Friday, December 25, 2009

Michael Hudson vs Paul Krugman

Michael Hudson has (briefly) broken into the public debate via a comment from Paul Krugman of the New York Times.

Here is a taste of the radical view that ever-so-momentarily hits the spotlight:

To answer this question, my book describes the "intellectual engineering" that has turned the economics discipline into a public relations exercise for the rentier classes criticized by the classical economists: landlords, bankers and monopolists. It was largely to counter criticisms of their unearned income and wealth, after all, that the post-classical reaction aimed to limit the conceptual "toolbox" of economists to become so unrealistic, narrow-minded and self-serving to the status quo. It has ended up as an intellectual ploy to distract attention away from the financial and property dynamics that are polarizing our world between debtors and creditors, property owners and renters, while steering politics from democracy to oligarchy.

In this article Hudson goes on to point out one of the oddest and most characteristic aspects of neo-classical economics, that propositions don't have to correspond to reality, they just have to be internally logically consistent.

In the past, Hudson has confidently predicted that neo-liberalism is dead as a result of the GFC, but I prefer to agree with Gaffney that it aint dying anytime soon. The corpse will be patched up and shoved out again for consumption by new generations of students.

Thursday, December 24, 2009

Tolkien on Power

Peter Jackson's Lord of the Rings trilogy was a visually spectacular and a worthy rendition, however one of the things which irritated me about it was its mishandling (misunderstanding?) of the core concept of the Ring of Power.

It must surely strike even the casual reader that political power or the lust for power is a prime evil in Tolkien's Middle Earth (not to mention our own earth) and there are adequate quotes from the man himself to describe his main ideas:

"You can make the Ring into an allegory of our own time, if you like: and allegory of the inevitable fate that waits for all attempts to defeat evil power by power" (The Letters of J.R.R. Tolkien, 1995, p. 121.)

"Power is an ominous and sinister word in all these tales" (p. 152.)

"The story is cast in terms of a good side, and a bad side, beauty against ruthless ugliness, tyranny against kingship, moderated freedom with consent against compulsion that has long lost any object save mere power, and so on" (pp. 178-179.)

"In my story Sauron represents as near an approach to the wholly evil will as is possible. He had gone the way of all tyrants: beginning well, at least on the level that while desiring to order all things according to his own wisdom he still at first considered the (economic) well-being of other inhabitants of Earth. But he went further than human tyrants in pride and the lust for domination, being in origin an immortal (angelic) spirit" (p. 243.)

"Of course my story is not an allegory of Atomic power, but of Power (exerted for domination)" (p. 246.)

"My political opinions lean more and more to Anarchy (philosophically understood, meaning abolition of control not whiskered men with bombs)" (p.63)

Can't get much plainer than that.

Now what I'd like to know is the relationship (if any) between Tolkien and his fellow philologist Nietzsche.

Wednesday, December 02, 2009

Blair Planned Iraq Invasion Nine Months Before War


Further evidence to the Chilcot report adds to that already existing that the decision to attack Iraq was made first and the pretext prepared afterwards.

This means that the war was a crime and the corporate media is a propaganda network. Hardly anyone would refute that these days, but it is not reported very much, not discussed, and no action is planned or taken.

Western culture has a blind spot on the reality: we have told big lies and committed major war crimes. One day civilization may advance to the point where this is no longer tolerated.

Thursday, November 05, 2009

The Anti-Empire Report November 4th, 2009 by William Blum

The Anti-Empire Report

November 4th, 2009
by William Blum
"It is forbidden to kill; therefore all murderers are punished unless they kill in large numbers and to the sound of trumpets." — Voltaire

Question: How many countries do you have to be at war with to be disqualified from receiving the Nobel Peace Prize?

Answer: Five. Barack Obama has waged war against only Pakistan, Afghanistan, Iraq and Somalia. He's holding off on Iran until he actually gets the prize.

Somalian civil society and court system are so devastated from decades of war that one wouldn't expect its citizens to have the means to raise serious legal challenges to Washington's apparent belief that it can drop bombs on that sad land whenever it appears to serve the empire's needs. But a group of Pakistanis, calling themselves "Lawyers Front for Defense of the Constitution", and remembering just enough of their country's more civilized past, has filed suit before the nation's High Court to make the federal government stop American drone attacks on countless innocent civilians. The group declared that a Pakistan Army spokesman claimed to have the capability to shoot down the drones, but the government had made a policy decision not to. 1

The Obama administration, like the Bush administration, behaves like the world is one big lawless Somalia and the United States is the chief warlord. On October 20 the president again displayed his deep love of peace by honoring some 80 veterans of Vietnam at the White House, after earlier awarding their regiment a Presidential Unit Citation for its "extraordinary heroism and conspicuous gallantry". 2 War correspondent Michael Herr has honored Vietnam soldiers in his own way: “We took space back quickly, expensively, with total panic and close to maximum brutality. Our machine was devastating. And versatile. It could do everything but stop.” 3

What would it take for the Obamaniacs to lose any of the stars in their eyes for their dear Nobel Laureate? Perhaps if the president announced that he was donating his prize money to build a monument to the First — "Oh What a Lovely" — World War? The memorial could bear the inscription: "Let us remember that Rudyard Kipling coaxed his young son John into enlisting in this war. John died his first day in combat. Kipling later penned these words:

"If any question why we died,
Tell them, because our fathers lied."

“The Constitution supposes what the history of all governments demonstrates, that the executive is the branch of power most interested in war, and most prone to it. It has accordingly with studied care vested the question of war in the legislature.” — James Madison, in a letter to Thomas Jefferson, April 2, 1798.

A wise measure, indeed, but one American president after another has dragged the nation into bloody war without the approval of Congress, the American people, international law, or world opinion. Millions marched against the war in Iraq before it began. Millions more voted for Barack Obama in the belief that he shared their repugnance for America's Wars Without End. They had no good reason to believe this — Obama's campaign was filled with repeated warlike threats against Iran and Afghanistan — but they wanted to believe it.

If machismo explains war, if men love war and fighting so much, why do we have to compel them with conscription on pain of imprisonment? Why do the powers-that-be have to wage advertising campaigns to seduce young people to enlist in the military? Why do young men go to extreme lengths to be declared exempt for physical or medical reasons? Why do they flee into exile to avoid the draft? Why do they desert the military in large numbers in the midst of war? Why don't Sweden or Switzerland or Costa Rica have wars? Surely there are many macho men in those countries.

"Join the Army, visit far away places, meet interesting people, and kill them.”

War licenses men to take part in what would otherwise be described as psychopathic behavior.

"Sometimes I think it should be a rule of war that you have to see somebody up close and get to know him before you can shoot him." — Colonel Potter, M*A*S*H

"In the struggle of Good against Evil, it's always the people who get killed." — Eduardo Galeano

After the terrorist attacks of September 11, 2001, a Taliban leader declared that “God is on our side, and if the world’s people try to set fire to Afghanistan, God will protect us and help us.” 4

"I trust God speaks through me. Without that, I couldn't do my job." — George W. Bush, 2004, during the war in Iraq. 5

"I believe that Christ died for my sins and I am redeemed through him. That is a source of strength and sustenance on a daily basis." — Barack Obama. 6

Why don't church leaders forbid Catholics from joining the military with the same fervor they tell Catholics to stay away from abortion clinics?

God, war, the World Bank, the IMF, free trade agreements, NATO, the war on terrorism, the war on drugs, "anti-war" candidates, and Nobel Peace Prizes can be seen as simply different instruments for the advancement of US imperialism.

Tom Lehrer, the marvelous political songwriter of the 1950s and 60s, once observed: "Political satire became obsolete when Henry Kissinger was awarded the Nobel Peace Prize." Perhaps each generation has to learn anew what a farce that prize has become, or always was. Its recipients include quite a few individuals who had as much commitment to a peaceful world as the Bush administration had to truth. One example currently in the news: Bernard Kouchner, co-founder of Medecins Sans Frontieres which won the prize in 1998. Kouchner, now France's foreign secretary, has long been urging military action against Iran. Last week he called upon Iran to make a nuclear deal acceptable to the Western powers or else there's no telling what horror Israel might inflict upon the Iranians. Israel "will not tolerate an Iranian bomb," he said. "We know that, all of us." 7 There is a word for such a veiled threat — "extortion", something normally associated with the likes of a Chicago mobster of the 1930s ... "Do like I say and no one gets hurt." Or as Al Capone once said: "Kind words and a machine gun will get you more than kind words alone."

The continuing desperate quest to find something good to say about US foreign policy

Not the crazy, hateful right wing, not racist or disrupting public meetings, not demanding birth certificates ... but the respectable right, holding high positions in academia and in every administration, Republican or Democrat, members of the highly esteemed Council on Foreign Relations. Here's Joshua Kurlantzick, a "Fellow for Southeast Asia" at CFR, writing in the equally esteemed and respectable Washington Post about how — despite all the scare talk — it wouldn't be so bad if Afghanistan actually turned into another Vietnam because "Vietnam and the United States have become close partners in Southeast Asia, exchanging official visits, building an important trading and strategic relationship and fostering goodwill between governments, businesses and people on both sides. ... America did not win the war there, but over time it has won the peace. ... American war veterans publicly made peace with their old adversaries ... A program [to exchange graduate students and professors] could ensure that the next generation of Afghan leaders sees an image of the United States beyond that of the war." 8 And so on.

On second thought, this is not so much right-wing jingoism as it is ... uh ... y'know ... What's the word? ... Ah yes, "pointless". Just what is the point? Germany and Israel are on excellent terms ... therefore, what point can we make about the Holocaust?

As to America not winning the war in Vietnam, that's worse than pointless. It's wrong. Most people believe that the United States lost the war. But by destroying Vietnam to its core, by poisoning the earth, the water, the air, and the gene pool for generations, the US in fact achieved its primary purpose: it left Vietnam a basket case, preventing the rise of what might have been a good development option for Asia, an alternative to the capitalist model; for the same reason the United States has been at war with Cuba for 50 years, making sure that the Cuban alternative model doesn't look as good as it would if left in peace.

