Shobhit Mathur’s Home Page

by J. R. Nyquist

http://www.financialsense.com/stormwatch/geo/pastanalysis/2007/0727.html

Remember President Carter’s 1979 Malaise Speech? Americans were losing faith in the country’s future, he said. They were closing the door on America’s past. President Carter wanted to turn things around. He warned that rising materialism would not “fill the emptiness of lives which have no confidence or purpose.” He said it was a crisis of American spirit. In response to this crisis, Carter wanted the authority to ration gasoline, form an “energy mobilization board,” create a bureaucracy to guarantee that we would “never use more foreign oil than we did in 1977,” set oil import quotas and develop solar power. “These efforts will cost money,” Carter explained, “a lot of money….”

The country rejected President Carter’s call, and subsequently enjoyed three decades of prosperity. Carter’s policy was rejected because the American people didn’t want a lower standard of living. They didn’t want to forfeit their economic freedom. The American people cling to material happiness with a ferocious animal cunning. They do not believe in giving up, or giving over to obstacles. They want a good life. Their materialism is fundamental, and so is their comfort. They will reject any politician who tells them bad news. They will reject any policy based on pessimism. This is the lesson of the 1970s, taught by the great teacher of the 1980s – Ronald Reagan.

What we are seeing today is reminiscent of the 1970s. First, there is dollar inflation, understated by government statistics. Then there is the stagnation in the U.S. economy. An old depressing pattern has appeared again. We see an American president discredited and the presidency weakened; an unpopular overseas military commitment; rising oil prices; increasing government regulation and higher taxes. We know what happened at the end of the 1970s. American weakness and malaise led to aggressive Communist moves in Africa, Latin America and Asia (Angola, Nicaragua and Afghanistan). Then came the humiliation of the Iran Hostage Crisis.

The trauma of the 1970s ended with the appearance of Ronald Reagan in the White House. Weathering a severe recession with steady optimism, Reagan shepherded the United States toward a period of sustained prosperity and apparent victory in the Cold War. As we look ahead to next year’s presidential race, however, we don’t see anyone resembling Ronald Reagan. The likely winner will be a Democrat and the Democrat philosophy isn’t the philosophy of Reagan. The Republican Party has been wounded by President Bush’s failed Iraq adventure. In recent days the polls show the three leading Democratic candidates beating the top Republican candidates. Furthermore, an economic downturn is expected by the end of the year and the party in the White House generally gets the blame. So instead of getting a Ronald Reagan, the country would be getting something else – though nobody is sure what that would mean.

The Republican candidates haven’t found their footing. They haven’t found the right things to say. Attempting to mimic Reagan won’t work, because the public mood has shifted and the Democratic candidates can also mimic Reagan. Underneath the surface, the country has been changing. It is more self-absorbed and more cynical. It seems that community interest has been gradually surrendering to fanatical interest groups and their politically neurotic adherents. The United States is no longer a healthy republic.

Perhaps I am alone in thinking that a monster has been growing inside America. It is the monster of political passion, misguided ideology and moral confusion. It is a monster born of a consumption culture whose intellectual and moral standards have been falling. There is every reason to believe that the political criminals of the future will pose as do-gooders. Their urge, however, will be to reduce the people to subjection while pillaging the economy. The clever demagogue knows how to divide and conquer. He creates and exploits the dividing line between rich and poor, black and white, immigrant and native. Listen carefully. Notice whether a presidential candidate appeals to goodness and justice or resentment and envy.

It is not a good thing when resentment and envy gain the upper hand in political discourse. Those who seek prosperity at other’s expense easily imagine that wealth is a matter of theft. Through the repetition of this theme, people may gradual come to accept an evil idea. If this idea hardens into a universal belief, the political arena can degenerate into gangsterism. The political cynicism of our time, in which all political leaders are rated as criminals, logically leads to the assumption that crime pays. Once this generalization gains common acceptance, everything is transformed and the United States becomes an Asiatic country.

I will end with a quote from Gustav Le Bon: “Our epoch … can be understood only by grasping the role played by the mysticism of the people and their leaders.” He further stated: “One cannot govern a people with true ideas but only with beliefs accepted as truths.”

Benazir Bhutto

July 24, 2007 12:00 AM

http://commentisfree.guardian.co.uk/benazir_bhutto/2007/07/pakistan_on_the_brink.html

Pakistan is facing a deep crisis, a crisis that began almost 50 years ago when President Ayub Khan the country’s first military ruler seized power in 1958. Thirty years ago, in 1977, another military coup d’etat against a democratically elected government further deepened the crisis. Four military dictatorships, most recently General Zia-ul-Haq and General Pervez Musharraf, have ruled my nation for the last 32 years alternating with elected civilian governments that have been summarily brought down by intervention by the military intelligence agencies. Democracy has never been given a chance to grow in Pakistan. Today the crisis has not only continued but it has dangerously accelerated, not only in Pakistan but for the whole region and the wider world community. And much to the dismay of the people of Pakistan, Islamabad has become the site of a training and staging area for al-Qaida.

