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Has America’s Use of Finance as a Foreign Policy Tool Backfired?

Yves Smith

From the 1980s onward, one of the major aims of American foreign policy has been to make the world safer for US investment bankers. That might seem like an exaggeration until you look at the priorities of American economic policy as well as the actions of US-dominated international institutions like the World Bank and the IMF. The World Bank, though its International Finance Corporations, pushed emerging economies to set up capital markets. The posture was that more open markets were always better.

Now that we’ve had repeated tsunamis of hot money flows in and out of small economies wreak havoc with them, conventional wisdom among development economists is more along the lines of “protectionism in emerging economies is desirable so they can develop companies and/or export sectors that are capable of competing internationally, and also serve domestic markets, so that the economy isn’t too export dependent. Open capital markets produce too much volatility in interest and foreign exchange rates and thus undermine internal development.”

Similarly, the US has pressed advanced economies for more open financial markets. America’s insistence that Japan deregulate its banking system was a prime driver of its 1980s bubble (I had a bird’s eye view of how the Japanese banks went full bore into all sorts of products and markets they didn’t understand and incurred huge losses as a result).

A cynic might point out that Japan’s speculative boom and bust put a decisive end to Japan’s status as serious challenger to American economic dominance. The Chinese, the poster children of successful development, have made a close study of the Japanese experience. Among other things, the Chinese decided to maintain tight control over the banking system and have restricted international capital flows. Note these curbs have become less effective over time, perhaps due to neglect. Regional governments have helped spawn a large shadow banking system and wealthy company owners have been able to evade capital controls through over-invoicing. Nevertheless, the Chinese financial system is a long way away from being deregulated. As a result, the consensus among Western securities analysts is that China will be able to engineer a soft landing despite the scary size of its credit bubble.

Now of course, there has been pushback against the American model of open capital markets since they can and do upend the real economy. After the Asian financial crisis of the 1997, when the IMF put in place “shock doctrine” style reform programs, countries throughout Asia concluded that they never wanted to suffer through that again. They pegged their currencies low relative to the dollar to build up foreign exchange reserve warchests. Economists have argued that this use of currency pricing to increase exports to the US has been a major culprit in the decline of US manufacturing and job losses. So to the extent that this strategy might have produced foreign policy advantages, it has come at considerable domestic cost.

But has this use of “open markets/’free markets’” as an ideological and policy tool really been a plus for the US, even in its own terms? A thorough analysis is well beyond what can be accomplished in a mere post, but let’s look at some recent evidence.

One can argue that the effectiveness of economic sanctions is evidence that America’s dominant role in international finance has translated into policy gains. Witness the pain inflicted on Iran and more recently, on Russia (although Russia’s European energy trump card has imposed restrictions on how aggressive a sanctions game the US can play).

But dial the clock back in Russia to the early 1990s, and you see a different picture. The US lost Russia thanks to full bore implementation of neoliberal policies, and its finance-centricity was a major component. We’ve chronicled this sorry chapter in part due to the prominent role that Harvard played. It bears repeating long form, since it is not as well known in the US as it ought to be. From a 2013 post:

Summers’ second big problem is the scandal that led to his ouster at Harvard, which was NOT his infamous “women suck at elite math and sciences” remarks. The university has conveniently let that be assumed to be the proximate cause.
In fact, it was Summers’ long-standing relationship with and protection of Andrei Shleifer, a Harvard economics professor, who was at the heart of a corruption scandal where he used his influential role on a Harvard contract advising on Russian privatization to enrich himself and his wife, his chief lieutenant Jonathan Hay, and other cronies. The US government sued Harvard for breach of contract and Shleifer and Hay for fraud and won. This section comes from a terrifically well reported account in Institutional Investor by David McClintick:

The judge determined that Shleifer and Hay were subject to the conflict-of-interest rules and had tried to circumvent them; that Shleifer engaged in apparent self-dealing; that Hay attempted to “launder” $400,000 through his father and girlfriend; that Hay knew the claims he caused to be submitted to AID were false; and that Shleifer and Hay conspired to defraud the U.S. government by submitting false claims.
On August 3, 2005, the parties announced a settlement under which Harvard was required to pay $26.5 million to the U.S. government, Shleifer $2 million and Hay between $1 million and $2 million, depending on his earnings over the next decade. Shleifer was barred from participating in any AID project for two years and Hay for five years. Shleifer and Zimmerman were required by terms of the settlement to take out a $2 million mortgage on their Newton house. None of the defendants acknowledged any liability under the settlement. (Forum Financial also settled its lawsuit against Harvard, Shleifer and Hay under undisclosed terms.

And while Harvard can’t be held singularly responsible for the plutocratic land-grab in Russia, the fact that its project leaders decided to feed at the trough sure didn’t help:

Reinventing Russia was never going to be easy, but Harvard botched a historic opportunity. The failure to reform Russia’s legal system, one of the aid program’s chief goals, left a vacuum that has yet to be filled and impedes the country’s ability to confront economic and financial challenges today.

And while Summers was not responsible for Shleifer getting the contract, he was a booster and later protector of Shleifer:

Summers wasn’t president of Harvard when Shleifer’s mission to Moscow was coming apart. But as a Harvard economics professor in the 1980s, a World Bank and Treasury official in the 1990s, and Harvard’s president since 2001, Summers was positioned uniquely to influence Shleifer’s career path, to shape US aid to Russia and Shleifer’s role in it and even to shield Shleifer after the scandal broke. Though Summers, as Harvard president, recused himself from the school’s handling of the case, he made a point of taking aside Jeremy Knowles, then the dean of the faculty of arts and sciences, and asking him to protect Shleifer.

And the protection Shleifer got was considerable:

Knowles tells Institutional Investor that he does not remember Summers’ approaching him about Shleifer… However, not long after Summers says he intervened on the professor’s behalf, Knowles promoted Shleifer from professor of economics to a named chair, the Whipple V.N. Jones professorship.
Shleifer’s legal position changed on June 28, 2004, when Judge Woodlock ruled that he and Hay had conspired to defraud the U.S. government and had violated conflict-of-interest regulations. Still, there was no indication that the Summers administration had initiated disciplinary proceedings. To the contrary, efforts were seemingly made to divert attention from the growing scandal. The message from the top at Harvard was, “No problem — Andrei Shleifer is a star,” says one senior Harvard figure…
One instance was a meeting early in the academic year that began in September 2004, less than two months after the federal court formally adjudicated Shleifer’s liability for conspiring to defraud the U.S. government. A faculty member asked [Dean] Kirby why Harvard should defend a professor who had been found liable for conspiring to commit fraud. The second confrontation came early in the current academic year when another professor asked Kirby why Harvard should pay a settlement of $26.5 million and legal fees estimated at between $10 million and $15 million for legal violations by a single professor and his employee, about which it was unaware. On both occasions Kirby is said to have turned red in the face and angrily cut off discussion.
On at least one other occasion, Summers himself told members of the faculty of arts and sciences that the millions of dollars that Harvard paid in damages did not come from the budget of the faculty of arts and sciences, but didn’t say where the money came from. Those listening inferred he meant that the matter shouldn’t be of concern to the faculty and that they shouldn’t raise it, a curious notion, given that Shleifer was one of their own…
Shleifer has never acknowledged doing anything wrong. Summers has said nothing. And so far as is known, there has been no internal investigation or sanction. “An observer trying to make sense of the University’s position on Shleifer, Ogletree and Tribe is driven to an unhappy conclusion. Defiance seems to be a better way to escape institutional opprobrium than confession and apology. . . . And most of all being a close personal friend of the president probably does one no harm.”

And before you think this sorry performance of US AID was a mistake, the only part that appears to have been unintended was the hand-over-fist looting by Shleifer and Hay. Mark Ames, who witnessed the plundering of Russia by its elites and their Western allies at close range, pointed out that US AID has used its humanitarian image as a cover for covert operations for decades. Russia saw the expansion of US AID’s role from helping “train” foreign police forces to a vehicle for having CIA operatives infiltrate every possible foreign power nexus of interest, be it governmental, religious, or social programs. Naturally, finance and financial flows would become recognized as being on the list. And we can see how well this mission creep worked. From Ames:

There were many ways to transform Russia in the 1990s, but thanks to funding from USAID, the path chosen was the most brutal and disastrous of all: Shock therapy, mass privatization, and the mass impoverishment of 150 million people. As Janine Wedel and my former eXile partner Matt Taibbi documented, USAID funding and support empowered a single “clan” from St. Petersburg led by Anatoly Chubais, who oversaw the complete destruction of Russia’s social welfare system, and the handing over of lucrative assets to a tiny handful of oligarchs.
Under Chubais’ stewardship, Russia’s economic output declined some 60% in the 1990s, while the average Russian male life expectancy plummeted from 68 years to 56 years. Russia’s population went into a freefall, Russia’s worst death-to-birth ratio at any time in the 20th Century — which is amazing when you think that USAID’s privatization program had to compete with the ravages Hitler, Dzerzhinsky and Stalin wreaked on Russia.
USAID funded Chubais through public-private organizations and a Harvard program that was so patently corrupt, Harvard and its program directors including economist Andrei Shleifer were sued by the US Department of Justice for “conspiring to defraud” the US government (not to mention Russians). USAID also paid public relations giant Burson-Marsteller to sell the disastrous voucher program to the Russian public, in a mass media advertising blitz that promoted Chubais’ political party on the eve of parliamentary elections. It was this USAID funded privatization, and the USAID-backed Russia “democrats,” which soured Russians on market capitalism and democracy (renamed “dermokratsia” or “shitocracy” in Russian).