And in all the years since the Vietnam War ended, the millions of Vietnamese suffering from diseases and deformities caused by US sprayings of the deadly chemical "Agent Orange" have received from the United States no medical care, no environmental remediation, no compensation, and no official apology. That's exactly what the Afghans — their land and/or their bodies permeated with depleted uranium, unexploded cluster bombs, and a witch's brew of other charming chemicals — have to look forward to in Kurlantzick's Brave New World. "If the U.S. relationship with Afghanistan eventually resembles the one we now have with Vietnam, we should be overjoyed," he writes. God Bless America.

One further thought about Afghanistan: The suggestion that the United States could, and should, solve its (self-created) dilemma by simply getting out of that god-forsaken place is dismissed out of hand by the American government and media; even some leftist critics of US policy are reluctant to embrace so bold a step — Who knows what horror may result? But when the Soviet Union was in the process of quitting Afghanistan (during the period of May 1988-February 1989) who in the West insisted that they remain? For any reason. No matter what the consequences of their withdrawal. The reason the Russians could easier leave than the Americans can now is that the Russians were not there for imperialist reasons, such as oil and gas pipelines. Similar to why the US can't leave Iraq.
Washington's eternal "Cuba problem" — the one they can't admit to.

"Here we go again. I suppose old habits die hard," said US Ambassador to the United Nations, Susan Rice, on October 28 before the General Assembly voted on the annual resolution to end the US embargo against Cuba. "The hostile language we have just heard from the Foreign Minister of Cuba," she continued, "seems straight out of the Cold War era and is not conducive to constructive progress." Her 949-word statement contained not a word about the embargo; not very conducive to a constructive solution to the unstated "Cuba problem", the one about Cuba inspiring the Third World, the fear that the socialist virus would spread.

Since the early days of the Cuban Revolution assorted anti-communists and capitalist true-believers around the world have been relentless in publicizing the failures, real and alleged, of life in Cuba; each perceived shortcoming is attributed to the perceived shortcomings of socialism — It's simply a system that can't work, we are told, given the nature of human beings, particularly in this modern, competitive, globalized, consumer-oriented world.

In response to such criticisms, defenders of Cuban society have regularly pointed out how the numerous draconian sanctions imposed by the United States since 1960 have produced many and varied scarcities and sufferings and are largely responsible for most of the problems pointed out by the critics. The critics, in turn, say that this is just an excuse, one given by Cuban apologists for every failure of their socialist system. However, it would be very difficult for the critics to prove their point. The United States would have to drop all sanctions and then we'd have to wait long enough for Cuban society to make up for lost time and recover what it was deprived of, and demonstrate what its system can do when not under constant assault by the most powerful force on earth.

In 1999, Cuba filed a suit against the United States for $181.1 billion in compensation for economic losses and loss of life during the first 39 years of this aggression. The suit held Washington responsible for the death of 3,478 Cubans and the wounding and disabling of 2,099 others. In the ten years since, these figures have of course all increased. The sanctions, in numerous ways large and small, make acquiring many kinds of products and services from around the world much more difficult and expensive, often impossible; frequently, they are things indispensable to Cuban medicine, transportation or industry; simply transferring money internationally has become a major problem for the Cubans, with banks being heavily punished by the United States for dealing with Havana; or the sanctions mean that Americans and Cubans can't attend professional conferences in each other's country.

These examples are but a small sample of the excruciating pain inflicted by Washington upon the body, soul and economy of the Cuban people.

For years American political leaders and media were fond of labeling Cuba an "international pariah". We don't hear much of that any more. Perhaps one reason is the annual vote in the General Assembly on the resolution, which reads: "Necessity of ending the economic, commercial and financial embargo imposed by the United States of America against Cuba". This is how the vote has gone:
Year Votes (Yes-No) No Votes
1992 59-2 US, Israel
1993 88-4 US, Israel, Albania, Paraguay
1994 101-2 US, Israel, Uzbekistan
1995 117-3 US, Israel, Uzbekistan
1996 138-3 US, Israel, Uzbekistan
1997 143-3 US, Israel
1998 157-2 US, Israel
1999 155-2 US, Israel, Marshall Islands
2000 167-3 US, Israel, Marshall Islands
2001 167-3 US, Israel, Marshall Islands
2002 167-3 US, Israel, Marshall Islands
2003 173-3 US, Israel, Marshall Islands, Palau
2004 179-3 US, Israel, Marshall Islands, Palau
2005 182-4 US, Israel, Marshall Islands, Palau
2006 183-4 US, Israel, Marshall Islands, Palau
2007 184-4 US, Israel, Marshall Islands, Palau
2008 185-3 US, Israel, Palau
2009 187-3 US, Israel, Palau

How it began, from State Department documents: Within a few months of the Cuban revolution of January 1959, the Eisenhower administration decided "to adjust all our actions in such a way as to accelerate the development of an opposition in Cuba which would bring about a change in the Cuban Government, resulting in a new government favorable to U.S. interests." 9

On April 6, 1960, Lester D. Mallory, Deputy Assistant Secretary of State for Inter-American Affairs, wrote in an internal memorandum: "The majority of Cubans support Castro ... The only foreseeable means of alienating internal support is through disenchantment and disaffection based on economic dissatisfaction and hardship. ... every possible means should be undertaken promptly to weaken the economic life of Cuba." Mallory proposed "a line of action which ... makes the greatest inroads in denying money and supplies to Cuba, to decrease monetary and real wages, to bring about hunger, desperation and overthrow of government." 10 Later that year, the Eisenhower administration instituted the suffocating embargo.

1. The Nation (Pakistan English-language daily newspaper), October 10, 2009 ↩
2. Washington Post, October 20, 2009 ↩
3. Michael Herr, "Dispatches" (1991), p.71 ↩
4. New York Daily News, September 19, 2001 ↩
5. Washington Post, July 20, 2004, p.15, citing the New Era (Lancaster, PA), from a private meeting of Bush with Amish families on July 9. The White House denied that Bush had said it. (Those Amish folks do lie a lot you know.) ↩
6. Washington Post, August 17, 2008 ↩
7. Daily Telegraph (UK), October 26, 2009 ↩
8. Washington Post, October 25, 2009 ↩
9. Department of State, "Foreign Relations of the United States, 1958-1960, Volume VI, Cuba" (1991), p.742 ↩
10. Ibid., p.885 ↩

Monday, October 19, 2009

Chomsky compares US to Weimar Republic

Anyone who has watched Fox 'News' for five minutes, or read or heard anything from Rush Limbaugh or Anne Coulter and the like, or watched the bizarre 'tea party' movement, could be forgiven for being alarmed at the degenerate state of political discourse in the United States.


I'm not really thinking about the entertainment aspect of the media, though, yes, it's significant. I'm thinking about the part that has substantive content, crazy content. But it is substantive. It does give answers. I mean, the people who for the last 30 years have seen their wages, income stagnate or decline, their benefits decline, services decline, there's nothing for the children. World's out of control. These are the people who on polls maybe 80 percent of them say the country's going in the wrong direction. The government's run by the few and the special interests not the people and so on.

You know, they're not wrong. This is all happening to them, and the answers that they're getting from say Rush Limbaugh, Michael Savage, the rest of them, are, "Well, we have an answer. The rich liberals own everything. They own the corporations. They run the government. They run the media. And they don't care about people like you. They don't care about the flyover people between the east coast and the west coast. They only care about giving everything you work for away, to, you know, to illegal immigrants or gays or something. So we gotta protect ourselves from them. And furthermore, they run the government. When they put up a health program, it isn't to give you health. It's to kill your granny, you know." And that's an answer to something. It's a terrible answer, but it is an answer. And if you do suspend this belief, you forget about what's happening in the world really, it's a coherent answer.

Now they're not hearing anything else. And the memory that comes to my mind - again, I don't want to press the analogy too hard - but I think it's worth thinking about - is late Weimar Germany. There were people with real grievances. The Nazis gave them an answer: "It's the fault of the Jews and the Bolsheviks and we've got to protect ourselves from them, and that'll take care of your grievances." And we know what happened. Germany in the 1920s was you know the most civilized, at the peak of Western civilization, in the arts, in the sciences, highly democratic, functioning democratic institutions. A decade later, it was, you know, the pits of human history.

Again, the analogy is not, it's not close, but it's frightening. And unless an answer can be given to these people, unless they can be led to understand what's really happening to them, we could be in for trouble.

Ironically, the person who posted this piece appears to be one of these very right wing loons, as he comments: "Actually, Noam, we're already in trouble because people like you get paid to voice such invective. Be afraid, America. Be very afraid."

Sometimes it's hard to believe or understand how people can be so out of touch. First of all, unlike Rush Limbaugh, he's not getting paid to say stuff. Need we go further?

Saturday, October 03, 2009

Public Broadcasters Threat to News Ltd

"There is a land grab going on - and it should be sternly resisted. The land grab is spearheaded by the BBC. The scope of its activities and ambitions is chilling." (James Murdoch, 'Put an end to this dumping of free news', Guardian, August 29, 2009)

Murdoch made a noble plea for press freedom:

"Above all, we must have genuine independence in news media. Independence is characterised by the absence of the apparatus of supervision and dependency. Independence of faction, industrial or political. Independence of subsidy, gift or patronage. [...] people value honest, fearless, and independent news coverage that challenges the consensus."

Murdoch wrapped up his speech with "an inescapable conclusion":

"The only reliable, durable, and perpetual guarantor of independence is profit."


No, this isn't The Chaser or Onion News Network, apparently it's real.

I don't think public broadcasters have had it in mind to cause the ruin of News Ltd. On the contrary, that surely would have been the last thing on the mind of John Howard, Janet Albrechtson or Keith Windschuttle.

But an unexpected opportunity presents itself here. If in coordination with Murdoch's carefully planned suicide public broadcasters like the ABC were to suddenly increase their online content by 50 or 100% over the next year or so, perhaps News Ltd would indeed pass from the earth. Something greatly to be wished for.

Friday, September 25, 2009

Canberra Alcohol Deaths Up

Canberra was the only jurisdiction to record an increase in alcohol-caused deaths over the past decade, a recent study into alcohol harm has found.

The National Drug Research Institute at Curtin University of Technology found alcohol-caused deaths in the ACT jumped 12 per cent and the number of people admitted to hospital had almost doubled.

