7 Feb 2016

Europe Is Built On Corpses And Plunder

Andre Vltchek


Friends and Comrades, it is a great honor to be standing here – at the Chamber of Deputies of the Italian Parliament.
***
One year ago I was driving through the Bekaa Valley in Lebanon, monitoring the situation in the refugee camps there. Winter was approaching and the mountains on the Lebanese–Syrian border were covered by snow. It was cold, very cold.
Some 20 minutes, after leaving Baalbek, I spotted an extremely humble makeshift refugee camp, growing literally from the road, in the middle of nowhere.
I stopped. Together with my interpreter, I walked inside and engaged several people in conversation.
The situation was desperate. Children were hungry and could not register for schools through the UNHCR or through the Lebanese government, which, by that time, had almost collapsed. Many electronic food cards that were issued to the migrants did not function. Work permits were not offered, and without proper paperwork, local social services could not be used. In brief: a total disaster.
I was told that in this area, some Syrian migrants had already been starving.
This was Bekaa Valley, a tough place to start with, and full of ancient traditions, clans, gangs and narcotic-business. Refugees were expected to keep their heads down, or else…
Before I left, two little girls, two sisters, approached me. Both had swollen bellies, suffering from malnutrition. Both were dressed in rugs. Both looked deprived.
But after spotting my cameras, they were mesmerized, smiling at me, showing tongues, laughing.
Their country was in ruins, their future uncertain.
But these were just two little girls in the middle of the mountains, two girls excited about each and every little detail of life. Such innocence! Such hope! People are people, and children are children, everywhere, even during wars.
Unfortunately, I have witnessed too many of them; too many wars. Too many barbarities performed by NATO, by the Empire, by the United States and Europe.
Later, working on the Greek island of Kos and in Calais in France, I kept thinking about those two girls, again and again.
The West (or call it NATO, or anything you like – we all know what I mean!) has, in the most cynical manner, destabilized and destroyed the entire Middle East. As it has in virtually all the continents of the world, it ruined tremendous cultures, plundered all it could put its hands on, turned proud people into slaves. Libya and Iraq are no more! I can testify, as I work all over the Middle East.
And then the West enclosed itself into its gold-plated bunker, slowly and disgustingly digesting its booty!
How many refugees are there that Europe says: “it cannot accept”? 1 million? Tiny, miniscule Lebanon has 2 million, and it is coping; badly but coping!
And Lebanon did not destroy Syria, Libya, Afghanistan or Iraq.
You know how it all feels like? Like observing a woman who was gang-raped, whose husband was murdered in front of her own eyes, and whose beautiful house was looted. Now this woman, just in order to save her starving children from the rubbles, is forced to go to Europe, to the rapists and thieves who destroyed her life, asking for shelter and food. And they spit into her face! They say: “It is too much for us, too difficult to accommodate you and others like you! Woman, you came to take advantage of us. You came to have a better life at our expense!”
This is how it looks from the outside. This is how I see it.
And I want to puke. But there is no time… One has to work, day and night, to stop this madness.
The West, of course including Europe, is too hardened by its own crimes, too cynical, and too unrepentant.
It remains blind, because it simply does not pay to see!
***
There is no Left Wing in Europe, anymore. Not the Left as we understand the term in Cuba and other revolutionary nations.
To us, true left means “Internationalism”, solidarity!
True left is global, egalitarian, and color-blind.
European so-called Left is only concerned with the benefits of its own citizens. It does not care at all where the funds are coming from.
As long as French, Greek, Spanish or Italian farmers get their subsidies and perks, who cares that agriculture in Africa or Asia gets thoroughly ruined. The most important is that European farmers could drive their latest BMW’s, for producing something or not producing anything at all.
I saw absolutely grotesque concepts implemented in countries like Senegal, and other former French colonies: heavily subsidized French food produce flooded West Africa, supermarkets opened, local production collapsed. Then the prices spiked to 2-3 times higher levels than those in Paris. And so, in Senegal where incomes are perhaps only 10% of those in France, a yoghurt costs 3 times more than in Monoprix.
Who pays for those 35-hour workweeks? Who pays for socialized medical care and free education in the European Union? Definitely not the Europeans themselves! Most of the funds used to come from the colonies, from that unimaginable plunder of the world performed by the West.
Colonialism and imperialism are still there, but they often changed forms, although the toll on people in non-white countries continues to be the same.
The Belgian King Leopold II and his cohorts, in what is now Congo, massacred 10 million people, at the beginning of the 20th Century. Between 1995 and now, the West plundered the Democratic Republic of Congo once again, mercilessly, by using its closest allies in Africa – Rwanda, Uganda and Kenya. Again, between 7 and 10 million people died there, in just 20 years, and these are not some inflated numbers, these are numbers provided by the United Nations and its reports, including the so-called “Mapping Report”. All that horror, only so the West could have access to coltan (used in our mobile phones), to uranium, and other strategic materials. I compiled the evidence in my feature documentary film “Rwanda Gambit”.
All those ruined lives and countries, so that European citizens could have their benefits, long vacations, and social services.
When I discussed the issue with my friend, an Italian filmmaker from Naples, he snapped at me: “We don’t want to be like the Chinese. We don’t want to work hard like them!”
I replied: “Then live within your means! Do not allow your corporations and governments to massacre tens of millions of people, so that the companies could have their insane profits, and citizens those outrageous benefits.”
Recently, in Thailand, I overheard a group of unemployed Spaniards laughing about having a vacation in Southeast Asia, paid for by their unemployment benefits.
I know many countries, dependencies of the West, where losing one’s job is synonymous to a death sentence! But we are asked to feel sorry for Spaniards, Italians and Greeks. We are expected to see them as victims.
***
I am saddened to say, but it is not only the United States, but also Europe, which is totally, blissfully ignorant about its role in the world, and about the harm, about the horrors that it is spreading all over our Planet.
This discovery shocked me so much, that I spent 4 years crisscrossing the world, compiling the evidence and testimonies that illustrate the colonialist, neo-colonialist and imperialist legacy of the West, as well as the current neo-colonialist barbarities. The book is 840-pages long and it is called “Exposing Lies Of The Empire”. I hope, one day, it will be available in the Italian language!
The book has been receiving enthusiastic reception, but for me, this thick volume is not the end. Now I am compiling the second installment. The topic is just too enormous. The crimes, genocides, holocausts committed by the West on the people of our Planet, are too enormous.
Everything is linked to them! The entire arrangement of the world uses them as pillars.
In our book “On Western Terrorism – From Hiroshima to Drone Warfare”, written together with my friend Noam Chomsky, I was asked whether the Europeans actually realize what they have done to the world, during the last centuries.
(Just a side note – this book is now available in the Italian language “Terrorismo Occidentale”).
I replied to Noam: “They definitely don’t!”
And I repeat here, again: most of them, the great majority of them, do not realize it! They don’t want to see, to admit, that their opera houses, hospitals, museums, parks and promenades, are all constructed on the corpses of those who were robbed of everything: from Latin America and its open veins, to Asia and Africa. Slavery, unimaginable extermination campaigns, tremendous lists of horrors!
Before Noam and I began our discussion, I spent some time with several top statisticians, and our conclusion was chilling: directly or indirectly, the West massacred between 40 and 50 million people, between the Hiroshima A-bomb explosion, and the time of my long dialogue with Noam – in 2012.
The number of people, who were murdered throughout history, directly or indirectly, by European empires, all over the world, can only be calculated in hundreds of millions, and one of my statistician friends believes that the total accumulative number actually exceeds 1 billion.
***
When I was recently speaking at the China Academy of Social Sciences in Beijing, and later in Moscow, having been invited by Russian philosophers and by several members of the Russian Academy of Science, I publicly declared that I am fundamentally against “free medical care and free education in Europe”.
When asked “why?” I explained that the cost is too high, and those robbed and destroyed people, all over the world, are almost exclusively expected to cover it.
But I continued: “I am totally, decisively, supportive of universal free medical care, education and essential social benefits. Or as we say in Cuba: everyone dances, or nobody does!”
Of course I also can tolerate and support free medical care, education and benefits in those countries that do not plunder the world, like Cuba, China, Venezuela, Bolivia, South Africa or Ecuador.
***
Not only the West refuses to face its responsibility for, by now, the almost absolute total destruction of the world, it is also using all sorts of smoke screens and propaganda tactics to divert the attention of the people; it is spreading nihilist economic concepts, propaganda and outright lies.
It is using education as a weapon, offering scholarships to children of elites in the countries it is robbing and controlling. After being indoctrinated, they return home and continue violating their own countries on behalf of the United States and Europe.
And so the vicious cycle continues!
I encountered so many grotesque moments, when for instance, an Indonesian upper class family returning from its vacation in Holland, begins a long litany, about how great are the theaters, trains, museums and public spaces in Netherlands, compared to those in Indonesia.
Of course they are! All built from centuries of Dutch plunder of Indonesia, like those Spanish cathedrals stuffed with gold, growing from corpses.
As Noam Chomsky often says: “not to see all this truly takes great discipline!”
***
The brutality of the Western Empire is unmatchable. Its cynicism is monumental!
Look at those so-called “terrorists” in Muslim countries, scarecrows that Western governments and media keep waving in front of our eyes!
Islamic culture is greatly socialist and socially oriented. After World War II, secular, socialist, revolutionary and anti-Western governments ruled the most important Muslim nations: Egypt, Iran and Indonesia.
Within two decades, the West overthrew them all, implementing fascist regimes.
It then invented the Mujahideen and injected them into Afghanistan, in order to finish with the Soviet Union.
And once it felt the need for some monumental enemy to replace Communism, it manufactured and then armed, trained and educated groups like al-Qaida, al-Nusra and ISIS.
This move served two important goals: to justify astronomical military and intelligence budgets, and to portray the Western/Christian civilization as “culturally superior”, fighting “Arab terrorist monsters”.
Of course, the great majority of the people in Europe and North America are so indoctrinated, intellectually self-righteous and defunct, that they remain blind when faced with those Machiavellian pirouettes.
For the European public, there are plenty of “good reasons” to stick to those inherently racist beliefs, and to protectionism. There are even better reasons for hiding those millions of heads in the sand!
And so it goes.
***
I am here, in Italy, and today I do not want to discuss the United States, Israel, or other colonies and client states of the West. We can do it some other time, if I am invited back.
I spoke about Europe.
And I spoke about those two Syrian girls I met in Lebanon.
They are your responsibility, too, Italy! They suffer from malnutrition because your part of the world is ruining their country. It is because your country is a member of NATO, and NATO is behaving like a fascist thug with some clear mafia behavioral patterns.
I know you have heart!
I grew up on your films, on Fellini and de Sica, Rossellini, Antonioni and others. I greatly admire your poetry and music. They had tremendous influence on my work, and on how I see the world.
But your heart, it seems, lately goes only to your own people. It is not an internationalist heart. It does not believe that all people are equal.
I came here to say this, because not too many people dare to.
I came here because I still care for your country.
But as a determined socialist realist, I care about Italy as it “could and should be”, not “as it is” at this moment.