So while the West likes to decry the popularity of Russia’s strongman Putin, it’s the result of its citizens getting a taste of an American effort to impose democracy, except imposing “free markets” was the real aim of this project. And as experience in Latin America, starting with Pinochet, has shown, rapid deregulation leads to plutocratic land grabs. There was no reason to think Russia would be any different. Putin’s high approval ratings rest in no small measure on his having imposed some curbs on the oligarchs and improving living conditions for ordinary Russians.

And one big reason that Russian oligarchs remain powerful is that they have been able to put their plunder in the safekeeping of US and UK tax havens. Reutersreports tonight that London has more billionaires per capita than any city, followed by Moscow.

A new article at American Interest by Ben Judah titled How Offshore Finance Sank Western Soft Power makes a forceful case that unbridled finance, specifically, the nexus between tax havens and looting plutocrats, has undermined one of the West’s most important assets, its claim to have a more virtuous political and economic model. I strongly suggest you read the article in full. Key extracts:

When most people think about offshore finance, they don’t think about the future of Europe: They think about palm trees, about shell corporations headquartered in a P.O. Box, and about secret Swiss bank accounts. But this is not what people in Eastern Europe think.
When Russians, Ukrainian, Azerbaijanis—I will spare the reader from a roll call of the 15 fraternal republics—when these countries think offshore finance, they think about their stolen futures. But isn’t that a good thing? Won’t that make them realize that West is best?
Not so fast. First, a few figures. The offshore economy has grown into a gargantuan parallel financial system. There may be more than $20 trillion hidden in more than fifty tax havens. The colossal treasure hidden in British tax havens alone is more than $7 trillion. And a disproportionately large share of that money is Eastern European. Take Russia’s missing $211.5 billion: That’s the conservative estimate for illicit financial flows out of Russia alone between 1994–2011…
East European corruption fighters are discovering that Western countries and their systems of offshore economies have enabled the colossal theft of their countries’ resources. Bubbling up from beneath the surface of both the Russian opposition and the Ukrainian Maidan is a new sense of disdain for the West…
This is what happened to Daria Kaleniuk at Kiev’s Anti-Corruption Action Centre. The director of one Ukraine’s most important NGOs battling corruption spent years investigating how corruption actually works. But the more she learned, the more she viewed both America and the European Union as hypocrites.
Kaleniuk explains:

What we found was that the money stolen in Ukraine was heading into British and European tax havens and hidden using shell companies inside the European Union. This was very uncomfortable to find out. What we felt is the Western elites were being hypocritical to us—preaching anti-corruption but allowing this offshore world to flourish.

…..Ukrainian MP Lesya Orobets is running for Mayor of Kiev on a platform that flirts with nationalist outrage. She is enraged by Western complicity with the offshore black hole into which Ukraine’s national wealth has long disappeared:

What you need to understand is that Western tax havens have resulted in Ukrainian deaths. Take for example the theft of Ukraine’s HIV budget. The national budget for fighting HIV was stolen and hidden in tax havens and in Great Britain. But this has consequences—we are now approaching a 2 percent HIV infection rate in Ukraine, which is near the no-return point of pandemic. This corruption will kill British men too. I hear they come to Ukraine. But they also return home. What will happen if the British do not close down their tax havens? I will be deeply, negatively, impressed.

….The West has gotten used to enjoying a hero’s reputation amongst Eastern European democrats. But get to know the Moscow opposition or the Maidan and you soon learn that London is now a byword for corruption, and the names of whole European countries—Luxemburg, Cyprus, Switzerland, Andorra, and even the Netherlands—are synonymous with “theft.”

As I stressed, please read this important article in its entirety. Despite America’s record of CIA thuggery and undeclared wars, we used to be clean enough internally and involved in enough of the right sort of international activities so as to be able to maintain the appearance of being a reluctant imperialist (this from the imperialism enthusiast Niall Ferguson, who hectored America for its lack of enthusiasm in his 1990s book The Cash Nexus), and on balance, to be a useful ally. The rapid rise of open corruption and the power of America’s new oligarchs has laid waste to what little was left of America’s good name. The tacit assumption seems to be that with no credible competitor for superpower role, the US position remains secure despite increasingly reckless and destructive behavior.

But as Ed Luce of the Financial Times has pointed out, the alternative to the weakening of US power isn’t to accelerate the rise of a replacement, but to usher in more instability. Yet even commentators like Luce are constitutionally unable to see how rank corruption is playing into this process, not doubt because far too many well-placed people benefit directly or indirectly. This road to hell is not paved with good intentions, but with willful blindness.

Via Naked Capitalism

Our Economy Wants You to Be In Debt—5 Things You Can Do to Take Charge

We poured through a debt-resistance manual created by former Occupiers to bring you these practical tips.

Liz Pleasant

Last month PM Press published the Debt Resisters’ Operations Manual —also known as “the DROM.” But don’t let that menacing-sounding acronym fool you: this is a book written in plain English and filled with tips and tactics for dealing with debt.

The book has been available online since September 2012, but this publishing marks the first time the manual has been printed, bound, and sold. Don’t worry, you can still find a free copy online. But, hopefully, getting this book into stores will help its message reach more people—however ironic it might seem to buy one with a credit card.

“Everyone is a debtor so there’s no limit to the audience” said Andrew Ross, a member of the Occupy Wall Street offshoot called Strike Debt, in aninterviewwith Guernica Magazine. Although Ross has gone public, most of the authors of the Debt Resister’s Operations Manual have chosen to remain anonymous.
The book explains how creditors, big banks, and other lenders operate and how debtors can navigate both in and outside of the system.

“From a young age, we are conditioned to feel that being in debt is shameful and worthy of punishment,” the manual’s anonymous authors explain.
Debtors shouldn’t feel that way, the DROM argues, because the situation is largely unfair and out of their control. “The reason you have tens of thousands of dollars in medical bills is that we don’t provide medical care to everyone,” the authors write. “The reason you have tens of thousands of dollars of student loans is because the government, banks, and university administrators [are] … driving college costs through the roof.”
All that debt adds up. About 75 percent of Americans are in debt right now and owe a total of more than $11.5 trillion, according to Forbes magazine. That’s about three times the amount of spending the Obama Administration requested in its 2015 federal budget.
And it’s not necessarily spent on expensive handbags, sports cars, and vacations. A 2012 study published by the left-leaning thinktank Demos found that 40 percent of American households in debt use their credit cards to pay for living costs like rent, food, and utility bills. Additionally, about half of household debt comes from medical bills.
While the authors clearly worked hard to make the manual’s language accessible, that doesn’t mean it’s a quick read. If you lack time or patience to sit down and wrap your head around how FICO credit scores are generated, here are five tips from the DROM that you can start using today.

1. Avoid payday loan services and other “fringe” finance.

Stay away from paycheck loans, pawnshops, prepaid cards, nonbank check cashing, and rent-to-own agreements. These alternative financial services—known in the industry as AFSs—may appeal to those who don’t want or can’t have a checking account, but these institutions often prey on their customers through hidden fees and high interest rates.

The scale of the problem is huge: According to a survey conducted by the U.S. Census Bureau in 2009, about 9 million American adults have no bank account, and 66 percent of these unbanked Americans say they use alternative financial services.

And just how bad are those services? According to Gary Rivlin, author of Broke USA: From Pawnshops to Poverty, Inc., the average family with an annual income of $30,000 or less pays $2,500 in fees and interests to the AFS industry every year.

If you need money in a pinch, consider more community-based short-term loans. Ask a friend or a family member, or check to see if your employer can extend an advance. Credit unions often offer short-term loans at better rates than companies in the AFS sector. Another option is selling your unwanted stuff (either online or at thrift stores) to make some quick cash.