The number of deaths in the capital jumped from 39 to 54.

At the same time, alcohol-attributable hospital admission rates rose in all age groups a 64 per cent increase.

This should be compared to the number of deaths attributable to other drugs and substances:

* tobacco
* heroin
* cocaine
* petrol-sniffing
* cannabis
* amphetamines
* ecstasy
* prescription drugs
* etc

Apart from tobacco, which no doubt heads the list by a long way, there would be no comparison to alcohol.

Associate Professor Tanya Chikritzhs said there was a clear link between the deregulation of the liquor industry and rates of alcohol-induced hospitalizations.

I consider the policy of prohibition to be a very counter-productive failure. The right approach to the problem of drug and substance abuse is a combination of taxation, regulation and education, focussing on the most provenly harmful substances. Seen in this light the government response to the problem of alcohol is a scandalous concession to the grog lobby.

Thursday, September 24, 2009

End Internet Censorship

The Lost Tradition of Biblical Debt Cancellations, by Michael Hudson, PhD.

Tuesday, September 08, 2009

Obama Has Totally Failed

David Michael Green launches a brutal attack on Obama and his administration. This is no Roosevelt, he's an elite's man through and through.

Chris Floyd uses the example of the Jeremiah Wright affair to illustrate how Obama distances himself from people to suck up to power.

"Hope" should never be placed in politicians, but we might feel somewhat aggrieved that someone who was such an excellent campaigner and speaker should be so utterly weak when confronted with power.

If Obama can do nothing, what hope is there for the United States?

Sunday, September 06, 2009

Back to School: 14 must-read books for the college rebel

Amusing short reviews of some good selections for wannabe rebels to read.

Let's hope the kids of today are reading stuff like this instead of that psychopathic bitch Ayn Rand, only recently described by Chomsky as "one of the most evil figures of modern intellectual history."

That godawful witch Rand has destroyed virtually singlehanded political discourse in the United States, and done substantial damage around the rest of the world too. People who have read or been influenced by Rand are thereafter rendered incapable of thought or compassion, even after they have distanced themselves from her ridiculous cult. Is she dead (and buried) yet?

Tuesday, September 01, 2009

Rising Sea Level Projections

Real Climate:

The scientific sea level discussion has moved a long way since the last IPCC report was published in 2007.... The Copenhagen Synthesis Report recently concluded that “The updated estimates of the future global mean sea level rise are about double the IPCC projections from 2007″....

In our view, when presenting numbers to the public scientists need to be equally cautious about erring on the low as they are on the high side. For society, after all, under-estimating global warming is likely the greater danger.

This information is typical of the ongoing development of climate change science. That is, not only is it happenening, but it is happening at a faster rate than at first predicted.

The denialists, therefore, are not only wrong about the science, but also wrong about the speed of change. As Ross Garnaut has said, at bottom the issue is a moral one, and the denialists have no morals.

Saturday, August 29, 2009

Letting out your Inner Nazi

Govt urges Turnbull to reject torture

A political row has erupted after a federal Liberal backbencher said there was a place for torture so long as it was done "in an appropriate way".

Mr Johnson gained some support from former opposition leader Brendan Nelson, who said it depended on how torture was defined.

Nelson is, by the way, described as a moderate and a "nice guy" in the Liberal party. One wonders what the mean people think.

Nazism could be boiled down to about 4 main elements: Dictatorship, militarism, racism and torture (ie, reversing the gains of the Enlightenment and re-introducing torture as a piece of the regular Government machinery.)

If senior members of the 'Liberal' party are prepared volunteer their support of torture, one wonders how many believe in it but are too cautious to publicly say?

Thursday, August 27, 2009

Michael Hudson answers questions from Icelanders

Icelandic blog opens comments for questions and answers from Dr Hudson.

I think there are three or four elements which make Dr. Hudson the best commentator on the Global Financial Crisis, and as he has been described on by one reviewer, the best economist in the world right now:

* He was a balance of payments economist for a major Wall St bank. This gives a key insight into how international payments and finance work, particularly from the point of view of the hegemonic power (see his book Super Imperialism).

* A healthy Marxist background, so that he understands that exploitation is inherent in the system, and that the disposal of the economic surplus is the key.

* A classical researcher, with an interest in debt and jubilee. This is a core problem just as relevant today as in the time of Babylon and Sumeria.

* A Georgist input, an appreciation that site rent is by far the greater part of the economic surplus, and that the alternative to taxing the rent is the pledging of it as interest to banks as they go about constructing their global financial ponzi schemes.

This last element is I believe Dr Hudson's secret weapon, which puts the last piece in the puzzle, as there is a total of about 3 of us worldwide who at all take the ideas of Henry George seriously.

Wednesday, August 19, 2009

Paul Kelly on Renewable Energy Targets

RET is the only part of the Government's package worth supporting. Not according to Paul Kelly, spruiking the business line.

We need to build a whole new energy infrastructure, fast, and phase out completely the killer polluting fossil fuel industry.

RET is the one policy proposed or passed by the Government so far which moves towards this end.

In theory, a well designed ETS could be a successful policy but the proposed CPRS is a failure which would achieve little or nothing - this is why it was rejected by the Greens. Looking at the failure of ETS in Europe, one might suspect this was planned from the outset.

If we were seriously interested in 'best policy' we would do as most economists recommend and introduce a carbon tax - with no exemptions for major polluters. It could be at a low rate at first, and raised later.

Geosequestration does not exist nor is likely to exist in time. The only genuine 'geosequestration' is if the coal is left in the ground in the first place. The introduction of a carbon tax would effectively kill talk of geosequestration - King Koal would be on notice that it had to research and deploy the technology or (more likely) shutdown.

Nuclear energy is not just 'at present' financially unviable - it has never been and never will be without massive government subsidy. Solar and windpower are already cheaper with the gap to only increase over time.

Nuclear energy is costly, toxic, weaponable, non renewable and not the answer.

The true problem is not mentioned in this article, but is mentioned at a discussion held by Professor Ross Garnaut in Melbourne, where he added another memorable phrase to what he has already produced:

The trouble with the case for action [on climate change] is this - there is a vast lobbying industry in all developed nations determined to block action, and it’s one-sixth of lobbyists in Washington, according to one estimate.

Garnaut likened this to the vast lobbying efforts to prevent effective rcause great problems to the global financial system while enriching the big US investment housesegulation of the financial derivatives, which were widely expected to and their managers, before ultimately almost causing the meltdown of that same system.

Garnaut's point was that such people could secure a comfortable future for their grandchildren even in a sadly worsened environment.

The bankers of Wall Street were quite willing to enrich themselves while risking catastrophe.

It seems the beneficiaries of current unsustainable environmental practices are taking a similar stance.

Thursday, August 13, 2009

Global Warming Denier Sen Steve Fielding Cherry-Picks Scientists


CLIMATE scientists at the Massachusetts Institute of Technology in the US have distanced themselves from the views of a colleague who helped shape Family First senator Steve Fielding's sceptical stance on global warming.

During his trip Senator Fielding heard several speakers question whether human-related emissions were leading to dangerous climate change. It is believed that a talk by MIT atmospheric physicist Dick Lindzen convinced him that the case supporting climate change was being exaggerated.

In June, the Government's former climate change adviser, Ross Garnaut, said he had spoken to Professor Lindzen in compiling his review but had discounted his opinion that the global-warming effect of carbon dioxide was overestimated.

''I would have been delighted if there were 10 or 20 or, better still, 100 Richard Lindzens around the world but unfortunately he's a one-off,'' Professor Garnaut said. ''It would be imprudent beyond the normal limits of irrationality to grab one dissenting view among the serious climate scientists and say, 'I am going to believe that' and not to believe the views of all of Australia's credentialled climate scientists.''

Imprudent beyond the normal limits of rationality is a nice way of describing the denialists.

There is a scientific consensus that AGW is real. Denialists like Sen Fielding seem about on a par with people who deny evolution - an anti-scientific position. And of course denialism accords with the interests of the industry that is killing the planet - the fossil fuel industry. Sen Fielding along with Sen Joyce and others among the conservative parties may have dithered a little in the early stages of the debate but they've since got a firm tap on the shoulder from the vested interests - we don't like this and you know what we want you to do.

Thursday, August 06, 2009

Terror 'Attack' that Wasnt

Afghanistan cannot be surrendered as a training base of unlimited potential to terrorists as it was prior to 2001

said Prime Minister Rudd. But what if war against and occupation of Middle Eastern countries is the cause of terrorism?

And what if the war in Afghanistan, nearly ten years old already, goes on for decades?

And also, it was the US, not Australia, that was attacked on 9/11. Australia does not want or need to get involved in the imperialist wars of the US or any other country. The proper response to terrorist incidents is police action under international law and redressing the grievances people have, not random war and killing of people and countries that may or mostly may not have had anything whatever to do with it.

This statement of motive for the alleged attack against an army base is plain enough and typical for the jihadis:

One of five men charged with plotting the alleged suicide attack, Wissam Mahmoud Fattal, delivered a defiant outburst when he appeared in a Melbourne court on terrorist charges yesterday.

''You call us terrorists,'' he said. ''I've never killed anyone in my life.''

But he told the Melbourne Magistrates Court the Australian Army ''kills innocent people'' in Iraq and Afghanistan.

During his rant, Fattal, 33, also said Israelis forcibly took land from Palestinians and said he wanted to leave Australia.

So why doesn't Mr Rudd:

1. Withdraw all Australian forces permanently from Iraq, Afghanistan and the Middle East generally.

2. Stop supporting the Israeli occupation of Palestinian land, and call for boycott, divestment and sanctions if Israel does not withdraw all soldiers and settlers behind the 1967 Green line.

The Australian Government will obviously do no such thing, and the reason is that we are not committed to a 'war on terror', we are committed (virtually as an appendage, not even with the dignity of UK 'spear carrier' status) to the global hegemonic ambitions of the United States. In this sense Rudd is no different from Howard.

In continuing the war effort against Afghanistan, Iraq and Pakistan and condoning the occupation of those countries and of Palestine Rudd is simply creating a motive for vengeance and thus directly exposing Australia and Australians to an unnecessary risk of terrorist attack, small though that may be.

