The U.S. has unleashed a new form of financial warfare on the world. Still struggling to swim the seas of the worst economic depression since the 1930's, fraudulent U.S. banking schemes have caused a ripple effect around the globe. The result is a credit creation competition, "to buy foreign resources, real estate, public and privatized infrastructure, bonds and corporate stock ownership," using "keyboard credit," which is essentially the bailout money injected into the credit and banking systems during the current financial collapse.
Instead of this money being reinvested back into the domestic economy, like it was intended for, it is being used overseas causing foreign economies to recycle this nonexistent money, and pushing up their currency against the dollar by "arbitrageurs and speculators flooding their financial markets with dollars." Foreign central banks are then forced to into a Sophie's Choice position of either allowing the dollar to push up their exchange rates, which would mean "pricing their exports our of global markets," or to recycle the dollars into U.S. Treasury bills generating 1% and with an exchange value that is on the decline.
The theory behind flooding economies with credit is called "quantitative easing". The Federal Bank has been pumping credit reserves into the domestic financial system to reduce interests rates so that the banking system can earnestly climb out of their current negative equity. The problem with this practice is that "quantitative easing is driving the dollar downward and other currencies up." Meaning that currency speculators, the banks, the investors, and Wall Street, are making more money off of this fictitious influx of relief credit, and are using this money abroad, reeking havoc on foreign financial systems.
In doing so, "the world is being forced to choose between financial anarchy and subordination to a new U.S. economic nationalism… prompting nations to create an alternative financial system altogether." The global financial system has already tried a failed experiment with quantitative easing in 1990 with Japan's financial collapse. Now, the U.S. is causing history to repeat itself. With the 2008 collapse, the Federal Reserve injected the economy with credit aiming to provide banks with more liquidity, which they would in return lend more to domestic borrowers. The economy would then "borrow its way out of debt" causing a rejuvenation of real estate assets, stocks and bonds, deter home foreclosures, and prevent a wipeout of the banking system. The Fed's credit was supposed to be used for banks to increase loans for real estate, consumers or businesses, but instead, they are still collecting on past loans, and the U.S. liquidity is spilling over into foreign economies, increasing exchange rates, and causing chaos amongst the global market.
Foreign Governments are now in survival mode to rescue their own exchange rate: Japan is resorting to techniques such as currency "sterilization," either through buying and selling government bonds, or seeking out U.S. companies to buy like China. Brazil and and Thailand are both seeing an influx of foreign money which is pushing up taxes on foreign purchases and creating a "trade war," increasing currency trade restrictions. This influx greatly disrupts trade patterns, while at the same time creating huge profits for large financial institutions.
All of this results in "the arbitrage opportunity of the century," in strengthening the assets of the said large financial institutions, while crippling smaller and foreign systems causing a suffocating monopoly of the world market. The current situation is causing a cold-hard look at the current financial engine, resulting in the degradation of the world market, or evolving into a new system that may leave the U.S. isolated.
The bottom line is that this financial crisis is an opportunity to re-evaluate the behavior of the financial system and reinstate a system of checks and balances. The U.S. must follow suit with the rest of the world markets by practicing capital control. Rather than banks polluting the oversea markets, currency must be reinvested in domestic production to balance the whirlpool of money being flushed down the financial toilet.
You can read the full report here on AlterNet.
Image: by Lew57 on Flickr courtesy of Creative Commons Licensing.