Global financial crisis threatens to drag the world back to the 1930s

 *Claims 'chronic' state of government finances is partly to blame

*Warns failure to tackle youth unemployment and ageing population will make world 'a place where life is full of hardship

By Hugo Duncan

The financial crisis threatens to drag the world back to the dark days of the 1930s and wipe out the gains of globalisation, a hard-hitting report said tonight.

In its annual assessment of the global economy, the World Economic Forum warned of a rising tide of protectionism, nationalism and protests as seen during the Great Depression.

It blamed the ‘chronic’ state of government finances and the widening gap between the rich and poor as the world lurches from one crisis to another

The WEF, which holds its yearly meeting for leading politicians, economists, businessmen and academics in the Swiss ski resort of Davos later this month, said the ‘seeds of dystopia’ have been sown.
It warned that without action to tackle youth unemployment and support an ageing population the world would become ‘a place where life is full of hardship and devoid of hope’.

The survey of 469 global experts warned the world was ‘vulnerable’ to fresh economic shocks, major social unrest, and food and water crises.

Lee Howell, managing director of the WEF, said: ‘For the first time in generations, many people no longer believe that their children will grow up to enjoy a higher standard of living than theirs.

‘This new malaise is particularly acute in the industrialised countries that historically have been a source of great confidence and bold ideas.

The growing number of young people who cannot find a job and the increasing number of the elderly depending on debt-ridden states are ‘fuelling resentment worldwide’, it said in the Global Risks 2012 report.

‘Both young and old could face an income gap as well as a skills gap so wide as to threaten social and political stability,’ said the WEF.

‘This could precipitate a downward spiral of the global economy fuelled by protectionism, nationalism and populism.’

The Great Depression of the Thirties was exacerbated by a wave of protectionism that saw governments impose tariffs of imports in a desperate effort to protect their own manufacturers.

Bank of England Governor Sir Mervyn King has warned that a rerun of those policies would have ‘ruinous consequences’ for the global economy.

The WEF issued a call to arms as it warned that debt-ridden governments could no longer ensure higher living standards for future generations.

‘Individuals are increasingly being asked to bear risks previously assumed by governments and companies to obtain a secure retirement and access to quality healthcare,’ said John Drzik, chief executive of management consultants Oliver Wyman.

‘This report is a wake-up call to both the public and the private sectors to come up with constructive ways to realign the expectations of an increasingly anxious global community.’

The report welcomed advances in communications and technology but warned that there is a ‘dark side to connectivity’ which left society vulnerable to ‘malicious’ and ‘devastating’ cyber-attacks.

‘The Arab Spring demonstrated the power of interconnected communications services to drive personal freedom, yet the same technology facilitated the riots in London,’ said Steve Wilson, chief risk officer for general insurance at insurance giant Zurich.

Euro crisis puts continent's future in doubt, warns Fiat boss

• Sergio Marchionne warns eurozone politicians they are 'playing with fire' and need to 'get serious'
• Fitch suggests Italy faces fresh credit downgrade
• Banks lodging record overnight deposits with ECB

by Heather Stewart, Dominic Rushe and Henry McDonald / guardian.co.uk

Europe is "playing with fire" and its future is in doubt if it doesn't "get serious," the boss of the Italian car giant Fiat has warned, as ratings agency Fitch put Italy on notice of a credit downgrade.
Sergio Marchionne, chief of Fiat and Chrysler, said the European debt crisis was likely to flatten his business for the next two years. Speaking at the Detroit motor show, Marchionne said he was looking at adding a new partner to his car alliance as Europe's debt woes drag down Fiat's business.

Marchionne said: "We are playing with fire. One of the things we need to realise is that the world is fundamentally interconnected. We have ended up being accountable to a lot of people who financed our public debt.

"Europe is being called to task to solve a number of issues. If we don't acquire the confidence of the financial markets, the future of Europe is doubtful."