Tragically from our soil, from areas that were under the control of my government but have now been ceded to the militants, pro-Taliban forces linked to al-Qaida launch almost daily attacks on Nato troops across the border in Afghanistan. They also pose an internal threat to the 160 million people of Pakistan killing members of the armed forces, political workers, and innocent civilians across the length and breadth of Pakistan. Last week we had four suicide attacks and in the last suicide attack that took place in Islamabad 18 people were killed. From parts of the Pakistani territory that the present regime has termed ungovernable those forces of militancy and extremism are planning further acts of terror and aggression against the west and against the people of Pakistan threatening to match or even exceed the scale of the September 11 atrocities. Without hesitation I believe that the future of democracy in South Asia and, without exaggeration, the stability of the entire world lies in the balance directly as a result of the international community’s acquiescence to military dictatorship.

In the view of my party military dictatorship fuels the forces of extremism by putting into place a government that is unaccountable, unrepresentative, undemocratic and unable to fulfill the aspirations of the great and hardworking people of Pakistan. Military dictatorship born from the power of the gun undermines the concept of the rule of law and gives birth to a culture of weapons, violence and intolerance. The suppression of democracy in my homeland has had profound institutional consequences; the major infrastructural building blocs of democracy have been weakened, political parties have been marginalized, NGOs dismantled, judges sacked and civil society undermined. The Red Mosque incident that we saw earlier this month is the direct result of an eight-year military regime’s policy of the so-called Islamisation of my nation. Just as the military establishment of the 80s used the so-called Islamic card to promote military dictatorship while demonising political parties so too has the military dictatorship of the 21st century used the so-called Islamic card to pressure the international community into backing military dictatorship in Pakistan. We in the PPP agree that the militants of the Red Mosque had to be stopped from taking over Islamabad and imposing their own brand of politics which they wrongly tried to justify in the name of Islam. But we believe that this incident should have been dealt with six months back when burka-clad people took over a government-owned library.

It is sometimes argued in the west traumatised by terrorism that a military regime is the only thing that stands in the way of a nuclear-armed fundamentalist Pakistan. Nothing can be further from the truth. The militant dictatorship needs the external crutch of a militant threat to justify its existence to the international community. Whether in the east or the west dictatorship fuels extremism rather than contains it. The Red Mosque siege has shown us how dangerous parts of Pakistan have become since democracy was derailed in the country in 1996, when Pakistan was one of the 10 emerging markets of the world. If the military regime and its civilian allies are allowed to rig the upcoming election scheduled for later this year I am in no doubt that it will give the Taliban sympathisers five more years to spread their tentacles across the nooks and corners of our country and if that is the case then we really could be facing an Islamist takeover of Pakistan in five years time. The choice in Pakistan is not really between military and the mullahs, the choice in Pakistan is between dictatorship and democracy, and it’s not just the choice in Pakistan in my view, humbly, I say that is the choice the world too faces with us.

Yet to understand the present and to change the future we must understand how we came to this point. Shortly after the Soviet invasion of Afghanistan in 1979 international calls for a Pakistani return to democracy subsided. The west saw an opportunity to use the events in Afghanistan to hobble the Soviet Union. The western policy at that time was directed to only one goal; to use Afghanistan as the final nail in the coffin of the Soviet Union. Short-term advantages checkmated long term policy goals as the West funnelled aid and training of the extremist mujahideen through Pakistan’s intelligence services which were then commanded by a military dictator with close ties to the Muslim Brotherhood. He turned to the Muslim Brotherhood within Pakistan and to the Muslim Brotherhood outside Pakistan to put together the Afghan mujahideen. The mujahideen would later morph into the Taliban and the Taliban would morph, in turn, into al-Qaida and the rest is ugly, painful history. But it was not necessarily unpredicted. A short-term policy decision has generated a long-term crisis not just for South Asia but for the entire world. Decisions made in the early 1980s can be directly linked to the terrorist attacks of 9/11, to the attacks on Madrid, London, Glasgow, Peshawar, Islamabad and Quetta and to the continuing plots emanating out of al-Qaida and the Taliban from the safe haven that they have established in the tribal areas of Pakistan, against my people and against yours.

The ISI CIA alliance supplied weapons and training to the mujahideen but it also converted Pakistan into a violent society of Kalashnikovs, heroin users and radicalised Islam. The military dictatorship of Zia-ul-Haq diverted funds from the social sector to military intelligence the government relinquished its responsibility in providing education, health, housing and social services to our people so parents who were desperate to house, feed and clothe their children handed them over to the political madrassas. The political madrassas did house, clothe and feed the children but they also provided the poison of hatred and they provided paramilitary type training as well as turned the places of religious worship into a cover for training militants and promoting terror. The people of Pakistan and, indeed, the people of the Muslim world question how the international community can support democracy in Afghanistan while supporting dictatorship in Pakistan. I suggest that the west sadly and inadvertently has become the enablers of the Pakistani military dictatorship’s suppression of political aspirations of the people of Pakistan.

So where do we go from here? Another rigged election? It is expected that the opposition will unite if the elections are rigged and copy the Ukraine and its Orange Revolution. But can Pakistan afford a non-facilitated transfer to democracy? Can Pakistan afford to see a popular movement where the extremists might seek to control as they sought control of the popular movement against the Shah of Iran in neighbouring Iran in1979?