U.S. Now Overtly At War Against Russia

Eric Zuesse


NATO Secretary General Jens Stoltenberg announced on February 2nd that he approves of U.S. ‘Defense' Secretary Ash Carter's proposal to quadruple U.S. armaments and troops in Europe, against ‘Russian aggression.'


We are reinforcing our posture in Europe to support our NATO allies in the face of Russia's aggression. In Pentagon parlance, this is called the European Reassurance Initiative and after requesting about $800 million for last year, this year we're more than quadrupling it for a total of $3.4 billion in 2017.
That will fund a lot of things: more rotational U.S. forces in Europe, more training and exercising with our allies, more preposition and war-fighting gear and infrastructure improvements to support all this.
And when combined with U.S. forces already in and assigned to Europe — which are also substantial — all of this together by the end of 2017 will let us rapidly form a highly capable combined arms ground force that can respond across that theater, if necessary. 

However, the truth is: Russia is not expanding to NATO's borders; NATO is expanding to Russia's borders. The baldness of the Western lie to the contrary is an insult to Westerners' intelligence.

The U.S. is preparing for an invasion of Russia.

“By the end of 2017,” the U.S. will be prepared to invade Russia.

Secretary Carter went on to say:

Russia and China are our most stressing competitors. They have developed and are continuing to advance military system[s] that seek to threaten our advantages in specific areas. And in some case[s], they are developing weapons and ways of wars that seek to achieve their objectives rapidly, before they hope, we can respond.
Because of this and because of their actions to date, from Ukraine to the South China Sea, DOD has elevated their importance in our defense planning and budgeting.

Since he is a Secretary of ‘Defense' instead of a Secretary of Offense, he immediately added:

While we do not desire conflict of any kind with either of these nations — and let me be clear.