Wednesday, July 08, 2009

Michael Hudson in Cuba, 2000

by Dr. Michael Hudson, New York, NY

Everyone says that globalization is inevitable. But what kind of globalization are we going to have? Whose globalization? Can we still influence what kind of globalization the world will have?


A century ago, Marx supported the globalization of his day - colonization - to the extent that it would break down the institutions of backwardness in Asia, the Near East, Latin America and the Far East.

Marx saw globalization even in its British colonialist form as a catalyst for industrialization, and an organization of the labor force along economically modern lines. But this is not what is occurring today. In retrospect, Marx was overly optimistic.

Today's globalization does not replicate the economic relations of the core. It is creating something else - something that nobody spoke of a century ago. Today's globalization is much like the Enclosure movement in England from the 16th through 18th centuries.

The enclosers carved out the land for themselves, displacing labor from the land and its traditional means of support, and herding it into the cities. The result was inequality, not equality. But the result also provided the labor for industrialization.

From the 16th to the 19th centuries, the rural exodus into cities in England, France and other countries formed the foundations for industrial capitalism. However, although today's globalization is bringing manufactures to many developing countries, and also goes hand in hand with a great rural exodus to huge overgrown cities, it is in many ways a relapse back into pre-capitalist economic forms. It is precapitalist in the sense that what the large global corporations - and the stockholders and bankers behind them - what they seek is rent and interest.

Many of you here criticize the drive for profitsmade by multinational firms. But if you look at the statistics, you will find that these firms do not make a profit - or rather, they take all their profit in a few small islands throughout the world. These islands are called offshore banking centers. They are tax havens, extra-legal and criminal havens, which do not levy any income tax. Multinational firms in the developing countries, in Europe and North America give the statistical appearance of not earning any profits at all. This means that any country that tries to make a profit-sharing agreement with a foreign investor runs the risk of ending up with half of almost nothing.

Rather, global companies pay out their would-be profits as interest to the financiers who put up the money for corporate raiders and investors and other corporations to buy out these multinational firms. They also pretend that their profits are expenses on insurance and other non-production charges.

Sometimes, high technology IS spread to the developing countries. But their labor does not benefit. Wage rates remain low, even in high-technology industries such as computers and pharmaceuticals. Part of the problem is technological. The leading core economies concentrate research and development in the United States and Europe. But most of the problem is financial. Industry throughout the world has been taken over by the financial sector, including corporate raiders.

Most of you here focus on the exploitation of cheap low-wage labor in the developing countries. But what the global corporations want from these countries is NOT primarily their labor. They are not primarily interested in exploiting surplus value. What global investors want is the land, along with other natural resources such as mineral rights, and natural monopolies, that is, public utilities.

They want the railroads and airline systems now in place, created largely by governments running deeply into foreign debt. Global investors want the telephone and communications monopolies, the TV stations - and the electromagnetic spectrum that goes with it - electrical power monopolies, oil and gas. They want the monopoly rights possessed by these industries - monopoly rights that led them to be organized as public enterprises in the first place - to buy it at distress prices, and then to privatize labor's social security savings to bid up prices for shares in these companies. They seek an outlet for savings in the United States.

Most of all, they want the land and real estate. For even in highly industrialized economies such as the United States and Japan, it is the land that is the largest asset. And the most valuable land is urban land - the value of urban real estate in New York City alone exceeds the depreciated value of all the industrial machinery and equipment in the United States.

In sum, global investors do not want to bring development to the developing countries, any more than they brought it to Russia. What they want is the capital that already is in place.

Their objective and historical role is not to create new capital. They want to levy monopoly charges on labor, not to employ it. They want to downsize their labor force, not exploit it to obtain surplus value.

Privatization thus goes hand in hand with globalization. A century ago, Marx believed that globalization and international investment would modernize host-country economies, and lead naturally to increase government co-ordination of national planning. But governments are now being forced out of the picture.

The world economy and its financial systems are being planned - but not by governments. It is being planned not by elected officials, nor by industrial engineers, but by financial engineers. The word "technocrat" no longer means industrial engineer, but financial engineering - by unelected officials in the Ministry of Finance, Treasury and Central Bank of country after country. The term "technocrat" means non-democratic, that is, oligarchic. Indeed, the word "democracy" itself has come to be abused as a synonym for "pro-American." As such, "democracy" now means "oligarchy."

Their interest is not to create new investment and employment, but to strip assets and downsize the labor force. This is a kind of exploitation that Marx did not emphasize. The global corporations want to collect rent, to pay out monopoly profits - and most of all, to get capital gains. They want a stock-market boom in the shares of hitherto government enterprises.

They can make more money out of stock-market speculation in the shares of these companies than they can make by employing the labor of these sectors. Indeed, they squeeze out more profit - and hence, increase the price of their shares - by firing workers and downsizing the labor force than they can make by employing more labor and exploiting it directly in the way described by Marx.

While they cut back wages, they force workers to place their pension funds and social security savings in the stock market, to inflate a financial bubble.

My paper addresses the topic of whether this process is reversible.

Today's corporate globalists claim that now that they have privatized public monopolies, land and mineral rights, the process is irreversible. As the Americans say, they have stolen the public domain fair and square. They have forced governments into debt, raided their currencies, and the IMF and world Bank have told governments to sell off their public domain.

I want to suggest to you a counter-move, that does not involve the political trauma of re-nationalization. There is one Achilles heel in the globalists' strategy, an option that remains open to governments. This option is a tax on the rental income - the "unearned income" - of land, natural resources and monopoly takings.

This tax is not an income tax. It is not a tax on labor and the wages it earns. It is not a tax on industrial investment, on factories or the material capital equipment that all economies want to encourage, Cuba as well. It is a tax on the "free lunch," the "free ride" that the buyers of natural resources seek to exploit. This is the "free lunch" that neoliberal economists such as Milton Friedman pretend does not exist.

Jose Marti, in one of his essays (reprinted in Vol.22 of his Collected Works in the Havana 1966 edition, p.124), endorsed this tax as put forth by his fellow New York City journalist Henry George. Marti wrote that "reform of the actual conditions of labour, transformation of land into public property and conversion of all types of taxes into a single tax on occupied land, is a doctrine that has not been well received by the powerful corporations that today control virtually all the productive wealth, or by that part of the Catholic clergy that lives close to the rich, and with their support."

This is precisely our message: a rent-tax on land, natural resources and monopoly earnings, as calculated before payment of interest, insurance and other parasitic non-production charges. This tax is legal, as long as it affects domestic and international investors equally. It will recapture for the public sector the rent - the free lunch, and hence the capital gains - that the privatizers thought they had stolen, fair and square, and irreversibly.

This recapture of the flow of rent and monopoly earnings, the income created by social progress and the public domain, is so large that governments need not tax labor, or even industry. The country that does this will give itself a great competitive advantage in international trade and investment.

My colleague, Ted Gwartney, will tell you of our work in Russia, where the American globalists have had their own way and created a model of how not to develop.

The task is not only to attack globalization, it is to show the way out, to propose a policy alternative, a counter-strategy. There is such a thing as market socialism. Governments can shape the market to encourage productive investment, and tax away what is parasitic. This is just what they were doing - or what they were supposed to be doing - prior to the Thatcher-Reagan-Pinochet revolution by the neoliberal Chicago Boys.

The kind of globalization we have seen since 1980 has been primarily parasitic. It is like a tumor, a tapeworm on the economic organism, not the organism itself.

This gives a new meaning to "host country economies"and "host country government". But host-country governments can recapture the economic rents that global financial investors seek. This will leave parasitic investors holding an empty bag. And it is all legal. It recovers for society what the global investors believe they have taken away, while leaving wages untaxed, and also the earnings of legitimate, non-parasitic industry.

In fact, an income tax will not capture real estate rents or financial interest charges. The global firms do not declare profits to tax. They have a number of stratagems. The first stratagem is to borrow against their earnings and super-profits - that is, monopoly rents and real estate rents - and to pay out these revenues as interest.

A second stratagem is for the accountants of multinational firms to levy fictitious charges for insurance, reinsurance and shipping, as well as for management and for inter-corporate supplies such as parts, machinery and so forth.


Privatization has been a voluntary pre-bankruptcy sale by governments. Most of the money was used (1) to pay foreign debt, and (2) to subsidize capital flight (as well as to pay currency speculators). To repay these debts, whose proceeds have been
wasted rather than productively invested, governments have been told to pay the price and sell off the assets that rightly belong to the people. The resulting foreign debt
leads to permanent currency depreciation by host countries.

The oligarchs that run most countries are in favor of foreign debt. First, the more money governments borrow, the less they need to tax their own real estate and large
rent-taking corporations. Second, the currency depreciation that results from repaying foreign debt has the effect of lowering the wages of labor. Let me explain why.

Capital equipment has the same price throughout the world. It is dollarized. Fuels
and raw materials have the same worldwide dollar price. Computers and transport equipment. Debt financing also is dollarized. All that is left to be affected by currency depreciation is labor's wages, and land rents. But even for real estate, in the large commercial centers land prices are now dollarized. The way to counter unionization is by running up so much foreign debt that the process of repaying it devalues labor's wages.

Third, foreign debt is a lever by which countries can be controlled, and forced to sell their public resources to foreign investors. For example, Korea and
Japan, as well as Russia. An alternative to the World Bank and IMF neo-usury
institutions are needed. Such a body was created in 1929 to deal with the reparations that defeated Germany was obliged to pay. This was the Young Plan. It limited debt
service to the capacity to pay. (I have described the details in my book Super Imperialism, which has been translated into Spanish.)

Today, debtor countries are being treated as losers in a war. It is an international class war, the final mop-up stage of the class war. But new tactics can change the outcome of this economic war. That is what revolutionary economics is all about. - - - - - -

Here’s Kris Feder’s report on Ted’s and my visit to Cuba:
From: Kris Feder
Date: 8 March 2000
Re: Cuba Report


At the request of the Executive Committee, I accompanied Ted Gwartney and Michael Hudson to Havana, Cuba for the Second International Meeting of Economists on Globalization and Development Problems, 24-29 January 2000. The conference was jointly sponsored by the Association of Latin American and Caribbean Economists (AEALC) and the National Association of Cuban Economists (ANEC).