I say trust the people of Pakistan. They have never voted for the religious parties because the people of Pakistan realise that being a Muslim does not depend upon state laws, being a Muslim depends on the acquiescence to God’s laws and God’s laws are universal so a person can be a Muslim in England, in America or anywhere in the world. Every PPP worker from the smallest village of Pakistan to our great cities, believe that democracy means development and that democracy undermines extremism. The restoring of democracy through fair elections will be a giant step not only for the internal development of the progress of the people of Pakistan but also for regional peace and stability.

This is an abbreviated version of a speech given by Ms Benazir Bhutto at the International Institute for Strategic Studies last Friday

From: Kanchan GuptaSunday Pioneer/Agenda/Column: Coffee Break/July 22, 2007

The poison tree of Islamism

Kanchan Gupta

Teacher, I want to go London next month. I want bomb, big bomb in
London, again. I want make jihad!”
“What?” I exclaimed. Another student raised both hands and shouted:
“Me too! Me too!”
Other students applauded those who had just articulated what many of
them were thinking…”
That’s how Ed Husain records his experience in the Saudi Arabian
school where he had taken up a teaching assignment after embracing
radical Islam. It was the day after the 7/7 suicide bombings in London
that killed 52 commuters and Ed Husain, his faith in radical Islam by
then dwindling rapidly after experiencing life in Saudi Arabia, was
hoping to hear his students denounce the senseless killings. Instead,
he heard a ringing endorsement of jihad and senseless slaughter in the
name of Islam.
Disillusioned, Ed Husain returned to London and penned his revealing
account in The Islamist – Why I joined radical Islam in Britain, what
I saw inside and why I left. Debunking the lib-left intelligentsia’s
explanation that deprivation, frustration and alienation among
immigrant Muslims in Britain are responsible for the surge in jihadi
fervour, Ed Husain writes:
“Many Muslims enjoyed a better lifestyle in non-Muslim Britain than
they did in Muslim Saudi Arabia… All my talk of ummah seemed so
juvenile now. It was only in the comfort of Britain that Islamists
could come out with such radical utopian slogans as one government,
one ever expanding country, for one Muslim nation. The racist reality
of the Arab psyche would never accept black and white people as
equal… I was appalled by the imposition of Wahhabism in the public
realm, something I had implicitly sought as an Islamist…”
So, what does an Islamist seek? The reams of rubbish churned out by
bogus activists and windbag columnists desperately seeking to
rationalise crimes committed in the name of Islam, ranging from the
ethnic cleansing of the Kashmir Valley to the Mumbai bombings, from
the attack on Parliament House in New Delhi to the destruction of the
World Trade Center twin towers in New York, from the horrific assault
on human dignity by the Taliban in Afghanistan to the nauseating
anti-Semitism of the regime in Iran, cannot explain either the core
idea of Islamism or what motivates Islamists. For that, we have to go
through the teachings of Hasan al-Banna, the original Islamist and
progenitor of the Muslim Brotherhood, but for whom and which perhaps
we would have been spared the terror that stalks us today.
Hasan al-Banna’s articulation of Islamism in the 1930s, distilled from
complex theological interpretations of Islam, was at once simple
enough for even illiterate Muslims to understand and sinister in its
implications when seen in the context of what we are witnessing today:
“The Quran is our Constitution. Jihad is our way. Martyrdom is our
desire.” Imagined grievances and manufactured rage came decades later,
as faux justification for adopting this three-sentence injunction that
erases the line separating the spiritual from the temporal and giving
Islam a political dimension in the modern world, thus expanding the
theatre of conflict beyond the sterile sands of Arabia.
Hasan al-Banna died a nasty death when he was murdered in 1949,
apparently in retaliation of the assassination of Egypt’s then Prime
Minister, Mahmud Fahmi Naqrashi, but the seed he had planted in his
lifetime was to grow into a giant poison tree, watered and nourished
by Sayyid Qutub (whose tract, Ma’alim fi-l-Tariq was interpreted as
treasonous, fetching him the death sentence in 1966) which over the
years has spread its roots and branches, first across Arabia and then
to Muslim majority countries; so potent is that tree’s life force, its
seeds, carried by the blistering wind that blows from the Mashreq,
have now begun to sprout in countries as disparate as Denmark and
India, Turkey and Malaysia, changing demographic profiles and
unsettling societies.
The world chose to ignore subsequent events and, like those who
clamour for a gentler, accommodative approach to Islamism today by
pushing for compromise over conflict, ‘enlightened’ scholars and
public affairs commentators rationalised Anwar Sadat’s assassination
by Islamists on October 6, 1981. Even Egypt erred in setting free
scores of conspirators, including a certain Dr Ayman al-Zawahiri.
Similarly, the ‘Islamic Revolution’ in Iran with its blood-soaked
consequences was hailed as a “people’s victory” over Shah Reza
Pehalvi’s dictatorial regime. For Europe, which now is fast turning
into Eurabia, it was business as usual – Iran’s oil swamped out
rational analyses. If any country had the farsight to sense the danger
signals, it was, ironically so, Egypt which continues to remain wary
of Iran, not least because of its export of rabid Islamism. That
Tehran has riled Cairo by naming a street after Sadat’s assassin,
Khalid Islambouli, is only of partial significance.
It was in the immediate aftermath of the Soviet invasion of
Afghanistan that Islamism acquired a new dimension and a vicious edge
when it was coupled with Wahaabism, Saudi Arabia’s severely austere
version of Sunni Islam. Arab nationalism, which was unencumbered by
Islamism till then, became an expression of faith in radical Islamism.
In what passes for Palestinian territories, the intifada was born and
while the popularity of Yasser Arafat’s largely secular (which
explained his hugely corrupt ways) PLO began to decline, Hamas, led by
its paraplegic spiritual leader, Sheikh Ahmed Yassin, began its
murderous march which has culminated with Gaza Strip being declared
‘Hamastan’. Yassin was killed by the Israelis for inspiring young
Palestinians to blow themsleves up in buses, restaurants and markets,
but that has not stalled Hamas or weakened it as an Islamist
organisation.
In Lebanon, the Hizbullah is now facing competition from Fatah-al
Islam in Palestinian refugee camps. In Britain, Hizb ut-Tahrir is
seducing young Muslims like Ed Husain with its acid message of
intolerance and bigotry. In India, we have the Jamaat-e-Islami and the
Tablighi Jamaat. The Deobandis are not to be scoffed at.
To neutralise the three-sentence injunction of Hasan al-Banna, we need
more than a ‘War on Terror’. We need to launch an assault on the idea
that motivates terrorists. There is no scope for accommodation, nor is
there any reason to capitulate or strike a compromise.