His strongly worded warning to Europe's politicians came as Fitch said Italy could see its A+ rating cut by the end of the month, despite new prime minister Mario Monti's insistence that his latest austerity measures would bring the country's finances under control.

David Riley, Fitch's head of global sovereign ratings, speaking in London, said Italy was on the "frontline" of the mounting eurozone debt crisis. "The future of the euro will be decided at the gates of Rome," he said.

Italy has seen its borrowing costs rise to eye-watering levels as confidence in the future of the single currency has been rocked. Yields on 10-year Italian bonds, which determine the interest rate Rome has to pay to borrow, stood at 7.14%. A rate of 7% is widely viewed as unsustainable and was the point at which Portugal, Greece and the Irish Republic were forced to seek a bailout.

Fitch's warning came as Europe's leaders began a punishing schedule of meetings in the run-up to a crucial summit at the end of this month.

After Greece's warning last week that it will be forced to drop out of the single currency unless it receives the €130bn second bailout it was promised in October, German chancellor Angela Merkel and Christine Lagarde, the managing director of the International Monetary Fund, held talks in Berlin.

Lagarde will be in Paris on Wednesday to meet French president Nicolas Sarkozy, amid reports that the IMF is losing patience with Athens. The Greek government is being urged to crack down on tax avoidance, sell off state assets and implement a series of economic reforms before it can receive the new rescue loan.

Also on the agenda for eurozone leaders is the new "fiscal compact", to tighten the rules on tax and spending for euro members, and how to boost the euro bailout fund, the European Financial Stability Facility.

Fresh evidence of the scale of the continuing crisis in Greece also emerged, with news that bank deposits in the recession-hit state declined by 2% in November alone. During the first eleven months of 2011, nervous Greek consumers and businesses withdrew €36.7bn from the country's shaky banking sector, 17.5% of the total cash on account.

The IMF is also due to pronounce on Ireland's progress on tackling its deficit. Enda Kenny, the Irish prime minister, expressed confidence that the "troika" of the European Central Bank, the European commission and the IMF would give the republic a positive report after their officials' 10-day fact-finding mission to Dublin.

The taoiseach and the Irish government played down comments from Citigroup's chief economist, Willem Buiter, that Ireland might need another international bailout by the end of the year. The European commission said that talk of a second round of international aid to Ireland was "not helpful".

Responding to Buiter's remarks, Amadeu Altafaj, spokesman for Olli Rehn, the EU economic commissioner, said that Ireland had made strong progress in export growth, banking sector reform, structural reform and in its general fiscal position. "It is not particularly useful to open a public debate on a successor programme when the first programme is delivering," he said.

The talks in Berlin and Paris were lent fresh urgency by news that struggling banks deposited a record €481.9bn in the European Central Bank's overnight facility on Monday.

These deposits receive a rock bottom interest rate of 0.25%, so the sharp rise suggests banks are increasingly anxious about lending among themselves, and instead are parking their cash in Frankfurt.

Meanwhile Britain's status as a relatively safe haven amid the turmoil on the continent was underlined as investors snapped up £700m-worth of inflation-linked government bonds, driving the real yield below zero for only the second time.

Back in Detroit, where American carmakers are banking on a revival in the world's largest economy, Marchionne predicted that Fiat could lose 500,000 vehicle sales annually as a result of the European debt crisis. "We need to get serious, really serious," he said.

Fiat is planning to merge with Chrysler by 2014. Under Marchionne the US car firm has bounced back from bankruptcy. Chrysler sales soared 26.2% last year and were up 37.1% in December. The US firm expects to report a profit of about $600m for 2011 and Marchionne has forecast Chrysler will make $3bn in operating profit in 2012.

The company recently announced it would add 1,100 jobs to the Detroit plant that makes the Grand Cherokee and Dodge Durango.