2. Make them an offer.

If you’re part of the 75 percent of working Americans who say they live “paycheck-to-paycheck” (defined as not having enough in savings to cover six months of expenses), then it’s not an option to pay past-due credit card, medical, or student debt with savings. But there may be an appealing alternative to the racking up endless interest and fees: Tell whomever you owe that you can’t afford to pay in full—and then make them an offer.

“Remember,” the DROM says, “even if we offer them ten cents on the dollar, that’s more than they would be getting if they sold [the debt] to a collection agency.”

This process of renegotiating debt is called debt settlement, and can begin with something as simple as a frank phone call with your credit card company. Be aware that there are many scams out there in this sector, according to the DROM, so it’s a good idea to avoid companies or lawyers who claim to be able to achieve a debt settlement for you. Instead, consider applying for a debt settlement yourself.

The same process can be transferred to medical debt, and even the IRS has a program that can cut down your tax debt based on your income. It’ll cost you $150 to apply, but if you owe a lot the risk might be worth it. Additional information on how to pursue your own debt settlement can be found here.

3. Know your rights and be prepared to defend them.

The Fair Debt Collections Practices Act , passed in 1977, includes a long list of rules that collection agents must follow. Examples of illegal behaviors include using a fake company name, lying when trying to collect debt, or saying that you will be arrested if you don’t pay your debt. The act also lets you put an end to insistent phone calls from “unknown numbers” by making a formal request that collectors contact you only during certain hours. Calling outside of the requested time is a violation of the FDCPA.

Review all the rules listed in the act so you’ll be able to recognize any mishandling of your account. Keep copies of all correspondence between you and any credit collection agencies. If collectors break these rules and you decide to report it, you must take action within one year of the violation. You can report violations to multiple places, including: your state’s Attorney General’s office, the Federal Trade Commission, and theConsumer Financial Protection Bureau. The collection agency can be fined if it’s found to have violated regulations, but it won’t change how much you owe.
If you want to try to get your debt reduced or erased, you’ll have to sue the collection agency. But Rozie Hughes, a financial advisor who helped develop the Financial Integrity Instructors Guide, said that complaints to the FDCPA are unlikely to reduce debts. “The road to such an end would actually be … lengthy and laborious through the civil court system.”
If you feel you have a strong case against a collector, and the time and resources for a lawsuit, reducing your debt in a courtroom is a possibility. On the other hand, simply reporting violations is an action every debtor can take to put an end to intimidation and hold collectors accountable for misconduct.

4. Consider alternatives to a credit check.

Credit checks are one way that debt can affect more than just your bank account. Landlords regularly use poor credit score ratings to deny rental applications, and employers are increasingly using credit checks to screen potential employees as well.
If your credit score is a problem, offer to bring in a personal portfolio instead. Include references from current landlords and employers, as well as bank statements and paycheck stubs. Putting in the effort to create a portfolio can show you are a responsible and trustworthy person and may prove to be more important than a number on a credit report.

5. Shift your values.

Some of the things the DROM suggests you do to survive with little to no money are pretty radical. These include wearing only free clothes, getting food from shelters, and squatting in abandoned buildings.
But if those options are too hard-core for you, don’t worry. There are some other options too. The DROM suggests you look into bartering networks and gift economies in your area. These alternatives are great because they allow you to trade your extra items, time, or skills for things you need without the exchange of cash. Large-scale examples of this include websites like Swap Right, Trash Bank, and the “free” section of your local Craigslist.
And when you need services rather than objects, consider joining your local time bank—a service that allows you to trade your own time for a carpenter’s, plumber’s, or whoever’s time you need.
It’s important to acknowledge the cultural change that’s involved in moving away from the cash economy and toward swapping, bartering, and other alternatives.
“Finding ways to live outside of [our current debt cycle] is an absolute necessity for many, but can also be rewarding and give you a glimpse of what life might be like in a world without debt,” the authors of the DROM explain. “It will require cultivating personal values and taking actions that often stand in stark contrast to the ones our consumers culture promotes so aggressively.”
Liz Pleasant is a graduate of the University of Washington’s program in Anthropology, and an online editorial intern at YES! Follow her on Twitter@lizpleasant.
This article was written for YES! Magazine, a national, nonprofit media organization that fuses powerful ideas with practical actions.

BANKRUPTCY CRISIS: More U.S. Cities Set To File

SOURCES
Detroit not alone, expect more bankrupt cities: Expert
http://www.cnbc.com/id/101698390 

20 Cities That May Face Bankruptcy After Detroit
http://www.newsmax.com/US/cities-bank…

Read more at http://investmentwatchblog.com/bankruptcy-crisis-more-u-s-cities-set-to-file/#r4hhmqpktH5j6EMF.99

Buying Silver Coins vs Buying Silver Bars | David Morgan

Jim Willie: Russia – China Alliance Destroying US dollar / Yuan New Reserve Currency

Jim Willie Website: www.goldenjackass.com 

Recent articles that support information presented in this interview:
• The Birth Of Eurasia – Russia & China Do Pipelineistan
• http://www.zerohedge.com/news/2014-05…
• Russia Reminds US It’s Not Over: Test-Fires Nuclear Missile
• http://www.zerohedge.com/news/2014-05…
• Bank of China VP Pan sees Yuan as next reserve currency
• http://www.examiner.com/article/bank-…
• Yuan to supersede dollar as top reserve currency: Survey
• http://www.cnbc.com/id/101450365

Read more at http://investmentwatchblog.com/jim-willie-russia-china-alliance-destroying-us-dollar-yuan-new-reserve-currency/#hVMBD2IU5b4DuClw.99

Suicide rate linked to foreclosures

An increase in suicides may be tied to an increase in the number of foreclosures, according to a newly released study from leading reserachers. The study, which was conducted by researchers at Purdue, Dartmouth and other universities, shows a correlation between suicide and foreclosures rates between 2005 and 2010. Those who are middle-aged and have the “most to lose” were most likely to have committed suicide as a result of losing their home. Although not able to prove a direct cause and effect relationship, the study raises troubling questions about the effects of the economy on individuals. RT’s Lindsay France discussed these findings with a co-author of the report, Purdue University Professor Michael Light.

Read more at http://investmentwatchblog.com/suicide-rate-linked-to-foreclosures/#FvtHRTcKPv4M0d2K.99

Fed Pulls Back Quantitative Easing

Michael Hudson: The Fed’s practice of buying mortgage and government bonds has helped big banks profit while leaving homeowners holding more debt

Read more at http://investmentwatchblog.com/fed-pulls-back-quantitative-easing/#bVXBBbzAiIt4Ul0G.99

GOLD, SILVER, and US DOLLAR MANIPULATION EXPOSED (video)

I’m a Fiat Slave, And So Are You

by Charles Hugh-Smith

Fiat money is at base a form of indirect wealth transfer from those forced to hold the money to those issuing the money.

I describe the pernicious servitude created by debt as debt serfdom, as serfdom implies a neofeudal arrangement that requires serfs’ acceptance of this financial yoke of servitude. In other words, debt is freely accepted as the line of least resistance in a system that incentivizes debt and places high barriers to debt-free independence from a Status Quo operated to benefit the owners and issuers of debt, not the debtors.

Correspondent Jeff W. has identified an even more insidious form of monetary servitude that he calls fiat slavery, as the servitude is enforced by fiat (unbacked government-issued) money.

In other words, being forced to use state-issued fiat currency is a form of servitude, as fiat money is at base a form of indirect wealth transfer from those forced to hold the money to those issuing the money.

Beyond this state-enforced wealth transfer from citizens to the state, there is a secondary wealth transfer going on in any fiat-money system: the neofeudal financial nobility who are closest to the money spigot get to buy whatever real-world assets and income streams offer the best return before the money trickles down to the debt-serfs paying interest and taxes.

For example, the financial nobility can borrow billions of dollars at near-zero interest from the Federal Reserve, and use this nearly-free fiat money to buy student loans that pay 7+% annually. They can also snap up houses for cash that the nobility then rents to debt-serfs who have been outbid by those with the extraordinary advantage of unlimited access to the Fed’s nearly-free fiat money.

Here is Jeff’s commentary:

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In a world where every country prints fiat money, the entire human race today, except for its money masters, is subjected to fiat slavery.

Almost everyone understands what it means to be a tax slave. It means that people must work several months of the year for the benefit of the taxing authorities. Taxes in the U.S. today are several times higher than they were 100 years ago, and at present-day tax levels, today’s Americans are rightly called tax slaves.

What it means to be a debt slave is also easy to understand. It means that one must spend a large fraction of one’s time to earn money to pay creditors. Millions of Americans today are mired deeply in debt, but today’s America is also a country where if you personally stay out of debt, the government will go into debt for you.