–
Kanchan Gupta
Associate Editor,
The Pioneer,

This essay takes an in-depth look at the magnitude and consequences of the large debt levels within the United States. Topics discussed include: composition of foreign and domestic holders of U.S. debt, consequences of the government borrowing from the Federal Reserve, and a look at the current U.S. housing market.

The National Debt

The national debt (also known as public debt) is money owed by the federal government. As the government represents the people, government debt can be seen as an indirect debt of the taxpayers. The U.S. government incurs debt by issuing treasuries (bills, notes and bonds).

These securities are either sold on the open market or directly to the Federal Reserve. The U.S. national debt, as of July 17, 2007 stood at $8.887 trillion. In addition to the national debt, the State and Local debt at the end of 2006 stood at just over $2 trillion.

Some consider that all government liabilities, including those that the government has contracted for but not yet paid, should also be included in the national debt. Corporations must report such liabilities in their annual financial statements under GAAP (Generally Accepted Accounting Principles).

These “off-balance sheet” items include future payments for federal pensions, Medicare and Social Security. Inclusion of these obligations would dramatically increase the U.S. national debt to $59.1 trillion or 403% of GDP! On a per capita basis this amounts to $516,348 for every U.S. household! By means of comparison, the average American household owes $112,043 for mortgages, car loans, credit cards and all other debt combined.

To Whom Do We Owe the National Debt?

The Department of the Treasury publishes The Debt to the Penny and Who Holds It. This up-to-date information divides the debt into two sections – Public and Intergovernmental Holdings. The former grouping includes domestic and foreign owned portions of the debt. The U.S. Treasury publishes Ownership of Federal Securities which is another break-down of the composition. Through combining these two data sets, as of December 2006, the composition of the U.S. National debt was:

The breakdown of the domestic owned portion of the national debt is as follows:

The U.S. Treasury publishes a listing of the Major Foreign Holders of the national debt.

Of the U.S. debt owned by foreigners, central banks own 64% with private investors owning nearly all the rest (Analytical Perspectives – Budget of the United States Government, Fiscal Year 2006 p. 257). As of the end of 2006, U.S. treasuries made up 33% of Mainland China’s official foreign exchange reserves and 68% of Japan’s!

The magnitude of the foreign-owned portion of the national debt is nearly three times the total amount of currency in circulation! Official numbers released by the Federal Reserve for June 2007 show the volume of currency at US$755 billion.

The Federal Reserve

The Intergovernmental Holdings section refers primarily to governmental borrowing from the Federal Reserve. This is sometimes referred to incorrectly as “the government borrowing from itself”.

To begin with, the twelve regional Federal Reserve Banks are private institutions operating collectively in a quasi-governmental capacity. When the government spends more than it receives in tax revenue, it experiences a budget deficit. To make up this shortfall, it issues new debt. This takes the form of treasuries that are sold on the open market. When there is not sufficient interest in the open market to buy up the required number of treasuries, the government will turn to the Federal Reserve, otherwise known as the “lender of the last resort”.

When the government “borrows” from the Federal Reserve, both the treasuries and the money are literally created out of thin air. These newly acquired government securities increase the assets of the Federal Reserve Bank. This enables it to lend out many times that amount through the fractional reserve banking system. The process, known as “monetizing the debt”, is inflationary.

For example, let us assume that the legislated reserve ratio is 10% and the government requires US$10 billion from the Federal Reserve to cover a shortfall. The government creates US$10 billion in government bonds to give to the Federal Reserve who issues US$10 billion in newly created money to the government. Interest payments on these bonds are paid for by tax revenue and/or additional deficit spending. The Federal Reserve may now legally lend out US$100 billion.