According to my letter of invitation from Dr. Roberto Verrier Castro, Vice President of AEALC and President of ANEC, "The purpose of the Meeting is to promote discussions on current tendencies in World Economy in the context of Globalization, from the most
diverse theoretical and analytical point of view, essential requirement in creating alternatives that contribute in solving existing problems. We are inviting to this International Meeting the most distinguished personalities in the whole world in the field of Economic Science, and 50 papers will be presented, including those from International Organizations." (sic.)

It seemed to me that there was less diversity of opinion expressed than the rhetoric of Roberto Castro (and of Fidel Castro as well) suggests--see below. Also, while delegates were present from 51 countries, most participants were, not surprisingly, Latin American.

Michael and Ted gave their talks on Tuesday, the second day of the conference, going together to the podium. Well! What a stir they created! Their talk stood out among the rest, for several reasons. Of course, as US citizens, they had first of all to prove that Cuba's mighty enemy did not commission us to infiltrate the conference. At this they succeeded, on account of both the content and style of their message. Their ideas plainly resonated with the audience.

Their mood was upbeat and passionate, their arguments were clear and straightforward, and their credentials were evident to all. Michael's close knowledge of Latin American issues and of the writings of Cuban national hero Jose Marti (a follower of George ), as well as his socialist roots, gave him terrific credibility. Ted's explanation of the remarkable initiative in Russia riveted everyone's attention, too. Listeners must
have gotten the impression that RSF missionaries are experienced, activist, practical, and respected in high places. And it must have been apparent that the Georgist philosophy is at cross-purposes with the Dominant Neoliberal Ideology.

The dynamic duo stood alone in respecting the 20-minute time limit, despite the fact that two speakers were given the place of one. For this, they won an extra round of grateful applause.

Most importantly, while other speakers reiterated a dreary litany of complaints about the evils of "neoliberalism" and the painful consequences of globalization for the Third World, Ted and Michael offered a concrete solution--one that addressed all the main dimensions of the crisis under the guidance of a single principle; one that could be implemented by national governments with or without the blessing of the international community.

It seemed to me that most listeners were able to follow the main arguments promoting land value taxation, particularly with reference to the problems of debt, dependency, and maldistribution that were the focus of the conference.

In a comment from the floor during the subsequent discussion period, Professor Molinas of Cuba said, "I highly assess this proposal," not only for Cuba (which is attempting to build socialism despite the economic blockade), but also for all Third World countries. He noted that Marti had admired Henry George and called him the most important social scientist. He mentioned the Physiocratic proposal to tax rent, and urged a study of how to implement it today. Molinas said that, though it is true
that the market would play a fundamental role under a land tax system, the tax would be progressive, and we need not fear the market with the Georgist system.

Unfortunately, Fidel was not in attendance that day, distracted as he was by the Elian Gonzales mess.

After they spoke, Ted and Michael were deluged with requests for copies of their papers and other information about our ideas. They collected names and contact information from many interested economists and students. Ted gave out RSF business cards and website addresses.

Michael gave a television interview on Wednesday, with Ted present. It was fairly impromptu, and I missed it. I was listening to the talks in the conference room and didn't realize what was happening out in the hall.

On Thursday, I observed an interview with Ted and Michael by reporters from the Cuban periodical "Bohemia--Magazine of the Cuban Family." We were assured that it is the Cuban equivalent of Time magazine, and that Fidel Castro is a regular reader.

Also on Thursday, we had a breakfast meeting with four economists who would like us to join an email discussion group, with the intention of convening an international meeting in Argentina to discuss our views. Our translator was Miguel J. Alfonso Martinez, Cuba's Minister of External Relations. He hopes to arrange a meeting for Michael and associates with Cuban officials. The most talkative member of the group, Dr. Orlando Caputo of Universidad Arcis, Chile, enjoyed a fascinating conversation
with Michael, who just happened to have had extensive experience with the Chilean economy. The two others were from Mexico and Chile, respectively.

Michael was also invited to come to the University of Havana to hold seminars with their professors and to relate our ideas.

Whether our message sinks deeper or is forgotten depends largely on how vigorously these opportunities are pursued.


Roberto Verrier Castro gave the opening remarks on Monday, with Fidel in attendance. He stated the intention to continue the work of the conference with an annual forum. He set a tone that was to be continued almost without interruption: World economic policy is at a dead end.

Dollarization and all so-called "neoliberal" policies are tools for the annexation of developing countries by Western capitalist imperialists. The Elian Gonzales incident was a talking point for many participants. Roberto spoke of his "kidnapping" (Fidel would say on Friday: "brutal kidnapping") by Americans, and observed with irony that Elian would have received better medical care back in Cuba.

Esther Aguilera Morato, Secretary General of AEALC and Director of Cuba's Economic Planning Institute, was next to address the conference (and moderator of the first session). She said that the goal of the conference was to identify trends in the world economy. It was Esther who, in July 1999, had invited Michael, Ted, and Ramsey Clark to present their ideas at the January conference. Ted's report on that first trip to meet government leaders in Cuba says that Esther was "eager for us to describe how a land-charge system could serve to protect the nation's natural resources from being relinquished to foreigners."

During the conference, the evidence of oppression and maldistribution
mounted high. Many speakers dwelled on the details of the economic
situations faced historically and currently by their respective countries.
There was a great deal of chest-pounding an d anti-US rhetoric. Lofty
goals for a better future were enumerated and elaborated.

There was less in the way of useful analysis. Still less in the way of
practical policy recommendations. Probably the best speech at the plenary
session was given by Jan Kregel, senior economist at UNCTAD and one
of the Levy Institute’s favorite economists, as many of his papers are
published by them. He is a friend of Michael’s, who had just given a
joint presentation with him two weeks earlier at a Venice conference
sponsored by the Norwegian oil fund and organized by Michael’s “reality
economics” group in Oslo. A week earlier, Ted and Michael had met
with him and he and his wife had searched through Jose Marti’s works to
find appropriate quotations for their joint talk.

In his speech, Kregel pointed out that recent UN discussions have stopped
focusing on development, and have concentrated on privatization without
examining the developmental consequences of privatizing hitherto public
assets. But apart from this talk, most prescriptions were vague and
referred to institutions and policies over which a small Third World nation
has little control: more democratic international financial institutions;
internationally recognized minimum labor standards; regional cooperation
and multilateralism; Latin American integration.

Here are some of the other ideas expressed by various conference speakers:

* The distribution of the world's resources and population is vastly
unequal. There is a dual society: The privileged, and the excluded.

* Powerful, private industrial groups from Europe, Japan, and especially
the US are seeking to dominate the world, aided by powerful information
technology. They aim to plunder the natural resources of weaker nations.
They are assisted by large banks that are recycling huge sums of money.

* Capitalism corrupts. Capitalism is compatible with slavery.

* Globalization means interdependence. All must obey the dictates of the
market (this is "economicism" or "neoliberalism"). Globalization is a
social, economic, and political rupture. It condemns any difference or
resistance. It makes competition the only moving force in society.
Cultural factors are shunted aside. Thus live in an increasingly homogeneous world.

* The neoliberal philosophy is a "new obscurantism," peddling oppression
under the guise of freedom. I never heard anyone attempt to define
"neoliberalism," or to distinguish it from classical liberalism or other
liberalisms. Perhaps that was because it's a concept so widely shared
among this group that no one imagined there might be delegates unfamiliar
with it. Perhaps, too, it is intended more as an expletive than as a descriptive term.

* Neoliberalism is associated with the policies of Thatcher, Reagan,
Pinochet, and conservatism in general. It is associated with
"neocolonialism" and imperialism. An example is the NATO war against Yugoslavia.

* During the past 15 years of neoliberal globalization, Latin American
poverty and indigence has increased. Cuba intends to be an exception.

* The goals of globalization are privatization and the abolition of collective power.

* The mechanisms of globalization are mainly financial.

* The IMF, the WTO, the OECD, and the World Bank are the four major actors
pirating the earth. They are deciding the future of the earth's
inhabitants with no opposition. The recent protests at the Seattle WTO
conference are heartening.

* Capital flight in Russia, which has wiped out savings there, is due to
inflation and the devaluation of the ruble.

* The UN has dropped development from its agenda. It has come to view
development policies as impediments to globalization, which promises to
bring about wealth convergence. The debt crisis and inflation of the 1970s
are seen as evidence of the failure both of growth policies in less
developed countries and of full-employment policies in more developed
countries. The creation of the IMF at Bretton Woods reflected the
interests of northern industrial countries in perpetuating the
colonization of the Third World. (This from Johns Hopkins economist Jan Kregel.)

* Globalization has indisputable benefits, including improvement in living
standards through the dissemination of technology, the spread of new
ideas, the efficiency gains from exploiting comparative advantages, and
the pressure of competition introduced to local markets.

* But for many, the benefits of globalization are outweighed by the costs.
Costs include exposure of developing countries to external shocks; an
uncertain business environment; increase of social tension on account of
the wedge between the privileged and the marginalized; and costs imposed
on the laboring classes. With regard to the last, while highly skilled
workers are prepared to face the global economy, less skilled workers
cannot adapt well, and often suffer greatly when their jobs disappear.
Also, " everything"--financial assets, technology, capital--is mobile
except for one thing: Workers, who therefore shoulder the cost of the
economic crisis. Capital moves to tax havens and evades taxation; labor
cannot. [An obvious point of entry for Georgists, well exploited by
Michael: land is less mobile even than labor, in fact, perfectly immobile.
Land is a tax base from which no light-footed multinational corporation can escape.]

* The "Tobin tax," an international levy placing a uniform rate of 0.1% on
hard currency transactions (proposed by James Tobin), should be enacted to
dissuade short-term financial speculation. The revenues should be used to
assist the world's needy children (providing potable water, education, and
family planning).

* The globalized economy is unstable, despite the retreat of inflation in
the US. Countries raise interest rates in the attempt to stabilize their
own currencies, discouraging investment. But they cannot escape the forces
of globalization, so they resort to using US dollars as currency (Cuba,
for example). However, many countries have nothing to sell in exchange for
dollars, so their debt accumulates to impossible heights. High interest
rates further raise the cost of public debts. Neither dollarization n or
taxes on the circulation of capital will prevent external shocks. The
"free market" does not exist. For sustainable growth we need a new economic model.