That's all there was to the assertion there; he didn't finish the sentence, nor even the thought. He often makes grammatical errors, of which that's an example (and his leaving the “s”s off the words in the quoted passage there are others). But in this offhanded way, he did at least try to give the impression that the U.S. is never an aggressor — for example: that, though the U.S. is expanding NATO right up to Russia's borders, Russia is being the ‘aggressor' to move troops and weapons up to those borders — up to Russia's own borders (to counter the U.S. & NATO invasion-threat, of course; but, no: it's to threaten NATO, if you believe the West). In the statements by Ash Carter, Barack Obama, and Jens Stoltenberg, that's ‘Russian aggression.' In the allegory by George Orwell, 1984, America's rhetoric is called simply “Newspeak.”

It's as if during the Soviet Union (i.e., before 1991), when Nikita Khrushchev was the aggressor in 1962 and John Kennedy was the defender (against Soviet missiles in Cuba), Khrushchev had refused to yield and said that Soviet nuclear missiles near the U.S. had only a defensive, no offensive, purpose (no purpose for a blitz nuclear attack against the U.S. too fast for the U.S. to be able to get its missiles launched in retaliation). Kennedy said no to that idea then, and Putin says no to that idea (right on Russia's very borders) now. The U.S, in post-Soviet, post communist, Russia, has turned around and become the aggressor — against the now democratic nation of Russia. (And Putin's approval-rating from the Russian people is at least 80%, whereas Obama's approval-rating from the American people is near 50%.) We've switched roles. The U.S. has turned to dictatorship, while Russia has turned to democracy. It's a super-switcheroo. ‘Democracy' in the U.S has become, during recent decades, the election of Presidents and congresspersons who were campaigning on lies, and who then actually delivered more like the opposite, as their actual governmental policies.

A good example of this is that when Mr. Obama was campaigning for re-election to the Presidency in 2012, he outright mocked his opponent Mitt Romney's asserting (2:22 on the video) that, “Russia, this is without question our number one geopolitical foe.” But the moment that Obama became re-elected, Obama activated a 1957 CIA plan to overthrow Russia's ally Bashar al-Assad in Syria, and a more-recent CIA and State Department plan to overthrow the actually neutralist Ukrainian President Viktor Yanukovych in Ukraine and replace him with a rabidly anti-Russian government. The head of Stratfor called it “the most blatant coup in history,”and it was an extremely bloody coup, followed by a civil war — and economic collapse, and even more corruption there. In addition, Obama carried out a French plan to overthrow Russia's ally Muammar Gaddafi in Syria. All of these plans were strongly welcomed by Russia's main oil-market competitors, all of them fundamentalist Sunni Arab financial backers of jihadists: the Saud royal family of Saudi Arabia, and the Thani royal family of Qatar, as well as the Sabah royal family of Kuwait, and the six royal families of UAE. Those royals own most of the world's oil, and only Russia and its ally Iran are even in that league. All of those Sunni Arab royal families (especially the Sauds) are the main financial backers of Al Qaeda, ISIS, and other jihadist groups, all of which are fundamentalist Sunni terrorist groups, which especially aim to exterminate all Shiites — and Shiites just happen to be supported by Russia. (The U.S. overthrew the democratically elected progressive President of Iran and installed the tyrannous Shah, back in 1953, and Iranians have loathed the U.S. government ever since.)

President Obama, in his second Administration, ceased his previous focus against the Sunni group Al Qaeda, and refocused U.S. policy to be against Russia, even to the extent of his now supporting Al Qaeda, ISIS, and other rabidly anti-Russian Sunni groups, who are driving millions of refugees from Syria, Libya, etc., into Europe. (Of course, Obama's rhetoric remains against those Sunni extremists — just as his rhetoric was against Romney's policies that Obama ended up imposing in his second term.) All of those terrorist groups are allied with the Sunni Arab royal families against Shiite-led Iran, and Shiite-allied Syria. 

The fundamentalist Sunni beliefs of the Arab royal families have, since at least 1744, been committed to exterminating all Shiites. Now that Shiite and Shiite-allied nations are supported by Russia, the United States is more overtly than ever preparing to conquer Russia, for the benefit of the aristocracies of America, and of Arabia. 

And there are many other examples of President Obama's policies exposing him to be an example of “the election of Presidents and congresspersons who were campaigning on lies, and who then actually delivered more like the opposite, as policies,” such as his claiming to champion democracy in Syria when his actual demand regarding Syria is to block democracy there because all the evidence shows that it would result in an overwhelming electoral victory for Bashar al-Assad. And another example is Obama's supporting the right of self-determination of peoples regarding Scotland and Catalonia, but not in Crimea nor in Donbass nor in Abkhazia. The United Nations supports the right of self-determination of peoples everywhere, and Ban ki-Moon has clearly stated that America's demand for the removal of Bashar al-Assad from power is alien to the principles upon which the United Nations was founded.

So: the U.S. regime is moving toward a nuclear confrontation against Russia, as a ‘defensive' measure against ‘Russian aggression.'


What had led up to Romney's assertion that Russia “is without question our number one geopolitical foe” was his having been baited by CNN to comment upon a private statement that Obama had made to Vladimir Putin's representative saying that, “This is my last election. After my election I have more flexibility.” CNN didn't say what that matter was about, but simply baited Romney with it for Romney to play the Red-scare Joseph R. McCarthy role, which Romney did (McCarthy, of the anti-communist witch-hunts, being a Republican hero). Reuters explained what the context was, what Obama had been replying to there: Putin's concern was that placing anti-ballistic missiles (ABMs) in Europe to strip Russia of its ability to retaliate against a first-strike from NATO forces in Europe, by those ABMs eliminating Russia's ability to retaliate, was unacceptable. Obama was telling Putin's representative that Obama would “have more flexibility” against Republican hate-mongerers against Russia, after he'd win re-election. It was just another lie from him. He won re-election and turned out to be actually a black Mitt Romney. In fact, Obama had spent his entire first term deceiving the entire world to think that he rejected Republicans being “stuck in a Cold War mind warp,”as he put it. It was all merely an act for him. He should be in Hollywood, not in the White House.

If this cat gets much farther out of the bag, it's not just the cat but the whole world that will be lost.

The first priority for a President Bernie Sanders, or for a President Donald Trump, must be to undo the Bush-Obama foreign policy, because it certainly won't be undone by a President Hillary Clinton, nor by a President Ted Cruz, nor by a President Marco Rubio — and this is the main thing that's at stake in the current U.S. Presidential contest. What's at stake here is nothing less than whether civilization even survives another few decades. That's now seriously at question, and trillions are being spent right now to bring it to an end.

This isn't kid's stuff. And it's not really rocket science, either. It's instead a fundamental and stark moral issue, that's staring the entire world in the face right now. And it hasn't got a thing to do with religion (which is always morally irrelevant except for stirring up hatreds, which are immoral — religion is just a tool the aristocracy use to control the public to think that the aristocrats ‘deserve' to control the government), but it has a lot to do with restoring democracy where it has been eroded down to virtually nothing. 

