dropping 50 percent from their 2008 peak, according to Deutsche Bank AG.

As the CBC notes, things went South quickly in Dubai:

Hundreds of billions of dollars worth of building projects were delayed or cancelled. Thousands of jobs disappeared.

Dubai, playground of the über-extravagant, suddenly found itself facing the very real possibility that its biggest state-owned company, Dubai World, could go into bankruptcy. It warned it was having trouble making debt payments on $59 billion US — money borrowed to pay for all the excess.

Global Impact

The CBC also notes that Dubai World has holdings worldwide:

Dubai World is Dubai's main holding and investment enterprise, but its holdings range far beyond the Persian Gulf area ...

Another Dubai World holding — DP World — operates Centerm, a container terminal in Vancouver's inner harbour. DP World acquired the terminal when it bought the marine terminal assets of P&O Ports in 2006, and plans to spend $140 million to expand it.

That purchase also gave it ownership of many key U.S. ports — something that raised national security concerns in the U.S. Some American legislators didn't like the idea that U.S. ports would be controlled by Middle Eastern state-owned enterprises. DP World subsequently sold its U.S. port assets.

In Britain, another Dubai World subsidiary, Leisurecorp, bought the Turnberry Resort in Scotland in 2008 — home to the 2009 British Open — for more than 50 million pounds.

In the U.S., Dubai World's investment arm, Istithmar World, bought the luxury retailer Barneys New York in 2007 for almost $1 billion US. There were reports earlier this year it was trying to unload the retailer as the luxury market unwound and Istithmar racked up big losses from the global financial meltdown, but Dubai World's chair denied it.

In addition, Bloomberg notes that India might be effected by Dubai's economic problems:

About 4.5 million Indians live and work in the Gulf region and remit more than $10 billion annually, according to government data. The turmoil may affect remittances, said Thomas Issac, finance minister of the southern state of Kerala, which accounted for about a quarter India’s migrant labor in 2005...

Remittances from the Middle East account for about 25 percent of Kerala’s economy, Issac said

The Royal Bank of Scotland is Dubai's biggest creditor, with $2.3 billion, or 17 percent, of Dubai World loans since January 2007. HSBC, Europe’s biggest bank, has the “largest absolute exposure” in the U.A.E. with $17 billion of loans in 2008

Yves Smith notes that Dubai's default caught creditors by surprise:

I got a message from someone who was on the conference call [with Dubai government officials]... Some European banks may be on the wrong side of this trade. As readers may know, EuroBanks went into the crisis with even lower capital levels than their US counterparts, and have taken fewer writedowns of their dodgy exposures:

The standstill announcement…was a massive surprise. One could sense the panic in those asking questions….this could be the turning point in spreads and could be viewed similar to the Russian debt crisis in 1998 or the Bear situation in 2007…based on companies and the accents of the people asking questions, it is obvious European institutions will be hit hard…Dubai made this announcement at the beginning of a four day holiday, so there will be little news until next week…There is another wave of pain out there. This information does not seem to be making its way to other markets. It will.

Zero Hedge has a good roundup of statistics regarding the biggest creditors of the United Arab Emirates, of which Dubai is a part:

Creditors:

Of United Arab Emirates (By Origin via Credit Suisse citing Bank for International Settlements):

United Kingdom: $50.2 billion
France: $11.3 billion
Germany: $10.6 billion
United States: $10.6 billion
Japan: $ 9.0 billion
Switzerland: $ 4.6 billion
Netherlands: $ 4.5 billion

Of United Arab Emirates (By Entity via Credit Suisse, citing Emirates Bank Association):

HSBC Bank Middle East Limited: $17.0 billion
Standard Chartered Bank: $ 7.8 billion
Barlays Bank Plc: $ 3.6 billion
ABN-Amro (RBS): $ 2.1 billion
Arab Bank Plc: $ 2.1 billion
Citibank: $ 1.9 billion
Bank of Baroda: $ 1.8 billion
Bank Saderat Iran: $ 1.7 billion
BNP Parabas: $ 1.7 billion
Lloyds: $ 1.6 billion

The Associated Press has additional details.

Bloomberg notes that Dubai's default might increase risk aversion of investors to emerging markets:

“We’re bound to see a rise in risk aversion,” Arnab Das, the London-based head of market research and strategy at Roubini Global Economics said in an interview. “The Dubai situation signifies that although the major central banks around the world have stabilized the financial system, they can’t make all the excesses simply disappear.”

