Bernard Rooney

Gina Reinhart - Media Baron?

2012-02-04T06:58:00.002+11:00

Mining in a new vein by Clive Hamilton

The mineral and other resources of Australia belong to the people of Australia, not Gina Reinhart or other individuals or corporations. Reinhart is being grossly overpaid for the work she does in the mining industry. She should be fired and replaced with someone on a much more modest remuneration.

Michael Hudson: The Man Who Fired Greenspan

2012-02-02T13:56:00.000+11:00

Michael Hudson: The Man Who Fired Greenspan:

This is the transcript of an interview with Michael Hudson in an Australian film, discussing a 1966 incident:

MH: They increased it largely by having Alan Greenspan create the Greenspan Commission to look at social security and pushing the myth that social security had to be funded out of pre savings, so American labour was essentially taxed 11% between itself and the employers to pay social security and this vast increase in social security taxes was used to lend to the Government(US) to provide it with enough money to slash taxes on the rich and that was Greenspan’s ploy.

He was rewarded by being made head of the Federal Reserve for his actual hatred of labour and his desire that you had to reduce living standards in order to increase the profits of capital.

And so Greenspan was sort of the hack that was hired.

When I was on Wall Street, Greenspan was hired as part of a study I was doing on the balance of payments of the Oil Industry. And one day my boss, John Deaver came into my office and said he really worried about Greenspan being a part of this report because he was known as a hack that always gave …his clients what they wanted instead of something actual.

So he (JD) gave me Greenspan’s figures on depreciation of oil producing refinery assets in Europe and asked me to find out where the faking is? He said he couldn’t believe that Greenspan by himself wouldn’t of just faked the figures and it took me about a week to figure out where the faking of the figures came out (from) and that was Greenspan had simply picked up depreciation rates relative to output for the United States and projected them onto Europe.

So I went over and talked to his assistant Lucille Woo and she said “it’s all implicit, all implicit” and I confronted her with it and she said “Yes that’s what we did”!

And so, Greenspan was indeed ‘talked off the study’ and we met… John Deaver, David Rockefeller and myself and I was told…Greenspan was such a little bastard that if they fired him, he’d hold a grudge against Chase Manhattan for years and they told me to be the guy to give him the news that we couldn’t use his (laughs) statistics on it and I was a 25 year old economist at the time and he hardly new me at all, so I was the guy that…subsequently became known as ‘the man who fired Alan Greenspan’.

Financial Armageddon - Arriving at Last?

2011-11-28T10:31:00.000+11:00

Eurocarnage Continues:

Things are only going from bad to worse in Europe.

Reader Antifa had noted in comments that the IMF had expanded access on Thursday to borrowing facilities via a Precautionary and Liquidity Line (PLL), which would allow “responsible” borrowers to take down five or perhaps as much as ten times their normal allotment. But I don’t agree with his/her hopeful view that this meant the IMF was acting as lender of last resort. Only the ECB, an issuer of euros, can play that role. The IMF gets its budget from member nations, and my understanding in the US is that it comes from the Treasury, not the Fed, which means it is a budgetary item. New spending allocations, particularly to ‘furriners, are not likely to get much traction. China was already approached directly (for the EFSF) and was notably cool on the idea. Why would it lend indirectly, via the IMF, when it and other emerging economies are already unhappy that their voting share is out of line with their economic power? The BRICs have made it clear they want more voting rights as a condition to making bigger contributions. So I don’t see the IMF as an effective force, in general, and even on a stopgap basis given it certain to be insufficient firepower.

Mr. Market seems to think so too. Italy had a disastrously bad bond auction today, a mere €10 billion of two year notes and six month bills (remember, the day of reckoning comes in February, when Italy has to roll €300 billion). The rate on the bills was 6.50%; on the notes, 7.81%. Three year note yields rose as high as 8.13%. Even though the ECB intervened, buying both Spanish and Italian debt, it barely made a dent. Yields in Italy on two to five year paper remained in the 7.67% to 7.77%

German bond yields were also higher than they were after Wednesday’s terrible bunds auction. Stunningly, Belgian ten year yields have risen more than 1% this week, from 4.79% to 5.85%, with a downgrade of Belgium to AA by Standard & Poors no doubt contributing.

The Financial Times also reports that investors are fleeing Eurobank stocks:

Uninvestable is just about the worst word in a shareholders’ vocabulary.

The term – meaning that the market sees no point at all in investing in a certain asset – is being used increasingly when talking about European banks.

It's all about debt based on land value. A lot of people (well, a lot of people who read or comment on blogs like Naked Capitalism) can see the debt/money angle of the issue, but much fewer the land issue, because the privatization of site rent is taken for granted as the 'natural order of things' instead of as a root pathology.

Las Vegas: 100,000 foreclosures and counting; House prices down by 60%

2011-11-18T11:06:00.000+11:00

Las Vegas: 100,000 foreclosures and counting: From Steve Green at the Las Vegas Sun: Las Vegas house prices continue to slide, down 9 percent from year ago

“In less than four years, more than 100,000 homes in Las Vegas have been lost through foreclosure. That’s 18 percent of our privately owned housing stock: that’s nearly one home in five. And we’re nowhere near finished with foreclosures. In all likelihood, we have another 100,000 yet to go, and at the current rate, that’s another four years,” [housing analyst and SalesTraq President] Larry Murphy said.

According to Case-Shiller, house prices have declined almost 60% from the peak in Las Vegas ... no wonder foreclosure are so high.

And according to Core Logic, there were 426 thousand first mortgages in Las Vegas at the end of Q2 - and 270 thousand of these were in negative equity (about 63%). Another 100,000 foreclosures might be low.

In another 4 years, nearly 40% of the housing stock will have been foreclosed upon. Wow. Talk about land boom and bust. Don't worry though. The taxpayer will pick up the tab and make the banksters whole, because they'll "bring down the whole economy" if we don't.

Australia passes carbon tax

2011-11-15T19:36:00.000+11:00

Australia passes carbon tax:

Australia's carbon tax has been passed by the Senate. Be entertained as Piers Akerman goes barking mad:

This is the day the Western tradition of science-backed advancement of the human condition was rejected in favour of paganism. ...

We are witnessing the beginning of the end game for Australia as we know it. ...

The rest of the globe's population is wondering why we ever permitted ourselves to be lied and deceived back into the Dark Ages.

Oddly enough, despite Australia's return to the Dark Ages, New Limited's server was still able to serve up Akerman's rant.

Read the rest of this post... | Read the comments on this post...

The comments on the bizarre Akerman piece are also something to behold. Surely this is the beginning of a brownshirt type group: corporate/ fossilpower stormtroopers to fight the threat climate action poses against the billions, hundreds of billions, possibly trillions of dollars of fossil profits in the few decades remaining before it is shut down for good. I've no idea what ASIO people do, but if Gillard has any sense and especially after Brevik's Battle someone should be monitoring this closely for death and bomb threats etc. Who are these deluded whackjobs and what are their connections/ interrelations?

Hilarious Must-See Video: The Denial Tango

2011-11-14T10:24:00.000+11:00

Hilarious Must-See Video: The Denial Tango:

It’s written and performed by the awesome Aussie group Men With Day Jobs:

Other humor from down under:

Aussie climate scientists go all Beastie Boys on the deniers

Funniest Denier Punking Ever: Lord Monckton Isn’t An Act by Sacha Baron Cohen, Is He?

Solar is Ready Now: ‘Ferocious Cost Reductions’ Make Solar PV Competitive

2011-11-08T11:11:00.000+11:00

Solar is Ready Now: ‘Ferocious Cost Reductions’ Make Solar PV Competitive: Must-See Photovoltaic Industry Graphs on the Changing Economics of Solar There’s a joke in the solar industry about when “grid parity” – the time when solar becomes as cheap as fossil sources – will happen. Ron Kenedi, the former VP in Sharp Solar’s U.S. business liked to throw out random dates, telling me once “November [...]

Occupy Google Reader: My God, My Google, Why have you Forsaken me?

2011-11-02T14:37:00.005+11:00

We are the 1000+

One by one I was struck by the awesome and revolutionary features of the Internet: email, the web, usenet, chat, blogs. The last really powerful and useful innovation in my opinion has been RSS. Remarkably, most people seem not to have heard of RSS or to have used it much. I can only guess they don't do much reading online, or do all their reading on Facebook or Twitter.

But "social media"? Don't get it.

Myspace: looks to me like a sting perpetrated on Murdoch (couldn't have happened to a nicer fella); Twitter: (rather obviously for twits); and as for Facebook: well, the movie was great, but I haven't read the facebook (and don't intend to).

Nevertheless, all this stuff is undoubtedly a popular way for people to waste a lot of time.

In the good old days we wasted time on email, usenet and the web. Sure, it was a big waste of time, but we learnt something. I cant see what you can learn by wasting time on the huge pile of streaming detritus known as "social media".

Now Google has neutered Reader: after search, definitely their best product ever. Better than gmail.

Its a healthy warning about the cloud also. Having your data or applications controlled by some evil corporation is inherently dangerous.

We need a Free Software version of Google reader with the simple share/social functions included.

I cant help but compare this fiasco to the Ubuntu Unity disaster. Computing is being deliberately dumbed down by corporations. A split is emerging between the 'power users' and the billions (most of them not even online yet) who will interact with computers rather like an appliance: an on/off button, possibly a next and an up/down button will be all that is provided or that people are expected to cope with.

So let's break from the mob and the corporations and build free computing systems with full power.

While I'm at it can I complain about the horror that is Word (OpenOffice is no better) when all I want to do is write a paragraph or two. Never got over it. Composing and formatting need to be separated.

The 20-yr long gui fiasco has to be dealt with also. We should all be on unix terminal. Or perhaps Plan9 terminal nowadays.

Richard Stallman had a great idea in 1984 with Free Software, but tragically, he was about 10 years too late. Unix should have been made free when it was rewritten in C way back in 1973.

What a global disaster it has been. It might take another 100 years to straighten it all out.

Fukushima Coverup

2011-07-01T08:45:00.002+10:00

The company, the government, the regulatory agency and the media all seem to have conspired to coverup the severity of the Fukushima nuclear accident.

Here is the latest in case you missed it:

A full nuclear meltdown of 3 reactor cores occurred within hours of the accident. The company itself has admitted this.

The Fukushima accident has now released more radiation that Chernobyl, making it the worst nuclear accident on record.
The Company itself admitted this.

An area of 966 square kilometres is now uninhabitable due to nuclear contamination. link

Fukushima is the biggest industrial catastrophe in the history of mankind, according to Arnold Gundersen, a former nuclear industry senior vice president.

Each of those items is worth banner headlines in newspapers around the world, but I don't think they've been mentioned, as far as I know.

Give and You Shall Receive

2011-03-23T11:52:00.003+11:00

Flattr is a very clever idea with a lot of potential. It might finally allow micropayments to work.