* Eric Toussaint of Belgium ("Belgica") focused on the Third World debt
crisis, and proposed a debt cancellation.


I will try here to summarize some of the points made by Michael Hudson in
his conference presentation:

Marx had supported globalization because it fostered industrialization,
modernization, organization of the labor force, and government planning.
But the globalization phenomenon today is of a different character.
Economic planning is carried out by financial engineers, not governments.
Today, globalization is parasitic. It is much like the Enclosure Movement
in England, when peasants were evicted from the land and migrated to
cities, where they constituted a low-wage labor force. Then and now, the
result of land grabbing is increasing inequality. Globalization today
constitutes a relapse into pre-capitalist forms: Multinational
corporations are seeking rents, not taxable profits. They borrow against
their earnings and employ other stratagems to convert taxable income into
nontaxable cost. Any profits are taken in small island tax havens that
levy no income tax. Hence, countries that enter into profit-sharing
agreements with such corporations end up with little or nothing.

Many observers believe that what multinationals are after is low-wage
labor. But that is not what they want most. They do not want to bring
development to developing countries. Rather, they want to take over the
monopoly rights to public enterprises such as oil, gas, utilities, and
communications as they are privatized. Above all, they want the land.

The global corporations believe that privatization is irreversible. But
developing countries have one option still open to them: To tax the rental
income of land, natural resources, and monopoly privileges. This is not a
tax on labor, income, or capital formation. It is a charge on the
economic surplus. It diverts the surplus from private to public ownership.
The tax is legal if applied uniformly, and involves no traumatic
confiscation of land titles. It obviates the need to levy taxes on labor
and capita l. It was powerfully endorsed by Cuban journalist Jose Marti.

The oligarchies that control many governments favor foreign debt. It
allows them to hold down tax rates on real estate and corporate income, it
engenders currency depreciation that lowers real wages in debtor
countries, and it forces countries to sell off public assets to foreign
investors at distress prices.

New tactics are needed to change the course of the international class war.


The interview with Bohemia magazine was conducted by two journalists and a
photographer. I observed, while Michael held the floor with Ted
interjecting occasional comments. Here is my summary of what was said:

MH: Marxists have an advantage in understanding capitalism insofar as they
know there is an economic surplus. That is why Wall Street hired Michael
Hudson to analyze the economics of capitalism.

Q: It is possible to apply the Georgist proposals?

MH: In Marx's day, the economic surplus was taken primarily in the form of
profit. Today, in the age of the income tax, investors avoid taxation by
taking the surplus as interest and rent, declaring little or no net
income. But Cuba has the opportunity to capture for public uses the great
rent surplus yielded by its rich farmland, nickel mines, beaches, and
urban areas. The Cuban people, as owners of the territory of Cuba, can
collect this value with taxes levied on the rental value of land and
natural resources. They can rent or lease properties to domestic and
foreign developers. Ted and associates stand ready to assist in developing
a land value map for Cuba.

Q: This tax proposal seems antithetical to the dominant philosophy today.

MH: Milton Friedman admits that the land tax is the only efficient tax. If
you tax buildings, industry, or labor, you will have less of those things.
The land will always be there, no matter how heavily it is taxed.

Q: Governments have no capital. Rich people do.

MH: Cuba has a unique opportunity. The land of Cuba belongs to the Cuban
people. In the US and elsewhere, where land is privatized, the rent
surplus has been pledged as collateral for debt. But Cuba has retained
public ownership of the land, and it has not made the mistakes of Russia.
Cuba could become one of the lowest-cost producers in the world. Cuba
could offer international investors what no one else can. So rich are its
natural resources, it need not tax labor or industry. It can leave
investors a fair return on their capital costs while the Cuban government
collects the land rents on behalf of the Cuban people. In partnerships
with foreign investors, Cuba could contribute the land (say, a beachfront
hotel site) while the foreign company contributes the capital. Over time,
the hotel will depreciate, but the land will grow ever m ore valuable as
development proceeds nearby. Cuba need not surrender to private
corporations the free ride from rising land values.

The unlimited optimism now infecting the developed world stems from the
belief that the US has an unlimited opportunity to exploit other nations.
Cuba need not submit to foreign exploitation.

Q: What about the speculative bubble on Wall Street? Is inflation due to follow?

MH: There is no inflation in the US economy. The genius of finance
capitalism is to contain inflation within the land, stock, and bond
markets. There is deflation in real wages. Alan Greenspan has said that US
workers are insecure and are afraid to ask for higher wages. He says that
corporate managers need more stock options and higher salaries every year
to be more productive--but workers need less every year to be more
productive. Companies downsize, yet produce more. Measured employment
rates are high, but more workers are forced to work part time, and they
increasingly turn to piecework as operations are "outsourced."

We need a new world bank that will finance independence, not dependency.
International reserves should be invested in real capital in developing countries.

Decades ago, Castro urged a cancellation of Third World debt. This should
be the foundation of international reform. Meanwhile, Cuba can develop
itself without relinquishing its independence. Others will emulate it.

The 1850s - 1870s were exciting decades for the development of economic
thought. Marxist socialism evolved in Europe. In the US there developed an
economic analysis of technology, and also of the way in which America was
getting rich by land grabbing and debt creation. Henry George's "Progress
and Poverty" is one of the greatest books of that era. Jose Marti, a
journalist in New York City, said that Henry George was the Darwin of
economics. Marti popularized land tax ideas throughout Latin America. The
ideas of Marti are more important today than at any time in the past century.

Michael, Ted, and colleagues have tried to warn Russia of how the West
seeks to exploit it. But the World Bank offered money to Russia on
condition that they don't adopt our ideas. Russia took the cash.

The political environment in Cuba is very different from that of Russia.
We see honesty, not corruption, in public office. All that is needed is
the knowledge of how to retain Cuban wealth for the Cuban people.

Cuba is proud of its health care system. We want to help the Cuban
economic body also achieve robust health.

The US is becoming a dual economy, like Latin America. To acquire wealth
sufficient for independence, one must have the good fortune to inherit.
The growth of debt weakens the world economy. We hope to see industrial
capitalism overcome financial capitalism, but the prospects are poor.

Regarding dollarization, the US doesn't say so publicly, but it would love
to give Latin America paper in return for its real assets. Only a quarter
of US currency now circulates in the US; the rest circulates in Russia and
other nations, or is used to finance criminal activity.

Q: What is your current research?

MH: There are two parts: One part is archaeological research on the long
economic dynamics of civilization, with focus on land and debt. The other
is statistical research on the asset/debt structure of the US and other major economies.

RSF has funded research on land values and land value taxation.

Q: What about Schumpeter's theory of creative destruction?

MH: The idea was that technological innovation would cut costs, making
older technology obsolete. This idea was central to the thinking of Henry
Carey and others in the US during the 1850s. Marx said that if there were
any alternative to classical economics, it would be that of Carey. Marx
argued that employment in innovative, capital-creating industries would
continually expand the demand for labor. Marx controverted the
underconsumption theories of today.

The crisis of capitalism will not come from industrial capitalism as Marx
predicted, but by the stifling of the industrial sector by the rent
takers. The developed world will fall back into the pre-capitalist
problems of usury and rent.

We hope to meet with Cuban officials to develop our policy recommendations.


Ted Gwartney had initially planned to offer a general outline of Georgist
philosophy. As the three of us discussed strategy, however, we concluded
that the standard Georgist analysis of tax incidence and efficiency might
seem abstract, foreign, and incomprehensible to a Latin American audience
that is steeped in socialist philosophy. The Georgist proposal as
enunciated by George himself referred principally to the context of
industrialized market economies. But the economists attending this
conference tended to be deeply uneasy about the reliability of the price
system in the allocation of resources and distribution of the product. So
Ted chose to focus more on the Russia initiative and other practical
applications of our philosophy. Michael would speak first, and would
offer a theoretical explanation of the land tax proposal that would be
tied directly to the conference themes of dependency, debt, globalization,
and distribution. Once Michael had shown the desirability of the land tax
for Latin America, Ted would demonstrate its feasibility. Michael would
then return to the podium to drive home the central points.

Ted's comments were brief but compelling. He explained how RSF directors
and associates had worked to educate Russian leaders about the function of
rent in a market economy. He mentioned his own work as an assessor,
helping to improve the quality of land assessments here and there
throughout the world. He explained the benefits of Georgist public finance
in the briefest and simplest terms, while pre-empting any thought that our
program is mere utopian idealism.


Fidel Castro was in attendance on the morning of the first day of the
conference and again throughout the last day. Mostly he listened, rarely
interjecting a comment. On Friday evening, however, before the final
wrap-up, he addressed the delegates in an apparently spontaneous two-hour
monologue that he had undoubtedly trotted out hundreds of times before.
His central message was that Cuba would continue to go its own way in
spite of the globalization of the world economy and in spite of the
punitive economic blockade imposed by the US. The US is the very symbol
of evil and oppression. The brutal kidnapping of a little boy is
characteristic American behavior. Cuba is proud to continue the
Revolution. So long as the Cuban people manage to cling to life, no matter
how miserable life becomes, they are winning the war of good against evil.
Cuba is a last little stand of freedom in a hostile, rapacious world.
Witness the present forum: Nowhere else on earth, certainly not in the US,
could such a diverse range o f opinions be freely expressed and openly debated.

I could not resist the impression that Cuba's entire national identity is
defined by its enmity toward the US. If the US were to end the blockade
and normalize relations with Cuba, what would Cubans have left to live for? To suffer for?

Ted, Michael and I all agreed that the best chance for Cuba to adopt our
reform would occur after Castro's reign has ended. Castro's so-called
revolution has long been frozen in suspended animation. For instance,
Castro will not entertain the prospect of diversifying the sugar economy
despite the precipitous drop in world sugar prices--because sugar
agriculture has been fundamental to the cultural and social fabric of
rural Cuba for centuries, ever since the plantations were worked by
slaves. A change now would damage the sturdy Cuban character!