India’s stocks, currency and bonds fell on concern investors may shy away from riskier emerging market assets over losses stemming from the turmoil in Dubai. India’s benchmark stock index dropped 1.3 percent yesterday, while the rupee lost 0.5 percent.

Zero hedge also notes:

• UBS speculates that (among other possibilities) $80-90 billion (which is already over 100% of GDP) may be a low figure for Dubai's debt and that significant "off-balance sheet" amounts might explain the restructuring attempt
• The Dubai government is on holiday (Eid Al-Adha) until December 6th
• Abu Dhabi's Sovereign Wealth Fund (generally thought to command upwards of $500 billion) may have significantly less available. (Rumors of $125 billion in 2008 losses abounded last year). Bloomberg quotes sources to the effect that Abu Dhabi SWF's AUM has been "overstated, sometimes by as much as 100 percent."

British prime minister Gordon Brown has indicated how serious the situation is:

"Clearly the restructuring announcement has caused disruption and uncertainty in world markets,” Brown’s spokeswoman Vickie Sheriff told reporters in London. Brown’s “view is that U.K. banks are well capitalized having undergone rigorous stress testing,” she said.

And the Associated Press is asking whether Dubai's default will cause another financial panic.

The numbers involved are not that great for most creditors - on the order of hundreds of millions of dollars.

But the sense of shock and loss of confidence - when many had optimistically believed that the world economy was out of the woods - could indeed be profound....
As it turned out, we didn't have to wait five years or anything of the sort. Needing a further $10 billion in funding by the end of the year, the rulers of Dubai appear to have spoken again to their cousins in Abu Dhabi, only for the previous conditions - namely Dubai's corporate jewels to be handed over to the latter - to have been mentioned again.

We will probably never find out quite what happened in these negotiations, but the upshot of receiving $5 billion for the government of Dubai last Wednesday, November 25, appears to have been an immediate announcement of a "standstill" on the debts of the conglomerate Dubai World for a period of six months.

In the total debt pile of $59 billion attributed to Dubai World, a large amount comes under the name of Nakheel, the construction company behind some of the most iconic developments in the city, such as palm-shaped reclamation off the coast and a host of reclaimed islands in the shape of a map of the world.

The real trouble with the announcement though is that Nakheel has an Islamic bond (sukuk) due in the middle of December to the tune of $4 billion or so. This is almost sure to default because time is too short for investors to get together and agree to a standstill. Also, there is no specific clause such as "standstill" in the debt world, just an agreement to restructure.

At the weekend, the UAE's central bank said it stood behind the country's banks, easing some concern about a possible default by Dubai World. The Abu Dhabi-based central bank of the UAE said lenders would be able to borrow using a special facility tied to their current accounts, Bloomberg reported.

TBTF and real estate
Even so, with the events in Dubai, one of the central tenets of the so-called recovery from the global financial crisis was broken. This relates to the concept of "too big to fail", implying that governments and central banks will always protect systemically important entities.

For the tiny city-state of Dubai, it would be no exaggeration to suggest that Dubai World was for all intents and purposes "too big to fail". Being state-owned, run by the right-hand person of the ruler himself (until early last week), and in the limelight for the most eye-catching tourist/expatriate/investment properties in the world, Dubai World served as an extension of the ruler's ambitions in every direction.

Still, although the company owns some globally cash-rich businesses, such as Dubai Ports, and is famous for other businesses, such as Emirates Air, Dubai World has been held down by the weight of its over-ambitious real-estate ventures under the umbrella of Nakheel. Announcing a grand property venture is easy, finishing it on time and delivering the real estate profitably to one's customers isn't quite that.

More importantly, unlike cash-flow based lending (such as loans to a factory), lending for real estate is termed as asset-based lending; it depends much on the ability of the company to sell its properties for above cost, or to secure a running rental income in excess of borrowing costs. Unfinished properties don't let you do either, so it is clear that Nakheel was always going to be a challenge.