Particularly interesting is the requirement to donate a few euros (minimum two per month) before you can receive anything. I'm sure we've all had the idea of giving something to help alternative media and other content creators but the clumsy procedures of credit cards and paypal etc serve as an effective barrier.

Flattr is as simple as clicking on a 'Like' button in Google reader or Facebook. And the total donated can be easily controlled such that it is within anyone's budget. So now there is no excuse!

Hattip: Steve Keen.

Massive Disconnect between Neo-classical economics and Global Reality

2011-01-19T10:24:00.003+11:00

RWER:

Climate scientists are divided over whether “the tipping point”, the point at which positive feedbacks make climate change accelerate and irreversible, thereby endangering the survival of the human species, has been reached....

Meanwhile the World Bank forecasts that by the end of the century global economic output will have risen almost tenfold.

Evidently NCE counts output as a plus but the consequent destruction of the environment in which we live does not count as a loss. It's like chopping down trees on Easter Island. As they approach the last stands, timber production, profit and success have never been higher. But no thought is given to what happens when all the trees are gone.

We need to change NOW the measures of production and economic growth by a full incorporation of environmental damage.

Banana Republic on the Potomac

2011-01-19T09:30:00.005+11:00

Greenwald:

"You've got state secrets, targeted killings, indefinite detention, renditions, the opposition to extending the right of habeas corpus to prisoners at Bagram [in Afghanistan]," Mr. Hayden said, listing the continuities. "And although it is slightly different, Obama has been as aggressive as President Bush in defending prerogatives about who he has to inform in Congress for executive covert action."

And that list, impressive though it is, doesn't even include the due-process-free assassination hit lists of American citizens, the sweeping executive power and secrecy theories used to justify it, the multi-tiered, "state-always-wins" justice system the Obama DOJ concocted for detainees, the vastly more aggressive war on whistleblowers and press freedoms, or the new presidential immunity doctrines his DOJ has invented.

Is this a democracy we are talking about, or a banana republic? It's amazing to me that these policies could be created and confirmed, and there is not a hint of criticism anywhere in the world (apart from a wild-eyed radical like Glenn Greenwald) from either officials or the intellectual class.

Obviously belief in freedom or liberal democracy is merely nominal with most of these people. The Golden Rule is, never offend or speak against the Power (that issues the Gold and gives us our Position, may his Name be Praised).

I guess fool me for being so naive about it all this time.

The Assange case however proves that it hasn't gone unnoticed. The public is beginning to understand that you do not want to be extradited to the US, or even want to visit the damn place.

Extradition treaties have to be reviewed. It's time, sadly, to say goodbye to the American Dream.

The 'Free Market' is a shibboleth

2010-12-25T08:27:00.005+11:00

The "free market", "market mechanism" etc is virtually a shibboleth these days.

http://www.sbs.com.au/news/article/1448476/Climate-committee-agrees-on-principlesa

But the free market or cargo-cult market fundamentalism as I prefer to call it is the problem not the answer. Free markets or rather unregulated markets are what have caused the Great Recession and the climate change disaster.

http://www.abc.net.au/unleashed/42422.html

http://www.businessspectator.com.au/bs.nsf/Article/CLIMATE-SPECTATOR-pd20101221-CBV35?OpenDocument

"a carbon price might, in theory, make complimentary measures redundant. But, as Professor Ross Garnaut points out, it would need to be $50-$100 a tonne to make it so."

Compare this with Stiglitz who says the tax needs to be somewhere near $88/t.

Why can't we start at a low rate ($10-20/t) and move up from there over time? And return the fee as a citizen's dividend to post compensate for increased energy prices and mute criticism of the 'great big tax'.

The Liberal Defence of Extraordinary Rendition

2010-12-23T21:24:00.010+11:00

The Assange Case (Wikileaks) was the biggest story in the world for at least a week and a half.

Richard Seymour over at Lenin's Tomb didn't seem to notice it was happening.

No doubt he was busy playing 'revolutionary at the barricades' at some lefty protest or other.

He finally he jumps in with something on 21 December when it was all over (at least this initial skirmish). With an absolute tin ear for the local and international politics of the affair, his remarks involve wasting everybody's time discussing the sexual misconduct allegations. Seymour doesn't seem to realize that this doesn't matter. Maybe he's in the pay of the Empire like it was suspected Anna Ardin was.

The issue with the Assange case is simple:

Under no circumstances must Assange be extradited or rendered to the United States.

I'll repeat that. Rape be damned, Assange could be up for murder. UNDER NO CIRCUMSTANCES MUST ASSANGE BE EXTRADITED OR RENDERED TO THE UNITED STATES.

The reason is, persons cannot be extradited to a place where they may not get a fair trial, may be detained without trial, tortured or executed. Especially persons who are critics of the Empire and who are not guilty or even charged with any crime concerning their dissenting activities.

Remember also that Assange is a White Male of Christian origin and a Citizen of an Allied Country. Who's next if he is fair game?

There needs to be an effective guarantee from the Swedish Government that he will not be so extradited. Otherwise there should be protests up to and including civil disobedience to physically prevent any such extradition to Sweden.

My suspicion is Seymour can't see this issue for the same reason he couldn't see the Global Financial Crisis, otherwise known as the Great Recession or Great Depression 2 depending on how it pans out. He's a traditional Marxian lefty and has a blind spot on the issues of civil liberties and finance capitalism.

This deficiency in politics and economics is pretty major considering the nature of the Marxist project. In fact, it is tragic. We cant put all the blame on Marx, the sad fact it the understanding was simply not there for him and for much of the 20th Century. But it is now time to do better.

Neo-liberal oligarchism has been running amuck across the whole world for the last 30 or 40 years now. Part of the problem no doubt has been the near total collapse and incoherency of the traditional left.

Modern Day Marxism

2010-11-21T21:27:00.002+11:00

Chomsky:

[Marx] offered lots of insights into how society works, and he was an extremely good analyst of the current events of the day. I think he would take it for granted that elites are basically Marxist - they believe in class analysis, they believe in class struggle, and in a really business-run society like the United States, the business elites are deeply committed to class struggle and are engaged in it all the time. And they understand. They're instinctive Marxists; they don't have to read it.

Warren Buffett:

“There’s class warfare, all right,” Mr. Buffett said, “but it’s my class, the rich class, that’s making war, and we’re winning.”

What on earth could he mean?

Wikipedia:

Americans have the highest income inequality in the rich world and over the past 20–30 years Americans have also experienced the greatest increase in income inequality among rich nations. The more detailed the data we can use to observe this change, the more skewed the change appears to be... the majority of large gains are indeed at the top of the distribution.

Neoliberalism, all that b-s about privatization, deregulation, economic reform etc etc has in fact been nothing but a plot to reestablish high and growing income inequality. Congratulations, well done. You've succeeded. Can we have a revolution now?

Christopher Hitchens Catches his Death of Cancer

2010-11-18T21:20:00.007+11:00

I'm not some kind of droog kicking drunks in the street. One's opponents should be sober at least and preferably in good health also. But it's hard to avoid this remarkable statement from Hitchens:

I'm glad we're not having an inquest now, as we would be, into why we allowed a Rwanda or a Congo to develop on the Gulf, an imploding Iraq right in front of our eyes, a vortex of violence and meltdown, a whole society beggared and fractured and traumatised, waiting to fall to pieces.

But that is exactly what happened in Iraq, as a direct result of the illegal and criminal invasion which you, the traitor Hitchens, aggressively supported. Surely you, Hitchens, cannot be unaware of this fact?

Hitchens:

One of the bitter aspects of that is, well, I put in 60 years at the coalface, I worked very hard. In the last few years I've got a fair amount of recognition for it. In my opinion, actually, rather more than I deserve. Certainly more than I expected. And I could have looked forward to a few years of, shall we say, cruising speed, you know, just, as it were, relishing that, enjoying it.

Hitchens sold his soul to the devil to get his reward of money, fame, success and recognition. Instead, he got terminal cancer.

Truly pitiful.

Hitchens decided to switch his support to the US Empire over the criminal, baseless, counterproductive, disastrous, genocidal Iraq war.

It's like someone who decides to support Soviet Russia, not during the 1917 Revolution or the 1941 Great Patriotic war, but during the 1968 invasion of Czechoslovakia or the 1979 Afghanistan invasion.

You would have thought even the slowest of them would know better by then.

God didn't strike Hitchens down with cancer over his atheism or imperialism, he did to to give us a bitter, ironic laugh at this World-Historical clown figure.

Randall Wray on USS Titanic QEII

2010-11-17T09:38:00.003+11:00

link:

Maintaining the dollar's international appeal also requires imposition of the rule of law in the US. Currently, the fraud perpetrated by the biggest banks is far worse than anything the Russian kleptocrats and mafia combined could possibly imagine. The US is in the grips of the worst scandals in world history, with the financial sector no longer constrained by anything that would be recognizable as lawful practice. And that is the biggest threat to the dollar as international reserve currency. Unless the top banks are closed, with their management jailed, there really is no hope for the US dollar or for its economy.

21st Century Jubilee

2010-11-12T17:40:00.005+11:00

Steve Keen:

We should write the debt off, bankrupt the banks, nationalize the financial system, and start all over again.

We need a twenty-first century jubilee.

[We’re going into] a never-ending depression unless we repudiate the debt, which never should have been extended in the first place.

If we keep the parasitic banking sector alive, the economy dies. We have to kill the parasites and give a chance to the real economy to thrive once more and stop the financial [crooks] doing what they did this time around ever again.

Chifley was right. We need to nationalize the banks. But the time to do it is when they become bankrupt in a depression, not twenty years later when they have recovered their strength. The coming financial crash in Australia is an historic opportunity to achieve this.

The provision of finance and credit in the economy is an essential public utility - it cannot be left to the inherently corrupt and inefficient private sector based on some delusional cargo-cult ideology of "the free market always lands the goods".

The issue becomes clearer by the day and maybe will come to a head. The Giant Vampire Squid of the financial sector (like some monster out of the imagination of Clark Ashton Smith) needs to be ripped off the head and neck of the real economy where it has been feasting and poisoning, and stamped repeatedly into the ground until it is completely lifeless.

But Steve Keen does not say what Michael Hudson does: that rents and surpluses also need to be nationalized or socialized because those are the income streams that become pledged to banks as interest in the financialized economy. Without doing that, we will be on the treadmill again to another crisis 18 years down the track. This is a far more radical and permanent solution than what Keen proposes, which looks almost mild in comparison in spite of its shocking directness.

Death Blow for the Nuclear Industry

2010-08-13T08:45:00.005+10:00

Solar Energy Cheaper than Nuclear for the First Time

In a “historic crossover,” the costs of solar photovoltaic systems have declined to the point where they are lower than the rising projected costs of new nuclear plants...

This crossover occurred at 16 cents per kilowatt hour, they said.

The Green movement, environmentalists, antiwar and anti-nuclear campaigners have been right all along, for the past 30 or 40 years.

Nuclear power is costly, toxic, weaponable, non-renewable and not the answer. Solar not nuclear.

