From Volume 37, Issue 44 of EIR Online, Updated Nov. 19, 2010

Global Economic News

Silent Run on the Bank of Ireland by Corporate Depositors

Nov. 13 (EIRNS)—There has been a silent run by corporate depositors at the Bank of Ireland, which is now Ireland's biggest lender and is 36% owned by the government. The bank announced that in August and September there were withdrawals by corporate depositors. Citing banking sources, the Irish Times suggests that the withdrawal could have been as much as EU10 billion. The bank said that while the situation had "stabilized" there nonetheless continued to be "outflows of ratings-sensitive customer deposits in our capital markets business."

On top of that, mortgage arrears at the bank continue to increase." The bank admitted it continues to be totally dependent on the European Central Bank's emergency unlimited liquidity window for funding where it receives short-term credits of no longer than three months' duration.

There is a direct British connection. The Bank of Ireland is in a joint venture with the British Post Office Bank which operates 11,500 branches and is used primarily by normal depositors. Also not widely reported this week is the fact that this subsidiary was reorganized as Bank of Ireland (UK) PLC as of Nov. 1, so as to allow the deposits to fall under Britain's deposit guarantee scheme. This was no doubt a preemptive move to avoid a run on the bank as the crisis worsens.

While Inter-Alpha's Allied Irish Bank's small banking operation in the U.K. also falls under the British deposit insurance scheme, the U.K. subsidiary of Anglo Irish Bank, now 100% owned by the government, is not covered by the U.K. guarantee, but only the Irish guarantee, which is good as long as the Irish government is solvent.

Chinese Rating Agency: 'U.S. Solvency Is on the Brink of Collapse'

Nov. 9 (EIRNS)—The United States has lost its double-A credit rating with Dagong Global Credit Rating Co., the Chinese rating agency, due to the Fed's new round of quantitative easing policy, Chinese news agency Xinhua reported Nov. 9.

The Dagong report uses blunt language to describe the current state of the American economy: "In essence, the U.S. government's move to devalue the dollar indicates its solvency is on the brink of collapse."

When briefed on the report, Lyndon LaRouche said, "It's not strong language. It's an accurate description. When a guy is dead, you don't say he smells bad." LaRouche also noted that China is in a very serious conflict with Britain's Trans-Atlantic system.

The Dagong Global downgrade lowered the local and foreign currency long-term sovereign credit rating of the U.S. by one level to A+, from the previous AA, with "negative" outlook. The Chinese rating agency said the downgrade reflected the U.S.'s deteriorating debt repayment capability and drastic decline of the U.S. government's intention of debt repayment.

"The serious defects in the U.S. economy will lead to long-term recession and fundamentally lower the national solvency," Dagong said in a report. The Chinese rating agency said the Federal Reserve's new round of quantitative easing would further depreciate the U.S. dollar and was entirely counter to the interest of the creditors. "The credit crisis is far from over in the United States and the U.S. economy will be in a long-term recession," Dagong Global warned in the report, adding that a weakening greenback will cripple U.S. capability to attract dollar capital reflow.

Parasites Hoarding Commodities, Pumping Up Prices Even Higher

Nov. 8 (EIRNS)—If the banks get their way, the prices of commodities will skyrocket even higher. JP Morgan, Goldman Sachs, and Deutsche Bank, among others, are putting together physically backed exchange traded funds (ETFs). These would be commodities funds backed by actual physical holdings of commodities. These funds will be hoarding commodities such as copper, lead, aluminum, and nickel rather than futures contracts, which would drive the prices up even higher. But the same banks will be trading in futures as well, promising to drive up prices at will.

The Daily Telegraph reports that several metal traders and experts have written to the City of London's watchdog not to approve the application, because it could be "approving the next financial bubble." They also say the obvious, that this will "distort" commodity prices, writing, "by allowing investors to hoard physical supplies is equivalent of allowing investors to sit on warehouses of wheat while Tesco (a supermarket) is short of bread."

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