Each American taxpayer is on the hook for his or her share of over $17 trillion in debt that government admits to; the real debt total is much higher. Government leaders are eagerly plunging us ever deeper into debt each year.

Most Americans also have personal experience of being a wage slave. It means that a person has no way to make a living except by selling his labor into a glutted market. Thomas Jefferson hoped that most Americans could own their own farms and thereby profit from capital improvements that they made through their own efforts. Such Americans could be their own bosses and escape wage slavery. But today we live in an age of huge factory farms, and it is more difficult than ever to establish or run any small business. Thus wage slavery is the norm for Americans today.

But few people understand what it means to be a fiat slave. Being a fiat slave means that one lives in a country where the machinery of money printing is used to maximize wealth extraction from its citizens.

How do they maximize the wealth they can extract through money printing? First of all, it is done by increasing of the volume of transactions that take place in a given fiat currency. Each newly-printed unit of fiat is a drop in the bucket in terms of the inflation it creates, and more fiat can be printed without causing serious inflation if a country has a bigger bucket.

For example, Canada’s GDP is about 11% the size of America’s. At first glance this might be taken to mean that Americans can print nine times more dollars than Canadians. But we must also remember that U.S. dollars circulate throughout the world, and Eurodollars and petrodollars also add to the total of U.S. dollar transactions.

Because of extraterritorial dollar circulation, the U.S. might actually be able to print 20 times more than Canada without causing serious (in terms of causing political problems for the money printers) inflation. From this we see why money printers may want to fight wars to protect America’s dollar circulation areas in the Middle East or in Afghanistan, where much of the opium trade is transacted in dollars.

But a country’s fiat transaction volume is only part of the equation. A more important part of the equation is the inflation level. Imagine two countries: Country A with an annual fiat transaction volume of 100 trillion units per year and Country B with a volume of 50 trillion. Everything else being equal, Country B can only print half as much fiat each year to give to its government and its banking elite.

But suppose further that the inflation rate in Country A is 5% absent any money printing, and the inflation rate in Country B is negative 2% due to global wage arbitrage, regulatory suppression of small businesses, and high unemployment. Suppose further that a real inflation rate of 5% is the money printers’ upper limit because it is the maximum asset erosion that wealthy bondholders will tolerate. Now we see that potential money printing in Country A is reduced to zero, while potential money printing in Country B is 3.5 trillion units (50 trillion times seven percent).

American money printers thus have trillions of dollars in incentive to support deflationary policies, which may include global wage arbitrage (sending work to the country where labor is cheapest), suppression of job creation by small businesses, suppression of private-sector labor unions, support for open borders immigration, commodity price suppression through market interventions, support for genetically modified seeds so as to push agricultural prices down, support for owners taking a larger share of corporate revenues so as to reduce labor’s share, and support for high levels of consumer debt so as to dampen inflationary pressure in a nation of demoralized debt slaves. All of these oppressive policies enrich the money printers at the citizens’ expense.

Tax slavery, debt slavery, wage slavery, and fiat slavery are four methods that elites employ to extract wealth from the people. To this list we should also add their encouragement of Ponzi gambling. Ponzi asset bubbles are constantly being created and citizens are encouraged to go into debt to “cash in” on bubble profits (or get wiped out in bubble crashes). Those five methods are the major wealth extraction methods they use.

Those who support the cause of human freedom must resist tax slavery by insisting on a government that keeps its spending down to the bare basics. Free people must also support a culture that discourages people from getting into debt and encourages them to get out of debt and stay out. They must demand that government debt be rolled back to zero.

Policies that favor capital accumulation in families and a supportive legal environment for small businesses are the antidotes to wage slavery, and free people must also demand that there be zero wealth extraction from the citizens through money printing. That can best be done by requiring 100% gold backing for currency and eliminating fractional reserve banking. Eliminating the inflation that comes from money printing will also go a long way toward eliminating asset bubbles and Ponzi gambling on asset bubbles.

Older Americans have watched as a once-free people have been reduced to slave-like conditions. Not only has wealth been ruthlessly extracted from the people, but today’s surveillance state is more intrusive than ever, and the police are increasingly insolent and imperious.

What are we going to do? A necessary first step is to take the blinders off and to see clearly how elites are victimizing you. A second step is to figure out what practical steps you can take as an American to secure the blessings of liberty for yourself and your posterity. Freedom is not free, as the saying goes, and the price of freedom is not only eternal vigilance, but also intelligent action. We should begin this work today.

There’s An Increasing Likelihood A Recession Has Begun

Economic growth slowed in April, Chicago Fed national activity index shows

Economic growth moderated in April, according to the Chicago Fed national activity index released Thursday. The index fell to negative 0.32 in April from positive 0.34 in March. However, the three-month average rose to 0.19 from 0.04 in March — the highest level since November 2013. The index is a weighted average of 85 different economic indicators, designed so that a reading of zero is equivalent to trend growth…

http://www.marketwatch.com/story/economic-growth-slowed-in-april-chicago-fed-national-activity-index-shows-2014-05-22

BEST BUY: We Expect Sales Across The Consumer Electronics Industry To Tumble

“As we look forward to the second and third quarters, we are expecting to see ongoing industry-wide sales declines in many of the consumer electronics categories in which we compete,” warned CFO Sharon McCollam. “We are also expecting ongoing softness in the mobile phone category as consumers eagerly await highly-anticipated new product launches. Consequently, absent any major product launches, we are expecting comparable sales to be negative in the low-single digits in both the second and third quarters.”

Read more: http://www.businessinsider.com/best-buy-q1-earnings-2014-5#ixzz32SpkIJtv

Existing Home Sales Miss; Worst Start To Year Since 2007

This is the 6th month in a row of slowing year-over-year sales

http://www.zerohedge.com/news/2014-05-22/existing-home-sales-miss-worst-start-year-2007

Big investors like Gundlach and Fink are betting against housing

http://www.marketwatch.com/story/big-investors-are-betting-against-housing-2014-05-22

WoW! Nearly half of US unemployed have given up looking for a job

UN lowers world economic growth forecasts amid cold winter, Ukraine crisis

 

The United Nations slightly lowered its forecasts for global economic growth in 2014 and 2015 on Wednesday citing a variety of reasons including the exceptionally cold winter in the United States, the escalating political crisis in Ukraine, and financial turbulence earlier this year.

 

The new forecasts predict economic growth of 2.8 per cent in 2014 and 3.2 per cent in 2015, down from UN forecasts in December of 3 per cent growth this year and 3.3 per cent growth next year.

 

Pingfan Hong, the head of the UN’s Global Economic Monitoring Unit, told a news conference launching the report that “more than five years after the financial crisis, the world economy has not recovered back to running at full capacity.”

Read more: http://www.ctvnews.ca/business/un-lowers-world-economic-growth-forecasts-amid-cold-winter-ukraine-crisis-1.1831958#ixzz32SrSiegn

Soros Dumps All His Shares Of Citigroup, Bank of America & JP Morgan

Just months ago, Soros made headlines by making a billion dollar stock bet against the S&P 500.  At the time this was said to be a sign of trouble ahead for the US economy, as Soros has seemed to have had advance knowledge of market crashes in the past.  As a result of this reputation, investors have begun to keep a close eye on his holdings.

This week investors took notice again when Soros sold his shares of three major American banks, including Bank of America, JP Morgan and Citigroup.

Read more at 

http://intellihub.com/george-soros-sells-shares-citigroup-bank-america-jp-morgan/#KOjrxm9X2kMw3Lrs.99 

You need a $137,129 salary to own a house in S.F.
Middle class will struggle to buy a home this year

http://www.marketwatch.com/story/americas-shrinking-home-affordability-belt-2014-05-22

S&P 500 peaked in 2000 & 2007, when Margin debt did this…

 

CLICK ON CHART TO ENLARGE

Margin debt reaching all-time highs can be viewed as a sign of excessive confidence in the markets, yet knowing this hasn’t been really that helpful when it comes to portfolio construction.

What has happened in the past that has been helpful when it comes to margin debt is this…when Margin Debt was hitting all-time highs and turned lower (which in did back in 2000 & 2007), the S&P 500 was near a peak in prices.

Doug Short updates us in the chart above, reflecting that Margin debt now for the second month in a row has decreased from the highest levels in all of history at (1). Does this mean that “the top” is in for the S&P 500? Not in my opinion. Does it send a word of caution towards very large portfolio exposure to the stock market? The Patterns would suggest it does.

