One needs to look no further than Europe and its ongoing (no it isn’t over) debt crisis. The factoids have been around for a while now. Italy’s need to borrow roughly 300 billion Euros just to service its debt in 2012. The absolute failure of Greece’s austerity programs. And to top it off, the installation of shady leaders in both of these countries whose intentions should be questioned from the outset of their tenure simply because they are clearly establishment technocrats. Many of you have soundly criticized me for being ‘extremist’ because I suggested several times last year that what we’re actually seeing are economic coup d’ etats. What else can it be called when an organization enables a country to get into trouble with debt, then offers its own solution (more debt), then installs one of its operators as the country’s leader to make sure the solution is carried out? How would you feel if you had credit card debt that exceeded your yearly income and your friendly bank rep called you and said they’d bail you out by giving you even more credit, then sent a rep to live with you and control your budget when you balked or didn’t make enough spending cuts? Sometimes complicated things make sense when put in simple terms and that is exactly what is going on here.

Austerity is a cruel joke, and the national riots, strikes, and other discord that have resulted from attempts at austerity must be given our attention because it is all coming here. There is no point defined in time when a debt crisis will blossom. Many will argue that America is immune from a Euro-style debt crisis because we have a federal reserve that is willing to buy every single bond if it needs to. They will tell you we are immune because our currency is the ‘gold’ standard (sarcasm mine) of all the world currencies, and it is backed by the full faith and credit of the USGovt. If you’re still able to read this with a straight face, then you know what all this means. It is a paper promise based on an even shakier perception of ‘trust’ in an institution that deserves none. While it is true that we may not get the social anxiety and discord because of austerity, we will certainly get it because of the total loss of confidence in a currency that really died more than 40 years ago.  In the worst case, we’ll get both.

As we move into 2012, the European mess has been tabled for the past month so as not to interfere with the traditions of overconsumption and debt accumulation that normally accompany Thanksgiving through the New Year. I find it sadly ironic that the same Bible that speaks of the birth of Christ also speaks of the consequences of debt and the accumulation thereof. Yet each Christmas we spend well beyond our means not to shower gifts upon Christ as was done in the Bible, but on ourselves and then spend the better part of several months trying to pay it all off. Some never do. This might seem irrelevant, but when you think about it, this is precisely what we’ve been doing on a national scale for decades now. Borrow and spend to fund the current ‘party’, and then push payments well into the future. As Europe is just beginning to find out, the ‘buy now, pay later’ paradigm has become a dog that won’t hunt anymore.

A German Solution

The biggest story so far of 2012 is the negative yields on German debt. Monday’s 3.9 billion Euro auction sported an average yield of -0.0122% .We had a similar situation here in the US in the fall of 2010 when negative yields were achieved on 3-month treasury bills for a short period of time. Obviously, these are not novice investors that are making the decision to pay a government for the privilege of lending it money. These are financial institutions: banks, brokerages, and hedge funds that are conducting these types of transactions. They’re willing to take zero interest, and in fact, pay a small premium for the ability to park their money somewhere they feel is ‘safe’. What is interesting is the fact that anyone considers Germany to be safe. Germany is essentially the Daddy Warbucks of Europe, spreading around the hard work and savings of the German people to the rest of Europe, which can easily be described as the biggest welfare state in the history of mankind. Any sane person would at this point be questioning the continued willingness (forget for a second the ability) of Germany to continue in its role as the piggy bank that never runs dry

So scared are professional investors that they’re willing to pay someone else for the privilege of lending money to them. I’ve heard several analysts comment that these negative yield auctions are merely a social engineering tool that is being used to condition the rest of us to accept near-zero interest rates ad infinitum. This may well be accurate, but just in case it isn’t, we need to consider the naiveté of even pro investors in terms of selecting ‘riskless’ assets. While it is true that in absolute terms there is no such thing – as we’re now learning the hard way, there are certainly better means of lowering your beta than just piling money into a country that is filling its role on borrowed time. Yet the same people who dove into subzero rate auctions in Europe are the same ones who dove into our subzero auctions just over a year ago. Such folly underscores the need for the re-emergence of hard currencies; meaning those backed by gold and/or silver. Resource-backed currencies such as that of Canada aren’t bad, but their value is still at the whim of policymakers, not nailed down to underlying wealth and the ability to consistently balance payments in the long run.

The willingness and even zeal of investors to accept negative rates is a ringing endorsement of the need for a new gold standard.  I am quite sure that it would end up being perverted over time as all prior ‘standards’ have, but in a time of extreme crisis such as where are currently situated, having a bit of financial bedrock certainly wouldn’t be a bad thing. It certainly beats the quicksand we find ourselves trying to navigate today.

The Second Biggest Story of 2012

Buried under the headlines of Presidential politics and ‘who said what about whom today’ is the fact that the current administration has formally requested that Congress increase the debt ceiling by another $1.2 Trillion. I say the following only to point out the acceleration of the debt cycle in the past several years, not to pin the blame on any politician; they’re all responsible. In early 2009, the national debt was roughly $10.6 trillion. The most recent request to take the limit to over $16 Trillion will last the government less than another year if Congressional Budget Office projections prove to be accurate. Our actual debt just passed 100% of GDP. Exhausting this new increase will push it well past the breaking point of the Eurozone. Does anyone really think there will be no consequences for this flagrantly irresponsible fiscal behavior?

While there is no way to pin a date on when the current Keynesian debt paradigm will end, what we can be 100% sure of is that it will end. Will it be at 100.3% debt/GDP or will it be 200.3%? We don’t know for sure, but at some point, the weight of the mistakes of the past will be too much for the future to bear and it will all come crashing down. The system is too big to fail, yet at the same time it is already too big to save. The actions of policymakers to date give little reason for optimism as much of the emphasis is on kicking the can down the road and pushing the inevitable far enough into the future so that it will be someone else’s problem.  What is particularly disturbing is that most of the election year rhetoric focuses on attacks rather than on solutions; so much that you can almost hear the fiddles playing as Rome burns.

chief Christine Lagarde warned Tuesday that the world economy is at a “very dangerous juncture,” speaking of the potential impact on poorer nations during her first visit to Africaas head of the fund.

The International Monetary Fund managing director spoke of a crisis of confidence with high unemployment and slowing global growth.

“Currently the world economy stands at a very dangerous juncture,” Lagarde told a roundtable on Africa’s economic future in the Nigerian city of Lagos.

She said the IMF’s revised global growth forecast expected in January looked to be lower than the previous one in September, which was four percent, already down from June’s outlook.

“And what’s more, there are downside risks on the horizon that are really threatening the recovery process that had started” after the 2008-09 global financial crisis, she said.

The IMF has said Europe’s worsening economy and financial market turmoil meant it will revise downwards its predictions for global growth contained in its World Economic Outlook report published three months ago.

Early this month, the UN cut its 2012 world growth forecast to 2.6 percent from 3.6 percent, warning that the global economy is “teetering on the brink of a major downturn”.