This credit expansion as a direct result of the U.S. government borrowing from the Federal Reserve dilutes the value of all outstanding currency. When the value of the dollar goes down, prices go up. In effect, it is theft from everyone who holds U.S. currency because they can now buy less with it today than they could have before.

The U.S. Total Debt

The Federal Reserve’s publications, Flow of Funds Accounts of the United States (also known as the Z.1 Releases) contain a great amount of data regarding money flows between various sectors. Missing from this data set is the portion of debt owed by the federal government to the Federal Reserve. To retrieve that data, one must subtract the Gross Federal Debt held by the Public from Gross National Debt published by the St. Louis Federal Reserve. This data should be added to the Federal Government Debt figures in table D.3 of the Z.1 Release to account for the complete national debt.

The following chart shows accumulated debt from the national, household and corporate sectors from 1956 to 2006.

The Housing Bubble

The household sector has surged nearly 50% since 2001, increasing from $7.66 trillion to 12.82 trillion in 2006. Most of this jump is attributed to mortgage debt that has risen 83% since 2001. This has been what market analysts have been referring to as the “Housing Bubble”. Starting in 2001, ordinary citizens became attracted to an increasingly speculative real estate market.

The combination of increasing money supply (“liquidity”) and advent of 40-year low interest rates along with exotic loans (negative amortization, adjustable rate, buy-down, no credit check) encouraged heavy leveraging as house buyers attempted to purchase more expensive houses in hopes of reselling them in a few years at a much higher price to another buyer.

Marketing of these types of loans reached a crescendo in late-2004 and early-2005. The sub-prime industry offered buy-down mortgages whereby the buyer would pay a discounted interest rate for the first few years (otherwise known as a “teaser rate”). These low starter payments were marketed so that the buyer could “afford home furnishings and renovation projects”. When it came time for these interest rates to readjust, many homeowners found that they were unable to cover their monthly mortgage payment.

As a result of this, the U.S. is currently experiencing a financial meltdown in the sub-prime mortgage industry within the U.S. To date, 99 firms have either gone bankrupt or have dramatically transformed their business. Over 1.4 million homes are currently in some stage of the foreclosure process.

Time’s June 13, 2005 cover article of “Home $weet Home” was taken by some to be indicative of a speculative top and a portent for an upcoming market reversal. Just as Business Week’s famous August 13, 1979 cover story called for the end of the stock markets at the moment when the largest bull run was just getting underway.

But “We Owe it to Ourselves”?

Does the debt matter, after all, don’t we owe it to ourselves? Only if you acknowledge that “we” and “ourselves” are in fact very different entities. The Federal Reserve’s Z.1 Release gives insight as to who exactly owes the money, and to whom.

Clearly this is a one-way street. Households, government and non-financial businesses are becoming more and more indebted to foreigners, banking and financial institutions. Debt is not wealth. It is a claim on future production.

ABOUT THE AUTHOR

Mike Hewitt is the editor of www.DollarDaze.org, a website pertaining to commentary on the instability of the global fiat monetary system and investment strategies on mining companies.

Is the United States provoking war with Iran, to begin while the Congress is conveniently on its August recess?

One recalls that it was in August 1964, after the Republicans nominated Barry Goldwater, that the Tonkin Gulf incident occurred.

Twice it was said, on Aug. 2 and Aug. 4, North Vietnamese patrol boats had attacked the U.S. destroyers Maddox and Turner Joy in international waters. The U.S. Senate responded by voting 88 to two to authorize President Johnson to assist any Southeast Asian nation whose government was threatened by communist aggression.

The bombing of the North began, followed by the arrival of U.S. Marines. America’s war was on.

As Congress prepares for its August recess, the probability of U.S. air strikes on Iran rises with each week. A third carrier, the USS Enterprise, and its battle group is joining the Nimitz and Stennis in the largest concentration of U.S. naval power ever off the coast of Iran.

And Tonkin Gulf II may have already occurred.

In Baghdad, on July 1, Gen. Kevin J. Bergner charged that Iranians planned the January raid in Karbala, using commandos in American-style uniforms, that resulted in the death of five U.S. soldiers.

As The New York Times reports, this “marks the first time that the United States has charged that Iranian officials have helped plan operations against American troops in Iraq and have had advance knowledge of specific attacks that have led to the death of American soldiers.”

The Quds Force of the Iranian Revolutionary Guards is using Hezbollah to train Shiites to attack our soldiers and providing them with enhanced IEDs that have killed scores of U.S. troops, Bergner charged. He says we have captured a veteran Hezbollah agent and documents pointing to direct Iranian complicity in the Karbala raid.

Iran has denounced the charge as “ridiculous.” But the Senate has voted 97 to zero to censure Iran for complicity in killing the Americans.

If what Bergner alleges is true, President Bush has not only the right but appears to have the blessing of Congress to attack Iran. And he now has the naval and air forces at hand. What is stopping him?

For it is surely not Congress, which buried a resolution last spring declaring that Bush must come to Congress before taking us into a new war in the Middle East. Congress appears to be signaling Bush: “If you want to hit Iran, you have the green light. No need to consult us.”

Is this yet another abdication by Congress of its moral and constitutional duty to decide when and whether America goes to war?

And something smells awfully fishy here.