- See more at: http://blog.kimblechartingsolutions.com/2014/05/sp-500-peaked-in-2000-2007-when-margin-debt-did-this/#sthash.2iNM5Rqw.BhBZFmb9.dpuf

Everyone’s Q1 GDP Estimates Turn Negative

http://www.businessinsider.com/gdp-forecasts-are-turning-negative-2014-5

 

Sign Of Imminent Collapse! Soros Dumps Bank Shares

 http://beforeitsnews.com/economy/2014/05/sign-of-imminent-collapse-soros-dumps-bank-shares-2625140.html

Rob Kirby: The Derivative Market Will Collapse Soon

Wall St for Main St interviewed Rob Kirby from Kirbyanalytics.com. In this podcast, we discussed the banking industry, interest rate, the derivative market and much more! Check it out!

Read more at http://investmentwatchblog.com/rob-kirby-the-derivative-market-will-collapse-soon/#SO9dBvTGojvouytt.99

Marc Faber – US Stock Market Will Fall Soon, Investors Should Brace For A “General Asset Deflation.”

 

Marc Faber, publisher of The Gloom, Boom & Doom report argues that a fall in the U.S. equity market could happen soon and says investors should brace for a “general asset deflation.”

Read more at http://investmentwatchblog.com/marc-faber-us-stock-market-will-fall-soon-investors-should-brace-for-a-general-asset-deflation/#Pz6DxLMH8Smc43GS.99

The New “Water Barons”: Wall Street Mega-Banks are Buying up the World’s Water

This article was first published on December 21, 2012
A disturbing trend in the water sector is accelerating worldwide. The new “water barons” — the Wall Street banks and elitist multibillionaires — are buying up water all over the world at unprecedented pace.
Familiar mega-banks and investing powerhouses such as Goldman Sachs, JP Morgan Chase, Citigroup, UBS, Deutsche Bank, Credit Suisse, Macquarie Bank, Barclays Bank, the Blackstone Group, Allianz, and HSBC Bank, among others, are consolidating their control over water. Wealthy tycoons such as T. Boone Pickens, former President George H.W. Bush and his family, Hong Kong’s Li Ka-shing, Philippines’ Manuel V. Pangilinan and other Filipino billionaires, and others are also buying thousands of acres of land with aquifers, lakes, water rights, water utilities, and shares in water engineering and technology companies all over the world.
The second disturbing trend is that while the new water barons are buying up water all over the world, governments are moving fast to limit citizens’ ability to become water self-sufficient (as evidenced by the well-publicized Gary Harrington’s case in Oregon, in which the state criminalized the collection of rainwater in three ponds located on his private land, by convicting him on nine counts and sentencing him for 30 days in jail). Let’s put this criminalization in perspective:
Billionaire T. Boone Pickens owned more water rights than any other individuals in America, with rights over enough of the Ogallala Aquifer to drain approximately 200,000 acre-feet (or 65 billion gallons of water) a year. But ordinary citizen Gary Harrington cannot collect rainwater runoff on 170 acres of his private land.
It’s a strange New World Order in which multibillionaires and elitist banks can own aquifers and lakes, but ordinary citizens cannot even collect rainwater and snow runoff in their own backyards and private lands.

“Water is the oil of the 21st century.” Andrew Liveris, CEO of DOW Chemical Company (quoted in The Economist magazine, August 21, 2008)

In 2008, I wrote an article,

“Why Big Banks May Be Buying up Your Public Water System,” in which I detailed how both mainstream and alternative media coverage on water has tended to focus on individual corporations and super-investors seeking to control water by buying up water rights and water utilities. But paradoxically the hidden story is a far more complicated one. I argued that the real story of the global water sector is a convoluted one involving “interlocking globalized capital”: Wall Street and global investment firms, banks, and other elite private-equity firms — often transcending national boundaries to partner with each other, with banks and hedge funds, with technology corporations and insurance giants, with regional public-sector pension funds, and with sovereign wealth funds — are moving rapidly into the water sector to buy up not only water rights and water-treatment technologies, but also to privatize public water utilities and infrastructure.

Now, in 2012, we are seeing this trend of global consolidation of water by elite banks and tycoons accelerating. In a JP Morgan equity research document, it states clearly that “Wall Street appears well aware of the investment opportunities in water supply infrastructure, wastewater treatment, and demand management technologies.” Indeed, Wall Street is preparing to cash in on the global water grab in the coming decades. For example, Goldman Sachs has amassed more than $10 billion since 2006 for infrastructure investments, which include water. A 2008 New York Times article mentioned Goldman Sachs, Morgan Stanley, Credit Suisse, Kohlberg Kravis Roberts, and the Carlyle Group, to have “amassed an estimated an estimated $250 billion war chest — must of it raised in the last two years — to finance a tidal wave of infrastructure projects in the United States and overseas.”
By “water,” I mean that it includes water rights (i.e., the right to tap groundwater, aquifers, and rivers), land with bodies of water on it or under it (i.e., lakes, ponds, and natural springs on the surface, or groundwater underneath), desalination projects, water-purification and treatment technologies (e.g., desalination, treatment chemicals and equipment), irrigation and well-drilling technologies, water and sanitation services and utilities, water infrastructure maintenance and construction (from pipes and distribution to all scales of treatment plants for residential, commercial, industrial, and municipal uses), water engineering services (e.g., those involved in the design and construction of water-related facilities), and retail water sector (such as those involved in the production, operation, and sales of bottled water, water vending machines, bottled water subscription and delivery services, water trucks, and water tankers).
Update of My 2008 Article: Mega-Banks See Water as a Critical Commodity
Since 2008, many giant banks and super-investors are capturing more market share in the water sector and identifying water as a critical commodity, much hotter than petroleum.
Goldman Sachs: Water Is Still the Next Petroleum
In 2008, Goldman Sachs called water “the petroleum for the next century” and those investors who know how to play the infrastructure boom will reap huge rewards, during its annual “Top Five Risks” conference. Water is a U.S.$425 billion industry, and a calamitous water shortage could be a more serious threat to humanity in the 21st century than food and energy shortages, according to Goldman Sachs’s conference panel. Goldman Sachs has convened numerous conferences and also published lengthy, insightful analyses of water and other critical sectors (food, energy).
Goldman Sachs is positioning itself to gobble up water utilities, water engineering companies, and water resources worldwide. Since 2006, Goldman Sachs has become one of the largest infrastructure investment fund managers and has amassed a $10 billion capital for infrastructure, including water.
In March 2012, Goldman Sachs was eyeing Veolia’s UK water utility business, estimated at £1.2 billion, and in July it successfully bought Veolia Water, which serves 3.5 million people in southeastern England.
Previously, in September 2003, Goldman Sachs partnered with one of the world’s largest private-equity firm Blackstone Group and Apollo Management to acquire Ondeo Nalco (a leading company in providing water-treatment and process chemicals and services, with more than 10,000 employees and operations in 130 countries) from French water corporation Suez S.A. for U.S.$4.2 billion.
In October 2007, Goldman Sachs teamed up with Deutsche Bank and several partners to bid, unsuccessfully, for U.K.’s Southern Water. In November 2007, Goldman Sachs was also unsuccessful in bidding for U.K. water utility Kelda. But Goldman Sachs is still looking to buy other water utilities.
In January 2008, Goldman Sachs led a team of funds (including Liberty Harbor Master Fund and the Pinnacle Fund) to buy U.S.$50 million of convertible notes in China Water and Drinks Inc., which supplies purified water to name-brand vendors like Coca-Cola and Taiwan’s top beverage company Uni-President. China Water and Drinks is also a leading producer and distributor of bottled water in China and also makes private-labeled bottled water (e.g., for Sands Casino, Macau). Since China has one of the worse water problems in Asia and a large emerging middle class, its bottled-water sector is the fastest-growing in the world and it’s seeing enormous profits. Additionally, China’s acute water shortages and serious pollution could “buoy demand for clean water for years to come, with China’s $14.2 billion water industry a long-term investment destination” (Reuters, January 28, 2008).
The City of Reno, Nevada, was approached by Goldman Sachs for “a long-term asset leasing that could potentially generate significant cash for the three TMWA [Truckee Meadows Water Authority] entities. The program would allow TMWA to lease its assets for 50 years and receive an up-front cash payment” (Reno News & Review, August 28, 2008). Essentially, Goldman Sachs wants to privatize Reno’s water utility for 50 years. Given Reno’s revenue shortfall, this proposal was financially attractive. But the water board eventually rejected the proposal due to strong public opposition and outcry.
Citigroup: The Water Market Will Soon Eclipse Oil, Agriculture, and Precious Metals
Citigroup’s top economist Willem Buitler said in 2011 that the water market will soon be hotter the oil market (for example, see this and this):

“Water as an asset class will, in my view, become eventually the single most important physical-commodity based asset class, dwarfing oil, copper, agricultural commodities and precious metals.”

