From Volume 6, Issue 40 of EIR Online, Published Oct. 2, 2007

World Economic News

ECB Ordered by Its Slavemasters To Open the Flood Gates

Sept. 29 (EIRNS)—Deutsche Bank has published a paper "forecasting" that the European Central Bank (ECB) will cut the discount rate by a half-point in the first six months of 2008, according to Italy's Il Sole 24 Ore. This follows earlier similar "forecasts" by the Royal Bank of Scotland and Bear Stearns. The ECB has kept interest rates at 4% in one policy turn already, neglecting previous concerns about inflation, for the purpose of saving the hedge funds. Now, the turn will be complete, and the ECB will open the flood gates in Europe as the Fed did in the United States when it lowered interest rates by half a point in September.

The ECB is composed of the central banks of the Eurozone (the countries whose currency is the euro), and is officially independent. In reality, all those central banks are, in turn, owned and controlled by private banks. Thus, when the Deutsche Bank speaks, it speaks as one of the largest ECB shareholders, in the name of the other shareholders, or of a significant faction in the board. As for the Royal Bank of Scotland, the first to forecast a shift in ECB policy, it represents the oligarchy which dictates policy to Deutsche Bank and the like. So, the slaveowners tell their "independent" slave: Open the flood gates!

Central Banks Redefine the Meaning of "Liquidity Pumping"

Sept. 28 (EIRNS)—On Sept. 27, the European Central Bank (ECB) emergency lending fund of overnight money was tapped for 3.9 billion euro, at a penalty rate of 5.0% interest—a full point above the interbank lending rate, the Financial Times reports today. This was the highest such sum ever lent since 2004, according to the Italian daily Il Sole 24 Ore, which noted that "during the worst days in August, the ECB overnight loans in emergency situations were, at most, 2 billion euros."

The borrowing shows that "we are still in a situation where interbank lending is not getting anywhere near back to normal, and banks are holding onto cash.... It is a big number, and it does make you wonder if someone out there is still in trouble," a nervous economist at one of the European banks acknowledged to the Times.

At the same time, the U.S. Federal Reserve pumped $38 billion into the money market as the effective Fed Funds rate went higher than 5%, far above the 4.75% target. The Fed then announced today that it had received almost $24 billion in bids for the $4.75 billion in three-day repurchase agreements it had offered to try to bail out the banks.

British Pound Is a Debased Currency

Sept. 29 (EIRNS)—Reports in the London Times that there are cracks in the Bank of England's reserve gold bars—indicating debasing of the gold—and the news that Britain has no more than 320 tons of gold—a fraction of the gold held by other, much smaller nations—mean that the pound sterling "is a debased currency," commented Lyndon LaRouche, citing the views of monetarist theory. The British pound is running at the highest levels in decades against the U.S. dollar.

The London Times report of Sept. 29, cited experts who said that cracks in gold indicate that it has been debased; it has been rumored among gold experts for years that there were problems with the Bank of England's gold. Last May, the trade journal Metal Bulletin filed a freedom of information request in order to ascertain the truth. The BoE claims there are no problems, and that all its gold in 99.9% pure. But, "all that glitters is not gold," and questions are still being asked. More interesting is the fact that Britain has no more than 320 tons of gold, now worth about £4 billion. According to, the United States has 8,139 tons; Germany, 3,469 tons; the IMF, 3,217 tons; France 3,025 tons; Switzerland 2,590 tons; and Italy 2,452 tons.

Prime Minister Gordon Brown, when he was chancellor, sold 395 tons of British gold reserves between 1999 and 2002, a move for which he has come under criticism.

Europe Ready To Follow Mortgage Crisis

Sept. 28 (EIRNS)—The financial firm of Morgan Stanley has issued a report warning that the U.S. mortgage crisis is just a preliminary of a larger blow-out of the European mortgage bubble, the German edition of the Financial Times reports today. Belgium, Denmark, Greece, Great Britain, Sweden, and Spain have seen a very high growth in the price of houses since 1997, which, as compared to population growth, income levels, and cost of money, is even more unbalanced than the situation in the United States.

Foreclosures in Belgium, Ireland, and the Scandinavian countries are increasing. Spain and Britain are countries where it can be said that the bubble is already deflating. In Britain, foreclosures have increased 30% in one year.

The situation in Spain is identified as "particularly critical," with more than 15% of all house and apartment properties empty, according to a study by UN representative Miloon Kothari. In total, Spanish banks have issued mortgage loans for 700 billion euros, an incredible 97% of which carry an adjustable interest rate.

British 'Second Home' Bubble is Deflating

Sept. 29 (EIRNS)—The British "holiday bubble" is deflating. British investors who own second homes along the Mediterranean and in Eastern Europe face a big price correction, says Prof. Michael Ball, professor of real estate at Reading University, and a housing policy advisor to the British government, reported the Financial Times.

Prices rose fast, and many new homes were built. Many Britons bought homes in Florida, where there is now a huge oversupply. In Estonia, housing prices dropped an estimated 10% in the past 12 months. Ian Marcus, head of European real estate at Crédit Suisse, says there is a large unsold inventory of holiday homes at European resorts, especially in Spain, which is seen as the Florida of Europe. EIR previously reported the near bankruptcy of Llanera, a developer of resort homes in Spain.

Up to 400,000 properties abroad are owned by British investors, says Savills, a real estate agent.

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