Iran has no interest in a war with the United States, which it seems to be toying with. Iran supports the pro-American Shia regime in Baghdad. And the al-Qaida umbrella group in Iraq, which is our mortal enemy, has just warned Iran it faces terror attacks if it does not stop supporting Shiites in Iraq.

Abu Omar al-Baghdadi, who leads the al-Qaida group known as the Islamic State in Iraq, says his fighters have been preparing for four years for war on Iran:

“We are giving the Persians, and especially the rulers of Iran, a two-month period to end all kinds of support for the Iraqi Shiite government and to stop direct and indirect intervention — otherwise a severe war is waiting for you,” al-Baghdadi said in a 50-minute videotape.

Al-Baghdadi also warned Arab Sunnis in the region who do business with Shiites in Iran that they were inviting assassination.

Query: If Iran’s ally, the Maliki government, is our ally, and if Iran’s enemy, al-Qaida in Iraq, is our enemy, why would Iran use the Quds Force to attack Americans and risk U.S. retaliation?

Killing Americans in Iraq is not going to defeat the United States. But it could trigger heavy U.S. retaliation, not only on the Quds Force, but on Iran’s nuclear facilities — and a war with the United States. Yet Iran’s diplomatic behavior suggests it wishes to avoid such a war.

Another explanation comes to mind. Iran is not initiating, but is responding to U.S.-inspired attacks inside Iran, in the Kurdish north, the Arab southwest and the Baluchi southeast of its country. Was Karbala an attempted kidnapping to exchange U.S. soldiers for the five Iranian “diplomats” we are holding?

Has Bush secretly authorized covert attacks inside Iran? Are U.S. and Israeli agents in Kurdistan behind the attacks across the border to provoke Iran? On July 11, Iranian troops clashed with Kurd rebels inside Iran, and the Iranians fired artillery back into Iraq.

Why is Congress going on vacation? Why are a Democratic-controlled House and Senate not asking these questions in public hearings? Why is Congress letting Bush and Vice President Cheney decide whether we launch a third war in the Middle East?

Or is Congress in on it?

The financial system currently adopted by all nations is often described as “debt based”, since the process of going into debt is relied upon almost exclusively to create and supply money to their economies. By the action of lending to borrowers, commercial banks create credit and advance this to industry, consumers and governments. This “bank credit” circulates in the broader economy until such time as the loan is repaid. Such “bank credit” now forms 96% of the money stock in most industrial nations, with a mere 4% the notes and coins created by government, and free from a parallel debt.

Thus, almost the entire money stock is supported in circulation by vast debts in four main sectors….

• Private debts eg. mortgages, loans, overdrafts, credit-purchases
• Industrial and commercial debts
• Government “national” debts
• International, including Third World debt

The supply of money is a direct product of borrowing, and debt maintains this money in circulation. Modern debt is, in aggregate, quite unrepayable. Furthermore, difficulty is experienced in the repayment of individual debts in all four sectors.
The Drive Behind Globalisation, 1998, pp 3-4.

Money is created in each of these four areas….

How BANKS CREATE MONEY for PRIVATE & COMMERCIAL Needs

If a bank makes a loan, nothing is lent, for the simple reason that there is nothing of substance to lend. The bank makes what it terms a loan against the amount of money deposited with it at that time. This is all done with the utmost ease. The bank has simply to agree that a person may take out a loan of, say, £5,000. The person taking out the loan can then spend £5,000 and hey presto! £5,000 of new number-money has been created. No one with a bank account is sent a letter telling them that the money in their account is temporarily unavailable, because it has been lent to someone else. None of the original accounts in the bank has been touched, reduced or affected. Nobody else’s spending power has been reduced, but £5,000 of new spending power has been created; £5,000 of new number-money enters the economy at the stroke of a bank managers pen, but £5,000 of debt has also been created.

Thus, whoever takes out the loan will then make purchases and payments to other people, who will pay that new money into their bank accounts. Result: more bank deposits! As soon as the loan in the example above is spent, £5,000 will find its way into the bank account of a car dealer or DIY store; £5,000 of apparently new money. This is money which has supposedly been loaned but the banking system doesn’t distinguish this fact. It simply registers a new deposit, and regards it as new money. Total deposits in the banking system have therefore increased by £5,000. This is the boomerang effect of a bank loan by which a loan rapidly creates an equivalent amount of new bank deposits in the banking system. This effect was neatly summarised in a statement by Graham Towers, former Governor of the Central Bank of Canada…. “Each and every time a bank makes a loan, new bank credit is created – new deposits – brand new money.“

The new money will provide the banking system with the collateral for more lending. This is the bolstering effect of a bank loan. As the total money held by banks and building societies becomes swollen by loans returning as new deposits this provides them with the basis for further loans.

Perhaps the best description of this process of money creation was provided by H.D. Macleod : “When it is said that a great London joint stock bank has perhaps £50,000,000 of deposits, it is almost universally believed that it has £50,000,000 of actual money to lend out as it is erroneously called… It is a complete and utter delusion. These deposits are not deposits in cash at all, they are nothing but an enormous superstructure of credit.“
The Grip of Death, Jon Carpenter Publishing, 1998, pp. 11-13.
How BANKS CREATE MONEY for NATIONAL Needs

A country’s national debt is completely separate from, and additional to, the level of private and commercial debt directly associated with the money supply. The United Kingdom national debt in 1998 stands at approximately £380 billion. If the private and commercial debt of £780 billion and the national debt are added together, the total indebtedness associated with the UK financial system stands at some £1160 billion, which dwarfs the total money stock of £640 billion! How did this condition of overall negative equity come about? This excessive indebtedness – which is a blatant misrepresentation of the real state of economic wealth enjoyed by the nation – is a position shared by all the developed nations.