Real and unreal guarantees
The next question that popped up in the market's mind was that the rulers of Dubai had somehow violated their implicit guarantee on Dubai World. Unfortunately, that very notion is wrong in the world of credit (that is, debt): there is no such thing as an implicit guarantee; what really matters is if there is an explicit guarantee. In this case, there wasn't. So the rulers of Dubai may have decided to take advantage and escape the debt load. Essentially, this implies they had no expectation or belief that the property projects will be completed, much less that they would be profitably completed.

As the Financial Times reported on November 26, the following statement was issued by the ruling family of Dubai to debunk any of the stories of the Dubai World standstill being the result of a capricious action by one or more of its princes:

Our intervention in Dubai World was carefully planned and reflects its specific financial position. The government is spearheading the restructuring of this commercial operation in the full knowledge of how the markets would react. We understand the concerns of the market and the creditors in particular. However we have had to intervene because of the need to take decisive action to address its particular debt burden. Like most global cities, Dubai has experienced its share of economic and social challenges in this global downturn. No market is immune from economic issues. This is a sensible business decision. We want to ensure resources are deployed in the full knowledge that they are used to enhance the businesses of the Dubai World Group, build on the restructuring that has already been taking place and ensure long-term commercial success. Further information will be made available early next week.

As one of my friends remarked after reading the statement, "If this is them being 'carefully planned', imagine what they would be doing in the case of an impulsive action." In any event, whatever idea the rulers of Dubai professed to have about the "full knowledge of how the markets would react", it must have been from sources quite removed from reality, as Thursday's big declines in global stock markets led by Asia and Europe showed. Or perhaps they had sold some puts on the Hang Seng Index - what do I know?

Contagion?
While much of the European market reaction was tempered on Friday, declines in Asia suggested that fears of a fresh bout of contagion - the notion that all emerging markets would suffer from the fallout from Dubai - could be on the horizon. There are many reasons for this fear, not the least of which would be the stunning performances of such emerging markets over the past year or so; but also because of fears that many a Dubai lurks in this part of the world.

In the same week, we had Vietnam devaluing its currency and bumping up interest rates - taking up the dubious distinction of the only Asian country that needed to do so in 2009.

From a purely top level perspective, the idea is nonsensical. The total size of Dubai obligations, at $80 billion or so, represents a boil on the backside of the debt monster running amok in the developed and developing markets. For example, it represents barely 5% of the mortgage obligations of the US market alone; a paltry 10% of the sovereign wealth fund in neighboring Abu Dhabi; a smallish 3% of the foreign exchange reserves of China, and so on.

Then again, there is the normal contagion with which the likes of the International Monetary Fund and World Bank are familiar (being the root causes of the same); then there is the "contagion from extrapolation" that markets are more familiar with. This is where things actually get hairy.

Let us remove all the drama from the Dubai saga, and consider the facts:
1. High debt levels.
2. Poor performing collateral for debt.
3. Markets that expect continuing "strategic" bailouts.
4. A fractious political climate around debt discussions.
5. No real (sector-specific) growth to support future repayment.

If I read just the above and was asked to guess what exactly was the subject being discussed, a large number of options would spring up:
a. US mortgage debt.
b. Senior and subordinated debt of global banks.
c. Smaller European governments (Greece, Ireland etc).
d. Leveraged loans and high-yield bonds in the US and Europe.
e. Chinese bank lending to the property sector.

Don't be put off by the lack of specifics (there isn't the space to go into all of them); what really matters is that the rough, back-of-the-envelope calculation for the above five sectors alone is $4 trillion to $5 trillion. When considered in that light, the Dubai debacle suddenly becomes a mere portent of things to come; the thin end of the wedge as fundamentals reassert from the perilously slippery slope of systemic liquidity-driven prices.

Over the weekend, a number of more supportive headlines have sprung up in the financial press with respect to the Dubai story: that Abu Dhabi is "willing to help on a case-by-case basis"; that, as noted above, the "UAE central bank has agreed to provide emergency liquidity"; and even more fantastically, that the Gulf Cooperation Council (composed of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE) will ride to the rescue of Dubai. All that may indeed come through, but, whatever happens, Pandora's Box has now been opened....

http://warincontext.org/2010/02/25/the-dubai-payoneer-connection/

We are in for a very nasty surprise in the spring of 2010... the economy and the markets will tank dramatically.