In its recent 2012 Water Investment Conference, Citigroup has identified top 10 trends in the water sector, as follows:
1. Desalination systems
2. Water reuse technologies
3. Produced water / water utilities
4. Membranes for filtration
5. Ultraviolet (UV) disinfection
6. Ballast-water treatment technologies
7. Forward osmosis used in desalination
8. Water-efficiency technologies and products
9. Point-of-use treatment systems
10. Chinese competitors in water
Specifically, a lucrative opportunity in water is in hydraulic fracturing (or fracking), as it generates massive demand for water and water services. Each oil well developed requires 3 to 5 million gallons of water, and 80% of this water cannot be reused because it’s three to 10 times saltier than seawater. Citigroup recommends water-rights owners sell water to fracking companies instead of to farmers because water for fracking can be sold for as much as $3,000 per acre-foot instead of only $50 per acre/foot to farmers.
The ballast-water treatment sector, currently at $1.35 billion annually, is estimated to reach $30 to $50 billion soon. The water-filtration market is expected to outgrow the water-equipment market: Dow estimates it to be a $5 billion market annually instead of only $1 billion now.
Citigroup is aggressively raising funds for its war chest to participate in the coming tidal wave of infrastructure privatization: in 2007 it established a new unit called Citi Infrastructure Investors through its Citi Alternative Investments unit. According to Reuters, Citigroup “assembled some of the biggest names in the infrastructure business at the same time it is building a $3 billion fund, including $500 million of its own capital. The fund, according to a person familiar with the situation, will have only a handful of outside investors and will be focused on assets in developed markets” (May 16, 2007). Citigroup initially sought only U.S.$3 billion for its first infrastructure fund but was seeking U.S.$5 billion in April 2008 (Bloomberg, April 7, 2008).
Citigroup partnered with HSBC Bank, Prudential, and other minor partners to acquire U.K.’s water utility Kelda (Yorkshire Water) in November 2007. This week, Citigroup signed a 99-year lease with the City of Chicago for Chicago’s Midway Airport (it partnered with John Hancock Life Insurance Company and a Canadian private airport operator). Insiders said that Citigroup is among those bidding for the state-owned company Letiste Praha which operates the Prague Airport in the Czech Republic (Bloomberg, February 7, 2008).
As the five U.K. water utility deals illustrate, typically no one single investment bank or private-equity fund owns the entire infrastructure project — they partner with many others. The Citigroup is now entering India’s massive infrastructure market by partnering the Blackstone Group and two Indian private finance companies; they have launched a U.S.$5 billion fund in February 2007, with three entities (Citi, Blackstone, and IDFC) jointly investing U.S.$250 million. India requires about U.S.$320 billion in infrastructure investments in the next five years (The Financial Express, February 16, 2007).
UBS: Water Scarcity Is the Defining Crisis of the 21st Century
In 2006, UBS Investment Research, a division of Switzerland-based UBS AG, Europe’s largest bank by assets, entitled its 40-page research report, “Q-Series®:Water”—“Water scarcity: The defining crisis of the 21st century?” (October 10, 2006) In 2007, UBS, along with JP Morgan and Australia’s Challenger Fund, bought UK’s Southern Water for £4.2biillion.
Credit Suisse: Water Is the “Paramount Megatrend of Our Time”
Credit Suisse published its report about Credit Suisse Water Index (January 21, 2008) urged investors that “One way to take advantage of this trend is to invest in companies geared to water generation, preservation, infrastructure treatment and desalination. The Index enables investors to participate in the performance of the most attractive companies….” The trend in question, according to Credit Suisse, is the “depletion of freshwater reserves” attributable to “pollution, disappearance of glaciers (the main source of freshwater reserves), and population growth, water is likely to become a scarce resource.”
Credit Suisse recognizes water to be the “paramount megatrend of our time” because of a water-supply crisis might cause “severe societal risk” in the next 10 years and that two-thirds of the world’s population are likely to live under water-stressed conditions by 2025. To address water shortages, it has identified desalination and wastewater treatment as the two most important technologies. Three sectors for good investments include the following:
§ Membranes for desalination and wastewater treatment
§ Water infrastructure — corrosion resistance, pipes, valves, and pumps
§ Chemicals for water treatment
It also created the Credit Suisse Water Index which has the equally weighed index of 30 stocks out of 128 global water stocks. For investors, it offered “Credit Suisse PL100 World Water Trust (PL100 World Water),” launched in June 2007, with $112.9 million.
Credit Suisse partnered with General Electric (GE Infrastructure) in May 2006 to establish a U.S.$1 billion joint venture to profit from privatization and investments in global infrastructure assets. Each partner will commit U.S.$500 million to target electricity generation and transmission, gas storage and pipelines, water facilities, airports, air traffic control, ports, railroads, and toll roads worldwide. This joint venture has estimated that the developed market’s infrastructure opportunities are at U.S.$500 billion, and emerging world’s infrastructure market is U.S.$1 trillion in the next five years (Credit Suisse’s press release, May 31, 2006).
In October 2007, Credit Suisse partnered with Cleantech Group (a Michigan-based market-research, consulting, media, and executive-search firm that operates cleantech forums) and Consensus Business Group (a London-based equity firm owned by U.K. billionaire Vincent Tchenguiz) to invest in clean technologies worldwide. The technologies will also clean water technologies.
During its Asian Investment Conference, it said that “Water is a focus for those in the know about global strategic commodities. As with oil, the supply is finite but demand is growing by leaps and unlike oil there is no alternative.” (Credit Suisse, February 4, 2008). Credit Suisse sees the global water market with U.S.$190 billion in revenue in 2005 and was expected to grow to U.S.$342 billion by 2010. It sees most significant growth opportunities in China.
JPMorgan Chase: Build Infrastructure War Chests to Buy Water, Utilities, and Public Infrastructure Worldwide
One of the world’s largest banks, JPMorgan Chase has aggressively pursued water and infrastructure worldwide. In October 2007, it beat out rivals Morgan Stanley and Goldman Sachs to buy U.K.’s water utility Southern Water with partners Swiss-based UBS and Australia’s Challenger Infrastructure Fund. This banking empire is controlled by the Rockefeller family; the family patriarch David Rockefeller is a member of the elite and secretive Bilderberg Group, Council on Foreign Relations, and Trilateral Commission.
JPMorgan sees infrastructure finance as a global phenomenon, and it is joined by its global peers in investment and banking institution in their rush to cash in on water and infrastructure. JPMorgan’s own analysts estimate that the emerging markets’ infrastructure is approximately U.S.$21.7 trillion over the next decade.
JPMorgan created a U.S.$2 billion infrastructure fund to go after India’s infrastructure projects in October 2007. The targeted projects are transportation (roads, bridges, railroads) and utilities (gas, electricity, water). India’s finance minister has been estimated that India requires about U.S.$500 billion in infrastructure investments by 2012. In this regard, JPMorgan is joined by Citigroup, the Blackstone Group, 3i Group (Europe’s second-largest private-equity firm), and ICICI Bank (India’s second-largest bank) (International Herald Tribune, October 31, 2007). Its JPMorgan Asset Management has also established an Asian Infrastructure & Related Resources Opportunity Fund which held a first close on U.S.$500 million (€333 million) and will focus on China, India, and other Southern Asian countries, with the first two investments in China and India (Private Equity Online, August 11, 2008). The fund’s target is U.S.$1.5 billion.
JPMorgan’s Global Equity Research division also published a 60-page report called “Watch water: A guide to evaluating corporate risks in a thirsty world” (April 1, 2008).
In 2010, J.P. Morgan Asset Management and Water Asset Management led a $275 million buyout bid for SouthWest Water.
Allianz Group: Water Is Underpriced and Undervalued
Founded in 1890, Germany’s Allianz Group is one of the leading global services providers in insurance, banking, and asset management in about 70 countries. In April 2008, Allianz SE launched the Allianz RCM Global Water Fund which invests in equity securities of water-related companies worldwide, emphasizing long-term capital appreciation. Alliance launched its Global EcoTrends Fund in February 2007 (Business Wire, February 7, 2007).