The national debt is actually composed of thousands of pieces of paper called stocks, bonds and treasury bills. These stocks and bills, known as gilt-edged securities, or gilts, are essentially elaborate forms of government IOU. These IOUs are issued because each year the government fails to collect enough in taxes to cover the costs of its public services and other spending – and it borrows money to cover this shortfall. All government budgets overshoot by many billions of pounds, dollars or deutschmarks annually. This leads to what is called the borrowing requirement for that budget year. A country’s national debt is therefore the total still outstanding on all past years’ borrowing requirements; thus the UK national debt consists of £380 billion of these gilt edged IOUs, in the form of outstanding treasury bills and stocks.

The method of issuing these IOUs and administering the national debt is quite simple. In order to obtain money to cover its annual spending shortfall, an appropriate number of government stocks and bills are drawn up by the Treasury. These are then sold in fact they are auctioned off in the money markets to the highest bidder. This is done throughout the year to meet the shortage of revenue as it arises, and the announcements, in the form of government advertisements, can be seen regularly in the financial press. These stocks and bills are bought because they promise to repay a larger sum of money at some future date, and are sold at a price that promises a good return to whoever buys them. They are usually denominated in considerable sums of £1,000 or more per bond and are bought by insurance companies, pension funds, banks and trust funds… anywhere that money accumulates as savings. By selling these stocks, the government obtains the additional money it needs for the public sector, making up the annual shortfall in what it can gather by taxation.

As these government stocks mature and become due for payment, the government has to find the money promised on those stocks, and pay it to the financial institutions that bought them. But governments are unable to pay this money owing on their past stock issues. Indeed, each government is confronted by the current year’s annual shortfall in taxation receipts. The whole reason for the government issuing stock in the first place was because it could not cover its expenditure through taxation, and this annual shortfall is constant. There is no way a government can pay the money it owes. How then can the government pay up on its maturing stock? It has underwritten promises it cannot keep. What happens is that the government obtains the money to meet the payments due on maturing national debt stocks by selling more government stock to the financial institutions – promising even more money in the future. The government draws up enough new stock to cover the repayments due on the old stock, sells this, and uses the money to pay off the old stock. Of course, when this new stock matures it too has to be paid off from the sale of yet more stock. The government manages to pay off the national debt, and not pay it, at one and the same time…

There is a pretence that this is not the true arrangement, since repayment of national debt stocks is actually accounted as coming from taxation, not from the sale of more bonds. But this repayment from taxation creates such a massive shortage in government revenues that can only be made up by the sale of more bonds so the net effect is that repayment is constantly deferred by the sale of further government bonds. This is what is referred to as interest on the national debt although it is not really interest in the conventional banking sense, but a constant rescheduling of a completely un-repayable debt. This deferral is not, however, the end of the story….

At the same time as deferring and re-mortgaging the existing level of national debt, the government has to sell yet more stock to cover the amount by which taxation falls below what is needed to support its public services. The national debt therefore escalates, increasing by the amount required to re-mortgage the past national debt, plus the shortfall in revenues to fund the public sector. In 1960, the UK national debt was £26 billion; by 1980 it had risen to £90 billion. The national debt in 1998 stands at nearly £380 billion, and is likely to reach a trillion pounds within the next 20-25 years. In America, the national debt in 1960 stood at $240 billion; by 1997 it had reached the level of $5,000 billion, or $5 trillion!

It should also be remembered that the money held by pension funds and insurance companies, or whoever buys the government stocks, is money that had to be borrowed into existence in the first place. In other words, by this process, governments borrow money which has already been borrowed into existence, and they thus create a second massive institutional debt in respect of money which already has a debt behind it! Adding the national debt to the total of private debt places a country and its people in a position of overall negative equity, owing far more on paper than the amount of money that exists in the economy.
The Grip of Death, pp. 96-98.

So, in summary: Governments draw up official treasury bonds, and these are auctioned on the money markets. The bonds are bought by both the banking and non-banking sectors. When the non-banking sector (pension and insurance funds etc) purchases the bonds, saved monies are recycled into the economy through government spending. When the banking sector buys government bonds, banks and lending institutions create credit: There is an increase in the money stock. This money is spent into the economy through government spending.
Creative Accountancy, 1998, p. 29.

