australianvoice (australianvoice) wrote,
australianvoice
australianvoice

So You Think Your Assets Are Safe In The West's Financial System? Guess Again!

Introduction
Recently in Australia the 2014 budget with its savage attack on the living standards of ordinary people has made more people understand that while the wealthiest top 20% of the population has been doing quite well, the rest of us have been slowly getting poorer. All the cuts in the budget were aimed at the 80%, and the more disadvantaged you are, the more your programmes have been cut. People have the idea that the top 20% are doing OK because the tax system has been designed so that the higher your income, the less tax you need to pay.

In reality the wealth of the top 20% in Australia has also been put at risk by the Abbott government. Strange as it may sound, the power of the giant banks and the super-rich is also a threat to the assets of the wealthiest 20%. They are threatened by this same system and the same political puppets that want to drive down wages, increase taxes on ordinary people, and make merciless cuts to valuable social programs as well as health and education.


Here Is A Criticism Of The Abbott Government From The Right
We can start with an article in which Tony Abbott is called an “Economic Totalitarian” and a “Marxist.” This sounds absurd, but the author sees the following similarity between them: both Marx and Tony Abbott are supporters of the confiscation of the money of the wealthy have in banks. Probably most of the 20% who support the Abbott government don’'t even know how they have been thrown to the wolves just like the rest of us. If, or when, the financial system has another crisis like 2008, they will be hopping mad when they see their money, hard earned or not, disappearing from their bank deposits.

This article shows just how nasty Tony and his friends really are. They only do what the big banks and other major corporations want. He tries very hard to appear to be a “real Australian”, but in fact he is a traitor to every one who lives here.


Some Investors See Tony As A Totalitarian
On 3rd May 2015 an article appeared by Martin Armstrong, the former chairman of Princeton Economics International Ltd, which was later posted by Tyler Durden on Zero Hedge.(1) The article, entitled “"Australia First to Introduce a Compulsory Tax on Money Itself”," begins as follows:

"“All my sources behind the curtain were screaming from the four corners of the world that the new age of Economic Totalitarianism is upon us all. Australia will be the first to introduce a compulsory tax on savings.
"“The new compulsory control is provided in the 2015 Australian budget, so that everyone who has any savings must pay taxes on their savings. The measure is expected to serve as a global test balloon for Europe and North America, who will watch for the outcome in Australia. If there is no massive resistance of Australian savers, the rest of the world should expect this outright confiscation very rapidly.”"(2)


The idea that such a tax would be in the Federal Budget this year was noted in the press in March this year.(3) Armstrong has a long history of financial analysis and is known for developing the Armstrong Economic Confidence Model, and for predicting the crash of 1987. The article is an interesting mix of information and invective against the current world economic order, the International Monetary Fund (IMF) and the Abbott government. Consider this:

"Economic Totalitarianism is upon us all. Australia will be the first to introduce a compulsory tax on savings. This is the ultimate Marxist state, for now anyone with spare cash is the enemy of the conservative Tony Abbott government."

In the same sentence, Armstrong calls Abbott both a "Marxist" and "conservative", which is common for commentators in the US who use words more for their emotional effect than their dictionary definitions. But Armstrong has another complaint. He is not just worried about a tax on bank deposits. "We have to stop this confiscation of all wealth and the continual borrowing and taxation."


Forget the Name Calling. The Problem Is Higher Taxes And Massive Debt.
The new world economic order is based on a few super-giant banking firms with complete control of Western governments and an absolutely mind boggling levels of debt. These high and growing levels of debt simply dump more and more money in the form of interest into the coffers of these banks. The real purpose of the wave of “privatization” is to increase debt and so increase interest payments to the banks who lend the money.

While Abbott and Hockey have publicly ranted about the level of debt in Australia, which is really quite low, the rest of the West is drowning in debt. The external debt of a country is understood as the total public and private debt owed to people in other countries repayable in internationally accepted currencies. The public debt is the money owed by any level of government and the private debt the money owed by private households or private corporations. The external debt of the USA in December 2014 was $17,997,889,181,468, which is read as roughly $18 trillion.


