STAFF NEWS & ANALYSIS
What Global Recovery?
By Staff News & Analysis - March 31, 2010

Ireland poised for 'once-and-for-all' €15bn bank rescue … The Irish Government is preparing to nationalise a large proportion of its financial services sector in a radical bid to restore confidence in its embattled banks. In an announcement expected after the markets close on Tuesday, the Ireland's Minister for Finance, Brian Lenihan, is expected to pledge as much as €15bn (£13.5bn) in additional capital to its banks and building societies. The Dail is tonight finalising details with the Financial Regulator and the National Treasury Management Agency (NTMA) on the co-ordinated announcements which relate to Bank of Ireland (BoI), Allied Irish Banks (AIB) and Anglo Irish Bank. Ireland's banks will be able to shift to the National Asset Management Agency (Nama) their "bad loans", most of which relate to vast property deals that collapsed during the financial crisis. In return, the Irish taxpayers are likely to take a stake of around 40% of BoI and at least 70% of AIB, effectively nationalising the bank … Two of Ireland's building societies, Educational Building Society and Irish Nationwide, are also likely to be entirely nationalised as part of the rescue package. The announcement – billed as the Irish government's "once-and-for-all" solution for the banks – is seen as critical to the restoration of confidence in the eurozone as a whole. There has been speculation that if it is not enough, Ireland could spark an emergency as threatening as the recent debt crisis in Greece. – UK Telegraph

Dominant Social Theme: Don't look behind the curtain.

Free-Market Analysis: Not a day goes by that we don't read an article or see an Internet video that proclaims green-shoots have turned into what should be eventually a full-blown recovery. In America, we read, the recovery, though tentative, is doing well; the stock market has doubled, foreclosures are down and job losses are down. The EU, we read, is settling its issues with Greece as German leaders realize finally that the EU itself is a progressive institution and too valuable to lose over something so transient as "Club Med" bankruptcy. Meanwhile, China is taking big steps to rein in the price inflation that has inexplicably popped up over there. Thus it is, worldwide, we're told, recovery takes hold.

In this article we will try to explain why we're skeptical of claims that the world is on the fast-track (or even the slow-track) to a meaningful economic recovery. Just as importantly, we will attempt to show how two other factors – the alternative media and the depth of the financial crisis itself – are militating against the kind of full-blown recovery that is supposedly getting underway, according to mainstream news sources. From an investment standpoint, the contradictions between fiat money and free-markets are more extreme than ever. Understanding the dominant social theme of "gradual but relentless recovery" may be a critical component of one's portfolio-performance in this confusing, modern era.

So … "what recovery?" we ask. We've done our own digging and published our responses to this power elite "recovery meme." We have a lot of trouble believing it. We see nothing but a slow, grinding, digging-out that will ultimately result in the further impoverishment of the Western middle class if the current system remains in place. The economics drivers of the early 21st century seem troubled. China for instance is to continue to be a lynchpin of the world economy. But China just banned land-sales to try to cool its raging property market. We would argue that China's crippling price inflation is bound to slow down that country's economy and maybe it will have a sociopolitical impact as well. You can see the article here:

Imploding China Forbids Sale of Land

Just yesterday we published an article on how the EU solution to the Greek debt crisis was probably no solution at all – and Greece is still on its own, stumbling toward bankruptcy despite its recent (quasi-) successful debt auction. Of course, the debt troubles that Greece has are shared by numerous other EU economies. Here's the link to that article:

EU Deal Helps Greece – Maybe Not?

America, meanwhile (we've read), is said to be on the brink of a great recovery, but what we see in large measure is increasing and pervasive joblessness. Government figures show unemployment in the area of 10 percent, but we think the actual figures are closer to 20 percent, and maybe higher than that. In fact, here's a Reuter's report on the American situation, which shows worry over the situation:

Fed's Evans: Joblessness to Linger Above 9 Percent … U.S. unemployment remains a cause for concern, a top U.S. Federal Reserve official said, adding that inflationary concerns are minimal. Chicago Federal Reserve Bank President Charles Evans said he was "very concerned" about unemployment in the United States, predicting that the unemployment rate would stay above 9 percent by the end of the year. Earlier this month, the United States said the unemployment rate held at 9.7 percent. He made the comments to reporters at a media briefing in Hong Kong on Tuesday. Evans forecast the unemployment rate to contract, however, to 8 percent by the end of 2011 and then to 5 percent with an economic recovery.