Actually its a stroke of luck that the sheer cost of nuclear power is going to kill it. Otherwise we would have to rely on environmental arguments about pollution or moral arguments about war and militarism. Unfortunately those arguments don't carry as much weight.

The luck is the other way around with coal however. It's cheap to burn to produce electricity, and there is lots of it. We are having to rely on environmental, pollution, and intergenerational moral arguments to defeat it: a tough sell. This is why it is of fundamental importance that a carbon tax (combined with a carbon dividend) on CO2 be introduced as soon as possible. The price incentive is the one thing that can get the system moving.

Stiglitz: Carbon tax a no-brainer

2010-08-05T08:31:00.003+10:00

Putting a price on carbon is ''a no brainer'' and should be the first priority of any government, Nobel Prize winning economist Joseph Stiglitz says.

''I'm an advocate of carbon tax, because the general principle is that it's better to tax bad things than good things,'' he told a capacity crowd at the Australian National University's Llewellyn Hall yesterday afternoon, drawing a loud burst of enthusiastic applause.

''We don't know exactly what the right price of carbon is some say around $US60 to $80 ($A66 to $A88) a tonne, but what we do know is that zero is the wrong price.''

link

Stiglitz thus joins what appears to be a majority of economists from all schools who advocate the carbon tax over 'carbon trading'.

In theory, 'carbon trading' would work, if the licenses were auctioned on an annual basis, but then if it is so like a carbon tax, why bother?

In my view, 'carbon trading' is designed to fail. It's designed to make money for Wall st traders and to allow corporate-dominated governments to giveaway 'permits to pollute' to the big polluters.

An obvious and inevitable line of attack against the carbon tax is the 'great big new tax' and 'raise the cost of standard of living' arguments. To counter this purely at the political level a carbon dividend should be proposed. Either 50% or even 100% of the revenue raised from a carbon tax should be returned to each citizen on a per capita basis as compensation for increased energy costs.

Or 50% of the revenue could be invested in the building out of the new clean energy infrastructure. This would be a genuine 'nation building' project, not the farcical and murderous wedding-bombing operation in Afghanistan.

Ken O'Keefe on the BBC

2010-06-29T18:10:00.001+10:00

Ken O'Keefe gives a spirited performance against a BBC 'journalist'.

Emily Henochowicz

2010-06-02T10:57:00.007+10:00

21-year old Emily Henochowicz loses her left eye after being shot in the face with a tear gas canister.

Link

Housing Bubble

2010-04-19T09:08:00.007+10:00

http://www.marketoracle.co.uk/Article18733.html

Way back in 1983 Fred Harrison published his book "The Power in the Land" which relied on Homer Hoyt's 18-yr cycle theory to predict a land boom peaking in 1989 and a recession thereafter.

Back in the day we Georgists were amused to see the prediction come true and thought the bubble was a big one too. Anyone could also predict that the next peak would be 2007 or therabouts.

But look at this latest boom! No wonder the Economist called it the "biggest bubble in world history".

It's been Michael Hudson perhaps more than anyone else who has emphasized that a big land boom means huge amounts of money have been lent with land or property as collateral, which means in a bust all the banks are bust. In a financialised economy all available rents or supluses are pledged to banks as interest.

The financial sector is a giant vampire squid, sucking the life out of the economy and the workforce. Here again Hudson has rightly emphasized that 'debts that can't be paid, won't be paid'; that we need a 'Jubilee'.

However, the financial sector owns and controls the world and won't get it's fangs off it until there is some kind of revolution or popular rebellion.

Neo-liberalism will also have to be destroyed. The core of this dogma is to privatize, de-regulate, de-fund, de-tax and de-stroy.

Privatize: hand over land and resources and everthing in the nature of a natural monopoly to the private sector to allow them to privatize the economic surplus.

De-regulate: remove barriers to the raising of profits.

De-fund: the public sector and in particular the essential government role of infrastructure. Infrastructure will be provided by the miracle of market forces! Just like some sort of latter-day cargo cult. All you need to do is set up on some level ground somewhere wooden carvings of Adam Smith and Hayek, and all the good things anyone could desire will come down!

De-tax: lower or remove altogether taxation on wealth, property and capital.

De-stroy: the obvious outcome of it all, although a small class of the very rich have gotten smaller and even richer, which is their objective.

Change the System, Not the Climate

2010-01-04T09:06:00.003+11:00

A People's Declaration from Klimaforum 09 -

The Copenhagen conference on Climate change was a flop and a joke. It was, literally, a bunch of Neros fiddling while the world burned.

But it may have the benefit of finally discrediting the approaches tried to date, such as carbon trading etc.

Another benefit of the Conference was the alternative summits, people's summits, such as the Klimaforum. The Klimaforum document is highly admirable and a sound basis for going forward. Change must come from below, and the exploitative Western capitalist system that created the crisis must be radically altered.

Michael Hudson vs Paul Krugman

2009-12-25T07:20:00.005+11:00

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.

Tolkien on Power

2009-12-24T08:47:00.003+11:00

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.

Blair Planned Iraq Invasion Nine Months Before War

2009-12-02T10:14:00.004+11:00

link

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.

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

2009-11-05T08:35:00.002+11:00

The Anti-Empire Report

November 4th, 2009
by William Blum
www.killinghope.org
"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.
Notes

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 ↩

Chomsky compares US to Weimar Republic

2009-10-19T09:10:00.003+11:00

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.

Chomsky:

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?

Public Broadcasters Threat to News Ltd

2009-10-03T08:23:00.003+10:00

"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."

link

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.

Canberra Alcohol Deaths Up

2009-09-25T09:22:00.003+10:00

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.

End Internet Censorship

2009-09-24T10:32:00.000+10:00

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

2009-09-24T09:50:00.005+10:00

Obama Has Totally Failed

2009-09-08T07:48:00.002+10:00

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?

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

2009-09-06T08:21:00.003+10:00

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?

Rising Sea Level Projections

2009-09-01T07:27:00.003+10:00

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.

Letting out your Inner Nazi

2009-08-29T09:54:00.005+10:00

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?

Michael Hudson answers questions from Icelanders

2009-08-27T08:21:00.004+10:00

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 amazon.com 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.

Paul Kelly on Renewable Energy Targets

2009-08-19T09:28:00.005+10:00

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.

Global Warming Denier Sen Steve Fielding Cherry-Picks Scientists

2009-08-13T10:28:00.004+10:00

link

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.

Terror 'Attack' that Wasnt

2009-08-06T09:07:00.004+10:00

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.

Michael Hudson in Cuba, 2000

2009-07-08T09:02:00.007+10:00

GLOBALIZED ECONOMY AND RECAPTURE OF RENT
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?

GLOBALIZED ECONOMY AND RECAPTURE OF RENT

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.

GLOBALIZATION AND THE FOREIGN DEBT LEVER

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

A. THE RSF MISSION IN CUBA

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.

B. WHAT CONFERENCE MEMBERS SAID

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.

C. WHAT MICHAEL HUDSON SAID

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.

D. THE BOHEMIA INTERVIEW

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.

E. WHAT TED GWARTNEY SAID

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.

F. WHAT FIDEL SAID

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

Shut Down US Bases

2009-07-03T08:51:00.004+10:00

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.

Superannuation Bubble Bursts

2009-07-02T08:40:00.001+10:00

link:

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.

Henry George Has Been Proven Right

2009-06-17T21:31:00.004+10:00

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.

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

2009-06-16T09:42:00.001+10:00

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.

Notes

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 Kremlin.ru, 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. http://www.bloomberg.com/apps/news?pid=20601080&sid=aCV0pFcAFyZw&refer=asia

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.

Contact

www.michael-hudson.com

The Collapse of the Neoliberal Model

2009-05-22T12:54:00.001+10:00

The Collapse of the Neoliberal Model
Where Russia Went Wrong

By MICHAEL HUDSON

Last week Izvestiya published an interview with former Premier Yevgeny Primakov, now president of the Chamber of Commerce and Industry. (Johnson’s Russia List published a translation on May 8). The discussion centered on a universal problem – what China and other Asian countries, as well as OPEC and Europe should do with the export surpluses and proceeds mounting up in their central banks from mortgaging or selling off their real estate and industry. Or to put matters in retrospect, what should they have done to avoid the neoliberal monetarist ideology that governments should do nothing at all with these surpluses, not even use them to fuel economic growth.

If U.S. diplomats had their way, countries would simply let their foreign exchange reserves accumulate in the form of loans to the United States, in the form of Treasury bonds and other securities. Mr. Primakov has long opposed what his interviewer called “the fetishization of the Stabilization Fund – our beloved ‘piggy bank.’” Urging that it be spent on “primary needs,” to buy tangible capital goods, undertake infrastructure investment and finance imports to rebuild Russia’s dismantled manufacturing sector, he explained, “I was always opposed to having the Stabilization Fund considered something saved for an emergency. Money needs to be spent inside the country. Naturally not all of it. Some part should certainly be kept as a reserve.” But it was Vladimir Putin’s own “initiative to divide the Stabilization Fund into the Reserve Fund and the Fund for Well-Being. The latter was to be used to develop the economy and for social needs. It is too bad that they did not get to it in time.”

Ever since the Asian financial crisis of 1997, countries that have built up foreign exchange reserves have found themselves targets of global raiders. The tactic has been to sell a currency short, that is, to promise to deliver a few hundred million (or nowadays a few billion dollars) of it to a buyer (usually the central bank) near the current price, and then drive down the exchange rate by selling. The central bank tries in vain to absorb the selling wave, until finally its reserves are exhausted and the currency depreciates. This is how George Soros broke the Bank of England – and what he denies having done in Malaysia during the 1997 crisis.

Under Prime Minister Dr. Mahathir Mohammed, Malaysia protected itself by not making its currency available for foreign speculators to buy and cover their short-sale position. But most other countries have passively built up reserves in an attempt to outspend potential raiders. Today, however, underlying trends are using up these reserves. The global financial crisis has ended the real estate bubble that enabled many countries to cover their trade deficits by selling off their real estate or simply taking out foreign-currency mortgages against it. The Baltics and other post-Soviet countries in particular have been financing their trade deficits by fostering a property bubble that has led real estate owners to borrow mortgage credit from Western banks. In the absence of putting in place a viable domestic banking system, Scandinavian, Austrian and other Western banks are the only institutions able to create credit. Now that the global real estate bubble has burst, this foreign exchange credit is no longer forthcoming. The financial End Time has arrived. Rather than facing the new state of affairs – chronic trade deficits are now over-layered with heavy foreign-debt service. Countries that have built up foreign reserves are running them down.

Many countries are trying to delay the Day of Judgment by borrowing from the IMF, dissipating the proceeds by subsidizing capital flight by investors and speculators who can see that exchange rates for chronic trade-deficit countries are about to plunge steeply. Russia has joined in expending its foreign-exchange reserves to stabilize the ruble in the face of capital flight and foreign speculative selling.