Allianz SE’s Dresdner Bank AG told its investors that “Investments in water offer opportunities: Rising oil prices obscure our view of an even more serious scarcity: water. The global water economy is faced with a multi-billion dollar need for capital expenditure and modernization. Dresdner Bank sees this as offering attractive opportunities for returns for investors with a long-term investment horizon.” (Frankfurt, August 14, 2008)
Like Goldman Sachs, Allianz has the philosophy that water is underpriced. A co-manager of the Water Fund in Frankfurt, said, “A key issue of water is that the true value of water is not recognized. …Water tends to be undervalued around the world. …Perhaps that is one of the reasons why there are so many places with a lack of supply due to a lack of investment. With that in mind, it makes sense to invest in companies that are engaged in improving water quality and infrastructure.” Allianz sees two key investment drivers in water: (1) upgrading the aging infrastructure in the developed world; and (2) new urbanization and industrialization in developing countries such as China and India.
Barclays PLC: Water Index Funds and Exchange-Traded Funds
Barclays PLC is a U.K.-based major global financial services provider operating in all over the world with roots in London since 1690; it operates through its subsidiary Barclays Bank PLC and its investment bank called Barclays Capital.
Barclays Bank’s unit Barclays Global Investors manages an exchange-traded fund (ETF) called iShares S&P Global Water, which is listed on the London Stock Exchanges and can be purchased like any ordinary share through a broker. Touting the iShares S&P Global Water as offering “a broad based exposure to shares of the world’s largest water companies, including water utilities and water equipment stocks” of water companies around the world, this fund as of March 31, 2007 was valued at U.S.$33.8 million.
Barclays also have a climate index fund: launched on January 16, 2008, SAM Indexes GmbH licensed its Dow Jones Sustainability Index to Barclays Capital for investors in Germany and Switzerland. Many other banks also have a climate index or sustainability index.
In October 2007, Barclays Capital also partnered with Protected Distribution Limited (PDL) to launch a new water investment fund (with expected annual returns of 9% to 11%) called Protected Water Fund. This new fund, listed in the Isle of Man, requires a minimum of £10,000 and is structured as a 10-year investment with Barclays Bank providing 100% of capital protection until maturity on October 11, 2017. The Protected Water Fund will be invested in some of the world’s largest water companies; its investment decisions will be made based on an index created by Barclays Capital, the Barclays World Water Strategy, which charts the performance of some of the world’s largest water-related stocks (Investment Week and Reuters, October 11, 2007; Business Week, October 15, 2007).
Deutsche Bank’s €2 Billion Investment in European Infrastructure: “Megatrend” in Water, Climate, Infrastructure, and Agribusiness Investments
Deutsche Bank is one of the major players in the water sector worldwide. Its Deutsche Bank Advisors have identified water as a part of the climate investment strategies. In its presentation, “Global Warming: Implications for Investors,” they have identified the four following major areas for water investment:
§ Distribution and management: (1) Supply and recycling, (2) water distribution and sewage, (3) water management and engineering.
§ Water purification: (1) Sewage purification, (2) disinfection, (3) desalination, (4) monitoring.
§ Water efficiency (demand): (1) Home installation, (2) gray-water recycling, (3) water meters.
§ Water and nutrition: (1) Irrigation, (2) bottled water.
In addition to water, the other two new resources identified were agribusiness (e.g., pesticides, genetically modified seeds, mineral fertilizers, agricultural machinery) and renewable energies (e.g., solar, wind, hydrothermal, biomass, hydroelectricity).
The Deutsche Bank has established an investment fund of up to €2 billion in European infrastructure assets using its Structured Capital Markets Group (SCM), part of the bank’s Global Markets division. The bank already has several “highly attractive infrastructure assets,” including East Surrey Holdings, the owner of U.K.’s water utility Sutton & East Surrey Water (Deutsche Bank press release, September 22, 2006).
Moreover, Deutsche Bank has channeled €6 billion (U.S.$8.55 billion) into climate change funds, which will target companies with products that cut greenhouse gases or help people adapt to a warmer world, in sectors from agriculture to power and construction (Reuters, October 18, 2007).
In addition to SCM, Deutsche Bank also has the RREEF Infrastructure, part of RREEF Alternative Investments, headquartered in New York with main hubs in Sydney, Singapore, and London. RREEF Infrastructure has more than €6.7 billion in assets under management. One of its main targets is utilities, including electricity networks, water-treatment or distribution operations, and natural-gas networks. In October 2007, RREEF partnered with Goldman Sachs, GE, Prudential, and Babcok & Brown Ltd. to bid unsuccessfully for U.K.’s water utility Southern Water.
§ Crediting the boom in European infrastructure investment, the RREEF fund by August 2007 had raised €2 billion (U.S.$2.8 billion); Europe’s infrastructure market is valued at between U.S.$4 trillion to U.S.$6 trillion (DowJones Financial News Online, August 7, 2007).
§ Bulgaria — Deutsche Bank Bulgaria is planning to participate in large infrastructure projects, including public-private partnership projects in water and sewage worth up to €1 billion (Sofia Echo Media, February 26, 2008).
§ Middle East — Along with Ithmaar Bank B.S.C. (an private-equity investment bank in Bahrain), Deutsche Bank co-managed a U.S.$2 billion Shari’a-compliant Infrastructure and Growth Capital Fund and plans to target U.S.$630 billion in regional infrastructure.
Deutsche Bank AG is co-owner of Aqueduct Capital (UK) Limited which in 2006 offered to buy U.K.’s sixth-largest water utility Sutton and East Surrey Water plc from British tycoon Guy Hand. According to an OFWAT consultation paper (May 2007), Deutsche Bank formed this new entity, Aqueduct Capital (short for ACUK), in October 2005, with two public pension funds in Canada, Singapore’s life insurance giant, and a Canadian province’s investment fund, among others. This case, again, is an illustration of the complex nature of ownership of water utilities today, with various types of institutions crossing national boundaries to partner with each other to hold a stake in the water sector. With its impressive war chest dedicated to water, food, and infrastructure, Deutsche Bank is expected to become a major player in the global water sector.
Other Mega-Banks Eyeing Water as Hot Investment
Merrill Lynch (before being bought by Bank of America) issued a 24-page research report titled “Water scarcity; a bigger problem than assumed” (December 6, 2007). ML said that water scarcity is “not limited to arid climates.”
Morgan Stanley in its publication, “Emerging Markets Infrastructure: Just Getting Started” (April 2008) recommends three areas of investment opportunities in water: water utilities, global operators (such as Veolia Environment), and technology companies (such as those that manufacture membranes and chemicals used in water treatment to the water industry).
Mutual Funds and Hedge Funds Join the Action in Water
Water investment funds are on the rise, such as these four well-known water-focused mutual funds:
1. Calvert Global Water Fund (CFWAX) — $42 million in assets as of 2010, which holds 30% of its assets in water utilities, 40% in infrastructure companies, and 30% in water technologies. Also between 65% to 70% of the water stocks derived more than 50% of their revenue from water-related activities.
2. Allianz RCM Global Water Fund (AWTAX) — $54 million assets as of 2010, most of it invested in water utilities.
3. PFW Water Fund (PFWAX) — $17 million in assets as of 2010, with a minimum investment of $2,500, with 80% invested in water-related companies….
4. Kinetics Water Infrastructure Advantaged Fund (KWIAX) — $26 million in assets as of 2010, with a minimum investment of $2,500.
This is a brief list of water-centered hedge funds:
§ Master Water Equity Fund — Summit Global AM (United States)
§ Water Partners Fund — Aqua Terra AM (United States)
§ The Water Fund — Terrapin AM (United States)
§ The Reservoir Fund — Water AM (United States)
§ The Oasis Fund — Perella Weinberg AM (United States)
§ Signina Water Fund — Signina Capital AG (Switzerland)
§ MFS Water Fund of Funds — MFS Aqua AM (Australia)
§ Triton Water Fund of Funds — FourWinds CM (United States)
§ Water Edge Fund of Funds — Parker Global Strategies LLC (United States)
Other banks have launched water-targeted investment funds. Several well-known specialized water funds include Pictet Water Fund, SAM Sustainable Water Fund, Sarasin Sustainable Water Fund, Swisscanto Equity Fund Water, and Tareno Waterfund. Several structured water products offered by major investment banks include ABN Amro Water Stocks Index Certificate, BKB Water Basket, ZKB Sustainable Basket Water, Wagelin Water Shares Certificate, UBS Water Strategy Certificate, and Certificate on Vontobel Water Index. There are also several water indexes and index funds, as follows:
Credit Suisse Water Index
HSBC Water, Waste, and Pollution Control Index
Merrill Lynch China Water Index
S&P Global Water Index
First Trust ISE Water Index Fund (FIW)
