From Volume 6, Issue 26 of EIR Online, Published June 26, 2007

World Economic News

PPBOC Warns of 'New' Asian Financial Crisis

June 22 (EIRNS)—Nations must be alert for "excessive pursuit of domestic assets by foreign capital," warned China's central bank vice governor Wu Xiaoling at the 10th Asian Financial Crisis Anniversary Forum in Beijing June 21. "It is significant to look back on the 1997 Asian financial crisis, as we are addressing an unbalanced global economy, excessive liquidity, and fickle financial markets," Wu said. She also said that other nations must be patient about China's reform of its foreign exchange policy, especially as a change in the renminbi (RMB) alone cannot narrow trade imbalances, Xinhua reported today. "China's export-oriented economy is a structural problem, which cannot be fixed merely by changing its exchange rate," Wu said. She called for international cooperation to prevent financial crises.

"A country's financial sector should open in a way commensurate with its domestic financial system," she told the forum. "Opening without due management will pose a threat to financial stability." It was China's strong foreign exchange regulation which protected it from the speculative assaults which wreaked havoc throughout East and Southeast Asia in 1997-98.

Wu said that huge foreign capital inflows could force drastic inflation in national asset prices, which would be unsustainable when the capital fled for other targets and brought down the national currency. She also said, however, that nations should not hold to "rigid" exchange policies. "All countries should adopt an exchange rate mechanism in line with their own situations as a rigid, inflexible mechanism is vulnerable to international hot money," Wu said. Increasing speculative attacks by "hot" foreign capitals could easily spark off financial crisis, she added.

Gore's British Controllers Make Killing on Carbon Trading

June 19 (EIRNS)—The City of London intends to reinforce its role as the world's carbon-trading capital, a favorite policy of Gordon Brown, who takes over as Prime Minister on June 27. A report from International Financial Services shows that the City is taking an ever-bigger share of this rapidly expanding market, as banks and brokers become more heavily involved, the Daily Telegraph reported June 19. Already last year—even before hedge fund operator Al Gore weighed in with a worldwide propaganda campaign to push the "global warming" hoax, London's ICE (electronic energy) Futures market accounted for more than 80% of trading tied to the European Union's Emissions Trading Scheme (ETS). Europe's ETS is the biggest "emissions-swapping" swindle of its kind in the world. Total ETS volume tripled in volume and value terms to $24.4 billion, and is predicted to grow another 50% in 2007.

China Agrees To Cancel Iraqi Debt

June 22 (EIRNS)—China and Iraq signed four agreements in Beijing, yesterday, including one regarding Iraq's debt. The agreements came during the state visit of Iraqi President Jalal Talabani, who signed the documents with Chinese President Hu Jintao following one-hour talks in the Great Hall of the People.

No details were given regarding the amount of Iraqi debt to be cancelled or forgiven. The other three agreements deal with cooperation between the two foreign ministries, economic and technical cooperation, human resources training program.

This was the first visit to China by an Iraqi President since the two countries established diplomatic relations in 1958, IRIB reported June 21.

WTO Talks on Doha Round Collapse

June 22 (EIRNS)—Within a day after collapse of the G-4 (EU, US, India, and Brazil) talks held in Potsdam, Germany, India's Commerce and Industry Minister Kamal Nath warned that efforts by the EU and U.S. to foster differences among the developing nations, which India and Brazil have organized to stand together for protecting their interests in agriculture and the industrial sectors, would be futile. Calling it "the end of the day for G-4," Kamal Nath told reporters: "I want to caution EU and the U.S. that any effort to divide developing countries will not succeed.... India stands firm with the developing countries," he said when asked to comment on U.S. Trade Representative Susan Schwab's remarks that advanced developing countries like India, Brazil and China should open their markets for other developing nations.

The issue at stake was to reach an agreement to lower tariffs and subsidies in general, but both India and Brazil, as well as other developing countries, perceive it as being designed by the EU and the U.S. to ensure greater access to the weaker agricultural and industrial markets of developing nations and weaken them further. Lashing out against Schwab's attitude at the negotiations, Nath said: "It is not just a question of figures. It is a question of attitude. The U.S. does not realize that the world has changed."

Bank of England Governor Warns About CDOs

June 21 (EIRNS)—Bank of England governor Mervyn King warned about the risks posed to the entire financial system by "collateralised debt obligations" (CDOs), in a speech at the Mansion House—the official residence of the Lord Mayor of the City of London—June 20. King said that bankers are now telling him that they "cannot recall a time when credit was more easily available." "Exotic instruments" such as CDOs, are creating great risk. "New and ever more complex financial instruments create different risks," King said. "Some of the important risks that could affect all instruments—from terrorist attacks, invasion of computer systems, or even the consequences of a flu pandemic—are almost impossible to quantify, and past experience offers little guide. The risk of the entire return being wiped out can be much greater than on simpler instruments. Higher returns come at the expense of higher risk. Be cautious about how much you borrow is not a bad maxim for each and every one of us here tonight."

Former Financial Services Administrator chairman Sir Howard Davies has called CDOs "toxic waste." Meanwhile, the Bank for International Settlements reported that sales of CDOs hit a record $251 billion (126 billion pounds) in the first quarter of the year alone.

Vulture Funds Pressed on Non-Payment of Taxes

June 21 (EIRNS)—In London the "big players" in private equity operations had to testify to the Parliament's Treasury Select Committee yesterday, as the incoming government of Gordon Brown faces increasing pressure to close the huge tax loopholes exploited by the super-rich speculators—although it was Chancellor of the Exchequer Brown who oversaw the creation of the British "tax haven" in the first place. Four senior private equity executives, including Robert Easton of Carlyle Group, Dominic Murphy of Kohlberg Kravis Roberts, Damon Buffini of Permira, and Philip Yea of 3i, all went before the committee. These hearings in London parallel discussions which EIR has reported from Washington (see above). Also, just before the committee hearings, private equity baron Sir Ronald Cohen warned that there could be riots in the streets, as in Paris, if the growing wealth gap is not closed. Cohen is a big funder of Gordon Brown.

Labour MP John McFall said to the speculators: "You're the masters of the universe. I'm asking how much capital gains tax you pay and you cannot tell me?" Under the current tax policy, the CEOs' personal profits from takeovers are taxed at capital gains' rates of as little as 5-10%, instead of 40% income tax. Since 2003, they only need to keep their investments for two years before they can cash them in and benefit from the tax break.

Unions in Britain have put on a lot of pressure about the private equity groups. The spokesman of Unite, Jack Dromey, said more was known about the Cosa Nostra than private equity, before the unions campaigned to expose its activities, the Guardian reported on June 21.

On June 20 the Evening Standard published an estimate that the tax loopholes mean that Britain is losing some 6 billion pounds a year in taxes, due to breaks for the super-rich.

Irrational Exuberance Pumps Up Asian Market Bubbles

June 19 (EIRNS)—Stock markets across Asia set new records as foreign hot money and local hysteria set the stage for a crash. The bourses of Singapore, China, Hong Kong, Indonesia, and South Korea all ended on new highs on June 18. AFP quoted one Singapore dealer: "It is panic buying. People are chasing anything that moves for fear of missing out on the rally." A Chinese scholar currently in Washington told EIR that all his friends in China were calling to advise him to get into the boom. "They seem to have lost their good sense," he said. "They're all taking their savings out of banks and investing in the markets."

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