From Volume 37, Issue 10 of EIR Online, Published Mar. 12, 2010

Global Economic News

Hedge Funds Change Tactics on CDS Bets; Attack Euro

March 3 (EIRNS)—Hedge funds are afraid of government reactions and have stopped betting against single EU nations, the London Financial Times reports today. They have instead shifted their bets against the euro directly. For instance, Brevan Howard, Europe's largest hedge fund, has sent a letter to investors saying that the fund has closed out all of its positions on European sovereign debt. Also Paulson & Co. (the $32 billion U.S. hedge fund) has closed out its positions against Greece. "However, overall market positions against the euro, which yesterday hit a fresh nine-month low against the dollar, are up sharply."

Indeed, the EU has opened an investigation on CDS (credit default swaps) bets, and EU Parliament member and former French Foreign Minister Michel Barnier went to London yesterday, where he met hedge fund managers. However, his mission is called a "charm offensive" by the FT, which interviewed him. Barnier says that the hedge fund directive must be "improved," and discussed a "global banking levy." He endorsed the so-called "Volcker rule," which President Obama is backing, but he said that it cannot be imported in the same form in Europe, which has different banking structures. And anyway, the U.S. has not yet adopted it. He ducked a question on "widespread fears in the US and in London that many European banks, especially those in Germany, had to come clean on their losses." And his soft approach did not convince hedge fund managers, who are afraid of the "devil in the details."

Data released by the Depository Trust and Clearing Corporation, shows the biggest volume of open CDSs on sovereign debt to be in Italy, with $230 billion. Second is Turkey, with $170 billion; third is Brazil, with $143 billion, and fourth is Russia with $110 billion.

The rate of increase of CDS bets sees other countries at the top: Spain, for instance, with almost a 200% increase in one year (from $59.7 billion to $109.7 billion); Portugal from $29.8 billion to $64 billion; and even Germany, from $46 billion to $66 billion.

A Perfect Storm for Mass Starvation in 2010 Is Developing

March 4 (EIRNS)—UN Food and Agriculture Organization (FAO) chief Jacques Diouf told Voice of America on March 3 that a food crisis is looming. Conditions in the world's grain markets today are similar to those during the food price crisis of 2007-08, Diouf said. Riots broke out in more than 30 countries in 2007 and 2008, because people could not afford to buy food.

Already, violence has been reported in North Korea due to food shortages. Efforts to feed starving North Koreans are being hit by dwindling donations, the World Food Program (WFP) said on March 4, as reports of a deadly clash between troops and workers trying to loot a food train came in from North Korea. According to a spokeswoman for the WFP, 2 million people—only one-third of the 6.2 million in North Korea who were supposed to receive aid, were actually getting it, and even then, they were receiving only incomplete rations of fortified foods. "The country is soon to enter the critical 'lean season,' when food stocks from last year's harvest run low. In certain parts of North Korea, particularly in the northeast, high levels of malnutrition are anticipated."

The WFP said this week that it will discontinue all food aid to North Korea in July, if it doesn't start getting sufficient donations.

UN experts say that record high energy prices, growing demand for bio-fuels, low grain reserves, and bad weather in producing countries, helped push up prices beginning in 2007. Food prices remain high in many developing countries. Diouf said the threat of another global price hike persists. Energy prices have not fallen to pre-crisis levels, and crops are still being diverted for biofuels. In fact, he said, except for larger grain reserves, not much has changed since 2007. Diouf also pointed out that many nations are still not investing enough in agriculture.

One other ominous signal is the report of U.S. exports of agricultural-related machinery. These exports totaled slightly less than $8 billion in 2009, a 23% drop from the previous year, according to the Association of Equipment Manufacturers. The AEM trade group consolidates U.S. Commerce Department data for off-road equipment, with other sources, into quarterly export trend reports. U.S. farm equipment exports to Europe show a 42% drop for 2009, while exports to South America declined 31%, and Central America declined 20%. Asia as a whole shows a 19% decrease, while Africa's farm equipment export purchases registered a drop of 25%.

IMF Head Demands Powers for Global Surveillance

Feb. 28 (EIRNS)—Speaking Feb. 26 to a Washington meeting of the Bretton Woods Committee, a private association dedicated to promoting the International Monetary Fund and World Bank, IMF director Dominique Strauss-Kahn laid out a program for the Fund's future—all oriented toward turning the IMF into the global dictatorship the British have been promoting.

First, Strauss-Kahn said, the IMF has to have the ability to carry out "more rigorous" surveillance to "prevent crises." To wit: "In particular, we are floating the idea of a new multilateral surveillance procedure. This would allow—indeed require—the Fund to assess the broader and systemic effect of country-level policies, and the associated risks in a fundamentally different way. We need to take up these issues of systemic importance frankly, regularly, and even-handedly."

Second, he called for increasing the IMF's "crisis response tools"—by which he meant a grab bag of measures targetting low-income countries. He said they had enough money for now.

Third, Strauss-Kahn dealt with the "stability" of the international monetary system, lying that everything seemed okay for now, but raising the question of "whether a new global reserve asset is needed" to replace the dollar.

Like the captain of a ship just before it hits an iceberg, the IMF chief declared that all was well, and we need "more IMF, not less." Why then is he demanding more powers to deal with "systemic risk?" He likely knows the ship is about to crash.

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