Iran, West approaching 'turning point' in 2012, officials warn

by FoxNews.com

War games. Threats to close a key oil passageway and block a U.S. aircraft carrier from returning to the Persian Gulf. An American sentenced to death in Tehran, accused of spying. And now a breakthrough in Iran's nuclear program.

The developments portend what officials see as a momentous year ahead in the standoff between Iran and the West, as Iranian leaders appear to grow bolder despite a new round of international sanctions which, by most accounts, is taking a toll.

"There won't be taking an eye off the ball," Adm. Jonathan Greenert, chief of naval operations at the Defense Department told reporters on Tuesday. Greenert spoke after the second rescue in less than a week of Iranians in trouble in Gulf waters. "If you ask me what keeps me awake at night, it is the Strait of Hormuz and the business that is going on in the Arabian Gulf."
U.S. lawmakers and other officials say western nations, which already have been putting the screws to the regime in Tehran, must take additional steps in order to persuade the country not to go down the nuclear weapons path.

In a letter to the European Union released Tuesday, a group of bipartisan senators described 2012 as a "turning point in the confrontation between Iran and the international community." They urged the organization to impose an oil embargo on Iran and follow the U.S. lead by sanctioning Iran's Central Bank.

"We believe that both (steps) are absolutely necessary if we are to prevent the Iranian regime from acquiring nuclear weapons and thereby foreclose either a regional war or a cascade of nuclear proliferation in the Middle East," reads the letter signed by Sens. Joe Lieberman, I-Conn.; Mark Kirk, R-Ill.; Charles Schumer, D-N.Y., and five others.

In New York, state senators on Monday passed legislation already approved by the state Assembly to prohibit state and local governments from doing business with companies that have more than $20 million in ties to Iran's energy sector.

"The Senate's swift action shows how important it is that we stand together to condemn tyrannical governments like Iran which sponsor terrorism, have attempted to acquire nuclear weapons and threaten U.S. allies like Israel, as Iran has repeatedly done," Senate Majority Leader Dean Skelos said on the Senate floor.

The move, which mirrors actions by Florida and California, comes after state Comptroller Thomas DiNapoli announced $86 billion of the nearly $150 billion state pension fund has been divested from companies involved in Iran and Sudan.

The array of actions and latest warnings -- particularly on the Republican presidential campaign trail -- highlight the West's effort to make tough choices on Iran, within a quickly narrowing window.

The latest alarm bell came Monday when the United Nations' nuclear agency confirmed that Iran had started to enrich uranium at its underground Fordo site. The level of enrichment being pursued is said to be 20 percent, far more than the 3.5 percent-level material being produced at Iran's central enrichment site.

The State Department described the development as very bad news.

Secretary of State Hillary Clinton said in a statement Tuesday that the enrichment activity "demonstrates the Iranian regime's blatant disregard for its responsibilities."

She called on Iran to stop enriching uranium and return to international talks on its nuclear program, adding that the circumstances surrounding the Fordo site are "especially troubling."

"There is no plausible justification for this production. Such enrichment brings Iran a significant step closer to having the capability to produce weapons-grade highly enriched uranium," she said.

State Department spokeswoman Victoria Nuland also said a day earlier that, "When you enrich to 20 percent, there is no possible reason for that if you're talking about a peaceful program."

John Bolton, former U.S. ambassador the United Nations under the Bush administration, said that if there is a strike, Israel is the most likely candidate to carry it out. But he said Israel risks a "nuclear response" in the event the country waits too long to launch one.

"Every day that goes by means that the military option gets less and less likely," Bolton told Fox News.

Reflecting the views of the senators who wrote to the European Union, Bolton said a nuclear Iran would trigger a nuclear race in the volatile Middle East among Iran's powerful neighbors.

"I think it's a very dangerous period. I think Iran is drawing close to the point where it will have a nuclear weapons capability," Bolton said.