We are in for a very nasty surprise in the spring of 2010... the economy and the markets will tank dramatically...

http://absolute-investments.blogspot.com/2009/11/dont-fear-speaking-out-against.html

http://www.globalresearch.ca/index.php?context=va&aid=13055

http://www.atimes.com/atimes/Global_Economy/KL05Dj02.html

November , (LPAC)—Speaking at the central school of the Chinese Communist Party, Italian Economy Minister Giulio Tremonti said yesterday that the crisis is not over, and a that real solution can come only from an international treaty among governments, which he called a new Bretton Woods.

"After the disaster, I was of the view that only those banks should be bailed out, which finance families and companies. Instead, all of them have been bailed out. In this way, we gained time, but did not solve the problem. And therefore, the threat of another crisis is around the corner."

"Stock markets are again at pre-crisis levels, and derivatives are growing again at a frightening rate.... The world can be precipitated again into the crisis because the chance of changing was lost." Throughout the world, "governments have intervened using two hands: with one, they injected an enormous amount of liquidity in the system. With the other, they turned private debt into public debt." Such interventions have fixed the balance sheets of large investment banks but not those of the state, and "an enormous part of this money has stayed in the banks themselves, which today are using it to make profits, by borrowing at 1% and reinvesting into financial instruments at 5.5%.

"At the end of the '90s, de facto the power of uttering currency, which was a power of sovereign states, was put into the hands of banks and the market," allowing large banks to count more than average nations.

"The crisis has put governments back on center stage, but nevertheless there is still an enormous mass of finance inside banks, out of control of the state. Now we must do something completely new."

"We cannot think of solving the problems that emerged out of the crisis through a series of new technical rules written by the bankers," Tremonti "roared" according to the daily Il Riformista, drawing applause from the audience.

The G20 was necessary but "not sufficient," Tremonti said. "Today we need a collective political effort to define the new order, an international treaty to define a new Bretton Woods, which must be the product of a multilateral effort, not only in joining it, but also in drafting it," Tremonti said. "I have the honor to deposit here a first draft of my treaty. I could not imagine a better place."
During his stay in Beijing, Tremonti will meet Chinese government officials.....

Not talking about peak oil.....?

OECD leaders go far out of their way to never, ever mention Peak Oil. This in fact is the biggest real world driver for worldwide Energy Transition away from C02 emitting fossil fuels. Due to limited world oil reserves and production capacity, moving away from fossil fuels is necessary, whether or not there is climate change or global warming. Complicating this, world pipeline and LNG gas supplies are now entering a period of large or massive increase, depending on country and region, perhaps able to last 5 years or more. While oil can get very expensive, natural gas will likely remain cheap, and international traded coal will likely remain low cost on delivered energy terms.

For OECD leaderships seeking rapid transition away from oil, and cutting C02 emissions, natural gas is cleaner burning, with lower emissions than oil or coal. This is a rational energy strategy -- oil substitution by gas -- for the short term.

Waiting for the soft energy and electric car revolution will however be long-haul. Growing the role of non-hydro renewables in the energy mix to anything above 5 percent, by 2030 without also cutting global total energy demand every year by well above one percent, will be costly, complex and slow. Setting policies for non-hydro renewable energy, including wind and solar energy, replacing or substituting large proportions of current fossil fuel demand implies long-term, massive funding, and the related industrial and technical mobilization for the task. To date, no such financing and frameworks exist, OECD leaderships seemingly imagine that ‘the market’ can be relied to carry out and sustain this massive, long term, high cost task.

More rationally, more realistic and at least as necessary as acting to limit climate change, substituting the loss of world oil production capacity due to Peak Oil, through the next 20 years, itself sets massive challenges. Here again, however, we enter the realms of politically correct censorship, because until late 2009 the IEA and other energy agencies, and most of the major oil corporations stood together in officially forecasting no possible shrinkage in world oil supply, and perhaps 25 percent or more supply growth over the next 20 years. Periodic market shortfalls, yes, but not long term declining supplies fixing 90 Mbd as the maximum possible oil output the world can achieve.

This united front is breaking up, like Arctic glaciers, with Zero Petroleum Growth of supply to 2030 now being hinted at, if not openly stated. Peak Oil analysts present much more radical scenarios, based on real world reserve history and production statistics, extending to a loss of up to 25 million barrels/day (Mbd) of production capacity, around 30 percent of present supply, by 2030. Under these scenarios, world oil production, and therefore demand could fall to 60 Mbd or so, by 2030.