Lagarde said on Monday during meetings with Nigerian officials that the European debt crisis posed a risk for “all economies of the world”.

The eurozone debt crisis eased slightly Tuesday with an agreement on extra funds for the IMF, strong data from Germany and a good bond sale in Spain which boosted stocks and the euro.

The IMF also said Tuesday that bailed-out Ireland was on track to complete its budget turnaround after the fund completed a fourth review.

But the broader deal on funds for the IMF — aimed at allowing the crisis lender to come to the aid of European nations caught up in the debt crisis — fell short of targets, with Britain again out of line with its EU neighbours.

Lagarde did not comment directly on the new pledges of funds from European nations for the IMF, nor did she respond to a question on Britain’s stance on the issue.

She said during the roundtable in Lagos that European leaders “have made some very strong decisions” but added later that “it’s going to boil down to implementation”.

Lagarde spoke of the impact on trade and finance, among other areas, that could cause trouble across the globe, and called on wealthy nations to enact policies that would send clear positive signals to investors and consumers.

“Those problems seem a world away but they are not a world away because what we see very clearly is channels of contagion between those advanced economies and the rest of the world,” she told the audience in Nigeria.

She earlier held talks with Nigerian President Goodluck Jonathan after meeting Finance Minister Ngozi Okonjo-Iweala, a respected former World Bank managing director who also participated in Tuesday’s roundtable.

Nigeria has long been held back by corruption and mismanagement despite its vast oil wealth.

Most of its population lives on less than $2 per day and electricity blackouts occur daily, while the country’s mainly Muslim north has been hit by scores of deadly attacks attributed to Islamist group Boko Haram.

The government is seeking to enact reforms, including a deeply controversial measure which would lead to an increase in petrol prices, to allow the country to invest more in its badly neglected infrastructure.

Lagarde later left Nigeria, Africa’s most populous nation and largest oil producer, and travelled to neighbouring Niger, one of the world’s poorest countries and heavily dependent on trade with Europe, particularly France.

On Wednesday she was due to meet President Mahamadou Issoufou at 1100 GMT and deliver a speech on economic challenges amid the global uncertainty at 1500 GMT before the National Assembly.

Lagarde is also expected to visit South Africa, the economic powerhouse of sub-Saharan Africa, in the coming weeks.

One of the traps all analysts fall into from time to time is their inability to see the forest through the trees. We are all guilty of this from time to time, and those who would deny this simple reality only set themselves up to miss important changes in the paradigms in which they operate.  Perhaps the most famous example of this happened in the life and times of Christopher Columbus. We’re sure you recall the mental model of that time; that the Earth was flat. Many very wise people in Columbus’ day felt he was going to sail the Nina, the Pinta, and the Santa Maria right off the edge of the Earth. And there are many other classic examples as well.

Today, we might call such a condition extreme dogmatism, which is essentially the clinging to a belief or set of beliefs despite overwhelming evidence to the contrary. These days we find the same type of dogmatism in our world. The belief that we can spend our way to prosperity is one. The belief that we can do so with borrowed money is another. However, even within the knowledge that both of these positions are completely reliant on fantasy, there is the danger to just pin our trust on the opposite side of the argument without really taking the time to consider what exactly we are espousing.

So one of the questions we obviously need to ask ourselves constantly is ‘what are we missing here?’ In looking at the current debt situation, we tend to focus on the ‘national debt’ and its continuing rise, but in truth, the national debt or public debt as it is also called is only a very small part of the total picture. The truth is it goes way beyond that. We have focused several times on consumer debt, and even that is only another small portion of the overall picture. Back in 2008, leverage was the word of the day and everyone was wrapped up in talking about which bank was leveraged the most. Guesstimates of 100:1 were flying around with regard to certain of the biggies that eventually would require an adrenaline shot to the heart in the form of the commitment of years of future GDP just to keep them alive.

The truth is that the debt problem is systemic. For the purposes of this paper, we are not going to even look at the future in terms of unfunded liabilities. Most understand that bleak picture fairly well. Instead we’re going to look at current information as reported by the (non)USFed and USTreasury. And when we’re done, we’re going to float the all-important question. Sorry, but you’ll need to read the rest of the paper to find out what that is. The balance of this essay is going to be from email conversations between Greg and Andy on this issue. The reaches were far and wide, but hopefully this will help readers to expand their thinking even further. Those that recognize the problems are becoming greater in number on a daily basis. Our goal is to enhance that understanding and hopefully to motivate people to action in their own lives where real reforms can take place. Starting at the top and working our way down has proven to be almost totally ineffective, and frustrating on top of it. Many people who have gone to ‘End the Fed’ rallies have come home euphoric, but that energy has dissipated quickly as they’ve seen the bankers just wave it all off and continue to sell our children and grandchildren into…. yes, debt slavery. So a bottom up fix it must be. And if you’re in a good spot, chances are you know a lot of people who aren’t. Encourage them to throw down the proverbial chains and dare to be free.

Here are some of the quotes from our email discussions. We only ask that you use/distribute this to enhance understanding of the reality of the current situation.

[Gregory Olson] “I’m not an economist, and in a way I’m glad I’m not.  I can look at the numbers with fresh open views without being forced into pre-defined boxes learned in college.  For example, after looking at the GDP, mortgages, and interest rates over 40 years, I don’t believe the interest rates have anything to do with the economy, but the Federal Reserve sets them for their own agendas.  The Fed slipped that fact out by their declaring the rates will not be raised for two more years.  The statement proves they are in complete control of the rates, not the markets.  Otherwise, they would not have said it so confidently.   In fact, if you look at the prime rate for the last 40 years, it changes direction like clockwork on average about every 5.5 years.  This leads one to believe on the surface that there are “cycles” in the economy, when the GDP is not affected significantly by the changes. 

Over the summer when I saw this pattern (or should I say no causal relationship), I pegged that the next year of change of the interest rates is about 2013.  One month later, sure enough, that is the exact time they are going to change the rates.  Basically, it means the Fed is full of BS, and they have deliberately lowered the rates, added debt, and then they will claim the market is raising the rates, when indeed, they are planning on doing it themselves to bankrupt the United States and set up an one world government.  The data does not support the Keynesian views at all in terms of the impact of inflation and interest rates.  Indeed, though it can’t be proven, I believe the spike in rates in 1970 was the Fed’s way to get us conditioned to ridiculously high interest rates on credit cards, which were being introduced into the economy at that time.  The prime rate decreases in the 1980s, but the credit card rates did not. 

The strategy was extremely successful.  I believe this is the correct answer based on the law of supply and demand.  There is no “economic law” when it comes to a fiat system, because the money supply is unlimited, removing the natural laws of the universe.  The Fed actually knows how the “real laws” work, but they lie about it and use the system to steal and cheat, profiting from the deception.  They deliberately lie, so they can control the rate.  So they (the Fed) feed the university economists and Ph.Ds junk ideas, based on their man-made system, claiming it follows the universal law of supply and demand, when it does not. 