On Tuesday, White House spokesman Jay Carney said the U.S. is consulting with countries like India and China on ways to keep the pressure up -- after both nations committed to stronger partnerships with Iran's oil sector.

In the meantime, Carney said, "We have effectively isolated Iran to a degree that has never before been the case. And the impact of the sanctions and the efforts that we've implemented is profound.

He added that while the military option isn't off the table, the U.S. is focused on "diplomatic, economic and other non-military actions that we can take to bring about the results that we and many, many countries around the world -- our international partners and allies -- are demanding."

Israel has not betrayed its plans, though the country's military chief of staff Benny Gantz said Tuesday that 2012 "will be a critical year" on the Iranian nuclear front, according to The Jerusalem Post.

The Institute for National Security Studies, an Israeli think tank, also claimed that Israel could still attack Iran even after an Iranian nuclear test.

"The Israeli military option is likely to be a significant lever," the group said in a report on a simulation it conducted regarding the possible responses to such a test.

The United States has not publicly signaled a shift away from the international sanctions route. Defense Secretary Leon Panetta, speaking Sunday on CBS' "Face the Nation," said that while no option is off the table, the "responsible" path is "to keep putting diplomatic and economic pressure on them," so they don't pursue a nuclear weapon. He said it's important for the international community, "including Israel," to work together.

Panetta, who said last month that Iran could develop a weapon in 2012, claimed Sunday that Iran is not currently trying to develop one.

"But we know that they're trying to develop a nuclear capability. And that's what concerns us," he said. "And our red line to Iran is do not develop a nuclear weapon. That's a red line for us."

Panetta said "they're going to get stopped" if they pursue a weapon.

Other U.S. lawmakers have pressed the Obama administration to do more. Rep. Ileana Ros-Lehtinen, R-Fla., chairwoman of the House Foreign Affairs Committee, said in a statement Monday that she is "deeply troubled by the sense of complacency that seems to describe the administration's view of Iran as undecided about whether to pursue nuclear weapons."

She said an Iran with "nuclear breakout capability" should be treated like an Iran with a nuclear weapon, and noted that Iran is making inroads into Latin America to directly threaten U.S. security.

Rep. Peter King, R-N.Y., chairman of the House Homeland Security Committee, said in a statement to FoxNews.com that "it seems apparent that Iran is seeking a nuclear weapon in the face of international condemnation and sanctions."

"While we may not yet be at risk of nuclear retaliation from Iran, the longer we wait to act, the harder it would be to destroy an Iranian nuclear arms program while keeping civilian casualties and environmental damage to a minimum," King said.

King late last year called -- to no avail -- for the United Nations to expel Iran's diplomatic officials from the U.N. mission in New York. That was after Iranian officials were tied to an alleged plot to assassinate the Saudi ambassador to the U.S.

The Republican presidential candidates meanwhile have increasingly warned about the dangers of a nuclear Iran on the campaign trail. Anti-war Rep. Ron Paul, though, has likened the rhetoric to that which poured out of Washington before the 2003 Iraq invasion.

Iran’s Flying Saucer Downed U.S. Drone, Engineer Claims

By Spencer Ackerman and Noah Shachtman

Late last month, Iran put on display what it insisted was a captured American stealth drone. At the time, Tehran claimed it brought down the RQ-170 with a sophisticated electronic attack. Nonsense, says one Iranian engineer who claims to have inside knowledge of the drone-nab. The Islamic Republic used force fields and flying saucers to subdue and capture the unmanned aircraft.

Meet Mehran Tavakoli Keshe, who purports to be the father of the RQ-170 abduction. In a recent post to his eponymous foundation’s online forums, Keshe claims the Iranians used “advanced space technology” that he pioneered. “The craft has been air-picked-up and been put down on its belly through the use of field forces,” Keshe writes — by which he means force fields. It’s feeling a lot like Tinfoil Tuesday, our weekly round-up of the planet’s most insane conspiracy theories.

