On Nov. 12 the Financial Times, reported that regulators in the UK, US, and Switzerland have fined the five biggest international banks a total of $3.2 billion for manipulating foreign-exchange rates. The Swiss bank UBS was fined $800 million, the British Royal Bank of Scotland and HSBC - $ 634 and $ 618 million respectively, and America’s Citigroup and JPMorgan Chase had to make amends to the tune of $668 million and $ 662 million.
The banks’ currency traders agreed to fix exchange rates on the world market in order to boost their own profits. This was no small-potatoes scam - as much as $5.4 trillion changes hands every day on the Forex market. And when you consider that they kept this racket going for years - it’s hard to make even a rough guess as to how much the greed of bankers and lenders has cost investors.
Given these reports, concern is mounting about the state of the US economy. Paul Craig Roberts, who was assistant secretary of the treasury for economic policy under the Reagan Administration, writes, «Hewlett Packard cut 5,000 jobs in October, bringing its year’s total to 21,000 lost jobs. Microsoft eliminated 6,509 jobs in October ... a rise of 92% from 2013 ... Now we come to the major jobs sector in America: waitresses and bartenders. Waitresses and bartenders are classified under ‘leisure and hospitality,’ which claims 52,000 new jobs in October of which 41,800 or 80 percent are waitresses and bartenders... How is the US ‘the world’s only superpower’ when it cannot create a middle class job?»
Jeffrey Sommers, professor at the University of Wisconsin-Milwaukee and an expert with the Post Globalization Initiative (http://pglobal.org/publications/1731/), believes that the decline in the US stock market resulted from policies implemented by the US administration after the 2008 crisis. The model used in the 1970s to address that crisis - restoring profits through wage suppression - is not working today. Today, the only way to increase profits is through public and private loans, because the American consumer cannot afford to purchase anything the American economy produces. Thus, at some point that economic system has to collapse, and it seems that moment is not far off.
Jeffrey Sommers claims that the US economy can only be rescued by raising wages to match the economy’s productive capacity.
After all, the main trigger for the 2008 crisis was the creation of debt instruments of a level of complexity never before seen in the US. This determination to maintain demand in the economy by relying on consumer and government debt has blown up in the country’s face. Now, according to Sommers, there are only two solutions: one - a legislative increase in the minimum wage, which would naturally increase demand at all levels, and two - massive public investment, which would serve as a renewed stimulus for economic development.
These are not new formulas. In the last five years, China has done exactly that, increasing the capacity of its domestic market, and that country has not only remained unaffected by the worldwide crisis sparked by the United States, but has risen to the pinnacle of the global economic pyramid.
In places where the government serves as a tool for bolstering corporate profits, regular economic convulsions are inevitable. An attempt to raise the minimum wage failed in the US Congress two years ago, and massive intervention on the part of the Federal Reserve to promote the interests of Wall Street has not managed to increase investment in the «real economy». For this reason Jeffrey Sommers claims, «The only way for the US to restore its economy is to reorient it more to domestic economic demand and investment. The same is true for Russia and China».
Americans have backed away from Sommers’ first formula for success - increasing the public’s purchasing power. Six percent of the US budget was used to pay the interest on government debt in 2013, and the debt load has nearly doubled in ten years. It reached 80% of GDP in 2013 and will exceed 100% in 2014.
Why does the United States, which forces all incoming WTO members to undergo fundamental structural reforms, prefer to do without those itself? Because then the «wolves of Wall Street» would have to feed their own «sheep,» which is incompatible with the underlying structure of American society.
Steen Jakobsen, chief economist of Saxo Bank, claims that never before has there been such a huge gap between economic reality and perception, but «the world is not ending, it’s getting ready for a new beginning ..»
Perhaps it’s getting ready for the moment when the value of bank assets stops rising and borrowers discover they are insolvent. The time is coming when many economies will need to disengage from the dollar and reorient themselves, perhaps doing so à la China, by pivoting to focus on their domestic markets. If national currencies are flooded with goods, those economies will lose out on foreign trade, but they will survive.
Naturally it won’t be quick or painless to wean the global economy from the dollar, but with an eye toward the oncoming wave of the next economic crisis, it’s the only way to ensure the long-term stability of national financial systems. Therefore, in the last few months many major banks - JP Morgan, HSBC, ScotiaMocatta, Barclays, UBS, and Deutsche Bank - have done all they can to prevent a rise in the price of gold and, accordingly, any decline in the dollar.
At the same time, central banks continue to increase the share of gold in their reserves, protecting players on the domestic exchange market from any potential loss during the «currency wars». China is the leading purchaser of gold. Song Xin, president of the China Gold Association, general manager of the China National Gold Group Corporation, and a secretary in the Communist Party of China, claims that Beijing plans to add up to 8.5 million tons to its gold reserves.
In times of economic crisis, gold is the last defense for a country’s economic security and national sovereignty. This has been seen over and over in the history of the world. There is an estimated 30,000 tons of gold being held globally, and the US has 26 % of the global reserves - 8,134 tons. Germany has almost another 3,400 tons, and Italy and France each hold more than 2,400 tons. And gold makes up 71.7 % of US reserves, while that number ranges from 40-70% in Europe, and the global average is about 10%. So China’s one percent of the world’s gold reserves still seems very modest. And as a first step, Beijing plans to increase China’s gold reserves to 4,000 tons, in order to pass Germany and move into second place in the world, and to then collect 8,500 tons and overtake the US. The Chinese will not prop up the dollar by saddling themselves with US debt and using their resources to pay for each new financial bubble created by the «wolves of Wall Street».