Democracy requires a truthfully informed public. And that's the truth. Let's get with it, before it's too late to do so. 

The likelihood of a nuclear war has never been higher than it now is, except perhaps for the Cuban Missile Crisis, but the entire world was being informed about that then, and what about the situation now, after democracy's having been eroded away so much in the West? This time around, the situation is perhaps even more serious. The urgency of the situation is critical.

Is this the type of ‘news' coverage we'll continue to get on the world's top matter — that Russia is invading our territory, when we're actually constantly invading (and perpetrating coups) in theirs, and they're actually doing what they must  do in order to defend the Russian people themselves from NATO?

End NATO now. Or else it (and its cooperative ‘news' media in the West) will end us all. The whole expansion of NATO up to Russia's borders has been based upon U.S. President George Herbert Walker Bush's lie to Mikhail Gorbachev in 1990, which lie from Bush and his agents induced Gorbachev to end not just the Soviet Union but their equivalent of NATO, the Warsaw Pact — all of which Russia did do in 1991. Russia has consistently fulfilled its part of the bargain, but GHWB's vicious violation of his promise has been consistently followed, adhered to, by American Presidents ever since. The deceit goes on, and the U.S. is now heading towards culminating the most dangerous lie in world history.

The Ezubao scam: A sign of deeper problems in China’s financial system

Peter Symonds

The exposure of Ezubao, a high-profile Internet lending site, as a racket that allegedly raked in $7.6 billion from some 900,000 investors has not only cast a pall over China’s burgeoning online finance industry but raised questions about the broader stability of the country’s debt-laden financial system.
The state-run Xinhua news agency announced on Monday that Chinese police had arrested 34-year-old Ezubao founder Ding Ning and 20 others associated with the company, which shut its doors in December. Police reportedly used two excavators to recover hundreds of account books that were buried deep underground.
Ezubao was one of the more prominent peer-to-peer (P2P) lending sites that match lenders and borrowers over the Internet, and have branched out into other financial products. The company offered high-yield investments of between 9 and 14.6 percent and projected an image of wealth and stability. It paid out 800 million yuan ($US121 million) to staff in November to ensure they wore designer clothes and expensive jewellery. It advertised on high-speed trains and prime time on the state-owned CCTV channel, leading investors to believe that it was government-backed.
In reality, Ezubao was in the words of former company executive Zhang Min, “a complete Ponzi scheme.” It made few real investments but relied on the constant flow of incoming funds to pay off those seeking to withdraw their money. Yong Lei, former director of the company’s risk management department, was quoted by Xinhua as saying that “95 percent of Ezubao’s investment projects were fake.”
Many of those who were duped into handing their savings over to Ezubao were reportedly small investors from rural areas. More than 1,000 sales agencies were established across China to promote the company.
Angry investors began protesting in December after the company was shut down. A recent online post declared: “We need to rise up across the country and let the government know that the people’s bottom line is the return of their capital.”
To forestall social unrest, Chinese authorities detained demonstrators and clamped down on discussion in Internet sites. At the same time, officials announced this week that Ezubao clients could register their grievances on the Ministry of Public Security web site.
The government announced draft regulations for P2P lending sites in late December, limiting their operations to acting as intermediaries between borrowers and investors, and banning them from selling wealth management products, insurances and trust products. Even if the regulations come into effect, companies will have a grace period of 18 months to comply.
The online finance industry boomed over the past two years as China’s speculative property bubble stalled and investors began looking for high rates of return elsewhere. The slump in share prices last year only further fuelled the growth of P2P lending, which nearly quadrupled in 2015 to reach 982 billion yuan ($149 billion), up from 253 billion yuan in 2014. Ezubao was only launched in July 2014.
According to the China Banking Regulatory Commission, as of November, 2,612 P2P lending firms were operating normally, but more than 1,000 additional lenders were considered problematic. The New China News Agency reported that around 800 Internet lenders shut down last year, three times the figure for 2014. In December alone, 106 online P2P lenders absconded, suspended business, suffered liquidity problems or were subject to investigations.
In its latest report on China’s shadow banking, the credit rating agency Moody’s identified P2P lending as a “fast-growing component” of the sector. While downplaying its potential for posing “systemic risks” because of its relatively small size, the agency did note that it had “attracted attention for its high default rates and because it carries the risk of social tensions given the large presence of retail investors.”
The highly volatile and speculative character of the online finance sector raises questions about the stability of the broader shadow banking system, which in turn is intimately connected to the banking and financial sector as a whole. According to a report last year by the US-based Brookings Institution, the size of shadow banking sector in China is estimated at anything from $769 billion to $7 trillion.
P2P lending is not the only area that rests on shaky financial foundations. A UBS analysis last month highlighted the growing practice of mid-tier Chinese banks packaging loans into complex financial instruments known as Directional Asset Management Plans or Trust Beneficiary Rights that are shown on their books as low-risk loans to mask rising levels of bad debt as the economy slows.
UBS estimated that the size of the “shadow loan” book rose by a third in the first half of 2015 to $1.8 trillion. UBS financial analyst Jason Bedford told Reuters: “These are now the fastest growing assets on the balance sheets of most listed banks, excluding the Big Five [state-owned banks], not just in percentage terms but absolute terms. The concern is that the lack of transparency and mis-categorisation of credit assets potentially hide considerable non-performing loans.”
Shadow banking’s expansion has been fuelled by the vast expansion of cheap credit by the Chinese regime following the 2008–09 global financial crisis. Lacking any profitable outlet in productive activity, the money was used by speculators, local and regional governments and companies to speculate in the property market, in particular. With restrictions on lending by state-owned banks, the shadow banking system facilitated the speculative binge.
Now the property market is cooling, concerns are being expressed about the potential for a systemic crisis. Writing in Bloomberg View, commentator Noah Smith warned: “This shadow banking system has enabled a large buildup of bad debt, much of it related directly or indirectly to real estate. If property prices fall, trust companies will go broke, and banks—having invested in the trust companies—will be on the hook. That will create the conditions for a really destructive crash.”
While the collapse of Ezubao or other P2P lenders might not be the trigger for a meltdown, it could well be a harbinger of far deeper problems in the Chinese financial system.