What Does A Debt of $18 Trillion Mean?
Such a number is so large that many of us cannot really grasp its significance. One way to understand these huge numbers is to compare the amount of money a country owes with the Gross Domestic Product (GDP) of that country. The GDP of a country is the total of all monetary valued created in the country over a year. The GDP of the US is also about $18 trillion, which means that the US "makes" or "earns" $18 trillion a year.

When you realize that the amount of the money the US owes to the rest of the world is also about $18 trillion, you might want ask: How long would it take for the US to pay back all the money it owes? To make matters worse, the UK owes four times its annual GDP, Germany owes one and a half times its GDP, and France owes twice its GDP. So it seems that the "West" is in hock up to its eyeballs! For other comparisons, China is in debt for 37% of its GDP, Australia is in debt for about 30% of its GDP, and Russia is in debt for 23% of its GDP. And our financial press would have us believe that Russia is an economic basket case?(4)


The World Economic Order Benefits Only The Super-Rich
This system of massive debt is created by and for the super-rich. Martin Armstrong is writing on behalf of the wealthy who are not among the super-rich. They are scared out of their minds because they realize that this system with such high levels of debt cannot go on forever. In the end none of the debts can be repaid, and the world economy will collapse as it did in 1929. Tony Abbott is seen as one of those "corrupt and seriously deranged politicians who are destroying Western civilization in the blink of an eye."

These words are not the ravings of a lunatic. This is the voice of someone who understands what is never presented in our mass media: the financial system of the West is in very serious trouble and is on the way to a serious economic collapse. The financial press are not going to tell this to prospective investors because people would pull their money out of the financial system and cause a collapse. The financial press will protect the banks, who probably own the media anyway, until the whole system hits the wall. There are people around who have been saying the current situation is heading for a disaster, like Tyler Durden at Zero Hedge, but not a word of this will be found in the “official” media.


If The Banks Fail, The Moderately Wealthy Will Loose
It is important to realize that the super-rich are not worried about a tax on bank deposits. They don’t have money deposited in banks, they own the banks. They have also set up the system so that they avoid virtually all taxes. If the economies of the West crash as the banks (to big to fail) go bankrupt, those are not the super-rich will loose the money tied up in the financial system. If you think the super-rich are also worried, remember that they control the governments and will make sure they are looked after. Also remember all the diamonds, cars, works of art, etc. they would still own. Nothing will hurt them. One of their strategies will be explained below. It is this strategy that will “expropriate” money from the top 20%.

Notice the advice Armstrong gives to these “small” investors:

"This decision to put a tax on savings would seriously harm the government, and if there are any smart Australians, it should be a race to get the hell out of the banks. The banks should see a massive withdraw. Take your money and buy tangible assets, even gold, but you just cannot store it in a bank. Movable assets will be the key and buying equities in the USA may be the only real game in town to protect money."

However the advice to buy equities in the USA does not seem to be a good idea. Why does he think they will be OK if the system goes belly-up? The best advice is to buy gold. This is what the Chinese, Russians and Indians are doing. The price of gold has been artificially driven down by the big banks. When the proverbial hits the fan, the price of gold will go through the roof.


The Banks Have A Giant Risk Problem Called Derivatives
There are three main types of financial instruments today: stocks, debts which take the form of bonds or mortgages, and derivatives. The idea of derivatives has been around for a while, but in the last 20 years they have become central to our financial system. They are not regulated, and it is almost impossible to assess the value of derivatives today. While they can be use to guard investors from risk, they also can themselves generate great risk. Many forms of derivatives are actually bets that something will or will not happen, and their increased use has led some to describe our system as casino capitalism. Check out this comment from Wikipedia:

“"Derivatives typically have a large notional value. As such, there is the danger that their use could result in losses for which the investor would be unable to compensate. The possibility that this could lead to a chain reaction ensuing in an economic crisis was pointed out by famed investor Warren Buffett in Berkshire Hathaway's 2002 annual report. Buffett called them 'financial weapons of mass destruction.' A potential problem with derivatives is that they comprise an increasingly larger notional amount of assets which may lead to distortions in the underlying capital and equities markets themselves.”(5)