So I’m glad I’m not an economist, and I can look at the data and think out of the box like this.  The “stagnation” idiot ideas of the 70s to explain the “inflation” that didn’t fit into the Keynesian models is simply a way to force fit an explanation that hides the more accurately and simple explanation, which is, the Fed raises and lowers the interest rate at its own bidding, to secretly promote their own hidden agendas. 

If I’m wrong about the interest rates, then prove it from the data over 50 years to me; I’m all ears. The data does not support a free market economy at all!  It supports a manipulated one.   The bottom line is the fiat system does not follow demand and supply laws because the money supply is unlimited, circumventing natural law. 

We’ve been duped.  That’s what I’ve concluded so far, among other things.

At first I thought everyone should know about this, or that the government should take control of the rate itself to prevent it from rising in two years according to the Federal Reserves’ hidden strategy.  (They will raise it 2 or 3 points to bankrupt the US and say it’s market forces driving it, doing the famous double-talk).  Then I realized the Fed has us over a barrel.  If we now let that idea gain traction, the credibility of the United States will be shot, and the whole globe will blame us and our greedy Fed for the world’s financial problems, and nobody will want our dollars.  So down goes the United States by telling the truth.

On the other hand, maybe telling the truth is better, and we should take the world’s rejection and transition slowly to a better system after being thrown into bankruptcy and poverty.”

[Andy Sutton] “I agree 100% there; the Fed has clearly used interest rates and the money supply to manipulate the economy. The irony is that the Fed was allegedly created to eliminate the prior boom-bust cycles, bank panics, and other financial and economic dislocations. It has done nothing but take those cycles and amplify them by an order of magnitude. Then when it all goes bad, the consumer is blamed – aka the ‘roaring 20s’ and the housing ‘crisis’. Sure, consumers signed the dotted line in both instances and so they’re ultimately responsible, but there was a good deal of misinformation propagated by the banking syndicate and the media to entice people to make bad decisions. Terms weren’t properly disclosed, nor were conflicts of interest. There was little due diligence on either part, but the bankers knew something the consumers didn’t. They knew (because of history) that when push came to shove that they would be made whole – at the consumer’s expense. Want proof? Just take a look at the government’s actions with regard to the scads of bank failures back in the early 1800s. Every time the banks over issued scrip and precipitated a run, the government bailed them out by allowing them to default rather than forcing them to come up with the silver that was owed to the depositors. Save Andrew Jackson, every instance of bad behavior resulted in a ‘bailout’. This is common knowledge in banking circles, but not consumer circles. A classic case of imperfect information. Would consumers have cared? I’ll give you two guesses, but you’ll only need one. So there is plenty of blame to go around on this one.

As to your comments about being an ‘economist’, I have been called one many times, but it is a title/label I really bristle at to be honest, mostly because of guilt by association. I reject all of Keynesianism out of hand, but that is a subtlety that many people don’t pick up on because all they know is Keynesianism. It is the prevailing thought process taught at all levels of education, with very few exceptions.

I think a final point here is that this is not ‘our’ Fed. That institution is owned by and large by 12 large banks that have no loyalty to any flag or other sovereign power including God Almighty. I have said this before, that they are men without a country, but seek to conquer all countries. I was having a conversation with a client yesterday and he mentioned a quote and I can’t attribute it to the author, but it is a very good one – Give a man a gun and he can rob a bank, but give a man a bank and he can rob the world.”

[Gregory Olson] “ I appreciate your attention to this important topic.  Bernanke let the cat out of the bag by his declaration of holding interest rates stable for two years.  I have vacillated over the solution of turning the setting of the rate to the government, rather than to a private banking cartel, wondering if it’s too late or not.  Your thoughts will be helpful to hear.

Indeed, these people are not stupid, and Bernanke’s comment appears to be a threat of sorts, in an extremely subtle manner, to those who are paying attention.  Those who want the United States to go down must be celebrating right now. He is communicating congratulations to those who are on his side. Their victory is only two or three years away. That is the message to them. After working on the destruction of the freedom of the United States for more than one hundred years, they no doubt are delighted to see the end in sight.”

[Andy Sutton] “That said, the interest rate conundrum is an interesting one because for a long time, there were two rate markets really – the manipulated short end (Fed Funds / Discount Rate) and the ‘free market’ long end from about one year out. So in theory, the USFed could drive the short end, but not the long end. I have opined and others have demonstrated that the USFed has been messing with the long end for a while now according to its own agenda. Those in charge certainly couldn’t give a rip about the US economy beyond its ability to further enrich them.

This said, I am not sure there is much to be gained by debating out the minutia of economic manipulations. We know the basic principles. Nobody borrows their way to prosperity, etc. There is no free lunch. These are facts. We can base what we do around them and leave the rest to the quants. I enjoy playing with the numbers just to try to understand a little deeper what is really going on and I suspect you’re the same way. In either case, if you know the trend, it is your friend. I think the biggest problem with returning monetary policy to the Congress at this point is that those people are also bought and paid for by the same people that own Bernanke, et al. So it really doesn’t matter. Congress certainly isn’t equipped to deal with this complex a monetary environment and that was done intentionally in my opinion to make it harder to dissolve the banking cartel.

As evidence of the inability of Congress to manage a complex environment, I’ll present several policy gaffes, namely the stimulus, which just prolonged the inevitable, the TARP mess, which further unequally yoked us to this corrupt system, and a complete failure to bring ANYONE to justice over the 2008 mess, and more recently the MF Global blowup. Although to be fair, the subpoenas just started flying and the denials by Corzine and others have only begun. I have zero confidence in Congress, given the fact that they allow Bernanke to testify on a regular basis and blatantly lie, refuse to provide information, and obfuscate without nary a word of protest. Congress would have a hard time managing a lemonade stand in my view, let alone interest rates. The only real answer there is to return rates to an unencumbered free market and take what comes with it. It certainly can’t be worse than what we’re dealing with now.”

The US Debt Mix

[Gregory Olson] The following numbers and graphs show the root cause of the financial problems of the US economy today and how we got there.  The Federal Reserve, or whoever had responsibility for the debt mix of the United States from 1946 to 2008, decided to reduce the % of government debt in favor of rapidly increasing debts in the financial sector, mortgages, the foreign sector, and the household sector, while simultaneously decreasing the business operational debt.  Only the business sector produces real wealth in the economy.   It is clear the economy has been manipulated by man to create cash from nothing, producing multiple bubbles in the economy as the fabricated cash changed into different forms over time.  The business sector cannot sustain the debt trends, and thereof, the economy has hit its financial limits.  Trading financial paper and flipping a home mortgage 4 times in 30 years does not create real wealth.  Rather, it inflates home prices. 