How COINS and NOTES are CREATED

The significant point about coins and notes money created by the government is that this money is created debt-free, and spent into the economy by the government. This is a vital consideration, and it is therefore important to appreciate precisely how this injection of debt-free money is managed. Coins and notes are minted and printed by the government at no cost, apart from that of materials. Of course, governments have no particular need of these coins and notes; banks are the institutions requiring a supply of cash. The government therefore sells the coins and notes that it creates to banks, who pay by cheque, and the government acquires the face value of those coins and notes in number-money. The sum of money which the government obtains, and which is debt-free so far as the government is concerned, is then added to whatever taxation revenue has been raised to fund the public sector. Thus, coins and notes are created by the government, and an amount equivalent to the face value of those coins and notes is spent into the economy as a direct, debt-free input.
The Grip of Death, p. 14.
  How INTERNATIONAL or Third-World DEBT is CREATED

The financial position of even the wealthiest nations is one of acute financial pressure, with massive private and national debt, and budgetary difficulty dominating the economy. How can the wealthy nations, from a position of such perpetual monetary shortage and insolvency, lend money to the developing nations? The answer is that they do not. The money advanced to Third World nations is not money loaned from the wealthy nations. These sums consist almost entirely of monies that have been created, via the commercial banking mechanism, specifically for the purpose of the loan concerned. In other words, the same debt-based, banking process used to supply money to national economies is also employed for the creation and supply of funds to debtor nations.
Thus, these monies are not owed by debtor countries to the developed nations, but to private, commercial banks.

The WORLD BANK

Holding only a nominal reserve contributed by the wealthy members, the World Bank raises large quantities of money by drawing up bonds and selling these to commercial banks on the money markets of the world. Thus, the World Bank does not itself create the money it advances to Third World nations, but sells bonds to commercial banks which, in purchasing these bonds, create money for the purpose. The World Bank therefore functions along the lines of a country’s national debt. Just as with the government bonds of a country’s national debt, when a commercial bank makes a purchase of World Bank money-bonds, the commercial bank creates additional bank credit. In essence, the World Bank acts as broker for commercial banks, who are the actual money-creation agents and who hold World Bank bonds in lieu of monies they create in parallel with debts registered against Third World nations. Although these loans may be denominated in pounds, dollars or Francs, such loans advanced under the World Bank have no connection with respective national economies, and in no sense represent monies loaned by these nations, nor debts owed to them by developing nations. The debts are owed to private, commercial banks (via the World Bank) in respect of money they have created through the purchase of debt bonds.

The INTERNATIONAL MONETARY FUND

The IMF presents itself as a financial pool an international reserve of money, built up with contributions, known as quotas, from subscribing nations – that is, most nations of the world. However, credit creation accompanies almost every aspect of IMF funding….

Twenty-five percent of each nation’s IMF quota is paid in the form of gold, the remainder in the nations own currency. The 25% gold quota is the only component of IMF lending capacity that does not, in some way, constitute additional money created in parallel with debt.

The 75% of a nation’s quota payable in national currency is invariably funded by the government concerned through the sale of bonds, thus adding to that nation’s national debt. Therefore the IMF, whilst not itself creating credit, places monetary demands on member countries for quotas that can only be funded via each country’s national deficit. This involves the sale of government bonds to commercial banks, leading to money creation by those banks. This source of revenue forms the main fund of IMF monies available to developing nations.

Since the monetary demands on the IMF are constantly increasing, due to rising demand for Third World loans, the quota demands by the IMF have reached the point where (so-called) creditor nations such as America and Britain are reluctant to undertake yet more bond issues and further national debt to supply these funds. So, in recent years the IMF has begun to circumvent the restrictions of its overall quota. By co-operating directly with commercial banks to organise more substantial loans than it can fund from its own quota resources, the IMF administers loan packages made up in part from its own quotas and in part from commercial sources. For example, of the $56 billion loan advanced under the IMF to South Korea in the wake of the Asian crisis, only $20 billion was contributed by the Fund; the remaining $36 billion was arranged by direct co-operation with international commercial banks, which created money for the purpose.

The total funds of the IMF were substantially increased and its function and status as a money-creation agency clarified when, in 1979, the IMF instituted Special Drawing Rights (SDRs). These SDRs were created, and intended to serve, as an additional international currency. Although these SDRs are credited to each nations account with the IMF, if a nation borrows these SDRs (defined in dollars) it must repay this amount, or pay interest on the loan. Whilst SDRs are described as amounts credited to a nation, no money or credit of any kind is put into nations accounts. SDRs are actually a credit-facility just like a bank overdraft if they are borrowed, they must be repaid. Thus, the IMF is now creating and issuing money in the form of a new international currency, created in parallel with debt, under a system essentially the same as that of a bank… the IMF reserve being the original pool of quota funds.

In summary, of the $2,200 billion currently outstanding as Third World or developing country debt, the vast majority represents money created by commercial banks in parallel with debt. In no sense do the loans advanced by the World Bank and IMF constitute monies owed to the creditor nations of the World Bank and IMF. The World Bank co-operates directly with commercial banks in the creation and supply of money in parallel with debt. The IMF also negotiates directly with commercial banks to arrange combined IMF/commercial loan packages.

As for those sums loaned by the IMF from the total quotas supplied by member nations, these sums also do not constitute monies owed to ‘creditor’ nations. The monies subscribed as quotas were initially created by commercial banks through the agency of national debts. Therefore both the contributing nation and the borrowing Third World nation carry a burden of debt associated with these sums. Both quotas and loans are owed, ultimately, to commercial banks.
The Invalidity of Third World Debt, 1998, pp.14-17.

(Also see article here for how Third World debt can be cancelled.)