In retrospect this appears to have been inevitable, and indeed was widely foreseen by critics of the neoliberal Washington Consensus. The reserves built up during the oil-price run-up last year and the recent boom in minerals prices are being spent without having used the proceeds to develop its industry so as to replace imports and develop export markets for what used to be a high-technology economy prior to the Yeltsin “reforms” (that is, dismantling of industry). Russia continued to rely almost exclusively on raw materials and oil exports. “In our country,” explained Mr. Primakov, “40% of GDP was created and is created through raw material exports. The share of industrial enterprises engaged in development and introduction of new technologies barely comes to 10%.” The problem is that having given away its mineral resources and other public enterprises to insiders and their cronies, Russia has relied on what they choose to leave in the country from their exports and sale of shares in their companies. “The prolonged refusal to inject the capital being built up into the real economy and its direct investment in American treasury securities instead of its use inside the country to diversify the economy. … As a result, Russia will most likely come out of the recession in the second echelon – after the developed countries.”

The alternative, Mr. Primakov said, would have been to use the Stabilization Fund “to switch the economy to the innovation track and for its restructuring. ‘Patching the holes does not help for long.’” But he the then-minister of economics, German Gref, fought off attempts “to cannibalize the Stabilization Fund.” Under the kleptocracy the money was left to be stolen.

The problem is where to go from here. Neoliberal “monetarist” ideology conjures up the threat of inflation to deter public spending. This IMF and World Bank propaganda blocked Russia from investing in industry during the Yeltsin disaster of the mid-1990s. “Fear of inflation,” Mr. Primakov explained, “was named as the main reason that huge amounts of money lay idle. They said that inflation would soar if what had been built up began to be spent. At one of the representative conferences, I asked: ‘What kind of inflation can there be in building roads? The work would just spur on production of concrete, cement, and metal ...’ But our financial experts have a monetarist view of inflation. They are afraid of releasing an additional money supply into circulation. But in reality inflation rises much more strongly from that fact that we have colossal monopolization.” Trade dependency leads the ruble’s exchange rate to weaken, raising the price of imports and thus aggravating the inflation – precisely the opposite of what Washington Consensus orthodoxy insists.

I myself have heard Scandinavian and other European officials make this argument in almost the same words, and it has persuaded many Third World governments to do nothing with their raw-materials export proceeds but “save for a rainy day,” not promote domestic self-sufficiency in food and consumer goods. The argument seems maddeningly stupid, because it pretends that all government spending is inherently inflationary, adding to the spending stream without producing any production to absorb it. The practical effect is to block countries from growing in the way that the United States and other developed nations have done – by investing in infrastructure and other capital formation, with the government providing basic infrastructure at cost or even freely (as in the case of roads) so as to minimize the cost of living and doing business. Instead of having investment in place to show for the foreign exchange earned by exporting raw materials (and selling off ownership of national assets), countries that follow this policy are now seeing their reserves drained rapidly. And as far as government spending is concerned, the economic collapse is increasing public budget deficits after all!

Contrast this behavior with Pres. Obama’s February 17 economic stimulus plan for the United States. When the Izvestiya interviewer asked Mr. Primakov what he thought about it, he noted that: “In America investments in ‘intellect’ have been increased – in science, progressive technologies, and education, and expenditures for medicine are rising. ... Doesn’t it seem to you that our package of anti-crisis measures is less ambitious? … This law should be considered a plan of investment related to the American economy and society entering the 21st century and a new technological platform of competitiveness. That is why expenditures for science have been increased. The same thing, undoubtedly, with human capital.”

But that is not the Russian strategy today, Mr. Primakov complained. Russia has been living in the short run. “The TPP (Chamber of Commerce and Industry) conducted a poll in 720 firms. Only a third of the managers said that they associate getting out of the crisis with producing new output. The rest are counting on staff cutbacks. If the ministries are given the assignment of reducing expenditures at their discretion, the first thing they sacrifice is scientific research and experimental design development. However, research and development should be classified as protected articles of any budget.”

So much for the free-market policy of automatic stabilizers and do-nothing government policy, leaving choice in the hands of the nation’s financial oligarchs. The situation calls for structural change, coordinated by the government. “If a plane is having trouble, the autopilot cannot handle an unusual situation. Only the personal skills of the pilot can save the ship. It is similar with the economy. Autopilot does not work in extreme conditions. … Self-regulation of the economy disappears as a factor.”

When asked about the oligarchs keeping their funds abroad rather than investing them in domestic industry, Mr. Primakov replied that Russian officials did not “take into account that banks’ interests do not coincide with the interests of the real sector of the economy. … It should have been explained that after receiving state support, in using it banks no longer [should] act as commercial structures but as agents of the state. It should have been watched to make sure that the state capital was not commingled with the banks’ other assets in common accounts but was marked off with a red line. But that was not done. Probably some people were lobbying for the banks’ interests at that point. And the bankers hurriedly began to convert the rubles into hard currency and export it abroad and build up their capitalization” instead of “extend[ing] credit to the real sector of the economy.” Oversight was done poorly, and Russia did not even use its public funds to finance capital investment. But when it comes to what to do at this late point, Mr. Primakov acknowledged, “Punishing the banks for what happened means destroying them.”

The problem is how to restructure the financial system to make it serve the objectives of industrial growth rather than merely facilitating capital flight. Throughout the world financial interests have taken control of government and used neoliberal policies to promote their own gain-seeking – financial gains without industrialization or agricultural self-sufficiency. Betting against one’s own currency is more remunerative than making the effort to invest in capital equipment and develop markets for new output. So unemployment and domestic budget deficits are soaring. The neoliberal failure to distinguish between productive and merely extractive or speculative forms of gain seeking has created a travesty of the kind of wealth creation that Adam Smith described in The Wealth of Nations. The financialization of economies has been decoupled from tangible capital investment to expand employment and productive powers.

Central to any discussion of financialization is the fact that credit creation has been monopolized in the United States and Britain for their own national gain. What makes this interview so relevant is that Mr. Primakov is speaking as head of Russia’s shrunken manufacturing sector. Russia “practically pushes big business outside our borders,” Mr. Primakov noted, “to borrow money from banks there in places where the interest rates are incomparably lower.” Just as the nation was becoming underdeveloped industrially, so it and other post-Soviet economies have failed to create domestic financial institutions to provide the credit that is needed to finance circulation between producers and consumers. As a result, these countries are simply fooling themselves to imagine “that credit can continue to be borrowed abroad ‘for the crisis.’ It is not out of the question that for the first time in 10 years, the state itself will even go begging for a loan again.” So a byproduct of today’s crisis will be to put the world outside of the creditor nations on rations, as it were.

Mr. Primakov was asked what he thought of Moscow Mayor Yuri Luzhkov’s tracing “the sources of the present Russian crisis [to] the 1990s, when the liberal government permitted the ‘stealing, squandering, and distribution of natural resources and the largest sectors of industry to those who could not support their development.’” He replied that there were many smart managers among the oligarchy’s ranks, but acknowledged that “It is a different question that in buying up enterprises (mainly raw material ones) for a song and obtaining mega-profits, many from the beginning preferred not to raise the efficiency of production, but to skim off the cream. … Why think about some processing of raw materials if they bring in big money anyway in natural form? The state should have entered that niche long ago. To have done everything to make certain that some of the petrodollars were pumped into science-intensive industry.”

Contrasting Russia’s failure to industrialize with that of China and its anticipated 8% economic growth in 2009, Mr. Primakov noted: “China exports ready-made products, while in our country a strong raw material flow was traditional.” Now that Western economies are shrinking, China is “moving a large part of the ready-made goods to the domestic market. At the same time, they are trying to raise the population's solvent demand. On this basis the plants and factories will continue to operate and the economy will work. We cannot do that. If raw materials are moved to the domestic market, consumers of such vast volumes will not be found.” Increasing domestic purchasing power will “merely step up imports.” That is the price that Russia is now paying for having failed to sponsor “structural changes in the economy.”

I have cited these long quotations because they have been made by a man who once had a chance to steer Russia along different lines than the economically suicidal death trap promoted by the Harvard Boys and their Washington Consensus. It is the trap into which the Baltics and other countries have fallen. A decade ago Mr. Primakov proposed an alternative, based on a resource-rent tax to finance Russia’s re-industrialization. The government would have collected the “free lunch” of its raw materials sales proceeds in excess of their low costs of production. Instead of retaining the revenue in the public domain from the decades of capital investment that the Soviet government had made to develop its mineral, oil and gas resources, instead of using it to finance economic modernization, Russia simply gave it away to political insiders and let them sell off shares in these resources to foreign buyers on the cheap. Anatoly Chubais and his Western “free-market” backers promised that giving property to individuals in this way would transform them into forward-looking Western-style industrialists. Instead, it turned them into Westernized finance capitalists.

The Latest in Junk Economics

2009-05-20T15:46:00.005+10:00

The Latest in Junk Economics: Marginalist Panaceas to Today's Structural Problems

by Michael Hudson

It looks like bookstores are about to be swamped this summer and fall by a forest of advice for which publishers gave respectable advances a year ago as the economy was going off the rails. Seeking to minimize the risk of cognitive dissonance, the marketing strategy seems to be to offer advice by well-placed or celebrity insiders on how to recover the kind of free lunch that American pension plans and popular hopes for easy wealth have long assumed to be part of the natural law of economic growth, if only it can be better managed. The fantasy that people want to buy is that the happy 1981-2007 era of debt-leveraged price gains for real estate, stocks and bonds can be brought back. But the Bubble Economy was so debt-leveraged that it cannot reasonably be restored. This means that publishers have achieved the marketer¹s dream of planned obsolescence: Readers a year or so from now will have to buy a new slew of books as they feel hungry again from the lack of intellectual protein.

For the time being we are being fed Wall Street defenses of the Bush-Obama (Paulson-Geithner) attempt to re-inflate the bubble by a bailout giveaway that has tripled America's national debt in the hope of getting bank credit (that is, more debt) growing again. The problem is that debt leveraging is what caused our economic collapse. A third of U.S. real estate is now estimated to be in negative equity, with foreclosure rates still rising. So publishers have only a short time frame to sell the current spate of books before people wake up to the fact that attempts to renew the Bubble Economy will make the financial overhead heavier.

In the face of this stultifying financial trend, the book-buying public is being fed appetizers pretending that economic recovery simply requires more 'incentives' (a euphemism for special tax breaks for the rich) to encourage more 'saving,' as if savings automatically finance new capital investment and hiring rather than what really happens: Money is being lent out to create yet more debt owed by the bottom 90 percent to the economy's top 10 percent. Publishers evidently believe that the way to attract readers and certainly to get reviews in t emajor mediam is to propose easy
solutions. The theme of most of this year¹s bubble books therefore is how we could have avoided the bubble 'if only's' If only there had been better regulation, for instance.