Please note, rather than the banks losing interest income due to decreasing debt after 2008 in mortgages, the household sector, and the financial sector, they have opted to increase government borrowing, swapping one debt for another one.  Otherwise, the total debt would actually have decreased after 2007.  Credit cards and mortgages decreased, for example.  The banks are not motivated to allow the total debt to decrease.  Thus, in spite of the economic troubles of the United States of America, the banks still have managed to keep the debt growing to sustain their income.   Tilt.  Game over.

[Andy Sutton] Whether people want to admit it or not, the above chart shows a definite separation between debt and GDP in the 1970s, starting around 1974. Most conventional logic would tie this divergence into the abandonment of the gold standard, and for the most part, that is correct. It is very applicable, especially when considering the discipline that even the pseudo-gold standard imposed on the system at that point in time. Our external debts were still settled in gold prior to August 15, 1971. But there is likely a lot more at work here, and that is the agenda of the international bankers and their policy tool, the USFed.  When considering the big picture, it becomes fairly obvious that the gold really didn’t go to other countries per se, but rather into the pockets and vaults of the banking syndicate. They knew all along that eventually the US would run out of gold to settle foreign trade deficits. It wasn’t an accident, like most conventional sources of news and history books will try to assert. This was all part of the agenda, from the very beginning. It reeks of incrementalism, which is the signature of most subversive movements in history.

[Andy Sutton] The above chart is really a paradigm buster, when you think of all the emphasis that has been placed on the last several years and the massive ramp-up of America’s public debt. That ramping up can be seen clearly in the chart, but the debt profile has become much more even, with all areas of the system coming under equal pressure and more and more parties ‘making payments’ on various expenditures. This is a fiat money system’s dream come true: everyone making payments. These payments require real labor and other inputs to pay back something that was created from nothing.

The $56 Trillion Question

With all of this information out there, the obvious question becomes this: who exactly is all of this ‘money’ owed to anyway? The quick answer would be the banks, but if you look at them, they’re in hoc too. Sure, Ma and Pa Kettle owe the commercial banking side of BofA $150,000 for the mortgage, and another $25,000 in credit cards, while the investment banking side of BofA owes untold billions to who? Who exactly is the counterparty to all this debt? Who exactly are we committing at present count roughly 4 years of aggregate economic output to pay off? This debt is claiming our country, our families, our kids, and our way of life and we don’t feel that we’re overstating this in the least. Since we can’t even effectively answer this question in a specific manner, wouldn’t it seem prudent to rid yourself of as much of the ‘making payments’ mentality as humanly possible?

Greg Olson is the CEO of GRO Enterprises; a company devoted to helping people spend money at optimal levels, removing all debts in 12 years or less, including the home mortgage.  His company develops software solutions to unleash the power of spending money.  He has an Accounting degree and a MBA and has worked in finance for companies such IBM, CBS, Fox, and Paramount before changing his career focus to personal finances.

As the first former U.S. senator to be subpoenaed by Congress in more than a century, Jon Corzine testified Thursday about the “last chaotic days” of MF Global, the trading firm that declared bankruptcy under his watch.

Corzine said he was “stunned” to learn that the firm could not locate hundreds of millions of dollars in client money in the days before the firm’s collapse, and said he had no idea where the money had gone.

Corzine was chief executive of MF Global when the firm filed for bankruptcy protection Oct. 31. He resigned from his post five days later.

“I simply do not know where the money is or why the accounts have not been reconciled to date,” he said in testimony before the House Agriculture Committee.

Client money should have been held in segregated accounts separate from those involving the firms’ own trading activity. The disappearance of the money has led to speculation that MF Global used customer funds to shore up risky bets on European sovereign debt.

“I never intended to break any rules,” Corzine said when asked whether he had ever authorized a transfer of customer funds from segregated accounts.

“There were an extraordinary number of transactions during MF Global’s last few days, and I do not know, for example, whether there were operational errors at MF Global or elsewhere, or whether banks and counterparties have held onto funds that should rightfully have been returned to MF Global,” Corzine said.

Corzine said he “strongly advocated” the trading strategy that led MF Global to accumulate more than $6 billion in holdings in European sovereign debt. But he said the company’s sovereign debt positions were not the cause of the firm’s collapse.

The sovereign debt was “a concern to the marketplace, make no mistake about that,” Corzine said. But he said customers’ confidence in the firm also was rattled by ratings downgrades and a failure on the part of MF Global management to communicate the reasons for the company’s struggles.

“It often got conflated with Euro-sovereign positions, which there actually were no losses in,” he said.

Here in America, we are truly whistling past the graveyard. The financial press cannot stumble over itself enough to constantly remind us how extravagantly we spent money during this past week. The American shopper is back. Really? I still point at various consumer confidence polls, personal income numbers, and general indebtedness and wonder where the juice is coming from for all this consumer spending.

Manufactured Metrics?

One thing that has finally begun to see the light of day is the fact that many of our economic metrics have been and are being manipulated for the sake of public opinion. I’ve covered retail sales, labor market statistics, and GDP ad nauseum in these pages. Well, yesterday zerohedge made a posting showing three more important metrics – and the chicanery becomes even more obvious. In each case (ADP Employment Report, Chicago PMI, and Pending Home Sales), the reported number came in at a minimum of 4 standard deviations above the consensus. What does this mean?

Various media outlets, like Bloomberg, solicit predictions from economists and economic research firms on various economic data series. They take all the estimates and come up with a consensus forecast, which is essentially the average of the estimates they receive. They show the consensus and the range. Then when the actual number is reported, they show that as well. So in the series listed above economists were either off by 4SD or else something is seriously wrong. I think we all understand that the forecasts are never going to be precise on any regular basis, but to miss by 4SD? You could almost blindfold the forecasters and have them throw darts at a wall and get closer than this.

To drive home the significance of these events, occurrences that are 4 standard deviations from the mean are generally considered ‘outliers’. They are spurious type events that really have no basis in the underlying process. Many times such observations are thrown out depending on the type of study being done. So to have three of them occur within a relatively short time window is a rather big deal. Big enough of a deal that it should at least be a page 2 type news event since there is something obviously wrong with either the forecasting methodology, the reporting methodology – or both

The obvious conclusion here – and zerohedge pointed this out very eloquently – is that we’re being fed a line of baloney and that these ‘positive’ numbers are being reported to keep up the illusion that the economy is recovering when in fact it is not. So, all this said, what about the cyber Monday blitz? I can tell you this much.  I have contacts at both UPS and Fedex and they are seeing very high shipping volume right now. People are in fact spending an awful lot of money. At this point, it appears as though a much smaller proportion of the country is doing the majority of the spending. We’ll see how much of this was on credit in the months to come.  It certainly doesn’t appear as though most people are even bothered by what is going on in the Eurozone even though it affects us directly. They seem either less bothered or less willing to admit that the movie now playing in Europe is coming to their neighborhood theater – and sooner than they’d like.