The U.S. has yet to confirm that the drone Iran claims to have is actually the stealthy “Beast of Kandahar,” and the yellow model that Iran has peddled out looks like it’s made out of fondant, like a drone-shaped cake constructed for an episode of Food Network Challenge. Keshe claims that the drone looks as smooth and clean as it does in Iran’s propaganda photos because his force fields intercepted the RQ-170, like a tractor beam would, and deposited it gently to Iranian soil. As summarized by Pure Energy Systems News, Keshe’s technology, part of an “Iranian [flying] saucer program,” harnesses “a fusion reaction that manipulates dark matter, regular matter, and antimatter.”

“We have no comment on this individual’s claims,” George Little, the Pentagon’s chief spokesman, tells Danger Room, “but tell him the Secretary would like his lightsaber back.”

Keshe himself suggests that Iran’s advanced space program has yielded flying saucers and used them to down the drone. “The Iran spaceship program has the capability of jamming and blocking any incoming radar,” he writes, “as we have explained month ago on this forum, and now we see the practical use of the technology.”

Ironies abound. Iran allegedly has alien technology, but can’t seem to put together a decent nuclear bomb. And the Beast of Kandahar — well, it’s got an alien connection, too. In a sense. As you can learn from this fascinating documentary, flying-wing technology of the sort displayed by the RQ-170 was first developed by the, um, Nazis. (You can see a mock-up of a Nazi proto-stealth fighter here.) After the war, the U.S. imported Nazi weapons scientists — like the missile specialist Werner von Braun — under a program called Operation Paperclip. Among them were flying-wing gurus the Horton Brothers. One theory holds that the subsequent American UFO sightings were actually people seeing U.S. flights of the Hortons’ unfamiliar bat-shaped aircraft.

In other words, the RQ-170 may have been born from flying saucers — sort of — and flying saucers may have brought it low.

Not to be That Guy and burst Keshe’s bubble, but Danger Room explained last month that Iran could have captured the drone by spoofing the RQ-170′s GPS-based navigational backup systems. No force fields or saucers necessary.

Keshe isn’t interested in any of that. Even though his saucers and tractor beams allegedly captured the RQ-170, majorly cheesing off Washington, Keshe hopes his space tech will bring about a new era of international peace — and intergalactic exploration.

“We invite the US government and other nations to enter into negotiation with the Foundation and The Iranian government,” he posted, “for disclosure of the full space technology to all nations simultaneously that there shall be no more war race, but a pace race [sic] to join and conquer the space and not each others little peace of lands so called nations, this offer stands and is extended to all nations irrespective of their colour, race and religion.”

Iran and Russia End Trading in Dollars

by Bloomberg
Iran and Russia replaced the U.S. dollar with their national currencies in bilateral trade, Iran's state-run Fars news agency reported Saturday, citing Seyed Reza Sajjadi, the Iranian ambassador in Moscow.

The proposal to switch to the ruble and the rial was raised by President Dmitry Medvedev at a meeting with his Iranian counterpart, Mahmoud Ahmadinejad, in Astana, Kazakhstan, at the Shanghai Cooperation Organization, the ambassador said. The meeting was in June of last year.

Iran has replaced the dollar in its oil trade with India, China and Japan, Fars reported.

The European Union, the United States and the United Nations are applying sanctions against Iran over its nuclear program. Iran says its nuclear efforts are for civilian purposes and to generate electricity, while the United States and several major allies say the program represents a weapons threat.

Meanwhile, Iran's Bushehr nuclear power plant will reach full electricity-generating capacity on Feb. 1, Fars news agency reported Sunday, citing Fereydoun Abbasi, head of the country's Atomic Energy Organization.

The plant's 1,000-megawatt maximum output will meet 2.5 percent of the Islamic Republic's power needs, Abbasi was cited as saying. Iran is ready to export nuclear energy services to nations such as those in Africa that hold uranium resources, he also said.