Regarding the possibilities of an opening to our ideas, a friend of Michael’s
(Bob Stone, a professor at Long Island University, and head of the Radical
Philosophy Association which sponsors frequent meetings in Cuba) had
put us in touch with a dissident who had
been expelled from the Communist Party and fired from his job teaching
philosophy, in retaliation for his views that agriculture should be based on
co-ops rather than on state-owned collective farms. He urged a more market-
oriented allocation of resources in place of the present exploitative
state-oriented structures. Our discussion made it clear that for the time being,
Cuban policy was set almost uniquely by Castro. The middle and lower levels
of the bureaucracy do not have much initiative left. It seems that everyone is
simply waiting for Castro to pass on for a discussion of new ideas to take
place. When it comes, it is unlikely to come from the existing party
bureaucracy. There may be the kind of intellectual vertigo that has occurred
in Russia since 1990. This is both a limitation for the time being, and an
opportunity to get our ideas into circulation for the time when a real policy
debate is possible. Our common impression was that Fortunately, there are
educators and ranking members of the political establishment who recognize
the limitations of Castro's worldview and who
are willing, even eager, to hear about the Georgist alternative.
Kris Feder

Friday, July 03, 2009

Shut Down US Bases

Empire of Bases

How many military bases does the United States have in other countries?

According to the Pentagon's own list, the answer is around 865, but if you include the new bases in Iraq and Afghanistan it is over a thousand. These thousand bases constitute 95 percent of all the military bases any country in the world maintains on any other country's territory....

The old way of doing colonialism, practiced by the Europeans, was to take over entire countries and administer them. But this was clumsy. The United States has pioneered a leaner approach to global empire. As historian Chalmers Johnson says, "America's version of the colony is the military base." The United States, says Johnson, has an "empire of bases."

Yet those foreign bases seem invisible as budget cutters squint at the Pentagon's $664 billion proposed budget....

It is also inevitable that, from time to time, U.S. soldiers--often drunk--commit crimes. The resentment these crimes cause is only exacerbated by the U.S. government's frequent insistence that such crimes not be prosecuted in local courts. In 2002, two U.S. soldiers killed two teenage girls in Korea as they walked to a birthday party. Korean campaigners claim this was one of 52,000 crimes committed by U.S. soldiers in Korea between 1967 and 2002. The two U.S. soldiers were immediately repatriated to the United States so they could escape prosecution in Korea. In 1998, a marine pilot sliced through the cable of a ski gondola in Italy, killing 20 people, but U.S. officials slapped him on the wrist and refused to allow Italian authorities to try him. These and other similar incidents injured U.S. relations with important allies.

The 9/11 attacks are arguably the most spectacular example of the kind of blowback that can be generated from local resentment against U.S. bases. In the 1990s, the presence of U.S. military bases near the holiest sites of Sunni Islam in Saudi Arabia angered Osama bin Laden and provided Al Qaeda with a potent recruitment tool. The United States wisely closed its largest bases in Saudi Arabia, but it opened additional bases in Iraq and Afghanistan that are rapidly becoming new sources of friction in the relationship between the United States and the peoples of the Middle East....

U.S. foreign bases have a double edge: they project American power across the globe, but they also inflame U.S. foreign relations, generating resentment against the prostitution, environmental damage, petty crime, and everyday ethnocentrism that are their inevitable corollaries. Such resentments have recently forced the closure of U.S. bases in Ecuador, Puerto Rico, and Kyrgyzstan, and if past is prologue, more movements against U.S. bases can be expected in the future. Over the next 50 years, I believe we will witness the emergence of a new international norm according to which foreign military bases will be as indefensible as the colonial occupation of another country has become during the last 50 years.

The Declaration of Independence criticizes the British "for quartering large bodies of armed troops among us" and "for protecting them, by a mock trial, from punishment for any murders which they should commit on the inhabitants of these States." Fine words! The United States should start taking them to heart.

No sovereign country worthy of the name would tolerate the presence of foreign troops on its own soil except in a dire emergency, ie imminent threat of invasion.

Thursday, July 02, 2009

Superannuation Bubble Bursts


Super Ratings managing director Jeff Bresnahan said yesterday median balanced superannuation investments which are the most common lost 13per cent in the just-finished financial year.

This was the largest fall since compulsory superannuation was introduced in 1992, the second consecutive annual loss after 2007-08's -6.4per cent, and just the third time annual investments have gone backwards.

These losses effectively meant ''no one has earned anything on their super since January 2006''.

The result was not pretty, but also not surprising.

It also could have been worse if the stockmarket had not begun to recover.

''Since the beginning of March, [superannuation investments] have picked up about 6 or 7per cent,'' he said.

''At one point they were down around 20per cent, so in essence, there has been a minor recovery. ... It could have been a lot uglier than it ended up.''

However, Mr Bresnahan pointed out superannuation investments had not fallen as far as the stockmarket, and said they were holding up in the longer term.

The Australian All Ordinaries suffered its biggest fall in 27years in the past financial year, and the fifth biggest on record, losing 26per cent.

''Since the inception of compulsory super the average annual return has been 6.7per cent. The average [inflation] over the same period has been 2.7[per cent]. So super funds have been quite consistent in their objective of [inflation] plus 3-3.5per cent, on a medium to long-term basis,'' he said.

Wednesday, June 17, 2009

Henry George Has Been Proven Right

John Lanchester has a useful article in plain English in the LRB on the 'global financial crisis'.

At one point he makes a statement that nearly everyone recognises is correct but the full significance of which I dont think has been understood:

What links all these companies – and all the other companies and institutions around the world which have been felled by the credit crunch, from the Icelandic banks Glitnir and Landsbanki, the Belgian bank Fortis, the Irish bank Anglo Irish, Northern Rock which started it all, and all the other institutions that are currently in trouble – is that gigantic holes have appeared on the left-hand side of their balance sheets, where assets are listed. Those assets are for the most part linked in one way or another to the collapse in property prices in the US and elsewhere.

In other words, land speculation (the land boom and bust) is the cause of financial panics and crises and the subsequent general economic depression, as George argued more than 100 years ago.

Lanchester point out that banks by their nature have very large balance sheets and small equity compared to other businesses. (Is this the same as saying they are highly leveraged institutions?) It does not take much for them to become insolvent. But land busts typically see land values crash by 20, 30, 40 percent or more. In other words under a system of private property in land where money is loaned with land value as collateral the banking system is a disaster waiting to happen.

Tuesday, June 16, 2009

De-Dollarization: Dismantling America’s Financial-Military Empire

The Yekaterinburg Turning Point

By Prof. Michael Hudson

The city of Yakaterinburg, Russia’s largest east of the Urals, may become known not only as the death place of the tsars but of American hegemony too – and not only where US U-2 pilot Gary Powers was shot down in 1960, but where the US-centered international financial order was brought to ground.

Challenging America will be the prime focus of extended meetings in Yekaterinburg, Russia (formerly Sverdlovsk) today and tomorrow (June 15-16) for Chinese President Hu Jintao, Russian President Dmitry Medvedev and other top officials of the six-nation Shanghai Cooperation Organization (SCO). The alliance is comprised of Russia, China, Kazakhstan, Tajikistan, Kyrghyzstan and Uzbekistan, with observer status for Iran, India, Pakistan and Mongolia. It will be joined on Tuesday by Brazil for trade discussions among the BRIC nations (Brazil, Russia, India and China).

The attendees have assured American diplomats that dismantling the US financial and military empire is not their aim. They simply want to discuss mutual aid – but in a way that has no role for the United States, NATO or the US dollar as a vehicle for trade. US diplomats may well ask what this really means, if not a move to make US hegemony obsolete. That is what a multipolar world means, after all. For starters, in 2005 the SCO asked Washington to set a timeline to withdraw from its military bases in Central Asia. Two years later the SCO countries formally aligned themselves with the former CIS republics belonging to the Collective Security Treaty Organization (CSTO), established in 2002 as a counterweight to NATO.

Yet the meeting has elicited only a collective yawn from the US and even European press despite its agenda is to replace the global dollar standard with a new financial and military defense system. A Council on Foreign Relations spokesman has said he hardly can imagine that Russia and China can overcome their geopolitical rivalry,1 suggesting that America can use the divide-and-conquer that Britain used so deftly for many centuries in fragmenting foreign opposition to its own empire. But George W. Bush (“I’m a uniter, not a divider”) built on the Clinton administration’s legacy in driving Russia, China and their neighbors to find a common ground when it comes to finding an alternative to the dollar and hence to the US ability to run balance-of-payments deficits ad infinitum.

What may prove to be the last rites of American hegemony began already in April at the G-20 conference, and became even more explicit at the St. Petersburg International Economic Forum on June 5, when Mr. Medvedev called for China, Russia and India to “build an increasingly multipolar world order.” What this means in plain English is: We have reached our limit in subsidizing the United States’ military encirclement of Eurasia while also allowing the US to appropriate our exports, companies, stocks and real estate in exchange for paper money of questionable worth.

"The artificially maintained unipolar system,” Mr. Medvedev spelled out, is based on “one big centre of consumption, financed by a growing deficit, and thus growing debts, one formerly strong reserve currency, and one dominant system of assessing assets and risks.”2 At the root of the global financial crisis, he concluded, is that the United States makes too little and spends too much. Especially upsetting is its military spending, such as the stepped-up US military aid to Georgia announced just last week, the NATO missile shield in Eastern Europe and the US buildup in the oil-rich Middle East and Central Asia.

The sticking point with all these countries is the US ability to print unlimited amounts of dollars. Overspending by US consumers on imports in excess of exports, US buy-outs of foreign companies and real estate, and the dollars that the Pentagon spends abroad all end up in foreign central banks. These agencies then face a hard choice: either to recycle these dollars back to the United States by purchasing US Treasury bills, or to let the “free market” force up their currency relative to the dollar – thereby pricing their exports out of world markets and hence creating domestic unemployment and business insolvency.

When China and other countries recycle their dollar inflows by buying US Treasury bills to “invest” in the United States, this buildup is not really voluntary. It does not reflect faith in the U.S. economy enriching foreign central banks for their savings, or any calculated investment preference, but simply a lack of alternatives. “Free markets” US-style hook countries into a system that forces them to accept dollars without limit. Now they want out.