International Securities Exchange’s ISE-B&S Water Index
The following is a small sample of other water funds and certificates (not exhaustive of the current range of diverse water products available):
Allianz RCM Global EcoTrends Fund
Allianz RCM Global Water Fund
UBS Water Strategy Certificate—it has a managed basket of 25 international stocks
Summit Water Equity Fund
Maxxwater Global Water Fund
Claymore S&P Global Water ETF (CGW)
Barclays Global Investors’ iShares S&P Global Water
Barclays and PDL’s Protected Water Fund based on Barclays World Water Strategy
Invesco’s PowerShares Water Resources Portfolio ETF (PHO)
Invesco’s PowerShares Global Water (PIO)
Pictet Asset Management’s Pictet Water Fund and Pictet Water Opportunities Fund
Canadian Imperial Bank of Commerce’s Water Growth Deposit Notes
Criterion Investments Limited’s Criterion Water Infrastructure Fund
One often-heard reason for the investment banks’ rush to control of water is that “Utilities are viewed as relatively safe assets in an economic downturn so [they] are more isolated than most from the global credit crunch, initially sparked by concerns over U.S. subprime mortgages” (Reuters, October 9, 2007). A London-based analyst at HSBC Securities told Bloomberg News that water is a good investment because “You’re buying something that’s inflation proof and there’s no threat to earnings really. It’s very stable and you can sell it any time you want” (Bloomberg, October 8, 2007).
More Pension Funds Investing in Water
Many pension funds have entered the water sector as a relatively safe sector for investment. For example, BT Pension Scheme (of British Telecom plc) has bought stakes in Thames Water in 2012, while Canadian pension funds CDPQ (Caisse de dépôt et placement du Québec, which manages public pension funds in Québec) and CPPIB (Canada Pension Plan Investment Board) have acquired England’s South East Water and Anglian Water, respectively, as reported by Reuters this year.
Sovereign Wealth Investment Funds Jumping into Water
In January 2012, China Investment Corporation has bought 8.68% stakes in Thames Water, the largest water utility in England, which serves parts of the Greater London area, Thames Valley, and Surrey, among other areas.
In November 2012, One of the world’s largest sovereign wealth funds, the Abu Dhabi Investment Authority (ADIA), also purchased 9.9% stake in Thames Water.
Billionaires Sucking up Water Globally: George H.W. Bush and Family, Li Ka-shing, the Filipino Billionaires, and Others
Not only are the mega-banks investing heavily in water, the multibillionaire tycoons are also buying water.
Update on Hong Kong Multibillionaire Li Ka-shing’s Water Acquisition
In summer 2011, the Hong Kong multibillionaire tycoon Li Ka-shing who owns Cheung Kong Infrastructure (CKI), bought Northumbrian Water, which serves 2.6 million people in northeastern England, for $3.9 billion (see this and this).
CKI also sold Cambridge Water for £74 million to HSBC in 2011. Not satisfied with controlling the water sector, in 2010, CKI with a consortium bought EDF’s power networks in UK for £5.8 billion.
Li is now also collaborating with Samsung on investing in water treatment.
Warren Buffet Buys Nalco, a Chemical Maker and Water Process Technology Company
Through his Berkshire Hathaway, Warren Buffet is the largest institutional investor of Nalco Holding Co. (NLC), a subsidiary of Ecolab, with 9 million shares. Nalco was named 2012 Water Technology Company of the Year. Nalco manufactures treatment chemicals and water treatment process technologies.
But the company Nalco is not just a membrane manufacturer; it also produced the infamous toxic chemical dispersant Corexit which was used to disperse crude oil in the aftermath of BP’s oil spill in the Gulf of Mexico in 2010. Before being sold to Ecolab, Nalco’s parent company was Blackstone……
Former President George H.W. Bush’s Family Bought 300,000 Acres on South America’s and World’s Largest Aquifer, Acuifero Guaraní
In my 2008 article, I overlooked the astonishingly large land purchases (298,840 acres, to be exact) by the Bush family in 2005 and 2006. In 2006, while on a trip to Paraguay for the United Nation’s children’s group UNICEF, Jenna Bush (daughter of former President George W. Bush and granddaughter of former President George H.W. Bush) reportedly bought 98,840 acres of land in Chaco, Paraguay, near the Triple Frontier (Bolivia, Brazil, and Paraguay). This land is said to be near the 200,000 acres purchased by her grandfather, George H.W. Bush, in 2005.
The lands purchased by the Bush family sit over not only South America’s largest aquifer — but the world’s as well — Acuifero Guaraní, which runs beneath Argentina, Brazil, Paraguay, and Uruguay. This aquifer is larger than Texas and California combined.
Online political magazine Counterpunch quoted Argentinean pacifist Adolfo Perez Esquivel, the winner of 1981 Nobel Peace Prize, who “warned that the real war will be fought not for oil, but for water, and recalled that Acuifero Guaraní is one of the largest underground water reserves in South America….”
According to Wikipedia, this aquifer covers 1,200,000 km², with a volume of about 40,000 km³, a thickness of between 50 m and 800 m and a maximum depth of about 1,800 m. It is estimated to contain about 37,000 km³ of water (arguably the largest single body of groundwater in the world, although the overall volume of the constituent parts of the Great Artesian Basin is much larger), with a total recharge rate of about 166 km³/year from precipitation. It is said that this vast underground reservoir could supply fresh drinking water to the world for 200 years.
Filipino Tycoon Manuel V. Pangilinan and Others Buy Water Services in Vietnam
In October 2012, Filipino businessman Manuel V. Pangilinan went to Vietnam to scout for investment opportunities, particularly on toll road and water services. Mr. Pangilinan and other Filipino billionaires, such as the owners of the Ayala Corp. and subsidiary Manila Water Co. earlier announced a deal to buy a 10-per cent stake in Ho Chi Minh City Infrastructure Investment Joint Stock Co. (CII) and a 49-per cent stake in Kenh Dong Water Supply Joint Stock Co. (Kenh Dong).
The Ayala group has also entered the Vietnamese market by buying significant minority interest in a leading infrastructure company and a bulk water supply company both based in Ho Chi Minh City.
Water Grabbing Is Unstoppable
Unfortunately, the global water and infrastructure-privatization fever is unstoppable: many local and state governments are suffering from revenue shortfalls and are under financial and budgetary strains. These local and state governments can longer shoulder the responsibilities of maintaining and upgrading their own utilities. Facing offers of millions of cash from Goldman Sachs, JPMorgan Chase, Citigroup, UBS, and other elite banks for their utilities and other infrastructure and municipal services, cities and states will find it extremely difficult to refuse these privatization offers.
The elite multinational and Wall Street banks and investment banks have been preparing and waiting for this golden moment for years. Over the past few years, they have amassed war chests of infrastructure funds to privatize water, municipal services, and utilities all over the world. It will be extremely difficult to reverse this privatization trend in water.
References for Several Articles Mentioned
“Goldman Sachs eyes bid for Veolia Water,” by Anousha Sakoui and Daniel Schäfer, Financial Times, March 13, 2012.
http://www.ft.com/cms/s/0/183cfae4-6d21-11e1-a7c7-00144feab49a.html#axzz2CM8OLnFQ
“Hong Kong tycoon to buy Northumbrian Water,” by Mark Wembridge, Financial Times, August 2, 2011.
http://www.ft.com/intl/cms/s/0/3df07960-bcdb-11e0-bdb1-00144feabdc0.html#axzz2CM8OLnFQ
“Why Big Banks May Be Buying up Your Public Water System: In uncertain economic and environmental times, big banks and financial groups are buying up public water systems as safe investments,” by Jo-Shing Yang, AlterNet, October 31, 2008.
http://www.alternet.org/zstory/105083/why_big_banks_may_be_trying_to_buy_up_your_public_water_system
“Barclays Capital Backs Water Fund,” by Dylan Lobo, October 11, 2007. Reuters.
http://uk.reuters.com/article/2007/10/11/citywire-barclays-water-idUKNOA13736320071011
“Investors Gush Over SouthWest Water Buyout,” March 3, 2010, Forbes.
http://www.forbes.com/2010/03/03/southwest-water-novell-markets-equities-deals-marketnewsvideo.html
“Hideout or Water Raid? Bush’s Paraguay Land Grab,” by CP News Wire, Counterpunch, October 22-26, 2006.
http://www.counterpunch.org/2006/10/20/bush-s-paraguay-land-grab/
“Paraguay in a spin about Bush’s alleged 100,000 acre hideaway,” by Tom Phillips, The Guardian, October 22, 2006.
http://www.guardian.co.uk/world/2006/oct/23/mainsection.tomphillips
“Cities Debate Privatizing Public Infrastructure,” by Jenny Anderson, August 26, 2008, The New York Times.
http://www.nytimes.com/2008/08/27/business/27fund.html?pagewanted=all&_r=0
“Philippine tycoon eyes investments in Vietnam,” by Doris C. Dunlao in Manila, Philippine Daily Inquirer, October 18, 2012.
http://my.news.yahoo.com/philippine-tycoon-eyes-investments-vietnam-060002777.html

Jo-Shing Yang is an independent researcher and author of “Ecological Planning, Design, & Engineering. Solving Global Water Crises: New Paradigms in Wastewater and Water Treatment. Small and On-Site Systems for Water Self-Sufficiency and Sustainability.”