Entering a period where annual increase of world oil demand is no longer possible, and demand only decreases, is as economically catastrophic in its implications, as mediatic rantings on global warming catastrophe indulged by some OECD leaders, in the run up to the COP15 ‘climate summit’ of Copenhagen. Doing nothing about the real threat of oil decline and high prices to the economy and society, and possible repeats of ‘military adventure’ in the Mid East and Central Asia, to assure oil supplies, is a bigger threat than of losing face from COP15 failure.

Biting the bit, and facing this uncomfortable reality without the fig leaf of a scientifically shaky and histrionic ‘climatic apocalypse’ as the prime mover for Energy Transition is the best outlook from the failure of COP15 to achieve an impossible consensus. In the coming weeks, as this failure becomes more certain, we will find out which OECD leaderships care to face the reality of peak oil decline in world supply. Action can focus the creation of multilateral agencies, frameworks and funding for global energy transition on a long-term basis.

Why ignore peak oil?

The reasons stretch back at least 30 years to the oil shocks of the 1970s. The complete and total dependence on mostly imported oil, of most major OECD consumer societies was heavily underlined by chaotic and unsuccessful attempts at keeping the economy on the rails. The supposed link between oil prices, economic recession, and inflation were established at that time in the mindset of OECD leaders who like the Bourbons have forgotten nothing, and learned nothing since.

Speaking at Jackson Hole in August 2009, The US Fed’s Ben Bernanke solemnly warned that oil prices are already uncomfortably high for the US economy. He went on to say oil prices reaching $100 a barrel would be as serious a threat to US economic recovery, as prices hitting $145 a barrel were in 2008 and that he could raise interest rates, despite the impacts of this on the recovery, if they went above his new $100 ‘pain threshold.’ This merely states the obvious, but adds the interesting possibility that the US and other world economies are now more sensitive, not less sensitive to high oil prices. Support to this argument is not lacking, in energy economic studies.

In 2007-2008, however, the US economy soldiered along quite a while with prices above $125 a barrel and little evident inflation, albeit with constantly falling growth rates by quarter. Whether oil prices, or the subprime debt bubble and Wall Street ‘exuberant’ trading of nearly-virtual financial derivatives in vast quantities were the real cause of the 2008-2009 crisis remains to be elucidated, but Bernanke’s new oil price limit leaves alternate theories almost ignored.

In any case, the Keynesian recovery masterminded by Bernanke and the US Fed has included the printing, borrowing, lending and engaging of truly vast sums, probably exceeding $3,750 billion for the US economy alone, for 2008-2010. The US Federal budget deficit in 2009 will probably attain or exceed $1,600 billion, around 12 percent of GNP. We can note that even at Bernanke’s fear price of $100 a barrel, US oil imports costs would struggle to achieve a yearly level above $300 billion. This tends to suggest that oil prices, alone, are not the bogeyman they are painted, and also could suggest that any future rise of oil prices and US oil import costs could (at least in theory) be covered by the Keynesian print-and-forget route, in the event of no other sustainable strategies being available or being ignored due to ‘market thinking’ replacing planning and organization.

One thing, however, is sure, oil prices remain hard-wired to economic and political decider mindsets as a dire threat to economic growth -- this growth always featuring the growing consumption of oil dependent and energy intensive products and services. Unsurprisingly, oil demand tends to increase anytime there is ‘classic’ recovery. Just as unsurprising, oil prices rise with demand growth and this process shows higher and higher positive feedback in an ever shorter feedback loop. The basic cause is peak oil, reserve depletion, higher costs and longer lead times for raising oil supply capacity, as well as environmental, geopolitical and other causes. As a growing number of well documented web sites (such as The Oil Drum) show, the correlation of declining oil supply growth and higher cost/longer lead times for supply expansion, with oil prices, is high and positive. Any hope that Bernanke or others might have for oil prices staying ‘moderate’ is likely to be dashed -- if there is sustained conventional and classic economic recovery for any period of time.

To be sure, the fond hope is that ‘green energy,’ notably the non-hydro or ‘new’ renewables, and to some extent energy saving could quite quickly replace or economize oil in the economy. Selling this to a recalcitrant mass consumer public totally hooked on oil-based consumer goods and services supposedly requires the big stick of Climate Apocalypse fantasy, rather than informing the same public of peak oil reality. In turn, this makes the likely failure of the COP15 ‘climate summit’ problematic for the image management of OECD political leaderships, terrified of losing face.