This means creating a new alternative. Rather than making merely “cosmetic changes as some countries and perhaps the international financial organisations themselves might want,” Mr. Medvedev ended his St. Petersburg speech, “what we need are financial institutions of a completely new type, where particular political issues and motives, and particular countries will not dominate.”

When foreign military spending forced the US balance of payments into deficit and drove the United States off gold in 1971, central banks were left without the traditional asset used to settle payments imbalances. The alternative by default was to invest their subsequent payments inflows in US Treasury bonds, as if these still were “as good as gold.” Central banks now hold $4 trillion of these bonds in their international reserves – land these loans have financed most of the US Government’s domestic budget deficits for over three decades now! Given the fact that about half of US Government discretionary spending is for military operations – including more than 750 foreign military bases and increasingly expensive operations in the oil-producing and transporting countries – the international financial system is organized in a way that finances the Pentagon, along with US buyouts of foreign assets expected to yield much more than the Treasury bonds that foreign central banks hold.

The main political issue confronting the world’s central banks is therefore how to avoid adding yet more dollars to their reserves and thereby financing yet further US deficit spending – including military spending on their borders?

For starters, the six SCO countries and BRIC countries intend to trade in their own currencies so as to get the benefit of mutual credit that the United States until now has monopolized for itself. Toward this end, China has struck bilateral deals with Argentina and Brazil to denominate their trade in renminbi rather than the dollar, sterling or euros,3 and two weeks ago China reached an agreement with Malaysia to denominate trade between the two countries in renminbi.[4] Former Prime Minister Tun Dr. Mahathir Mohamad explained to me in January that as a Muslim country, Malaysia wants to avoid doing anything that would facilitate US military action against Islamic countries, including Palestine. The nation has too many dollar assets as it is, his colleagues explained. Central bank governor Zhou Xiaochuan of the People's Bank of China wrote an official statement on its website that the goal is now to create a reserve currency “that is disconnected from individual nations.”5 This is the aim of the discussions in Yekaterinburg.

In addition to avoiding financing the US buyout of their own industry and the US military encirclement of the globe, China, Russia and other countries no doubt would like to get the same kind of free ride that America has been getting. As matters stand, they see the United States as a lawless nation, financially as well as militarily. How else to characterize a nation that holds out a set of laws for others – on war, debt repayment and treatment of prisoners – but ignores them itself? The United States is now the world’s largest debtor yet has avoided the pain of “structural adjustments” imposed on other debtor economies. US interest-rate and tax reductions in the face of exploding trade and budget deficits are seen as the height of hypocrisy in view of the austerity programs that Washington forces on other countries via the IMF and other Washington vehicles.

The United States tells debtor economies to sell off their public utilities and natural resources, raise their interest rates and increase taxes while gutting their social safety nets to squeeze out money to pay creditors. And at home, Congress blocked China’s CNOOK from buying Unocal on grounds of national security, much as it blocked Dubai from buying US ports and other sovereign wealth funds from buying into key infrastructure. Foreigners are invited to emulate the Japanese purchase of white elephant trophies such as Rockefeller Center, on which investors quickly lost a billion dollars and ended up walking away.

In this respect the US has not really given China and other payments-surplus nations much alternative but to find a way to avoid further dollar buildups. To date, China’s attempts to diversify its dollar holdings beyond Treasury bonds have not proved very successful. For starters, Hank Paulson of Goldman Sachs steered its central bank into higher-yielding Fannie Mae and Freddie Mac securities, explaining that these were de facto public obligations. They collapsed in 2008, but at least the US Government took these two mortgage-lending agencies over, formally adding their $5.2 trillion in obligations onto the national debt. In fact, it was largely foreign official investment that prompted the bailout. Imposing a loss for foreign official agencies would have broken the Treasury-bill standard then and there, not only by utterly destroying US credibility but because there simply are too few Government bonds to absorb the dollars being flooded into the world economy by the soaring US balance-of-payments deficits.

Seeking more of an equity position to protect the value of their dollar holdings as the Federal Reserve’s credit bubble drove interest rates down China’s sovereign wealth funds sought to diversify in late 2007. China bought stakes in the well-connected Blackstone equity fund and Morgan Stanley on Wall Street, Barclays in Britain South Africa’s Standard Bank (once affiliated with Chase Manhattan back in the apartheid 1960s) and in the soon-to-collapse Belgian financial conglomerate Fortis. But the US financial sector was collapsing under the weight of its debt pyramiding, and prices for shares plunged for banks and investment firms across the globe.

Foreigners see the IMF, World Bank and World Trade Organization as Washington surrogates in a financial system backed by American military bases and aircraft carriers encircling the globe. But this military domination is a vestige of an American empire no longer able to rule by economic strength. US military power is muscle-bound, based more on atomic weaponry and long-distance air strikes than on ground operations, which have become too politically unpopular to mount on any large scale.

On the economic front there is no foreseeable way in which the United States can work off the $4 trillion it owes foreign governments, their central banks and the sovereign wealth funds set up to dispose of the global dollar glut. America has become a deadbeat – and indeed, a militarily aggressive one as it seeks to hold onto the unique power it once earned by economic means. The problem is how to constrain its behavior. Yu Yongding, a former Chinese central bank advisor now with China’s Academy of Sciences, suggested that US Treasury Secretary Tim Geithner be advised that the United States should “save” first and foremost by cutting back its military budget. “U.S. tax revenue is not likely to increase in the short term because of low economic growth, inflexible expenditures and the cost of ‘fighting two wars.’”6

At present it is foreign savings, not those of Americans that are financing the US budget deficit by buying most Treasury bonds. The effect is taxation without representation for foreign voters as to how the US Government uses their forced savings. It therefore is necessary for financial diplomats to broaden the scope of their policy-making beyond the private-sector marketplace. Exchange rates are determined by many factors besides “consumers wielding credit cards,” the usual euphemism that the US media cite for America’s balance-of-payments deficit. Since the 13th century, war has been a dominating factor in the balance of payments of leading nations – and of their national debts. Government bond financing consists mainly of war debts, as normal peacetime budgets tend to be balanced. This links the war budget directly to the balance of payments and exchange rates.

Foreign nations see themselves stuck with unpayable IOUs – under conditions where, if they move to stop the US free lunch, the dollar will plunge and their dollar holdings will fall in value relative to their own domestic currencies and other currencies. If China’s currency rises by 10% against the dollar, its central bank will show the equivalent of a $200 million loss on its $2 trillion of dollar holdings as denominated in yuan. This explains why, when bond ratings agencies talk of the US Treasury securities losing their AAA rating, they don’t mean that the government cannot simply print the paper dollars to “make good” on these bonds. They mean that dollars will depreciate in international value. And that is just what is now occurring. When Mr. Geithner put on his serious face and told an audience at Peking University in early June that he believed in a “strong dollar” and China’s US investments therefore were safe and sound, he was greeted with derisive laughter.7

Anticipation of a rise in China’s exchange rate provides an incentive for speculators to seek to borrow in dollars to buy renminbi and benefit from the appreciation. For China, the problem is that this speculative inflow would become a self-fulfilling prophecy by forcing up its currency. So the problem of international reserves is inherently linked to that of capital controls. Why should China see its profitable companies sold for yet more freely-created US dollars, which the central bank must use to buy low-yielding US Treasury bills or lose yet further money on Wall Street?

To avoid this quandary it is necessary to reverse the philosophy of open capital markets that the world has held ever since Bretton Woods in 1944. On the occasion of Mr. Geithner’s visit to China, “Zhou Xiaochuan, minister of the Peoples Bank of China, the country’s central bank, said pointedly that this was the first time since the semiannual talks began in 2006 that China needed to learn from American mistakes as well as its successes” when it came to deregulating capital markets and dismantling controls.8

An era therefore is coming to an end. In the face of continued US overspending, de-dollarization threatens to force countries to return to the kind of dual exchange rates common between World Wars I and II: one exchange rate for commodity trade, another for capital movements and investments, at least from dollar-area economies.

Even without capital controls, the nations meeting at Yekaterinburg are taking steps to avoid being the unwilling recipients of yet more dollars. Seeing that US global hegemony cannot continue without spending power that they themselves supply, governments are attempting to hasten what Chalmers Johnson has called “the sorrows of empire” in his book by that name – the bankruptcy of the US financial-military world order. If China, Russia and their non-aligned allies have their way, the United States will no longer live off the savings of others (in the form of its own recycled dollars) nor have the money for unlimited military expenditures and adventures.

US officials wanted to attend the Yekaterinburg meeting as observers. They were told No. It is a word that Americans will hear much more in the future.


1 Andrew Scheineson, “The Shanghai Cooperation Organization,” Council on Foreign Relations,

Updated: March 24, 2009: “While some experts say the organization has emerged as a powerful anti-U.S. bulwark in Central Asia, others believe frictions between its two largest members, Russia and China, effectively preclude a strong, unified SCO.”

2, June 5, 2009, in Johnson’s Russia List, June 8, 2009, #8.

3 Jamil Anderlini and Javier Blas, “China reveals big rise in gold reserves,” Financial Times, April 24, 2009. See also “Chinese political advisors propose making yuan an int’l currency.” Beijing, March 7, 2009 (Xinhua). “The key to financial reform is to make the yuan an international currency, said [Peter Kwong Ching] Woo [chairman of the Hong Kong-based Wharf (Holdings) Limited] in a speech to the Second Session of the 11th National Committee of the Chinese People’s Political Consultative Conference (CPPCC), the country’s top political advisory body. That means using the Chinese currency to settle international trade payments …”

4 Shai Oster, “Malaysia, China Consider Ending Trade in Dollars,” Wall Street Journal, June 4, 2009.

5 Jonathan Wheatley, “Brazil and China in plan to axe dollar,” Financial Times, May 19, 2009.

6 “Another Dollar Crisis inevitable unless U.S. starts Saving - China central bank adviser. Global Crisis ‘Inevitable’ Unless U.S. Starts Saving, Yu Says,” Bloomberg News, June 1, 2009.

7 Kathrin Hille, “Lesson in friendship draws blushes,” Financial Times, June 2, 2009.

8 Steven R. Weisman, “U.S. Tells China Subprime Woes Are No Reason to Keep Markets Closed,” The New York Times, June 18, 2008.