Tuesday - Nov 20, 2018

The “government “shutdown” and the “debt default” Part 1


by Marvin Ramirez

Marvin J. RamirezMarvin Ramirez

NOTE FROM THE EDITOR: The so-called experts, and friends of Wall Street. Their comments are geared to make us believe that everything is OK. The following article, authored by Prof. Michel Chossudovsky, brings us the perspective we don’t get from the mainstream media. Due to its length, it will be published in two parts. This is Part 1

The speculative endgame: the government “shutdown” and the “debt default” a multibillion bonanza for Wall Street

by Prof . Michel Chossudovsky

The “shutdown” of the US government and the financial climax associated with a deadline date, leading to a possible “debt default” of the federal government is a money making undertaking for Wall Street.

A wave of speculative activity is sweeping major markets.

The uncertainty regarding the shutdown and “debt default” constitutes a golden opportunity for “institutional speculators”. Those who have reliable “inside information” regarding the complex outcome of the legislative process are slated to make billions of dollars in windfall gains.

Speculative Bonanza

Several overlapping political and economic agendas are unfolding. In a previous article, we examined the debt default saga in relation to the eventual privatization of important components of the federal State system.

While Wall Street exerts a decisive influence on policy and legislation pertaining to the government shutdown, these same major financial institutions also control the movement of currency markets, commodity and stock markets through large scale operations in derivative trade.

Most of the key actors in the US Congress and the Senate involved in the shutdown debate are controlled by powerful corporate lobby groups acting directly or indirectly on behalf of Wall Street. Major interests on Wall Street are not only in a position to influence the results of the Congressional process, they also have “inside information” or prior knowledge of the chronology and outcome of the government shutdown impasse.

They are slated to make billions of dollars in windfall profits in speculative activities which are “secure” assuming that they are in a position to exert their influence on relevant policy outcomes.

It should be noted, however, that there are important divisions both within the US Congress as well as within the financial establishment. The latter are marked by the confrontation and rivalry of major banking conglomerates.

These divisions will have an impact on speculative movements and counter movements in the stock, money and commodity markets. What we are dealing with is “financial warfare”. The latter is by no means limited to Wall Street, Chinese, Russian and Japanese financial institutions (among others) will also be involved in the speculative endgame.

Speculative movements based on inside information, therefore, could potentially go in different directions. What market outcomes are being sought by rival banking institutions? Having inside information on the actions of major banking competitors is an important element in the waging of major speculative operations.

Derivative Trade

The major instrument of “secure” speculative activity for these financial actors is derivative trade, with carefully formulated bets in the stock markets, major commodities –including gold and oil– as well as foreign exchange markets.

These major actors may know “where the market is going” because they are in a position to influence policies and legislation in the US Congress as well as manipulate market outcomes.

Moreover, Wall Street speculators also influence the broader public’s perception in the media, not to mention the actions of financial brokers of competing or lesser financial institutions which do not have foreknowledge or access to inside information.

These same financial actors are involved in the spread of “financial disinformation”, which often takes the form of media reports which contribute to either misleading the public or building a “consensus” among economists and financial analysts which will push markets in a particular direction. Pointing to an inevitable decline of the US dollar, the media serves the interests of the institutional speculators in camouflaging what might happen in an environment characterized by financial manipulation and the interplay of speculative activity on a large scale.

Speculative trade routinely involves acts of deception. In recent weeks, the media has been flooded with “predictions” of various catastrophic economic events focusing on the collapse of the dollar, the development of a new reserve currency by the BRICS countries, etc.

At a recent conference hosted by the powerful Institute of International Finance (IIF), a Washington based think tank organization which represents the world’s most powerful banks and financial institutions:

“Three of the world’s most powerful bankers warned of terrible consequences if the United States defaults on its debt, with Deutsche Bank chief executive Anshu Jain claiming default would be “utterly catastrophic.”

This would be a very rapidly spreading, fatal disease, … I have no recommendations for this audience… about putting band aids on a gaping wound,” he said.

“JPMorgan Chase chief executive Jamie Dimon and Baudouin Prot, chairman of BNP Paribas, said a default would have dramatic consequences on the value of U.S. debt and the dollar, and likely would plunge the world into another recession.” (…)

Dimon and other top executives from major U.S. financial firms met with President Barack Obama and with lawmakers last week to urge them to deal with both issues. On Saturday, Dimon said banks are already spending “huge amounts” of money preparing for the possibility of a default, which he said would threaten the global recovery after the 2007-2009 financial crisis.

Dimon also defended JPMorgan against critics who say the bank has become too big to manage. It has come under scrutiny from numerous regulators and on Friday reported its first quarterly loss since Dimon took over, due to more than $7 billion in legal expenses. (Emily Stephenson and Douwe Miedema, World top bankers warn of dire consequences if U.S. defaults.

Reuters, October 12, 2013

What these “authoritative” economic assessments are intended to create is an aura of panic and economic uncertainty, pointing to the possibility of a collapse of the US dollar. What is portrayed by the Institute of International Finance panelists (who are the leaders of the world’s largest banking conglomerates) is tantamount to an Economics 101 analysis of market adjustment, which casually excludes the known fact that markets are manipulated with the use of sophisticated derivative trading instruments. In a bitter irony, the IIF panelists are themselves involved in routinely twisting market values through derivative trade. Capitalism in the 21st century is no longer based largely on profits resulting from a real economy productive process, windfall financial gains are acquired through large scale speculative operations, without the occurrence of real economy activity. at the touch of a mouse button. The manipulation of markets is carried out on the orders of major bank executives including the CEOs of JPMorgan Chase, Deutsche Bank and BNP Paribas.

The “too big to fail banks” are portrayed, in the words of JPMorgan Chase’s CEO Jamie Dimon’s, as the “victims” of the debt default crisis, when in fact they are the architects of economic chaos as well as the unspoken recipients of billions of dollars of stolen taxpayers’ money.

These corrupt mega banks are responsible for creating the “gaping wound” referred to by Deutsche Bank’s Anshu Jain in relaiton to the US public debt crisis. SEE NEXT EDITION: COLLAPSE OF THE DOLLAR.