But to what aim? After blaming Alan Greenspan for playing the role of 'useful idiot' by promoting deregulation and blocking prosecution of financial fraud, most writers trot out the approved panaceas: federal regulation of derivatives (or even banning them altogether), a Tobin tax on securities transactions, closure of offshore banking centers and ending their tax-avoidance stratagems. But no one is going so far as to suggest going to the root of the financial problem by removing the general tax
deductibility of interest that has subsidized debt leveraging, taxing 'capital' gains at the same rate as wages and profits, or closing the notorious tax loopholes for the finance, insurance and real estate (FIRE) sectors.

Right-wing publishers are re-warming the usual panaceas such as giving more tax incentives to 'savers' (another euphemism for more giveaways to high finance) and a re-balanced federal budget to avoid 'crowding out' private finance. Wall Street's dream is to privatize Social Security to create yet a new bubble to feed off of. (Fortunately, such proposals failed during the Republican-controlled Bush administration as a result of a reality check in the form of taxpayer outrage after the dot.com bubble burst in 2000.)

What is not heard is a call to finance Social Security and Medicare out of the general budget instead of keeping their funding as a special regressive tax on labor and its employers, available for plunder by Congress to finance tax cuts for the upper wealth brackets. Yet how can America achieve industrial competitiveness in global markets with this pre-saving retirement tax and privatized health insurance, debt-leveraged
housing costs and related personal and corporate debt overhead? The rest of the world provides much lower-cost housing, health care and related costs of employee budgets or simply keeps labor near subsistence levels. This is a major problem with today¹s dreams of a renewed Bubble Economy: They leave out the international dimension.

The latest panacea being offered is to rebuild America's depleted infrastructure. Alas, Wall Street plans to do this Tony Blair-style, by public-private partnerships that incorporate enormous flows of interest payments into the price structure while providing underwriting and management fees to Wall Street. Falling employment and property prices have squeezed public finances so that new infrastructure investment will take the form of installing privatized tollbooths over the economy's most critical access points such as roads and other hitherto public transportation, communications and clean water.

Surprisingly, one does not hear even an echo of calls to restore state and local property taxes to their Progressive Era levels so as to collect the 'free lunch' of land rent and use its gains over time as the main fiscal base. This would hold down land prices (and hence, mortgage debt) by preventing rising location values from being capitalized and paid out as interest to the banks. It would have the additional advantage of shifting the fiscal burden off income and sales (a policy that raises the
price of labor, goods and services). Instead, most reforms today call for
further cutting property taxes to promote more 'wealth creation' in the form of higher debt-leveraged property price inflation. The idea is to leave more rental income to be capitalized into yet larger mortgages and paid out as interest to the financial sector. Instead of housing prices falling and income and sales taxes being reduced, rising site values merely will be paid to the banks, not to the local tax authorities. The latter are forced to shift the fiscal burden onto consumers and business.

The problem is that this new wave of reformist books advocates merely marginal changes to deep structural problems. There are the usual pro forma calls to re-industrialize America, but not to address the financial debt dynamic that has undercut industrial capitalism in this country and abroad. How will these timid 'reforms' look in retrospect a decade from now? The Bush-Obama bailout pretends that banks 'too-big-to-fail' only face a liquidity problem, not a bad debt problem in the face of the economy's widening inability to pay. The reason why past bubbles cannot be recovered is that they have reached their debt limit, not only domestically, but also
the international political limit of global Dollar Hegemony.

What needs to be written about is what the marginalists leave out of account and what academic jargon calls ³exogenous² considerations, which turn out to be what economics really is all about: the debt overhead; financial fraud and crime in general (one of the economy's highest-paying sectors); military spending (a key to the U.S. balance-of-payments deficit and hence to the buildup of central bank dollar reserves throughout the world); the proliferation of unearned income and insider political dealing.

These are the core phenomena that 'free market' idea strippers have relegated to the 'institutionalist' basement of the academic economics curriculum.

For example, the press keeps on parroting the Washington line that Asians 'save' too much, causing them to lend their money to America. But the 'Asians' saving these dollars are the central banks. Individuals and companies save in yuan and yen, not dollars. It is not these domestic savings that China and Japan have placed in U.S. Treasury securities to the tune of $3 trillion. It is America's own spending the trillions of dollars its payments deficit is pumping abroad, in excess of foreign demand for U.S. exports and purchases of U.S. companies, stocks and real estate. This
payments deficit is not the result of U.S. consumers maxing out on their credit cards. What is being downplayed is the military spending that has underlain the U.S. balance-of-payments deficit ever since the Korean War. It is a trend that cannot continue much longer, now that foreign countries are starting to push back.

Inasmuch as China's central bank is now the largest holder of U.S. Government and other dollar securities, it has become the main subsidizer of the U.S. payments deficit and also the domestic U.S. federal budget deficit. Half of the federal budget's discretionary spending is military in character. This places China in the uncomfortable position of being the largest financier of U.S. military adventurism, including U.S. attempts to encircle China and Russia militarily to block their development as rivals over the past fifty years. That is not what China intended, but it is the effect of global dollar hegemony.

Another trend that cannot continue is 'the miracle of compound interest.' It is called a 'miracle' because it seems too good to be true, and it is it cannot really go on for long. Heavily leveraged debts go bad in the end, because they accrue interest charges faster than the economy's ability to pay. Basing national policy on dreams of paying the interest by borrowing money against steadily inflated asset prices has been a nightmare for homebuyers and consumers, as well as for companies targeted by financial raiders who use debt leverage to strip assets for themselves. This policy is
now being applied to public infrastructure into the hands of absentee owners, who will build interest charges into the new service prices they charge, and be allowed to treat these charges as a tax-deductible expense. Banking lobbyists have shaped the tax system in a way that steers new absentee investment into debt rather than equity financing.

The irresponsible cheerleaders applauding a bubble economy as 'wealth creation' (to use one of Alan Greenspan's favorite phrases) would like us, their audience, to believe that they knew that there was a problem all along, but simply could not restrain the economy's 'irrational exuberance' and 'animal spirits.' The idea is to blame the victims homeowners forced into debt to afford access to housing, pension-fund savers forced to consign their wage set-asides to money managers for the large Wall Street firms, and companies seeking to stave off corporate raiders by taking 'poison pills' in the form of debts large enough to block their being taken
over. One looks in vain for an honest acknowledgement of how the financial sector turned into a Mafia-style gang more akin to post-Soviet kleptocrat insiders than to Schumpeterian innovators.

The cursorily reformist gaggle of post-bubble tomes assumes that we have reached 'the end of history' as far as big problems are concerned. What is missing is a critique of the big picture how Wall Street has financialized the public domain to inaugurate a neo-feudal toll booth economy while privatizing the government itself, headed by the Treasury and Federal Reserve. Left untouched is the story how industrial capitalism has succumbed to an insatiable and unsustainable finance capitalism, whose newest 'final stage' seems to be a zero-sum game of casino capitalism based on derivative
swaps and kindred hedge fund gambling innovations.

What have been lost are the Progressive Era's two great reforms. First, minimizing the economy¹s free lunch of unearned income (e.g., monopolistic privilege and privatization of the public domain in contrast to one's own labor and enterprise) by taxing absentee property rent and asset-price ('capital') gains, keeping natural monopolies in the public domain, and anti-trust regulation. The aim of progressive economic justice was to prevent exploitation e.g., charging more than the technologically necessary costs of production and reasonable profits warranted. This aim had a fortuitous byproduct that made the Progressive Era reforms seem likely to
conquer the world in a Darwinian evolutionary manner: Minimization of the
free lunch enabled economies such as the United States to out-compete others
that didn't enact progressive fiscal and financial policy.

A second Progressive Era aim was to steer the financial sector so as to fund capital formation. Industrial credit was best achieved in Germany and Central Europe in the decades prior to World War I. But the Allied victory led to the dominance of Anglo-American banking practice based on loans against property or income streams already in place. Today's bank credit has become decoupled from capital formation, taking the form mainly of mortgage credit (80%), and loans secured by corporate stock (for mergers, acquisitions and corporate raids) as well as for speculation. The effect is to spur asset-price inflation on credit, in ways that benefit the few at the
expense of the economy at large.

The problem of debt-leveraged asset-price inflation is clearest in the post-Soviet 'Baltic syndrome,' to which Britain's economy is now succumbing. Debts are run up in foreign currency (real estate mortgages in the Baltics, tax-avoidance funds and flight capital in Britain), without exports having any prospect of covering their carrying charges as far as the eye can see. The result is a debt trap chronic austerity for the domestic market, causing lower capital investment and living standards without hope of recovery.

These problems illustrate the extent to which the world economy as a whole has pursued the wrong course since World War I. This long detour has been facilitated by the failure of socialism to provide a viable alternative. Although Russia's bureaucratic Stalinism got rid of the post-feudal free lunch of land rent, monopoly rent, interest and financial or property-price gains, its bureaucratic overhead overpowered the economy in the end. Russia fell. The question is whether the Anglo-American brand of
finance capitalism will follow suit from its own internal contradictions.

The flaws in the U.S. economy are tragic because they are so intractable, embedded as they are in the very core of post-feudal Western economies. This is what Greek tragedy is about: a tragic flaw that dooms the hero from the outset. The main flaw embedded in our own economy is rising debt in excess of the ability to pay is part of a larger flaw: the financial free lunch that property and financial claims extract in excess of a corresponding cost as measured in labor effort or an equitably shared tax burden (the classical theory of economic rent). Like land seizure and insider privatization deals, such wealth increasingly can be inherited, stolen or obtained by political corruption. Wealth and revenue extracted via today¹s finance capitalism avoids taxation, thereby receiving an actual fiscal subsidy as compared to tangible industrial investment and operating profit. Yet academics and the popular media treat these core flaws as 'exogenous,' that is, outside the realm of economics analysis.

Unfortunately for us and for reformers trying to rescue our post-bubble economy the history of economic thought has been suppressed to give an impression that today¹s stripped-down, largely trivialized junk economics is the apex of Western social history. One would not realize from the present discussion that for the past few centuries a different canon of logic existed. Classical economists distinguished between earned income (wages and profits) and unearned income (land rent, monopoly rent and interest). The effect was to distinguish between wealth earned through
capital and enterprise that reflects labor effort, and unearned wealth from
appropriation of land and other natural resources, monopoly privileges
(including banking and money management) and inflationary asset-price 'capital' gains. But even the Progressive Era did not go much beyond seeking to purify industrial capitalism from the carry-overs of feudalism: land rent and monopoly rent stemming from military conquest, and financial exploitation by banks and (in America) Wall Street as the 'mother of trusts.'

What makes today's bubble different from previous ones is that instead of being organized by governments as a stratagem to dispose of their public debt by creating or privatizing monopolies to sell off for payment in government bonds, the United States and other nations today are going deeply into debt simply to pay bankers for bad loans. The economy is being sacrificed to reward finance, instead of finance subordinating and channeling finance to promote economic growth and lower the economy-wide cost structure to remain viable. Interest-bearing debt is weighing down the economy and causing debt deflation by diverting saving into debt payments
instead of capital investment. Under this condition 'saving' is not the solution to today's economic shrinkage; it is part of the problem. In contrast to the personal hoarding of Keynes's day, the problem is the financial sector's extractive power as creditor instead of clear the slate by wiping out the economy's bad-debt overhang in the historically normal way, by a wave of bankruptcy.