Oil price fall brings significant losses for big producers

Nick Beams

The initial response of economic “conventional wisdom” to the slide in oil prices over the past 20 months—down from $110 per barrel in June 2014 to levels approaching $30—was that, whatever the impact on oil-exporting countries, it would aid the global economy because it would lift consumption and other spending.
It was argued that the falling oil price could not possibly be the harbinger of a global recession because all the previous downturns over the past 70 years—in particular the recessions of 1974–75 and 1981–82—were preceded by rising oil prices, while the period of growth in the 1990s was characterised by low oil prices.
That soothing scenario has been shattered over the recent period. The International Monetary Fund all but abandoned it last month, saying “the pickup in consumption in oil importers has so far been somewhat weaker than evidence from past episodes of oil price declines would have suggested.”
It has become increasingly clear that, far from providing a boost to the world economy, the precipitous drop in the oil price, together with other major industrial commodities, is symptomatic of deep recessionary trends.
The “conventional wisdom” ignored two major changes in the structure of the global economy over the past decade. First, that so-called emerging markets, many of which depend on the export of oil and other industrial commodities, now comprise about 40 percent of global gross domestic product, double their share in 1990, and so any decline in their revenues has a much bigger impact than previously. And, second, that the financial crisis of 2008–2009 was not merely a conjunctural downturn in the business cycle but signified a breakdown in the functioning of the global economy.
The downturn in oil prices is not only contributing to the lack of global demand—Apple pointed to the decline in demand from emerging markets as one reason for the expected first-ever decline in iPhone sales—it is working to create the conditions for a renewed financial crisis if oil-exporting countries default on their debts.
Venezuela could be the first in line. If oil prices continue at their January lows, Venezuela’s export revenues for this year will be $18 billion, compared to debt servicing charges of $10 billion. This leaves just $8 billion to finance imports, which came in at $37 billion last year. The economy contracted 10 percent last year, following a fall of 4 percent in 2014.
Other oil-exporting countries are being caught in the price vortex. World Bank and International Monetary Fund officials are holding talks with Azerbaijan over a $4 billion bailout and Nigeria is seeking a similar loan from the World Bank and the African Development Bank.
The falling oil price is now showing up in the profit and loss reports of the world’s major oil companies as they cut jobs and capital investment plans. Last month, the US producer Chevron, the second-largest US oil group, reported its first quarterly loss since 2002.
Chevron suffered a loss of $588 million in the fourth quarter of last year, compared to a $3.5 billion profit for the same period in 2014. Oil and gas production in the US, where production costs are higher than the company’s international sites, was the weakest division, reporting a loss of $4.1 billion, compared to a profit of $3.3 billion in 2014. Profits from production outside the US came in at $2.1 billion, but this was a drop of 85 percent on the previous year’s results.
ExxonMobil, the world’s largest oil company, recorded a smaller drop in profits than its rivals. Its profits came in at $2.78 billion, a fall of 58 percent compared to 2014. However, the company committed itself to a further 25 percent reduction in capital spending this year, following a 19 percent reduction in 2015.
Shell reported that it will sell off $10 billion worth of assets, following an 87 percent collapse in its annual profits to $1.9 billion. Shell chief executive Ben Van Beurden said the company would make “substantial changes” in the face of the falling oil price. It has eliminated 7,500 jobs and intends to cut the workforce by a further 2,800.
Further “restructuring” could flow from Shell’s takeover of rival BG, a deal valued at £35 billion. The merger is based on calculations that the price for crude will be at least $60 per barrel, compared to the present level of near $30 and predictions that it will remain at these levels for a considerable period.
The worst-placed of the oil majors appears to be BP. It recorded a loss of $5.2 billion for 2015, its worst-ever result, compared to an $8.1 billion profit for 2014. Following write-downs on the value of its North Sea fields, where many of its operations are unprofitable at current prices, it made a loss of $2.2 billion in the fourth quarter alone, compared to a loss of $969 million during the same period in 2014. BP announced that it will axe about 7,000 jobs across its operations over the next two years, amounting to 9 percent of its workforce.
Overall, the energy sector is expected to cut spending to $522 billion this year, following a 22 percent reduction to $595 billion in 2015. This will be the first time since 1986 that the industry has reduced spending two years in a row.
The downturn in oil prices led to a decision by Standard & Poor’s to cut the credit ratings of leading US oil and gas companies, including Chevron. The rating agency downgraded three US shale oil and gas producers—Continental Resources, Southwestern Energy and Hunt Oil—from investment grade to “junk” status.
Exxon kept its triple A credit rating but S&P put it on watch for a possible downgrade, saying it will make a decision within the next 90 days. S&P said it will use longer-term projections in determining its credit ratings. The impact of the slump can be seen in those projections. In December 2014, S&P based its calculations on a long-term price for Brent crude of $85 per barrel. That has been cut to $40 for this year, rising only to $50 by 2018.
Apart from lowered credit ratings, the fall in the oil price is impacting on the financial system, especially via US banks, notably smaller regional banks, which have funded shale oil operations. Figures for January reveal that the main contributor to the 5 percent drop in Wall Street’s S&P 500 share index was the fall in bank stocks.
The impact of lower prices has yet to be fully felt because oil producers have been able to cover their position by taking out future selling contracts at higher than current market prices. As those contracts expire, however, some shale producers will become unprofitable unless there is a significant upturn in oil prices.