An estimate of the value of current derivatives from an article by Ellen Brown is $297 trillion. For comparison the total world GDP is 77 trillion.(6) In other words the money involved in derivatives is at least three times the world’s GDP for one year. Because the banks often bet against each other, if there is a major miscalculation in only one area, say iron ore futures, the whole system could collapse. But don’t worry. The banks have found a way to deal with this risk. It is now legal for banks to take money from their depositors to help keep the banks solvent. Your money in a bank is not really yours any more. No wonder “small” investors, with only a few million in the bank, are starting to get worried.


Any Deposit Can Be Taken By Banks To Keep Themselves Solvent
This policy has been introduced only recently. It was developed to support the too big to fail banks, and the super-rich who own them. Countries in the West are so loaded with debt themselves that they will not be able to keep them solvent as they did after the crisis in 2008. It was first used in 2013 when banks in Cyprus got into trouble. "“Depositors at bailed-out Cyprus' largest bank will lose 47.5% of their savings exceeding 100,000 euros ($132,000), the government said Monday."(7)

In other words the bank was allowed to take, appropriate, steal, funds from its depositors to help the bank escape bankruptcy. Further this was made official policy at the last G20 meeting in Brisbane, during the weekend of the 16th November. The policy paper was called: "Adequacy of Loss-Absorbing Capacity of Global Systemically Important Banks in Resolution." The following passage is from an article by Ellen Brown which describes the reaction of some financial commentators:

“"Russell Napier, writing in ZeroHedge, called it ‘the day money died.’ In any case, it may have been the day deposits died as money. Unlike coins and paper bills, which cannot be written down or given a ‘haircut,’ says Napier, deposits are now ‘just part of commercial banks’ capital structure.’ That means they can be ‘bailed in’ or confiscated to save the megabanks from derivative bets gone wrong.
“Rather than reining in the massive and risky derivatives casino, the new rules prioritizing the payment of banks derivatives obligations to each other, ahead of everyone else. That includes not only depositors, public and private, but the pension funds that are the target market for the latest bail-in play, called ‘bail-inable’ bonds.”(8)



The Banks And the Super-Rich Have Two Enemies
The left's opposition to the rule of the banks and the super-rich is everywhere. We hear much less of what might be called the right critics of the system, particularly in Australia. These are people who are perfectly happy with old style capitalism and the accumulation of wealth, but not the present form of monopoly capitalism. They see their wealth being put at risk by increased taxes and by the absurdly high levels of debt. When Armstrong writes of the "Economic Totalitarianism" of Abbott and the IMF he is not exaggerating. Like people on the left, he is concerned about the enormous power of the banks and the IMF as they pile debt upon debt and grasp money from anywhere to keep the system afloat.

It is not clear how many investors in Australia will understand or heed Armstrong’'s warnings. However if, or when, the economic system has another serious crisis, the Abbott government might find that some of the best Australian friends of the Liberal and National Parties will be seeing red. What capitalism gives, capitalism can take away. In the eyes of the giant banks, your right to private property means no more than the right to vote, or speak your mind. Their survival comes first.

Footnotes:

1. http://www.zerohedge.com/news/2015-05-04/war-cash-australia-leads-new-age-economic-totalitarianism
2. http://armstrongeconomics.com/archives/30158
3. http://www.businessinsider.com.au/report-the-federal-government-is-planning-a-bank-bail-out-tax-in-the-may-budget-2015-3
4. https://en.wikipedia.org/wiki/List_of_countries_by_external_debt
5. http://en.wikipedia.org/wiki/Derivative_(finance)
6. http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)
7. http://www.usatoday.com/story/money/business/2013/07/29/bank-of-cyprus-depositors-lose-savings/2595837/
8. http://ellenbrown.com/2014/12/01/new-rules-cyprus-style-bail-ins-to-hit-deposits-and-pensions/
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