Likely the most basic reason for studiously ignoring peak oil and making sure any comment or data on this subject can be contradicted or denied derives from the real world, real economy dependence on oil of the ‘postindustrial’ consumer societies of the OECD. Today, compared with 1979, this remains high, even if oil’s part in total energy consumption has slipped, as gas, coal, hydro and nuclear energy, and to a small extent the non-hydro renewables have reduced the percent share of oil. This however sidelines one major fact which can be measured. Total oil consumption, and total oil imports of the OECD economies have in general and on average increased since 1979, in some cases doubled (100 percent growth), sometimes in less than 15 years. Those countries that have decreased their oil consumption in absolute terms are the minority. This reinforces the careful ignorance of oil dependence and the reality of peak oil, but in no way prevents (in fact guarantees) the coming progressive and long-term reduction in world oil supply. Replacing or substituting oil with ‘other energy sources’ will soon need open and real debate, when the sideshow of Global Warming apocalypse collapses from lack of public conviction, and lack of fact.

Moving forward

With the failure of the COP 15 conference now almost programmed in advance, but oil prices showing little signs of following traded natural gas prices into ‘sweet and low’ territory, the time may be ripe for OECD leaderships to bite the bullet on coherently moving to Energy Transition. The tapering down of world oil export supply, called export ‘offer,’ may be faster than world oil production capacity decline. Conversely world gas supplies face a short-term and large scale bulge. Coal supplies on the same horizon are limited by export and transport infrastructures, not reserves.

The net effect of oil being shortest-fuze energy resource, this can only refocus geopolitical rivalry and tension to the Middle East and Central Asia, and African oil exporter countries. IEA scenarios for 2030, we can note, are forced to claim that OPEC could or might produce 55 Mbd by 2030, quite close to 100 percent above present production, simply to balance out demand forecasts, with supply. This will again refocus and concentrate oil drive tensions and rivalries in the above cited regions.

Believing in the above cited IEA miracle, OPEC led by the OAPEC group practically doubling production in 20 years, is comparable with believing in Al Gore stories of coming global warming tsunamis, and Biblical Floods which can sweep all before them.

OECD leaderships can now begin to blend in real world facts to their energy speeches, with the same target: mobilize their consumer publics to accepting energy saving and non-oil energy sources on a constant and long-term basis. Enabling transition from oil, followed later by gas and coal, is the most serious and basic challenge faced by leaderships in the ‘postindustrial,’ but not post-oil or post-carbon consumer societies. Facing this reality is one of the largest tests of leadership quality that we face in the short term.

Energy Transition is both a policy challenge, and a necessity that will not go away. While we still have time, this challenge should receive the attention it needs, not hidden behind a cloud of global warming rhetoric. Failure of COP15 conference will therefore be the chance for a new departure, facing real world limits, and moving the world forward.....

http://www.globalresearch.ca/index.php?context=va&aid=16218

There is a gigantic chess game being played behind the scenes on a Global scale....

There is a gigantic chess game being played behind the scenes on a Global scale....

To a certain extent all the critics of fed policy are sycophants, seeking to measure their own scant conceptual shadow against the giant of shadows cast by these colossal incubators of economic policy. The personage of A. Greenspan or B. Bernanke are little more than figureheads of gigantic think-tanks manned by experts with far more on their minds than economics or economic theory.

Leading the world is like climbing on board a bucking-bronco....

http://www.shadowstats.com/article/hyperinflation

Policies are less steerage than they are a
defensive grasping at some modestly safer harbor. Most often policies chosen are the least-worse of many different more-worse possible directions that are exhaustively explored and projected.

Yes, someone calls the shots, -but dozens upon dozens of well-connected people get the chance to say, "See, I told you so."

There is also a gigantic chess game being played behind the scenes.

It's not a fair game by any stretch of the imagination, but, there is a continual necessity to make the better defensive move to prevent seepage of the lopsidedness of the current game-board and its often unforgiving rules.

From the quite childish perspective of these critics, some interesting avenues are explored -for the common mind. But no one should be deceived into thinking there is any real impact going on here other than upon the delusions of a small segment of an ill-informed public.