More recalls of Takata exploding airbags

Shannon Jones

Automaker Honda said it is expanding its recall of vehicles equipped with defective Takata airbags. The decision comes in the wake of another fatal crash in which an airbag exploded, killing the driver.
Joel Knight of South Carolina was killed in December after his vehicle, a 2006 Ford Ranger, struck a stray cow. The airbag ruptured, sending metal debris into his throat. According to the family’s attorney, if not for the rupture the crash would have only been moderate, and Knight likely would have survived. The driver’s side airbag on his vehicle had not been subject to recall until last month.
So far 14 carmakers have recalled 28 million airbag inflators in 24 million vehicles. However, millions of additional vehicles with potentially defective inflators are still being driven. About 54 million airbag inflators in total have been shipped to the US. Takata controls some 30 percent of the worldwide airbag market.
The explosive, ammonium nitrate, contained in the airbag inflator may break down over time when exposed to moisture and pose a danger. When a vehicle is recalled it receives a new inflator, a metal casing enclosing explosives that help the airbag expand in the event of a collision.
At least 10 deaths, nine of those in the United States, are tied to the defect. Honda recently expanded its recall of vehicles equipped with the defective airbags by more than one-third in North America. The latest action involved 2.23 million vehicles in the US. Honda alone has now recalled 8.5 million Honda and Acura vehicles.
At the time of Knight’s death his Ranger vehicle had not been the subject of a recall. Ford has since recalled 400,000 Rangers built between 2004 and 2006 to replace defective airbags.
New York Times report in September 2014 reported 139 injuries related to the defect across all automakers.
Recalls of Takata airbags have proceeded in piecemeal fashion ever since 2008 when Honda first alerted regulators to the problem. A general pattern has emerged: the issue subsides for a time, then another widely reported death linked to the airbags occurs and more recalls are ordered.
Repairs have taken place at a tortoise pace due to shortages of replacement parts. As of late December only 27 percent of recalled vehicles had the problem corrected.
The death of Knight prompted calls by Democratic Senators Edward Markey of Massachusetts and Richard Blumenthal of Connecticut for the Obama administration to expand the recall of Takata airbags.
Meanwhile, the National Highway Traffic Safety Administration (NHTSA), the federal agency that oversees vehicle safety, has given Takata another three years to prove that ammonium nitrate inflators are safe. This continues a pattern of extreme indulgence shown by the agency to carmakers.
NHTSA imposed a token $70 million fine on Takata in November for providing incomplete or misleading data about defective airbags to the agency since 2009. The company could face another $170 million in additional penalties if it violates terms of the settlement. The company has yet to provide a root cause for the airbag ruptures.
Takata reported profits of $69 million in the quarter ending in December 2015. That represented a nearly 300 percent increase over the same period last year. Sales for the quarter totaled some $1.5 billion. The company recorded $89 million in recall-related costs in the preceding nine-month period. The company’s fiscal year ends in March.
In 2004, Honda first alerted Takata about the airbag problem, but it did not issue a recall or notify NHTSA. In 2008 Honda issued a recall for just 4,205 vehicles, and six months later expanded it to 510,000 cars. At the time, NHTSA belatedly opened an investigation, but did not take any action.
In 2014, NHTSA issued a recall for 7.8 million vehicles, but in a bizarre twist limited it to a few states in areas of high humidity. Owners of defective vehicles in non-recall states were not notified and not eligible for repairs.
A review panel commissioned by Takata released a report Tuesday on the exploding airbag issue. The panel, composed of engineers and former government regulators, issued a toothless report calling for better quality-control systems. Highlighting the revolving door between the auto industry and the US Department of Transportation, the panel included Samuel Skinner, transportation secretary in the administration of President George HW Bush.
Takata has also hired new public relations personnel and reshuffled management in response to the continued revelations.
In a related development, another airbag manufacturer, Continental Automotive Systems, said it is recalling 5 million airbag control units. The devices are fitted to vehicles manufactured by Honda, Fiat Chrysler, Mercedes-Benz and a Chrysler-based Volkswagen.
It follows a recall by Mercedes-Benz in October last year of certain 2008 and 2009 models because the Continental-manufactured control units could corrode. The defect would cause the airbag to expand unexpectedly or not at all in the event of a crash.
NHTSA began a safety investigation in August after 19 complaints from drivers that airbags failed to inflate in older model Honda Accords.
Meanwhile, General Motors will face at least 16 death and injury lawsuits this year for defective ignition switches linked to a minimum of 169 deaths. Last year GM agreed to pay 124 death and 275 injury claims related to defective ignition switches on lower end vehicles, a defect it had known about since 2001, but covered up until 2014. The victim compensation fund received a total of 474 death claims and another 289 claims for category one injuries, including quadriplegia, paraplegia, double amputation, permanent brain damage or pervasive burns. In addition, GM agreed to pay civil damages in cases involving another 45 deaths.
GM officials avoided all criminal charges in relation to its more than decade-long cover-up of the ignition defect, receiving a $900 million fine instead. This continues the record of the Obama administration of shielding corporate criminals, from the BP oil disaster to the bankers responsible for the 2008 financial crash.

North Korea announces satellite launch

Ben McGrath

North Korea announced on Tuesday that it intends to launch an observation satellite between February 8 and 25. The announcement drew immediate condemnations from the US and its allies, as well as expressions of concern from Beijing. The proposed launch has already further raised tensions following Pyongyang’s nuclear test on January 6 and, if conducted, will undoubtedly be seized upon by Washington to justify its continuing military buildup in the region.
The proposed trajectory of the rocket will take it from the Sohae Satellite Launching Station, located on northwestern coast of the country, south across the Yellow Sea. Pyongyang said the satellite will be used to collect weather information and other data. A previous launch in 2012 used a three-stage rocket to place into orbit a satellite that is reportedly not operating
The US issued a sharp rebuke, demanding new and tougher sanctions against North Korea if it carries out the launch, which Washington claims is a disguised ballistic missile test. State Department spokesman John Kirby stated: “This latest announcement further underscores the need for the international community to send the North Koreans a swift, firm message that its disregard for UN Security Council resolutions will not be tolerated.”
Japan is using the foreshadowed launch as the pretext to flex its military might in the region. It deployed Aegis destroyers at sea equipped with SM-3 missiles and has Patriot PAC-3 missiles standing by on land. On Wednesday, Japanese Defense Minister Gen Nakatani instructed the military to shoot down any part of the missile should it come into Japanese territory.
Citing anonymous government sources, Japan’s NHK public broadcaster claimed on Thursday that North Korea was preparing for a separate ballistic missile test from a mobile launch pad on its east coast.
South Korea also issued a statement saying its military would shoot down any rocket parts that entered its territory, while also threatening Pyongyang with “searing consequences.” In another statement, the presidential office declared: “We strongly warn that the North will pay a severe price … if it goes ahead with the long-range missile launch plan.”
These statements point to the danger that the launch could be used to stage a provocation by shooting down the rocket, supposedly in self-defense. Such an action would enormously intensify the already acute tensions on the Korean Peninsula.
The US military is also on high alert. “We will, as we always do, watch carefully if there’s a launch, [and] have our missile defense assets positioned and ready,” US Defense Secretary Ashton Carter said. A US navy spokesman confirmed to Reuters that the missile tracking ship USNS Howard O. Lorenzen arrived in Japan this week.
Washington is already exploiting North Korea’s announcement to intensify the pressure on Beijing to take tougher action to rein in Pyongyang following last month’s nuclear test. President Barack Obama spoke to Chinese President Xi Jinping yesterday “to emphasize the importance of a strong and united international response to North Korea’s provocations”—in other words, insisting that China accept the US demands to move against North Korea.
Last week in Beijing, US Secretary of State John Kerry reportedly pressed Chinese officials on “what China on a unilateral basis, as North Korea’s lifeline, as North Korea’s patron, will choose to do.” The US is demanding that China block North Korea’s only access to oil and other supplies, as well as its already limited access to the international financial system—moves that could provoke a severe economic and political crisis in Pyongyang.
The sharp differences between Washington and Beijing were evident in Kerry’s joint press conference with Chinese Foreign Minister Wang Yi. While condemning North Korea’s nuclear test, Wang declared that “sanctions are not an end in themselves” and urged a return to “the path of negotiation and consultation. Beijing is fearful that a collapse in Pyongyang will be exploited by Washington to install a pro-US regime on China’s northern borders.
As a result, China also expressed concern over the upcoming satellite launch and called for restraint from all sides. Chinese foreign ministry spokesman Lu Kang stated: “North Korea of course has rights to use space, but it is currently under sanctions of the UN Security Council.” After a senior Beijing envoy visited Pyongyang this week, Foreign Minister Wang said China had told North Korea it did not want anything to happen that would further raise tension.
Like its fourth nuclear test last month, there is nothing progressive about Pyongyang’s proposed rocket launch. It is designed as an occasion for nationalist grandstanding and to deflect mounting political tensions within the regime. Far from preventing an imperialist intervention, the nuclear tests and rocket launches simply provide the US and its allies with a pretext for accelerating their military build-up against China as part of Washington’s “pivot to Asia.”
Following the fourth nuclear test, Washington immediately stepped up its push for a Terminal High Altitude Area Defense (THAAD) battery to be stationed in South Korea. As a Center for Strategic and International Studies report released last month made clear, the stationing of THAAD and other anti-missile systems in the region is ultimately aimed at China.
According to a Wall Street Journal article on January 28, the US and South Korea are nearing agreement on the system. “Behind the scenes it looks like THAAD is close to a done deal,” stated a former US official who has been in talks with senior South Korean officials. THAAD consists not only of missiles to shoot down an incoming ballistic missile but also a radar system known as the AN/TPY-2 X-band.
China is concerned that the AN/TPY-2 radar will be used to monitor Chinese territory. The purpose of such an anti-ballistic missile system is not defensive, as the US argues. It is an integral component of the Pentagon’s war plans, involving a nuclear first strike on China. Whatever missiles Beijing could launch in a counterattack could be knocked out by THAAD or other systems.