Today, the financial sector is translating its affluence (at taxpayer expense), into the political power to pry yet more public infrastructure away from state and local communities and from the public domain at the national level, Thatcher- and Blair-style as it is sold off to absentee buyers-on-credit to pay off public debt (while cutting taxes on wealth yet further). No one remembers the cry for what Keynes called 'euthanasia of the rentier.' We have entered the most oppressive rentier epoch since feudal European times. Instead of providing basic infrastructure services at cost or subsidized rates to lower the national cost structure and thus make it more affordable and internationally competitiv the economy is being turned into a collection of tollbooths How strange that this year's transitory wave of post-bubble books fails to place the financialization of the U.S. and global economies in this long-term context.

Make Iceland Pay for Incompetent British Bank Deregulation!

2009-05-12T12:21:00.001+10:00

Gordon Brown Spills the Beans on the IMF

By MICHAEL HUDSON

Last month the G-20 authorized the International Monetary Fund to increase its loan resources to $1 trillion. It’s not hard to see why. Weakening currencies in the post-Soviet states threaten to raise default rates on foreign-currency mortgages as collapse of the Baltic real estate bubble drags down Swedish banks, while the Hungarian property plunge threatens Austrian banks. It seems reasonable to infer that creditor-nation banks hope to be bailed out. The IMF is expected to lend the Baltic, central European and other debtor-country governments money to pay them. These hapless debtor economies are then to follow IMF “conditionalities” to squeeze enough money out of their populations to pay foreign creditors – and repay the Fund by imposing yet more onerous taxes on their labor and industry, making them even more high-cost and therefore pushing them even further into trade and credit dependency. This is why there have been so many riots recently in Latvia, Lithuania, Estonia and Ukraine, as was the case for so many decades throughout the Latin American countries that introduced the term “IMF riot” to the global vocabulary.

For fifty years the IMF has organized such payouts to creditor nations. Loans are made to debtor-country governments to “promote exchange-rate and price stability.” In practice this means pouring tens of billions of dollars into currency markets to make bad gambles against raiders. This is supposed to avert the beggar-my-neighbor nationalism and financial protectionism that aggravated depression in the 1930s. But the practical effect of IMF lending is to demand that debtor countries impose onerous IMF “conditionalities” that stifle their domestic markets. This is why the IMF was left with almost no customers until last year’s debt crisis deranged the world’s foreign exchange markets.

It is supposed to be merely incidental that the largest IMF shareholders, the United States and Britain, happen to be the major creditor nations and their banks the main beneficiaries of IMF loans. But in a Parliamentary question-and-answer session on May 6, Britain’s Prime Minister Gordon Brown spilled the beans. Under pressure for his notorious “light-touch regulation” as Chancellor of the Exchequer (1997-2007), he undid half a century of rhetorical pretense by announcing that he was pressuring the IMF to bail out Britain in its nasty dispute with the Icelandic owners of a British bank that went under. He was in a position to know the nitty-gritty of who owed what and which nation’s monetary authorities were responsible for which banks. So when he said that he was strong-arming the IMF and other organizations to force Iceland’s government to pay for his own government’s mistakes, he must have known this was breaking the unwritten law of pretending that the IMF is not the servant of creditor nations in bilateral disputes with smaller economies.

Here’s the background. Mr. Brown and his New Labour predecessor Tony Blair have saddled British taxpayers with a generation of payments to pay for their decade of deregulating London’s financial sector. Bad mortgage lending led to the failure first of Northern Rock and then the Royal Bank of Scotland, whose ambitious junk-mortgage program had made it the world’s largest bank. At $3.8 trillion before it collapsed, it was nearly twice the size of Britain’s $2.1 trillion gross domestic product (GDP). (For a review of New Labour’s deregulatory policies see Philip Augar, Chasing Alpha: How Reckless Growth and Unchecked Ambition Ruined the City's Golden Decade [2009].) So one can understand why Mr. Brown was flailing around to blame someone for New Labour’s “Don’t see, don’t ask” policy.

Last autumn one of Iceland’s most reckless banks, Landsbanki, announced that it had made so many bad gambles that its loans and investments could not cover what it owed its depositors. It had drawn many deposits from abroad by setting up foreign branches, including Icesave in Britain. And in a striking variation from normal practice, these branches were not incorporated as separate affiliates, which would have led them to be regulated by local British authorities. As branches of the Icelandic head office, Icesave was regulated only by Icelandic authorities – which were as thoroughly neoliberalized as those of Britain, and didn’t really have a clue as to what was going on.

When Icesave went broke in October, British monetary authorities panicked. Mr. Brown sought above all to prevent its owner, Landsbanki, from doing what Lehman Brothers had just done on Sept. 14 when its New York office emptied out the funds in the account of its London affiliate just before the U.S. firm declared bankruptcy. Trying to grab whatever Icelandic assets he could, Mr. Brown overreacted (hardly a new experience for him). Responding far beyond Icesave itself, he resorted to anti-terrorist legislation passed in 2001 in the wake of the 9/11 attack on New York’s World Trade Center to freeze Icesave’s accounts – and also those of other banks in Britain owned by Iceland. Evidently he thought that classifying his peaceful NATO partner as a terrorist economy would panic its government into paying. But the effect was to cause a run on Iceland’s currency, making payment impossible. The króna entered a period of freefall on foreign exchange markets.

Mr. Brown’s bellicose behavior escalated as Britain’s own currency sank. This set the stage for his explosion last Wednesday when he explained how he intended to make Iceland pay, not only for Icesave but also for Kaupthing S&F, for which the British authorities were responsible in the case of depositors who had lost money. Unlike the unfortunate IceSave (administered as a branch of Iceland’s Landsbanki and hence subject to Icelandic regulatory authority), Kaupthing S&F is incorporated as a distinct British affiliate, and regulated and insured as such. The UK authorities accordingly have not claimed that Iceland’s government has any obligations to reimburse British depositors who have lost money. Yet when asked about the “£6 million that the Christie hospital [in Manchester] stands to lose in the Icelandic bank Kaupthing,” central banker Brown pretended that Kaupthing was not a British bank overseen by domestic deposit insurance authorities. “The fact is that we are not the regulatory authority and that many, many more people had finances in institutions regulated by the Icelandic authorities,” he insisted before Parliament. “The first responsibility is for the Icelandic authorities to pay up, which is why we are in negotiations with the International Monetary Fund and other organisations about the rate at which Iceland can repay the losses that they are responsible for.”

This naturally has prompted Icelanders to ask British authorities just which “other institutions” they may be talking to, and what they may be hoping to gain. The IMF’s representative in Iceland, Franek Rozwadowski, was quick to explain to the Icelandic newspaper Fréttablaðið that it was not the IMF’s role to intervene in “a bilateral matter that needs to be resolved bilaterally.” But fears remain that Iceland’s government will be pressured to squeeze out money from the economy to reimburse foreign speculators on the winning end of the many bad gambles that Iceland’s banks made before being de-privatized.

Such fears are aggravated by the worry that Mr. Brown may have found help from a fifth column within Iceland itself. After the bank crisis last autumn, the Independence Party fell, and its coalition partner for the last six years, the Social Democrats, took charge of the administration. The government divided the failed Icelandic banks into “good” and “bad” parts so as to save what could be salvaged for Icelandic depositors to back their deposits (the “good” bank). The government then commissioned two British accounting firms to survey the loan portfolios of Landsbanki and Kaupthing to evaluate their assets at “fair value.” But much as the U.S. stress test surrendered to the banking system’s insistence on blue-sky optimism regarding what will be left over on high-risk loans and gambles, so the Icelandic contract defined “fair value” as it would exist if the global financial collapse was completely reversed and everything went back to normal as if nothing had happened. Under this assumption the good and bad bank assets would be worth much more than is the case under today’s real-world conditions. This dangerously over-states the net worth of Iceland’s failed banks.

It was dangerous to retain firms closely associated with major clients – and hence, their source of future business – that include the parties with whom Iceland’s government stands in a potential adversarial relationship. Another problem is political pressure for a cover-up on the part of the vested Icelandic interests that had engaged in reckless behavior, and perhaps crooked self-dealing via foreign transactions.

In any event, the report was not made public on its scheduled date in mid-April, which was supposed to be just prior to the national elections on April 25. When a report on major bankruptcy by political insiders is not released on the promised date before a major election, one naturally suspects political pressure at work. Yet despite the financial crisis that plunged most Icelanders into a debt-strapped condition, the election turned mainly on political factors. The Social Democrats advocated joining the European Union and adopting the euro, hoping that this in itself may lead to domestic economic reform. The Left-Green coalition opposed giving up Icelandic political and economic sovereignty and pressed for domestic reform, as did the centrist Progressive Party. As for the Independence Party, it was swamped by one scandal after another concerning election financing, insider crony dealing and the usual array of dirty neoliberal political practices.

All this occurred in an economy structured to be a creditor paradise – that is, a debtor’s hell. On top of normal mortgage interest, Icelandic personal and real estate debts are subject to indexation of the principal to reflect the consumer price index – which in turn mirrors the fall in the króna’s exchange rate, about 20% over the past year. This means that if someone bought a house for the equivalent of $100,000 a year ago with a 100% mortgage, the debt would now have risen to $120,000. But the collapse of Iceland’s economy has sent unemployment soaring and business crashing, so real estate prices have fallen by about 25%. The former $100,000 house would now have a market value of only $75,000 – just 62% of its re-indexed $120,000 mortgage, some $45,000 in negative equity.

The situation actually is about to get much worse in the near future. The US$ is currently at 125 krónur (IKR), down from 62 at yearend-2007 – a 100% increase. (For the euro, the increase over the same period is 85%.) Iceland’s banks have linked many business loans, as well as auto loans and other debts to a market basket of foreign currencies, on the logic that they themselves have had to obtain money by borrowing yen, euros, sterling or dollars. Although these loans are denominated in krónur, their payment is indexed, so the effect is similar to denominating loans in foreign currency. Many loans are still benefiting from the moratorium placed on re-indexing the principal when the crisis hit last autumn, but many loans are about to be reset. Icelandic debtors who borrowed in the belief that the IKR was as stable as the dollar are now paying the price for their optimism – an optimism fed by the banks’ marketing departments, which depicted these indexing arrangements simply as an accounting formality! Business debts are especially at risk.

This shows how urgently Iceland needs to straighten out its banking mess and restructure the economy to free the population from the unique debt squeeze its laws and a decade of neoliberal mismanagement have created. Now that the banks have been de-privatized and taken back into the public domain, credit needs to be turned back into what it was before – a public utility. But this cannot be organized without knowing how much can be recovered from the failed banks to back domestic depositors. And the reports from the British accounting consultancy firms still have not been made public. Only the major creditors have received copies!