It was pointed out long ago, how the human mind will watch an athlete, and find what that athlete is doing -is not only easy to loosely comprehend, but similarly easy to imagine oneself doing too, -too easy as it turns out.

Our minds are after all, finite, if complex.

Reality is infinitely complex by comparison.

Our minds have a sometimes movable but limited range in every expression, observation, or experience.

That limited range is best observed as we consider our fallible memories. It is seemingly easy for us to fill in the blanks.
The inherently limited range of expression, observation and experience is why our memories fail to conjure an exact reality for our reflective perception.

This same inherently limited range of expression, observation and experience is also why our dreams do have every appearance of reality.

It is as if we had a deck of fifty-two playing cards fulfilling the entire range of all our expression, observation and experience. The seemingly infinite variety we experience in life is due to however many hands we are dealt with just such a limited number of these same cards.

Most of us have a full deck. However, very few of us will ever be in the position to do what Tiger Woods does, or Ben Bernanke.

And in that position, only a fool believes it would not be all too easy to blow the chance.....

As a critic of the Fed (and the whole debt-based money system it presides over), I guess I am one of your sycophants. To me, it seems pretty obvious that the design of the money system is wrong. It creates more debt every year than it creates ability to service that debt and even a dumb guy like me can see that at some point that has to crash.

From this intellectual netherworld, I support the kinds of monetary reforms that is discussed in the post: Take the Power to Create Credit Away from the Giant Banks and Give It Back to the People (11.3.09)

US treasury Issue debt free money. Capital G Greenbacks. Banking system remains private, but it loses the ability to create money (fractional reserve banking). Money creation becomes a public utility, spent into existence by the government, ideally on things like bridges, education, and health care.

Look at it this way: with Greenback dollars, you only pay for the bridge once, when you build it. Not two or three times over, the way we do now letting the banks create the money and borrowing it from them.

If we had done this in 1960, there would be no National Debt right now, and if such a system were well managed we could have an economy that would require very few taxes.

Imagine how well capitalism could work if you just removed the drag of the national debt......

The Wall Street Journal admits this week that economists blew it:

The pain of the financial crisis has economists striving to understand precisely why it happened and how to prevent a repeat...

The crisis exposed the inadequacy of economists' traditional tool kit, forcing them to revisit questions many had long thought answered, such as how to tame disruptive boom-and-bust cycles...

"We could be looking at a paradigm shift," says Frederic Mishkin, a former Federal Reserve governor now at Columbia University.

That shift could change the way central bankers do their job, possibly leading them to wade more deeply into markets. They could, for example, place greater emphasis on the amount of borrowing in the economy, rather than just the interest rates at which borrowing is done. In boom times, that could lead them to restrict how much money various players, ranging from hedge funds to home buyers, can borrow

I have repeatedly pointed out the flaws in mainstream economics. See this, this, this, this and this.

But the Journal makes it sound like the policy-makers and economists who deployed faulty models were innocently ignorant of any larger truths:

The models "were not able to draw up the red flags," says Tim Besley, a professor at the London School of Economics who served on the Bank of England's policy-making committee until recently.

Barry Ritholtz has an excellent criticism of the article, pointing out:

There are many areas I would have liked to see the [journal's] article explore: The lack of Scientific Method, the mostly awful performance of economists, its misunderstanding of the value of modeling, the bias inherent in Wall Street variant of economics, and lastly, the corruption of economics by politics...

Let’s start with the basics. Hard “science” — Physics, Biology, Chemistry, and all variants thereto — begins humbly. They try to describe the universe around us by creating theories, and then testing them. These theorems are always preliminary. Even when testing validates them, Science is always prepared — even eager — to replace them with newer theories that are proven to be even more valid.

The humility of science begins with an admission: We know nothing. We seek to learn through experiment and logic, and constantly evolve more and more accurate explanations. Scientific belief evolves gradually over time. Nothing is assumed, presumed, or hypothesized as true. Indeed, research is a presumption that current theories are inadequate or incomplete. The practice of science is a an ongoing search for better explanations, more proof, further verification — for Truth.

Science is the ultimate “show me” state.

Economics has a somewhat, shall we call it, less rigorous approach. Indeed, the arrogance of economics is that it is the polar opposite of Science. It begins with a few basic assumptions, many of which are obviously untrue; some are demonstrably false.