Pakistan airline workers defy government repression, continue strike

Sampath Perera

The strike of Pakistan International Airlines (PIA) workers continued for a fourth day on Friday, grounding the entire fleet of the state-owned airline.
The workers’ defiance in the face of Tuesday’s bloody crackdown against the strike and threats of mass firings and jailings marks a significant intensification of the class struggle in Pakistan.
Following a long-running campaign against privatisation of the airline, PIA workers struck Tuesday, defying a ban Prime Minister Nawaz Sharif’s Pakistan Muslim League (PML-N) government had imposed the day before on all industrial action. When the ban failed to pre-empt the strike, the government ordered a brutal attack on workers at Karachi’s Jinnah International Airport, where the strike was most strongly supported. The attack left two workers dead, PIA communications manager Inayat Raza and aircraft engineer Saleem Akbar, and a dozen more injured.
The police and paramilitary Rangers, armed with the sweeping powers given them by Sharif’s “anti-terrorism” laws, deployed water cannons, tear gas, baton charges and rubber bullets against the workers, then ultimately fired live bullets.
At a court hearing yesterday on the death of the workers, it was revealed that the shooting started after an unidentified “bearded man”—presumably a high government official or intelligence officer—was overheard telling security forces to open fire.
With anger seething across the country over the murder of the workers, Malir District and Sessions Court Judge Khalid Hussain Shahani criticized the police for refusing to register a legal case over the killings and for washing the crime scene with “the intention to destroy forensic evidence.”
All indications are that the attack on Tuesday’s protest was approved at the highest levels of the federal and Sind provincial governments, the latter led by the opposition Pakistan People’s Party (PPP). Following the bloodshed, Sharif threatened to terminate the strikers’ jobs and jail them for a year.
But by this time the strike was spreading to airports across the country, quickly leading to the grounding of PIA’s entire fleet for the first time ever and throwing the government into crisis.
Yesterday, after a high-level meeting at Sharif’s office, a “close aide” told Dawn, “There will be no going back, come what may.”
The government is determined to crush the strike, which is challenging the massive privatization program Sharif vowed to implement in 2013 so as to secure a US $6.64 billion International Monetary Fund (IMF) bailout. At issue for the government is not just the $1.1 billion that still remains to be released to Pakistan, however critical that money may be to the crisis-ridden economy. The reputation of Pakistan as a market for local and, more importantly, desperately sought foreign investment depends heavily on the scorecard issued by the IMF.
In recent months, the Sharif government has come under increasing pressure from the US-dominated IMF to make good on its commitment to privatize 68 state-owned enterprises branded as “loss-making.” Last month it pushed legislation through parliament to set the stage for PIA’s privatization, but because of mass worker opposition announced it was postponing the sell-off for 6 months.
This, according to a Reuters report, led to angry exchanges at a meeting between Pakistan government and IMF officials held in Dubai from January 26 to February 4 to decide whether the next loan tranche should be released.
According to Reuters, which spoke to Pakistani officials “with direct knowledge” of the situation, the IMF officials hectored Finance Minister Ishaq Dar and other government officials at the meeting for equivocating on implementation of the privatization program for fears that it would lead to mass social unrest.
“It was embarrassing and brutal,” a senior government official told Reuters. “It was nothing less than a dressing down. If the IMF still doesn’t penalize us, then all I can say is, ‘We’re very lucky’.” Another senior Finance Ministry official confirmed this account with Reuters.
According to a report in the Express Tribune, the IMFs review panel was “extremely critical of the government’s failure to move ahead with privatisation deadlines,” but has agreed, under the circumstances, to a six-month delay in the PIA’s privatization and will recommend to the IMF’s board of directors that the next tranche of the loan, $497 million, be released.
In its statement on Thursday, the IMF noted that “measures pertaining to the energy sector reform and restructuring of loss-making public enterprises are yet to be implemented.” These measures, which will mean huge increases in electricity charges, a massive assault on workers’ jobs and wages, and the dismantling of public services, were termed by the IMF as “critical” for “long-term resilience of the economy” in the face of “a weak cotton harvest, declining exports, and a more challenging external environment.” In other words, a further assault on the social position of the working class is necessary as a new economic crisis is looming.
Both the government and IMF have made clear the privatisation program will not be shelved. Addressing a press conference Thursday alongside the IMF Mission Chief, Finance Minister Dar reaffirmed the government’s resolve to “convert loss-making state-owned enterprises into profitable enterprises.”
But to move forward the government and Pakistani ruling elite must defeat the opposition from the PIA workers and the working class as a whole.
With the government’s attempts to crush the strike having thus far backfired, sections of the corporate media, such as Dawn, are counselling Sharif to take up the unions’ offer of talks and collaboration in making the airline profitable. They are also urging the opposition parties not to exploit the government’s predicament.
The strike is being organized by a Joint Action Committee (JAC) comprised of representatives of the various PIA unions, which are themselves affiliated to the establishment parties, from the PPP to the Islamic fundamentalist Jamaat-e-Islami.
As the government moved forward with its plans to privatize PIA over the last two months, the unions repeatedly delayed any job action directed at grounding PIA flights.
While calling for the privatisation to be stopped, the JAC’s four-point program stipulates that “employees be provided a chance to reform the airline,” i.e., to make it into a profitable enterprise. “If the employees fail to do so,” it continues, “the government will have the freedom to do whatever it finds suitable.”
This is a disastrous formula for the workers. Similar union collaboration with management allowed Sharif to slash PIA’s workforce from 17,000 to 14,000 in past years.
In keeping with their acceptance of the fundamental premise of the privatization program—that state-owned enterprises must be profitable concerns, not providers of public services—the unions have issued no appeal to workers at the other companies targeted for privatization, let alone the working class as a whole, to join them in a working-class political offensive against the big business Sharif government and the IMF. Such an offensive would be aimed at making big business, not the workers and toilers, pay for the capitalist crisis, by bringing to power a workers’ government.