The Great Liquidity Pump – Take 12

One of the most important issues of all with regard to the Eurozone and its systemic crisis is the prognosis for economic growth. One might wonder why that even matters at this point since the Euro is on the ropes, banks from Paris to Rome to Budapest are in trouble, and nobody seems to have answers. Make no mistake about this – the Eurozone cannot be bailed out; at least not without causing a dislocation of equal magnitude somewhere else. There have been several mainstream economists making the TV circuit asserting that the US could bailout Europe. Really? Many of these same people will use the IMF/World Bank model to make the case for the bailout of the EU. Not going to happen. Not without dislocations. What did take place is that the USFed (among others) stepped in and said it would provide what are essentially unlimited ‘loans’ to European banks to stave off the crisis.

Now we’re back to the coup situation I discussed last time. Is it becoming more clear how this all works? By virtually ignoring the prospects for economic growth in the Eurozone, the central bankers are going to foist a tab on the people of those countries that they will be hard pressed to get out from under for generations – if ever. Economic growth is the one way that a country can pay off its debts. Growth, coupled with sound fiscal behavior, creates surpluses and those surpluses can be used to pay down debt. No economic growth means no paying down debt. The IMF is forecasting that the Eurozone will re-enter recession in 2012. I will assert here that the EU never left the recession that started back in late 2007. I’ve showed the data for the US; and the EU has clearly followed suit.

Much of the way the crisis is being handled in Europe is along the same lines as what was done here in America back in 2008. Focus was placed largely on saving banks whose bets had gone terribly wrong. Only cursory attention was given to the macroeconomic picture and you can easily see what happened here. We now have fat banks, bursting with ‘profits’ thanks to bailouts and accounting rule changes (FASB Rule 157, etc) while we have an economy that is still churning out foreclosed homes faster than a broken widget machine. Trading revenue is up at the big wire houses while our kids are paying over 10% on student loans and Mr. and Mrs. America are shelling out an average of 14% on credit card debt. This is precisely what is going to happen in Europe. And to make matters worse, the people of those countries are going to be on the hook for the bill, much in the same way we are on the hook for 2008.

And oddly enough, the same pledges were made back on September 16 of this year. Quoting a Bloomberg News article:

“The Bank of England joined the US Federal Reserve, the European Central Bank, the Swiss National Bank and the Bank of Japan on Thursday to announce that they would flood money markets with dollars over the coming months.

The move, on the third anniversary of the collapse of the US investment bank Lehman Brothers, sent shares soaring in banks heavily exposed to debt default by Greece and the other struggling members of the 17-nation Eurozone. The euro, which had been falling in recent days, rebounded, rising roughly 1% in European trading on Thursday.

Speaking in Washington, Christine Lagarde, the president of the International Monetary Fund, said: “They [the banks] are getting together and acting together. To me, that is the most important message.”

Perhaps the biggest untold byline of yesterday’s aberrant policy decision by central bankers was to point out that first it was illegal for our fed to do what it did. It has two mandates: price stability and maximum employment. Printing untold trillions to bail out banks in the Eurozone hardly seems like a recipe to ensure price stability to me. And they haven’t exactly done a banner job on the employment side either. So when government figures and policy analysts say that no taxpayer monies are being used, they are only partially correct. In fact it is much worse than if they had simply given over a year’s tax receipts to the ECB for the purposes of stemming the tide.

It is not so much your money that has been pledged to this completely unworthy endeavor, rather it is your future labor. You will work harder, longer, and enjoy less fruits of that labor all in the name of preserving the status quo of a financial system that will only be back for another round of feeding once the shock from these events has worn off.

BRUSSELS (AP) – Under pressure to deliver shock treatment to the ailing euro, European finance ministers failed to come up with a plan for European countries to spend within their means. Such a plan is needed before Europe’s central bank and the International Monetary Fund consider stepping in to stem an escalating threat to the global economy.

The ministers delayed action on major financial issues – such as the concept of a closer fiscal union that would guarantee more budgetary discipline – until their bosses meet next week in Brussels.

Stock markets fell Wednesday as a top EU official conceded that the future of the euro now rests heavily on the meeting of European heads of state on Dec. 9. Stock markets had risen this week on hopes that intense bond market pressure would finally force the eurozone into quicker and more robust action.

“We are now entering the critical period of 10 days to complete and conclude the crisis response of the European Union,” EU Monetary Affairs Commissioner Olli Rehn said, adding: “There is no one single silver bullet that will get us out of this crisis.”

At a meeting Tuesday night, finance ministers for the 17 countries that use the euro handed Greece a promised euro8 billion ($10.7 billion) rescue loan to fend off its immediate cash crisis and promised to increase the firepower of a fund to help bail out ailing eurozone countries.

But they failed to increase the firepower of a European bailout fund to euro1 trillion ($1.3 trillion), as they had hoped to do.

“It will be very difficult to reach something in the region of a trillion. Maybe half of that,” said Dutch Finance Minister Jan Kees de Jager.

Klaus Regling, head of the bailout fund, tried to be upbeat, saying the ministers had committed to increasing its size from its current euro440 billion ($587 billion) but refusing to give a specific size. He assured reporters it was more than big enough to deal with Europe’s immediate debt problems.

“To be clear, we do not expect investors to commit large amounts of money during the next few days or weeks,” Regling said. “Leverage is a process over time.”

The ministers did agree to use the bailout fund to offer financial protection of 20-30 percent to investors who buy new bonds from troubled eurozone nations.

“We made important progress on a number of fronts,” eurozone chief Jean-Claude Juncker insisted late Tuesday. “This shows our complete determination to do whatever it takes to safeguard the financial stability of the euro.”

Wednesday’s meeting in Brussels has brought in the 10 non-euro finance ministers from the 27-nation EU, who have been pressing hard for a swift solution for fear that their economies will suffer.

Sweden’s Anders Borg said there was no more time to waste and that the markets don’t provide “any honeymoons” for any countries that stray from fiscal austerity. He stressed that Spain and Italy need to “take out all the skeletons” from their financial closets and implement budgetary belt tightening measures.

Many economists say the 17 nations that use the euro have little choice but to back proposals for much closer coordination of their spending and budget policies.

Though such a change would reduce their ability to run budget deficits, it could potentially pave the way for much more aggressive support from the European Central Bank.

“If the eurozone is to survive, there needs to be more fiscal union,” said Eswar Prasad, an economics professor at Cornell University in the state of New York.

For struggling economies, this might be the necessary price of survival. With such discipline in place, the ECB could then agree to make major purchases of government bonds from Europe’s troubled countries. Doing so could help lower their borrowing costs and enable them to finance their debts.

For now, the ECB has been reluctant to take such a frontline role, arguing that it’s up to governments to sort out their fiscal mess. It’s voiced worries that a big bond-buying program could allow economically reckless countries off the hook for painful spending cuts and tax increases.