Has the mainstream Anglo-American press ever been so schizophrenic? Here's a positive analysis of the Irish economy published by ABC news only two weeks ago:

The Pluck of the Irish … Ireland Battles Economic Woes, Offering Lessons for America … As Irish Americans mark St. Patrick's Day with bagpipes, parades and profound displays of drunkenness, mother Ireland finds herself suffering from one nasty economic hangover. Irish financial institutions, not unlike those in the United States, overindulged during the past decade, lending hand over fist in a bubbly real estate market and leveraging balance sheets to the hilt. And like those in the United States, Irish banks, most dramatically Anglo Irish Bank, needed government assistance after the party ended.

Unlike their American counterparts, however, Irish bankers, political leaders and citizens have, for the most part, come together to do whatever was necessary to climb back up off the floor, including across-the-board spending cuts. Ireland, fittingly, is starting to see some green shoots. "We've still got a long way to go, but I think some of the hardest belt-tightening decisions have been made," Dublin City University finance professor Brian O'Kelly said. "People here are optimistic that we've turned a corner."

OK, that all sounds fairly hopeful doesn't it? Then why, according to the Telegraph article (excerpted up top), is Ireland nationalizing its banks all of a sudden? Here's some more from the article:

The Irish regulator will set higher capital requirements for the banks, expected to be about 7%. As a result, the banks will have to raise fresh capital. BoI, which was forced to delay the announcement of its results from Monday until after the government's statement, is planning a substantial rights issue to satisfy the new regulatory requirements.

Anglo is expected to need a further capital injection of about €9bn from the Irish state. The capital required by the lenders will be determined by the losses on the loans moving to the Nama, the Financial Regulator's assessment of losses on non-Nama loans and the new thresholds set by the regulator on the minimum capital the banks must hold by the end of this year. Two of Ireland's building societies, Educational Building Society and Irish Nationwide, are also likely to be entirely nationalised as part of the rescue package.

The announcement – billed as the Irish government's "once-and-for-all" solution for the banks – is seen as critical to the restoration of confidence in the eurozone as a whole. There has been speculation that if it is not enough, Ireland could spark an emergency as threatening as the recent debt crisis in Greece. Despite the banks insisting that the announcement will end the long period of uncertainty, shares in both BoI and AIB fell heavily on Monday amid investor nervousness ahead of the announcements.

See? We're getting whiplash trying to keep up. ABC News profiles the plucky, resolute Irish. The Telegraph tells us that private Irish banking is kaput. We're apt to blame it on the Internet, in part, anyway, and the pressure that the alternative press is putting on the mainstream media. In the past, the bad news could be kept to a minimum during an economic recovery but in this case, it's all being reported. The storyline has disintegrated. For every positive news item there seems to be a negative one.

In the past, recoveries from worldwide economic trauma have seemingly been massaged by a combination of massive liquidity (courtesy of the central banks) and equally massive doses of positive reporting about the economy's progress, locally or worldwide. A resultant surge in employment finally drives the persistent unemployment rate down – until the next horrible, mercantilist fiat-money/central-banking crash.

Ironically, it is the lack of willingness of the power elite to compromise its control over fiat money that may eventually end the game. In America certainly, but also Europe, the huge distribution of cash to banks and other large financial entities has made the unfairness and manipulation of the system manifestly clear. Pre-internet, such massive manipulations might have gone unreported, or been positioned more positively somehow. We've written about that, too:

Have the Immoral Actions of Central Bankers Precipitated the Decline of the West?

Those who dismiss the rage and resentment this has fostered are kidding themselves. Additionally, the mainstream media cannot simply present a story-line of endless ascension after a catastrophic crash because the alternative media is waiting to correct it – and will happily do so. In fact, the crash itself has been so bad that the usual money-printing isn't working very well. Economies that were increasingly distorted by central-bank fiat-money overprinting during the past 50 years have not yet snapped back. The endless funding of incompetent and ruined companies is only retarding whatever recovery there might be.

The combination of joblessness (the result of endless fiat-money distortion), better reporting about the reality of the crisis and the evident unfairness of the way fiat money has been disbursed has likely put paid (in a sense) to the system that has operated for at least a century. Certainly, the system is under attack as never before – except maybe during the Great Depression, and we would argue the forces arrayed against it are even more formidable this time around. The idea that the world, especially the Western world, has overcome the crisis of the past two years and is well on the way to a "real" recovery, is certainly questionable, and substantially so.

After Thoughts

Unwilling to implement, say, a market-based money standard (gold and silver) the power elite faces uncertainty as regards the immediate future worldwide and certainly in the West. And then there is this, a recent Yahoo/Reuters report: "Obama, Sarkozy push for UN sanctions on Iran … President Barack Obama declared Tuesday he hopes to have international sanctions against Iran in place 'within weeks, not months,' because of its continuing nuclear program. …" In the absence of a conclusive, global economic fix, do the drums of war beat a little louder?

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