–Before we get to today’s geopolitical story—how the dollar crisis is leading to more failed states and higher oil prices—just a bit more on yesterday’s subject of technical “glitches” in the financial system. You probably saw that automatic teller machines owned by the Commonwealth Bank of Australia (CBA) mistakenly began dispensing free cash to ATM users.
–Please remember it is illegal to keep this money. Only central banks can give away free money. And they can only do that when the money is going to their very large institutional friends on Wall Street. This is perfectly legal and drives the value of financial assets higher, which is also very good for people who work in the financial industry.
–News stories say the “glitch” was attributed to a “rogue computer.” This makes it sound like one of the ATMs, or perhaps some disgruntled computer owned by the bank, decided to “go rogue” and deliberately sabotage the bank’s systems. As far as we know, though, computers lack free will. So this rules out a computer deciding to screw things up on its own.
–On the other hands, there’s been an alarming number of “glitches” affecting Australian businesses lately. Virgin Blue has its own glitch problem. Late last year, NAB says human error caused a mainframe “glitch” that made customer funds unavailable. And a few years back Westpac had a $1 billion “glitch” that affected tens of thousands of Australians trying to get their money out of the bank.
–There’s probably a perfectly normal explanation for all of this. That explanation is usually that a human being screwed up. Or that a system was badly designed, which is also human error and not some buttoned up cybernetic bank organism that’s gone “rogue.”
–The abnormal explanation for these “glitches” is that they aren’t happening by accident but by design. It wouldn’t be the first time that someone (or some group) spent his/its free time exposing the vulnerabilities of corporate IT systems and networks. Dashing hacker/philosopher Adrian Lamo comes to mind.
–And if you want to go all James Bond/Jason Bourne on the story, there’s a line of thought that suggests hacking the IT architecture of the financial system (stock market by stock market, firm by firm) is part of a more elaborate strategy of total economic warfare (conflict without the arms). In fact, it’s the conclusion of this report by consultant Kevin D. Freeman that the 2008 “flash crash” on the New York Stock Exchange was an act of financial war.
–Freeman’s paper outlines what he describes as a three-phase coordinated attack on the U.S. economy. The first phase was a run up in oil prices. The second was a series of “bear raids” on U.S. firms that destabilised Wall Street. And the third phase is an attack on the U.S. dollar and Treasury bonds. Hmm.
–Freeman puts it this way, “The new battle space is the economy…We spend hundreds of billions of dollars on weapons systems each year. But a relatively small amount of money focused against our financial markets through leveraged derivatives or cyber efforts can result in trillions of dollars in losses. And, the perpetrators can remain undiscovered.”
–It’s a bit kooky to blame America’s fiscal woes on shady financial terrorists. The real culprits have been easy to find for the last thirty years. The Congress, the various Presidents and members of the Executive Branch, and the Board of the U.S. Federal Reserve have done a great job of driving America’s economy off a cliff and unleashing inflation on the rest of the world.
–That said, Freeman indirectly makes a very good point: if someone wanted to, they probably could do a lot of damage to the financial system. And while yesterday we speculated that it was only a matter of time before it happened, the fact of the matter is that it probably already HAS happened… And will happen again.
–Enter stage right two kinds of money that you don’t have to keep at the bank: gold and silver. Silver made a 31-year high last night and April gold futures soared to $1,431.20. Precious metals are the safest haven currency in a world where fiat money is going down in flames and the Middle East and North Africa are on the verge of going up in flames.
–On that note, the Wall Street Journal reports that the United States has ordered two warships and 400 Marines to deploy off the coast of Libya. How long will it be before Libya tips over into failed state status? And will it be Russia, the U.S., Europe, or China that manages to be the power broker in the region and secure long-term oil supplies from the next regime?
–Australia’s 19-year recession-free run seems resistant to the worst the world can throw at it. It’s good to be lucky AND coated in some kind of economic Teflon. Nothing sticks. According to the Australian Bureau of Agricultural and Resource Economics, the value of mineral and energy exports from Australia is set to go up by 54% over the next two years. Next year alone should bring in $251 billion in sales of Australia’s red dirt, black coal, and delicious natural gas.
–That’s a lot of money rolling into the country. It’s a lot because ABARE reckons commodity prices will rise (but this is NOT inflation, just so you know, and it has nothing to do with the weak U.S. dollar). It’s a lot of money that might also find its way into higher wages in Australia. And might that mean higher (not lower) interest rates ahead? Stay tuned…
For The Daily Reckoning Australia