But a tighter fiscal union could reassure the ECB and lead it to act more forcefully, said Jacob Funk Kirkegaard, a fellow at the Peterson Institute for International Economics.

The alternative could be a default by Greece, or even Italy, and a break-up of the eurozone. That could spark chaos, forcing some or all the countries to return to their own individual currencies.

A default could also cause lending to seize up worldwide. Some European banks holding large amounts of government debt would likely collapse. As credit dried up, other banks around the world would probably hoard cash. The credit crunch could push European countries into a deep recession.

A European downturn would also slow the flow of exports to Europe from the United States and Asia and weaken their economies. U.S. stock markets would likely fall, reducing household wealth and consumer spending and further choking growth.

Many economists say the threat of default means the International Monetary Fund might end up contributing to a bailout fund. An IMF spokesman denied Tuesday that the international lending group is consulting with the Italian or Spanish governments.

But the IMF could work with institutions like the ECB, Cornell’s Prasad said. Funneling money through the IMF would be more politically palatable for the ECB than directly aiding individual countries.

Still, the IMF has only about $390 billion available to lend. That wouldn’t be anywhere near enough to rescue Italy, which has $1.2 trillion in debt.

“In the short term, there is only the ECB,” Kirkegaard said.

Now, amid tumbling home prices and near-record foreclosures, attention was focused on a new source of contagion: Fannie Mae (FNMA) and Freddie Mac, which together had more than $5 trillion in mortgage-backed securities and other debt outstanding, Bloomberg Markets reports in its January issue.

Paulson had been pushing a plan in Congress to open lines of credit to the two struggling firms and to grant authority for the Treasury Department to buy equity in them. Yet he had told reporters on July 13 that the firms must remain shareholder owned and had testified at a Senate hearing two days later that giving the government new power to intervene made actual intervention improbable.

“If you have a bazooka, and people know you have it, you’re not likely to take it out,” he said.

On the morning of July 21, before the Eton Park meeting, Paulson had spoken to New York Times reporters and editors, according to his Treasury Department schedule. A Times article the next day said the Federal Reserve and the Office of the Comptroller of the Currency were inspecting Fannie and Freddie’s books and cited Paulson as saying he expected their examination would give a signal of confidence to the markets.

A Different Message

At the Eton Park meeting, he sent a different message, according to a fund manager who attended. Over sandwiches and pasta salad, he delivered that information to a group of men capable of profiting from any disclosure.

Around the conference room table were a dozen or so hedge- fund managers and other Wall Street executives — at least five of them alumni of Goldman Sachs Group Inc. (GS), of which Paulson was chief executive officer and chairman from 1999 to 2006. In addition to Eton Park founder Eric Mindich, they included such boldface names as Lone Pine Capital LLC founder Stephen Mandel, Dinakar Singh of TPG-Axon Capital Management LP and Daniel Och of Och-Ziff Capital Management Group LLC.

After a perfunctory discussion of the market turmoil, the fund manager says, the discussion turned to Fannie Mae and Freddie Mac. Paulson said he had erred by not punishing Bear Stearns shareholders more severely. The secretary, then 62, went on to describe a possible scenario for placing Fannie and Freddie into “conservatorship” — a government seizure designed to allow the firms to continue operations despite heavy losses in the mortgage markets.

Stock Wipeout

Paulson explained that under this scenario, the common stock of the two government-sponsored enterprises, or GSEs, would be effectively wiped out. So too would the various classes of preferred stock, he said.

The fund manager says he was shocked that Paulson would furnish such specific information — to his mind, leaving little doubt that the Treasury Department would carry out the plan. The managers attending the meeting were thus given a choice opportunity to trade on that information.

There’s no evidence that they did so after the meeting; tracking firm-specific short stock sales isn’t possible using public documents.

And law professors say that Paulson himself broke no law by disclosing what amounted to inside information.

Rampant Rumors

At the time, rumors about Fannie and Freddie were tearing through the markets. The government-chartered firms’ mandate, which continues today, is to buy mortgages from banks and repackage them into securities either for their own portfolios or to sell to others. The banks can then use the proceeds from those transactions to write new mortgages.

By mid-2008, delinquencies and foreclosures were soaring, and the GSEs set aside billions of dollars against future losses. In the first six months of 2008, they racked up net losses of $5.46 billion as they slashed dividends and marked down the values of their huge inventories of mortgage-backed securities.

On Wall Street, confusion reigned. UBS AG analyst Eric Wasserstrom on July 10 cut his share price target on Freddie to $10 from $28. The next day, Citigroup Inc. (C) analyst Bradley Ball reiterated a “buy” recommendation on the two GSEs. On July 12, the Times of London, without citing a source, reported that Paulson was contemplating a $15 billion capital injection into the firms.

Shares Rally

At the time Paulson privately addressed the fund managers at Eton Park, he had given the market some positive signals — and the GSEs’ shares were rallying, with Fannie Mae’s nearly doubling in four days.

William Black, associate professor of economics and law at the University of Missouri-Kansas City, can’t understand why Paulson felt impelled to share the Treasury Department’s plan with the fund managers.

“You just never ever do that as a government regulator — transmit nonpublic market information to market participants,” says Black, who’s a former general counsel at the Federal Home Loan Bank of San Francisco. “There were no legitimate reasons for those disclosures.”

Janet Tavakoli, founder of Chicago-based financial consulting firm Tavakoli Structured Finance Inc., says the meeting fits a pattern.

“What is this but crony capitalism?” she asks. “Most people have had their fill of it.”

A Lawyer’s Advice

The fund manager who described the meeting left after coffee and called his lawyer. The attorney’s quick conclusion: Paulson’s talk was material nonpublic information, and his client should immediately stop trading the shares of Washington- based Fannie and McLean, Virginia-based Freddie.

Seven weeks later, the boards of the two firms voted to go into conservatorship under the newly created Federal Housing Finance Agency. The takeover was effective Sept. 6, a Saturday, and the companies’ stock prices dropped below $1 the following Monday, from $14.13 for Fannie Mae and $8.75 for Freddie Mac (FMCC) on the day of the meeting. Various classes of preferred shares lost upwards of 85 percent of their value.

A complete list of those at the Eton Park meeting isn’t publicly available. A Treasury Department roster of those expected to attend, obtained by Bloomberg News under the Freedom of Information Act, includes Ripplewood Holdings LLC CEO Timothy Collins, who says, through a spokesman, that he didn’t participate.

Storied Investors

At least one fund manager who wasn’t listed in the FOIA document, Daniel Stern of Reservoir Capital Group, did attend, says the manager who described the meeting.

The gathering comprised some of Wall Street’s most storied investors. Mindich, a former chief strategy officer of New York- based Goldman Sachs, started Eton Park in 2004 with $3.5 billion, at the time one of the biggest hedge-fund launches ever. Singh, a former head of Goldman’s proprietary-trading desk, also began his fund in 2004, in partnership with private- equity firm Texas Pacific Group Ltd.

