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Citizens Electoral Council of Australia

Media Release  Thursday, 8 January 2015

Craig Isherwood‚ National Secretary
PO Box 376‚ COBURG‚ VIC 3058
Phone: 1800 636 432
Email: cec@cecaust.com.au
Website: http://cec.cecaust.com.au
 

New debt crisis set to detonate—Glass-Steagall needed now!

World markets are being swept by the foreshocks of a looming crash of unpayable debts, originating in the Eurozone, the collapsing oil price, and plunging bank stocks across Europe and the United States.

When it became clear last month that Greece was going to a 25 January election over renegotiating its debt, EIR Founding Editor Lyndon LaRouche warned that the new debt crisis would not start after the election, but immediately in early January: the prospect of a debt restructuring, and possible Euro-exit, being enacted by a new Greek government could itself be enough to spark a panic. Claims from German government sources and various think tanks that Europe could survive Greece leaving the euro system, and that it would not have “systemic” effects, are laughable.

The collapse of world oil prices, set off by joint Anglo-Saudi action to attack Russia—which is dependent on income from oil—threatens the world’s largest banks as well, mired as they are in commodities speculation.Citigroup, JPMorgan Chase, Morgan Stanley, and Goldman Sachs are the most exposed to oil/gas sector debt—which has been ballooning by an average $100 billion in net new debt per year for a decade—and to $20 trillion in risky commodity derivatives exposure.

Take Citigroup, for example: its global revenue from commodities speculation went from $215 million in 2013 to $485 million in 2014 (now turning into big losses on oil derivatives, and a potential $1 billion loss on metals speculation through Hong Kong). During the last two months of 2014 Citigroup bought the entire commodities trading operations of both Deutsche Bank and Credit Suisse, and its derivatives exposure increased by an astonishing $9 trillion in the third quarter of 2014 alone, making it the Wall Street bank most exposed to derivatives, to the tune of $70.5 trillion.

All this is the end phase of the decades-long build-up of a $1 quadrillion-plus speculative bubble, parasitically inflated at the expense of productive investment, which began self-destructing in 2007-08 with the GFC. The unprecedented money-printing binge known as Quantitative Easing (QE), intended to alleviate the crisis, only made it worse: the bulk of the funds further inflated the speculative bubble and virtually none went to the real economy; in fact bank lending declined, while the debts of the world’s largest banks grew by around 40 percent.

Now, calls for still more QE have been met by warnings that it may just make matters worse. Even establishment mouthpiece Ambrose Evans-Pritchard warned in the 2 January Daily Telegraph that it may be too late for QE, noting that Italy, Spain, and Portugal this last week saw yields on five year bonds fall to between 0.13 and 0.32 percent, and German state bonds were selling at negative rates. “Nothing like this has been seen in European history since the 14th century, after the depletion of silver mines set off a slow monetary contraction, followed by Edward III’s default on debts to Italian banks and the Black Death soon after, compounding a deflationary collapse.”

Wall Street prepares

Seeing signs that the bubble would soon detonate, in mid-December Citigroup, JPMorgan Chase and the other apex predators of Wall Street got their paid hacks in the US Congress to repeal a banking regulation (the one useful part of the Dodd-Frank Act) that forbade banks which hold government-insured deposits from gambling in derivatives. Under pressure from both President Obama and big bank CEOs, Congress agreed to a “poison pill” slipped into a government funding bill, to make it legal for the big banks to put their exposure to commodities derivatives and OTC credit derivatives into their commercial bank units that hold deposits. There, this exposure to $20-25 trillion of the riskiest derivatives around would enjoy US government insurance when it implodes—another taxpayer bailout.

Clearly, restoring full Glass-Steagall regulations is the only plausible solution. Glass-Steagall bans banks from holding both commercial and speculative instruments under the same roof, forcing them to deal in only one or the other, and only providing government protection for commercial (deposit-taking) banks. Such legislation is required now, ahead of the oncoming debt crisis, in order to prevent massive losses to average householders, on a much bigger scale than the GFC.

Join the CEC to force the Australian parliament to pass Glass-Steagall!

The CEC is leading the campaign for the Australian parliament to adopt Glass-Steagall. Click here for a free copy of our Glass-Steagall Now! pamphlet, to join that campaign.

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All electoral content is authorised by National Secretary, Craig Isherwood, 595 Sydney Rd, Coburg VIC 3058.