Remarkably, the government said last week that they might not be released at all. The inference is that the crooked dealing has been so damning to vested Icelandic interests that it would cause a new political crisis to resolve the deepening economic crisis. The fear is that a sweetheart deal has been made with the kleptocrats whose reckless behavior (and it seems probable, illegitimate bank maneuverings with offshore accounts) plunged the economy into negative equity in the first place. The better the financial health of the failed banks appears on paper, the more presumably will be left over to pay foreigners – including the offshore accounts of the banks’ former owners in their own dealings with the banks. So from the vantage point of Icelandic depositors and debtors to these banks, a realistic pessimistic estimate of the banks’ position would protect them, while an unrealistic optimism would enable foreigners to siphon off much more money, leaving less for Iceland.

In fact, the IMF has failed to oblige Iceland’s government to conform to the Letter of Intent it signed on November 15, 2008. This letter obliged Iceland to “bring loan values in line with expected market values” (#4), and to “include an assessment of whether or not managers and major shareholders have mismanaged or abused the banks” (#6). No such assessment has been made, and as described above, loan values are exceeding market values by a rising degree as property, businesses and households fall into negative equity status.

The Icelandic government’s agreement with the IMF promised to make the bank assessments public upon their completion “by end-march 2009” (#10). This has not been done – perhaps (one worries) because the next sentence says that the government “will discuss in advance with IMF staff any changes to the adopted strategy.” In view of the secrecy that now shrouds the events that pushed the banks under, one can only wonder at what developments have prompted the government and IMF to change strategy.

What the IMF did demand – as it always does – is that once the government bails out the bankers for their bad loans, the whole privatization process is to start all over again, paving the groundwork for yet new rip-offs. In view of the fact that “the banking crisis will significantly constrain the public sector and burden the public for years to come” as the government pays off bad loans (#12), the agreement pledges (#14) that “A significant reduction in government debt through the sale of the government’s stake in the new banks could help reduce the needed fiscal adjustment over the medium term.”

Belatedly, the population is now up in arms – two weeks after the election! To stabilize the currency, Iceland has agreed to IMF conditionalities that prevent the government from pursuing the counter-cyclical Keynesian fiscal policy that Mr. Obama is leading in the United States. Unless the debt pressure is alleviated, Icelandic homeowners and businesses will be obliged to run down their savings each month until they are depleted – at which time they will lose their homes and forfeit their businesses to foreclosing creditors.

So on Saturday afternoon, May 9, a “pots and pans” protest was conducted outside of Iceland’s Parliament in Reykjavik. The scenario is much like that of the color revolutions staged by U.S. neoliberals throughout the post-Soviet states. But Iceland’s kitchen-utensil revolution is organized as a protest against neoliberal policies. The protesters have picked up the thread where it left off last October a similar set of protests dislodged the Independence Party from power. The National Labor Association has broken from the new Social Democratic coalition government, reflecting the growing anger among Icelanders at their debt squeeze.

Mr. Brown’s statement that he intends to use IMF leverage to deepen Iceland’s debt position by forcing its government to bail out British depositors has rubbed salt in this wound – precisely by demanding for his country what Icelanders are not receiving from their government! Its citizens want to know what pressure the country is responding to if it intends to put the interest of foreigners before their own. This double standard has motivated the population to act in a more confrontational way than would have occurred had the problem been merely domestic. Icelanders want to be told the magnitude of the financial problem – and apparent dishonesty and crony dealings – that the government is keeping secret. The answer may at long last move Iceland out of its post-feudal oligarchy. Its neoliberal privatizations and pro-financial policies may turn out not to be as entrenched and irreversible as the kleptocrats had hoped would be the case.

More boat people on the way

2009-05-11T08:51:00.004+10:00

Pakistan faces biggest refugee crisis since 1947:

Aid groups have warned of a human tide of up to 500,000 people fleeing their homes. The UN said an estimated 200,000 have fled the Swat valley and its main town, Mingora, in the past few days alone, while another 300,000 are poised to flee if they get the chance. This would create a total of one million people forced from their homes by fighting in the past 12 months. It represents the biggest internal displacement of people in Pakistan since independence more than 60 years ago.

In addition to the refugees primarily from the ruined countries of Iraq and Afghanistan that have made the desperate journey by boat to our shores in recent years, it seems likely there will now be a bunch more.

If Howard were still in power we know what to expect: the ugly and racist demonization of regugees as terrorists, sleepers, child-drowners leading to the cruel abandonment at sea or imprisonment in concentration camps. With Rudd it is slightly more civilized, Rudd will only blame it on people-smugglers.

But Rudd just like Howard cannot dare speak the awful truth: that the direct cause of the massive refugee crises in Iraq, Afghanistan and Pakistan is the Whitepowers' military assault on those countries, an aggression in which Australia has shamefully taken and is taking a direct part.

Zionism is dying a rapid and bitter death

2009-05-09T08:59:00.004+10:00

Yikes:

Richard Witty comes out with one of the old arguments in favour of Zionism:

Shirin, Do you think that Jews are a people? And, as a people, should have the right to self-govern?

Shirin replies:

You are asking the wrong, and an irrelevant, question. The question is whether or not "the Jews" or any other self-defined, or other-defined human group has a right to lay claim on any basis at all (historical, mythical, legendary, or some combination of all three) to land inhabited by others, and turn it into an ethnocratic state for themselves in which they have superior rights and claims, and in which they must establish and maintain by any means necessary an overwhelming majority. The answer to that question is obvious, particularly in the 20th and 21st centuries, which is why you and other Zionists always ask the other question instead of the truly relevant one....

The early Zionists, after some discussion, agreed that they had to define The Jews as a nation. They determined that the colonial powers were unlikely to see the creation of a Jewish state as justified unless the Jewish people were a nation.

Of course, the utterly silly and completely impractical logical extension of Witty's standard-issue Zionist argument is that every single group that can manage to define itself as a "people" or a "nation" is entitled to self-rule. Witty and his fellow nice, liberal Zionists do not specify, of course, whether every "people" or "nation" is entitled to ethnically cleanse the location of their choice, and treat any leftover residents from he "wrong people" or "nation" as second-class citizens. Nor do they explain whether every "people or "nation" is entitled to take whatever means necessary to maintain "demographic balance, or whether every "people" or "nation" is entitled to expand their territory at will by whatever means they choose....

The kind of state formation you are advocating is typically called 'volkish nationalism' in English (or organic, total, ethnic, etc.), a short-lived ideology I thought died an unmourned death in 1945. Of course, nationalism (of all kinds) is a pretty recent invention, but the volkish kind even more so, being the invention of a number of Central Europeans who got rather carried away in the midst of the final, intense period of colonialism, racial science, the attempted revolts of the working classes, popular democracy, etc. Wilsonian national self-determination is less than a century old (and Zionism predates it).

Classical, liberal nationalism was essentially geographic, coupled with a touch of Rousseau's social contract: for the French revolutionaries, the French people were the people living in France, and those related geographic areas who assented to the ideals of the new French state. Naturally, this kind of nationalism resulted in the emancipation of the Jews.

In order to construct a Jewish 'nation' (rather than religious group) a narrower kind of nationalism was necessary - and was provided by Herder, who started getting ideas about there being some kind of deeper connection between the people of the same country. That idea first proposed, intellectuals could start fashioning 'national' histories, all of them, unsurprisingly, being quite similar: once upon a time we were big and mighty, then something bad happened, but onwards and forwards to the future, we'll be great again, etc.

Thus, Zionism could be born: one had a national Jewish narrative, racial science could substitute for religion, European imperialism provided the real possibility for taking over Palestine and provided the framework that didn't 'see' the native, and Blut-und-Boden nationalism provided the ideology of an organic and authentic connection to the land, which the Jews had, but the uncivilised natives were incapable of establishing. It is often asserted that Herzl's Zionism was nationalism of the liberal kind ,but recent research has shown that his nationalism was mainly inspired by the extreme Prussian Aryan groupings, and that he was fully aware that what he was advocating was settler-colonialism of the most extreme kind.

Thus, Zionism was never a national liberation movement in the positive sense, but a settler-colonial project legitimising itself by reference to volkish-national ideology. One can add that the manner in which the Yishuv and the state of israel treated Sephardi/Mizrachi Jews - and to a lesser degree German Jews and Holocaust survivors - illustrate the fact that the Yishuv's quest was not for a nation-state of the conventional kind, but rather a racially purified one of the kind now universally repudiated [yes, there is constant talk in Yishuv papers of 'two races' of Jews, 'bad human material', etc., etc.]

The Palestinian claim, on the other hand, does not rest on any intrinsic Palestinian identity or peoplehood, but on the simple facts that they (or their recent ancestors) either live there or were illegally expelled, and that they have relatively representative organisations that demand that they be recognised as a sovereign state on the land they inhabit and which belong them under international law.

A couple more years like this and there will be absolutely nothing left. It lasted a bit longer than Apartheid South Africa but it was doomed from the start as a racist, colonialist, militarist, imperialist, settler ideology was hopelessly anachronistic in the post-Hitler period.

Main Elements of International Law

2009-05-05T09:07:00.003+10:00

"International Law" is not very effective, and not perfect in its formulation, but it nevertheless represents in many ways an enshrinement of sound and admirable principles, no doubt more honoured in the breach than the observance. As such it is a standard that we can point to, and that we can use to criticize the performance of our own and other governments.

The foundation of International Law would most likely be the Charter of the United Nations, and the supporting covenants and treaties that have been agreed to by the United Nations and most of the world's countries. I'll attempt to compile a list of these worthy documents:

Charter of the United Nations (pdf version)

Universal Declaration of Human Rights

Nuclear Non Proliferation Treaty

Convention against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment (html) (pdf)

Some thoughts about torture. And Mr. Obama. - by William Blum

2009-05-05T08:41:00.002+10:00

The Anti-Empire Report

May 4th, 2009
by William Blum
www.killinghope.org

Okay, at least some things are settled. When George W. Bush said "The United States does not torture", everyone now knows it was crapaganda. And when Barack Obama, a month into his presidency, said "The United States does not torture"1, it likewise had all the credibility of a 19th century treaty between the US government and the American Indians.

When Obama and his followers say, as they do repeatedly, that he has "banned torture", this is a statement they have no right to make. The executive orders concerning torture leave loopholes, such as being applicable only "in any armed conflict"2 What about in a "counter-terrorism" environment? And the new administration has not categorically banned the outsourcing of torture, such as renditions, the sole purpose of which is to kidnap people and send them to a country to be tortured. Moreover, what do we know of all the CIA secret prisons, the gulag extending from Poland to the island of Diego Garcia? How many of them are still open and abusing and torturing prisoners, keeping them in total isolation and in indefinite detention? Total isolation by itself is torture; not knowing when, if ever, you will be released is torture. And the non-secret prisons? Has Guantanamo ended all its forms of torture? There's reason to doubt that.3 And what do we know of what's happening now in Abu Ghraib and Bagram?