Lone Pine’s Mandel worked as a retail analyst at Goldman before joining Julian Robertson’s Tiger Management LLC, one of the most successful hedge funds of the 1980s and 1990s. He started his own firm in 1997. Och was co-head of U.S. equity trading at Goldman before founding Och-Ziff in 1994. The publicly listed firm managed $28.9 billion in November.

Goldman Alums

One other Goldman Sachs alumnus was at the meeting: Frank Brosens, founder and principal of Taconic Capital Advisors LP, who worked at Goldman as an arbitrageur and who was a protege of Robert Rubin, who went on to become Treasury secretary.

Non-Goldman Sachs alumni who attended included short seller James Chanos of Kynikos Associates Ltd., who helped uncover the Enron Corp. accounting fraud; GSO Capital Partners LP co-founder Bennett Goodman, who sold his firm to Blackstone Group LP (BX) in early 2008; Roger Altman, chairman and founder of New York investment bank Evercore Partners Inc. (EVR); and Steven Rattner, a co-founder of private-equity firm Quadrangle Group LLC, who went on to serve as head of the U.S. government’s Automotive Task Force.

Another person in attendance: Michele Davis, then-assistant secretary for public affairs at the Treasury Department, who now represents Paulson as a managing partner at public relations firm Brunswick Group Inc. In an e-mail response to Bloomberg Markets, she referred all questions to Paulson’s book on the financial crisis, “On the Brink” (Business Plus, 2010), which makes no mention of the Eton Park meeting.

Paulson Thinktank

Paulson is now a distinguished senior fellow at the University of Chicago, where he’s starting the Paulson Institute, a think tank focused on U.S.-Chinese relations.

Eton Park’s Mindich, Lone Pine’s Mandel, TPG-Axon’s Singh and Och-Ziff (OZM)’s Och all declined to comment through spokesmen. Reservoir’s Stern didn’t return phone calls. Altman, through a spokesman, confirmed his attendance and declined to comment further.

Brosens confirmed in an e-mail that he had attended and said he couldn’t recall details. A spokesman for Rattner acknowledged he attended and said he didn’t trade in Fannie Mae- or Freddie Mac-related instruments after the meeting. Chanos declined to comment.

A Blackstone spokesman confirmed in an e-mail that GSO’s Goodman attended the meeting. Blackstone doesn’t believe market- sensitive information was discussed, and in any event Blackstone didn’t take any positions in Fannie or Freddie between the luncheon and Sept. 6, he wrote.

Strong Short Interest

Records show that many investors were betting against Fannie Mae and Freddie Mac at the time. According to Data Explorers Ltd., a London-based research firm, short interest in Fannie Mae shares rose sharply in July, to 163 million shares on July 14 from 86.3 million shares on July 9.

Short Interest continued to rise, to 240 million shares, on the day of the Eton Park meeting; it hit 262 million on July 24, its high for the year. Freddie Mac’s short interest showed a similar trajectory.

Revelations about the meeting come at a sensitive time.

“The optics are awful; there’s no doubt about it,” says professor Larry Ribstein of the University of Illinois College of Law in Champaign. “Everyone knows that insider trading is a huge issue.”

Rajat Gupta, the former head of McKinsey & Co. who was a member of Goldman’s board, was indicted by a federal grand jury on Oct. 26 for disclosing nonpublic information on Goldman and other companies to Raj Rajaratnam, a hedge-fund manager who earlier in October was sentenced to 11 years in prison for profiting from inside information provided by a web of industry insiders, including Gupta.

Gupta has pleaded not guilty.

LightSquared Probe

Several U.S. agencies face increased scrutiny in Congress for possible improper disclosures or ties to hedge funds. Senators are looking into whether the U.S. Department of Education divulged nonpublic details about new rules being considered to regulate for-profit educational institutions to outsiders, including Steven Eisman, former managing director of FrontPoint Partners LLC, who held short positions in the sector.

Education Department spokesman Justin Hamilton denies any impropriety. Eisman hasn’t been accused of any wrongdoing.

In October, Republican Senator Charles Grassley of Iowa asked hedge-fund manager Philip Falcone for copies of all communications between his Harbinger Capital Partners and the Department of Commerce, the Federal Communications Commission and the White House. Grassley is looking into whether Falcone improperly sought to influence regulators and the White House while seeking approvals for LightSquared Inc., the company constructing a broadband wireless network his fund is bankrolling.

‘Government Information’

Robin Roger, general counsel for the fund’s management firm, says any assertion that the fund or LightSquared tried to improperly influence regulators is unfounded.

For government officials, the leaking of market-sensitive information, even if inadvertent, represents an ethical minefield.

“There’s a lot of government information out there, and the hedge funds are trying to get it,” says Richard Painter, a law professor at the University of Minnesota who advised the Bush administration on Paulson’s sale of his Goldman stock when he became Treasury secretary. “It’s a huge problem that has to be addressed.”

The rules for what can or cannot be disclosed by government officials are often either unclear or nonexistent.

Tipping Hands

“The bottom line is that senior-level people in Washington, in the name of keeping in touch with their stakeholders, are tipping their hands,” says Adam Zagorin, a senior fellow at the Project on Government Oversight, a Washington watchdog group. “You can’t prosecute them for insider trading if they didn’t trade the shares. You may not be able to even reprimand them. What the hell are the rules?”

An official such as Paulson has no legal obligation to keep material nonpublic information to himself, says Phillip Kaplan, partner for litigation at Manatt Phelps & Phillips LLP, where he specializes in securities and class-action cases.

“I don’t think a government person is liable,” he says. “He didn’t profit from the information or trade on it.”

In the rapidly evolving world of insider-trading prosecutions, that could change, says the University of Illinois’s Ribstein, adding that the U.S. Securities and Exchange Commission is taking a broader view of what constitutes insider trading. SEC Enforcement Director Robert Khuzami, who can bring only civil cases, and the Justice Department, which can mount criminal prosecutions, have cast their net wide, Ribstein says.

Small Players Sued

In addition to going after big names like Rajaratnam and Gupta, the authorities are suing and indicting smaller players who might not have been prosecuted in the past, like accountants and analysts at so-called expert networks, who sell their expertise to hedge funds.

The University of Missouri’s Black says there’s no question that the plan to take over Fannie and Freddie — however uncertain — was material nonpublic information that could not be lawfully traded on. “What Paulson said put those managers in an untenable position,” he says. “They were exposed to all kinds of liabilities.”

The situation also generates some sympathy for Paulson.

“It seems to me, you’ve got to cut the guy some slack, even if he tipped his hand,” says William Poole, a former president of the Federal Reserve Bank of St. Louis. “How do you prepare the market for the fact that policy has changed without triggering the very crisis that you’re trying to avoid? What is he supposed to say without misleading these people?”

Market Insights

Poole says government officials need to communicate with industry participants in order to gain insights into market conditions and gauge likely reaction to interventions.