No, Mankind is not a rational, profit maximizing actor. No, markets are not perfectly, or even nearly, efficient. No, prices do not reflect the sum total of all that is known about a given market, sector or stock. Those of you who pretend otherwise are fools who deserve to have your 401ks cut in half. That is called just desserts. The problem is that your foolishness helped cut nearly everyone else’s 401ks in half. That is called criminal incompetence.

Where was I? Ahhh, our sad tale of the practitioners of the dismal arts.

Starting from a false premise that fails to understand the most basic behaviors of the Human animal, economics proceeds to build an edifice of cards on a foundation of sand. (How could that possibly go astray?) Like a moonshot off by a few inches at launch, by the time the we reach further into time and space, the trajectory is off by millions of miles . . .

Economics ... creates an illusion of precision where none exists. The belief in their models led to all manner of mischief, from subprime to derivatives to risk management...

The Behaviorists have been fighting the mainstream for decades now, trying to correct the errors of the basic building blocks of the dismal science.

But I would go further in my criticism of the economic profession by arguing that the decisions to use faulty models was an economic and political choice, because it benefited the economists and those who hired them.

For example, the elites get wealthy during booms and they get wealthy during busts. Therefore, the boom-and-bust cycle benefits them enormously, as they can trade both ways.

Specifically, as Simon Johnson, William K. Black and others point out, the big boys make bucketloads of money during the booms using fraudulent schemes and knowing that many borrowers will default. Then, during the bust, they know the government will bail them out, and they will be able to buy up competitors for cheap and consolidate power. They may also bet against the same products they are selling during the boom (more here), knowing that they'll make a killing when it busts.

But economists have pretended there is no such thing as a bubble. Indeed, BIS slammed the Fed and other central banks for blowing bubbles and then using "gimmicks and palliatives" afterwards.

It is not like economists weren't warning about booms and busts. Nobel prize winner Hayek and others were, but were ignored because it was "inconvenient" to discuss this "impolite" issue.

Likewise, the entire Federal Reserve model is faulty, benefiting the banks themselves but not the public.

However, as Huffington Post notes:

The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession, an investigation by the Huffington Post has found.

This dominance helps explain how, even after the Fed failed to foresee the greatest economic collapse since the Great Depression, the central bank has largely escaped criticism from academic economists. In the Fed's thrall, the economists missed it, too.

"The Fed has a lock on the economics world," says Joshua Rosner, a Wall Street analyst who correctly called the meltdown. "There is no room for other views, which I guess is why economists got it so wrong."

Read more at: http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html

The problems of a massive debt overhang were also thoroughly documented by Minsky, but mainstream economists pretended that debt doesn't matter.

And - even now - mainstream economists are STILL willfully ignoring things like massive leverage, hoping that the economy can be pumped back up to super-leveraged house-of-cards levels.

As the Wall Street Journal article notes:

As they did in the two revolutions in economic thought of the past century, economists are rediscovering relevant work.

It is only "rediscovered" because it was out of favor, and it was only out of favor because it was seen as unnecessarily crimping profits by, for example, arguing for more moderation during boom times.

The powers-that-be do not like economists who say "Boys, if you don't slow down, that bubble is going to get too big and pop right in your face". They don't want to hear that they can't make endless money using crazy levels of leverage and 30-to-1 levels of fractional reserve banking, and credit derivatives. And of course, they don't want to hear that the Federal Reserve is a big part of the problem.

Indeed, the Journal and the economists it quotes seem to be in no hurry whatsoever to change things:

The quest is bringing financial economists -- long viewed by some as a curiosity mostly relevant to Wall Street -- together with macroeconomists. Some believe a viable solution will emerge within a couple of years; others say it could take decades.

Note: I am not necessarily saying that mainstream economists were intentionally wrong, or that they lied because it led to promotions or pleased their Wall Street, Fed or academic bosses.

But it is harder to fight the current and swim upstream then to go with the flow, and with so many rewards for doing so, there is a strong unconscious bias towards believing the prevailing myths. Just like regulators who are too close to their wards often come to adopt their views, many economists suffered "intellectual capture" by being too closely allied with Wall Street and the Fed.

As Upton Sinclair said:

It is difficult to get a man to understand something, when his salary depends upon his not understanding it.