Recession risk on the rise

Nick Beams

In accordance with the perverse logic that governs the stock market, where bad news for the real economy is regarded as good news for financial speculation, Wall Street’s Dow Jones index fell by more than 200 points on Friday on the back of the US jobs report.
While the report showed job growth of 151,000, below expectations and well below the 262,000 increase in December, it brought the official unemployment rate down to 4.9 percent and therefore was not sufficiently bad to ensure that the Fed takes further interest rate increases off the table for the foreseeable future. Consequently, the market went down.
However, the report, showing that 9.9 percent of the workforce is either unemployed or working part-time while desiring full-time employment, did not reflect a series of layoff announcements over the past month.
The outplacement agency Challenger, Gray & Christmas reported that employers announced 75,115 job cuts last month, up from a 15-year low of 23,622 in December. The announcement came in the wake of a series of economic reports indicating a significant slowing of the US economy, with economists and financial analysts estimating a 20 percent chance of recession, the risk of which was considered negligible only a few weeks ago.
Overall gross domestic product grew at an annual rate of only 0.7 percent in the December quarter. The Commerce Department has reported that new orders for manufactured goods fell by 2.9 percent in December, the largest drop in a year.
Writing in the Financial Times this week, market columnist John Authers noted that the “greatest concerns [over recession in the US] surround industrial production and manufacturing.” He continued, “Industrial production fell in 10 months out of 12 last yeara figure that has always, since 1919, been associated with a recession.”
Significantly, in view of the claims that manufacturing is not the important indicator it once was and consumer spending is the key driver of the economy, large job cuts are taking place in retailing. Major firms have announced plans to cut 22,246 jobs, the most since January 2009, with Walmart planning to close 269 stores worldwide.
Energy companies, hit by lower oil prices, plan to cut 20,246 jobs, up from 1,682 in December.
The Institute for Supply Management’s purchasing managers’ index for manufacturing came in at 48.2 for January, below the 50-line that separates contraction from expansion, the fourth successive month it has been in negative territory. The ISM index for non-manufacturing fell to 53.5 in January from 55.8 in December, well below economists’ expectations of a 55.1 reading.
In a further indication of the distance of the political establishment from the real situation facing the mass of the population, President Obama hailed the job figures and the fact that the unemployment rate of 4.9 percent was half the 10 percent level in the immediate aftermath of the financial crisis. The “durable” US economy had continued to grow and was “the strongest in the world,” he declared, adding that Americans should “feel good about the progress we’ve made.”
In his remarks, Obama pointed to challenging headwinds in the global economy, but did not dwell on them as he sought to counter what he called the “doom and despair” of Republican stump speeches in the lead-up to the New Hampshire presidential primary on Tuesday.
But even as he spoke, those “headwinds” were getting stronger. In US financial markets, the yield on ten-year Treasury bonds has fallen back below 2 percent, generally an indication of coming recession. The fall in yields has been particularly marked. In early December, Bloomberg reported that only two of the 73 analysts it polled predicted that the 10-year rate would go back below 2 percent.
This is part of a global trend. In Europe and Japan, government bonds worth nearly $6 trillion are now so high in priceindicating a lack of confidence in the real economy as investors seek safe havensthat buyers would make a loss if they held the bonds to maturity.
“If major government bond markets are right,” the Financial Times noted, “the global economy is sliding towards recession.”
Bill Gross, known as the bond market king when he headed the world’s biggest bond trading firm, PIMCO, warned this week of “shades of 2007,” when the US Fed failed to see the emerging financial crisis. Low interest rates and massive central bank intervention had failed to generate economic growth and were beginning to endanger bond investors, he said. After several decades of zero percent rates, the Japanese economy had failed to respond and the US economy had averaged only 2 percent growth since the end of the recession in 2009.
Another indication of worsening financial conditions was contained in a report from the Bank for International Settlements (BIS). It noted that the surge in lending to emerging markets, which played a significant role in holding up global growth after the financial crisis, had come to a halt.
The total stock of dollar-denominated credit in bonds and bank loans to emerging markets, including corporations, governments and households, but excluding banks, had fallen to $3.33 trillion at the end of September last year, down from the level of $3.36 trillion in June. This was the first decline since the first quarter of 2009, at the height of the financial crisis.
The head of research at the BIS, Hyun Song Shin, told the Financial Times that an investment boom creates a “virtuous circle” in which things can look better than they actually are, but which “can quickly go into reverse” and turn into a “vicious circle,” especially where a high level of leveraging is involved.
With the onset of a “deleveraging cycle” in emerging markets, “all the weaknesses are suddenly being uncovered,” he said.
“The issue is not just for emerging markets,” he added. “It is spilling back into developed markets. The broader financial markets are recoiling from risk, and that spreads across all markets. The problem now is that the real economy is being affected.”
International Monetary Fund Managing Director Christine Lagarde also pointed to growing financial dangers. In a speech this week, she called for the existing financial “safety net” to be strengthened to prepare for a crisis in commodity-exporting countries, which were coming under “severe stress.” The IMF is already in talks with Azerbaijan over a bailout of $4 billion, Nigeria is seeking a $4 billion loan to cover its budget deficit, and other countries may not be far behind in seeking assistance.
Last month, the Institute of International Finance said there had been a net capital outflow of $735 billion from emerging markets in 2015, the first such occurrence since 1988. Contracting liquidity in these markets presented a greater threat to global growth than either the slowdown in China or falling oil prices, it warned.