Black says the Eton Park meeting was the wrong way to communicate to the markets.

“Wink, wink, nod, nod is no way to approach sensitive information,” he says.

Paulson often contacted Wall Street participants throughout his tenure, according to his calendar. On that July trip to New York alone, he talked to Lehman Brothers Holdings Inc. CEO Richard Fuld, Washington Mutual Inc. CEO Kerry Killinger and Citigroup senior adviser Rubin.

Morgan Stanley and BlackRock Inc. both helped the Federal Reserve and OCC prepare the reports on Fannie Mae and Freddie Mac that Paulson told the New York Times would instill confidence the morning of the Eton Park meeting.

‘Unsafe and Unsound’

Paulson learned by mid-August that the Federal Reserve had found the GSEs “unsafe and unsound,” he told the Financial Crisis Inquiry Commission, which was appointed by President Barack Obama and Congress to probe the causes of the financial collapse.

“We’d been prepared for bad news, but the extent of the problems was startling,” he wrote in “On the Brink.”

On Sept. 6, when the GSEs’ boards agreed to have their companies placed in conservatorship, full-year 2008 losses were projected to reach as much as $50 billion for Fannie Mae and $32 billion for Freddie Mac. In October 2011, the FHFA estimated the cost to taxpayers of rescuing the firms at $124 billion through 2014.

The manager who described the Eton Park meeting says he also discussed it with an investigator from the FCIC. The discussion was confirmed by a former FCIC employee.

That manager says he ended up profiting from his Fannie Mae and Freddie Mac positions because he was already short the stocks. On his lawyer’s advice, he stopped covering his short positions and rode Fannie and Freddie shares all the way to the bottom.

The sovereign debt crisis tightening its grip on Europe has claimed the scalps of two prime ministers – those of Greece and Italy. Looking at the men poised to replace them, one cannot but ask – is this another turn of the screw for ordinary people?

However, when in September 2008a private debt crisis exploded due to the derivatives swindle which buried Lehman Brothers, Merrill Lynch, AIG and many other private institutions, the US and other governments came to the rescue of the bankers, providing bailouts for banks “too big to fail” (Newspeak for too powerful to fail). They saved the likes of CitiCorp, Bank of America, JPMorgan Chase, Goldman Sachs with…. taxpayers money (TARP), and by having the FED (hyper)inflate the US dollar (know in Newspeak as “Quantitative Easing I, II and III”), which means passing a huge chunk of the cost of those bailouts on to the Rest of the World using the US dollar as global currency.

So again, irrespective of whether debt collapses are public or private, it is always “We the People” who pay because, under the current system, all profits are privatized and all losses are socialized.

But let us go back to Messrs Monti and Papademos. They sit on the Trilateral Commission together with hundreds of corporate chairmen and CEOs such as Ana Botin (Bank Banesto/Santander, Spain), Peter Sutherland (Goldman Sachs/BP, UK), Michel David-Weill (Lazard Bank, France), Jurgen Fitschen (Deutsche Bank, Germany), Stephen Green (HSBC, UK), Nigel Higgins (Rothschild Group, UK), Lord Guthrie (N M Rothschild, UK), Klaus-Peter Müller (Commerzbank, Germany), Dieter Rampl (UniCredito, Italy), Otto Ruding (CitiCorp Europe), Lord Simon of Highbury (Morgan Stanley, UK), Emilio Ybarra (BBVA, Spain), Robert Kelly (Bank of NY Mellon) Lord Brittan (UBS, UK), Robert Zoellick (World Bank), plus Timothy Geithner, Henry Kissinger and many, many others…

In fact, the Trilateral Commission articulates with the powerful Council on Foreign Relations (New York), Chatham House (London) and many other think-tanks forming an intricate web of private global power-brokers bringing together key players in finance, industry, media, government, academia, intelligence and the military, who run today’s global system focusing on their interests, and clearly not on those of “We the People.”

No doubt Messrs Papademos and Monti will do everything necessary to ensure Italy and Greece do not default on their debts – but rather that their peoples endure all the hardship, undergo all the pain, and make all the sacrifices so that major bankers sitting on the Trilateral can all get their money back. Those who should never have made loans to Greece and Italy (and Argentina and Portugal…) the way they did.

In the three months to June, “write-offs of loans to non-financial corporations” almost tripled to £2.94bn, according to the Bank of England.

The remarks by Dagong’s chairman, Guan Jianzhong, to be broadcast in an interview with al-Jazeera on Saturday morning, come at the end of another week of deep turmoil for the world economy.

Dagong, which has maintained a pessimistic outlook on US fiscal policy, has been leading the charge to downgrade US debt over the last 12 months, lowering the US rating from AA to A+ a year ago.

In August it downgraded US debt again, to A. Days later, Standard & Poor’s followed in its wake, becoming the first western agency to downgrade US debt after the threat of a default was narrowly avoided following weeks of political squabbling in Washington over whether President Obama should be allowed to raise the US debt ceiling.

Guan’s intervention comes as another embarrassing political standoff over budget policy looms in Washington. The cross-party “supercommittee” given the job of finding ways to cut the budget deficit is reportedly deadlocked, with Republicans refusing to countenance the tax rises being suggested by Democrats. The committee is due to report by 23 November, but there are fears they could fail to reach agreement, prompting a new crisis.

Founded in 1994 by the Chinese government and the People’s Bank of China, Dagong is the only credit ratings agency in China that grades foreign sovereign debt and bonds.

In an interview with Talk to Al-Jazeera, Guan agrees that it is almost inevitable that his agency will cut America’s debt rating once again, arguing that the only solution open to the US economy is further quantitative easing.

“The measures available to them [the US] cannot be effective so they have another way out which is to depreciate the US dollar, to print more money,” he says. “And that will also make it a lot worse, this has affected their credit and it is negatively affecting their credit prospects – so that their overall ability to pay back their debt will continue to go down.

Asked directly if he believed another ratings cut was inevitable, Guan replies: “I think so.”

He goes on to say: “We are continuing to monitor this closely. First of all we need to look at this year’s economic growth and then predict next year’s trends. If in the year 2012 the overall projections are not very good, meaning that the sources of payment – and liabilities – are bad and cannot be changed, or change for the worse, then we will lower the rating once again.

Any further downgrading of the US credit rating, while making more US borrowing more expensive, would also be a matter of concern to Beijing.

China is the largest foreign buyer of US government debt – accounting for around third of all foreign-held US securities – despite the fact it has gradually reduced its holdings since the S&P downgrade and has also lost heavily on its large holdings of US currency.

Since the summer – and the debt-ceiling crisis – China has become ever more vocal about what it describes as the US “addiction” to debt, warning in August that more “devastating credit rating cuts” and global economic turmoil were around the corner unless Washington learned to live within its means.

The Xinhua news agency issued a commentary that cautioned: “The US government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone.”