And when Obama says "I don't believe that anybody is above the law", and then acts in precisely the opposite fashion, despite overwhelming evidence of criminal torture — such as the recently leaked report of the International Committee of the Red Cross and the Bush Justice Department "torture memos" — it's enough to break the heart of any of his fans who possess more than a minimum of intellect and conscience. It should be noted that a Gallup Poll of April 24/25 showed that 66% of Democrats favored an "investigation into harsh interrogation techniques on terrorism suspects". If the word "torture" had been used in the question, the figure would undoubtedly have been higher.

Following the US invasion of Iraq in March 2003, President Bush went on TV to warn the people of Iraq: "War crimes will be prosecuted. War criminals will be punished. And it will be no defense to say, I was just following orders."4

"Objectively, the American public is much more responsible for the crimes committed in its name than were the people of Germany for the horrors of the Third Reich. We have far more knowledge, and far greater freedom and opportunity to stop our government's criminal behavior," observed James Brooks in the Online Journal in 2007.

On February 10, the Obama Justice Department used the Bush administration's much-reviled "state secrets" tactic in a move to have a lawsuit dismissed — filed by five detainees against a subsidiary of Boeing aircraft company for arranging rendition flights which led to their torture. "It was as if last month's inauguration had never occurred", observed the New York Times.5

And when Obama says, as he does repeatedly, "We need to look forward as opposed to looking backwards", why is it that no one in the media asks him what he thinks of the Nuremberg Tribunal looking backwards in 1946? Or the Church Committee of the US Senate doing the same in 1975 and producing numerous revelations about the criminality of the CIA, FBI, and other government agencies that shocked and opened the eyes of the American people and the world?

We're now told that Obama and his advisers had recently been fiercely debating the question of what to do about the Bush war criminals, with Obama going one way and then another and then back again, both in private and in his public stands. One might say that he was "tortured". But civilized societies do not debate torture. Why didn't the president just do the obvious? The simplest? The right thing? Or at least do what he really believes.

The problem, I'm increasingly afraid, is that the man doesn't really believe strongly in anything, certainly not in controversial areas. He learned a long time ago how to take positions that avoid controversy, how to express opinions without clearly and firmly taking sides, how to talk eloquently without actually saying anything, how to leave his listeners' heads filled with stirring clichés, platitudes, and slogans. And it worked. Oh how it worked! What could happen now, as President of the United States, to induce him to change his style?

The president and the Director of the CIA both insist that no one at the CIA who was relying on the Justice Department's written legal justification of methods of "enhanced interrogation" should be punished. But the first such approval was dated August 1, 2002, while many young men were arrested in Afghanistan and Pakistan during the previous nine months and subjected to "enhanced interrogation". Many were sent to Guantanamo as early as January 2002. And many others were kidnaped and sent to Egypt, Jordan, Morocco and other secret prisons to be tortured beginning in late 2001. So, at least for some months, the torturers were not acting under any formal approval of their methods. But they still will not be punished.

I love that expression "enhanced interrogation". How did our glorious leaders overlook calling the atomic bombs dropped on Hiroshima and Nagasaki "enhanced explosive devices"?

Lord High Dungeon Master Richard Cheney is upset about the recent release of torture memos. He keeps saying that the Obama administration is suppressing documents that show a more positive picture of the effectiveness of interrogation techniques, which he claims produced very valuable information, prevented certain acts of terrorism, and saved American lives. Hmmm, why am I skeptical of this? Oh, I know, because if this is what actually happened and there are documents which genuinely and unambiguously showed such results, the beleaguered Bush administration would have leaked them years ago with great fanfare, and the CIA would not have destroyed numerous videos of the torture sessions.

But in any event, that still wouldn't justify torture. Humankind has aspired for centuries to tame its worst behaviors; ridding itself of the affliction of torture has been high on that list. There is more than one United States law now prohibiting torture, including a 1994 law making it a crime for US citizens to commit torture overseas. This was recently invoked to convict the son of former Liberian dictator Charles Taylor. There is also the Geneva Convention Relative to the Treatment of Prisoners of War, ratified in 1949, which states in Article 17:

No physical or mental torture, nor any other form of coercion may be inflicted on prisoners of war to secure from them information of any kind whatever. Prisoners of war who refuse to answer may not be threatened, insulted, or exposed to any unpleasant or disadvantageous treatment of any kind.

Thus it was that the United States has not called the prisoners of its War on Terror "prisoners of war". But in 1984, another historic step was taken, by the United Nations, with the drafting of the "Convention Against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment" (came into force in 1987, ratified by the United States in 1994). Article 2, section 2 of the Convention states:

No exceptional circumstances whatsoever, whether a state of war or a threat of war, internal political instability or any other public emergency, may be invoked as a justification of torture.

Such marvelously clear, unequivocal, and principled language, to set a single standard for a world that makes it increasingly difficult for one to feel proud of humanity. We cannot slide back. If today it's deemed acceptable to torture the person who supposedly has the vital "ticking-bomb" information needed to save lives, tomorrow it will be acceptable to torture him to learn the identities of his alleged co-conspirators. Would we allow slavery to resume for just a short while to serve some "national emergency" or some other "higher purpose"?

If you open the window of torture, even just a crack, the cold air of the Dark Ages will fill the whole room.

"I would personally rather die than have anyone tortured to save my life." - Craig Murray, former British Ambassador to Uzbekistan, who lost his job after he publicly condemned the Uzbek regime in 2003 for its systematic use of torture.6

With all the reports concerning torture under the recent Bush administration, some people may be inclined to think that prior to Bush the United States had very little connection to this awful practice. However, in the period of the 1950s through the 1980s, while the CIA did not usually push the button, turn the switch, or pour the water, the Agency ...

* encouraged its clients in the Third World to use torture;
* provided the host country the names of the people who wound up as torture victims, in places as bad as Guantanamo, Abu Ghraib and Bagram;
* supplied torture equipment;
* conducted classes in torture;
* distributed torture manuals — how-to books;
* was present when torture was taking place, to observe and evaluate how well its students were doing.7

I could really feel sorry for Barack Obama — for his administration is plagued and handicapped by a major recession not of his making — if he had a vision that was thus being thwarted. But he has no vision — not any kind of systemic remaking of the economy, producing a more equitable and more honest society; nor a world at peace, beginning with ending America's perennial wars; no vision of the fantastic things that could be done with the trillions of dollars that would be saved by putting an end to war without end; nor a vision of a world totally rid of torture; nor an America with national health insurance; nor an environment free of capitalist subversion; nor a campaign to control world population ... he just looks for what will offend the fewest people. He's a "whatever works" kind of guy. And he wants to be president. But what we need and crave is a leader of vision.

Another jewel in the crown, Miss Hillary

During the presidential campaign much was made of Obama's stated promises to engage in direct talks with Iran, as opposed to the Bush administration's refusal to speak to the Iranians and threatening to attack them and bomb their nuclear facilities. This was one more example of the much-vaunted "change" that Obama was going to bring. But, in actuality, it wouldn't be much of a change. Mid-level American officials did in fact occasionally meet with Iranian officials, most notably after the September 11 attacks in 2001 and in mid-2003 after the US invasion of Iraq. These meeting were always in secret.8 There were also at least three publicly-announced meetings between the US and Iran in 2007, primarily dealing with the fighting in Iraq. And now that Obama is in power, what do we find? We find his Secretary of State, Hillary Clinton, testifying April 22 before the House Foreign Affairs Committee and stating:

"We actually believe that by following the diplomatic path we are on [speaking to Iran], we gain credibility and influence with a number of nations who would have to participate in order to make the sanctions regime as tight and as crippling as we would want it to be."

Would it be unfair to say that she's implying that a reason for talks with Iran is that the US could get more international support when it decides to cripple that country? Is crippling a country the United States is at peace with supposed to be part of the "change" in US foreign policy? Is Iran expected to be enthusiastic about such talks? If the talks collapse, will the United States use that as an excuse for bombing Iran? Or will Israel be given the honor?

Later in the hearing, Clinton declared: "We are deploying new approaches to the threat posed by Iran."

I would love to have been a member of the House committee so I could have had the following exchange with the Secretary of State:

Cong. Blum: Do we plan to impose sanctions on France?

Sec. Clinton: I don't understand, Congressman. Why would we impose sanctions on France?

Cong. Blum: Well, if we impose sanctions on Iran on the mere suspicion of them planning to build nuclear weapons, it seems to me we'd want to impose even stricter sanctions on a country which already possesses such weapons.

Sec. Clinton: But France is an ally.

Cong. Blum: So let's make Iran an ally. We can start with ending our many sanctions against them and calling off our Israeli attack dogs.

Sec. Clinton: But Congressman, Iran is a threat. Surely you don't see France as a threat? What reason would France have to use nuclear weapons against the United States?

Cong. Blum: What reason would Iran have to use nuclear weapons against the United States? Other than an irresistible desire for mass national suicide.

If Congressman Blum had pursued this line of questioning, it might well have culminated in some Orwellian remark by dear Hillary, such as the one she treated us to a few days later when speaking to reporters in Iraq. As the Washington Post reported it: "Clinton played down the latest burst of violence, telling reporters she saw 'no sign' it would reignite the sectarian warfare that ravaged the country in recent years. She said that the Iraqi government had 'come a long, long way' and that the bombings were 'a signal that the rejectionists fear Iraq is going in the right direction'."9

So ... the eruption of violence is a sign of success. In October 2003, President George W. Bush, speaking after many resistance attacks in Iraq had occurred, said: "The more successful we are on the ground, the more these killers will react."10

And here is Gen. Richard B. Myers, chairman of the Joint Chiefs of Staff, speaking in April 2004 about a rise in insurrection and fighting in Iraq over nearly a two-week period: "'I would characterize what we're seeing right now as a — as more a symptom of the success that we're having here in Iraq,' he said ... explaining that the violence indicated there was something to fight against — American progress in building up Iraq."11

War is Peace ... Freedom is Slavery ... Ignorance is Strength. I distinctly remember when I first read "1984" thinking that it was very well done but of course a great exaggeration, sort of like science fiction.

Clinton was equally profound on May 1, speaking to an assemblage of State Department employees. Discussing Venezuela and Bolivia, she said that the Bush administration "tried to isolate them, tried to support opposition to them, tried to turn them into international pariahs. It didn't work. We are going to see what other approaches might work." Oh ... uh ... how about NOT trying to isolate them, NOT supporting their opposition, NOT trying to turn them into international pariahs? How about the National Endowment for Democracy, the Agency for International Development, and the US Embassy NOT trying to subvert their revolutions? And when she says "It didn't work", one must ask: Work to what end? To return the two countries to their previous condition of client-states? Perhaps like with Nicaragua, about whom the Secretary of State said improving relations was important to counter Iran's growing influence. She noted that "the Iranians are building a huge embassy in Managua. You can only imagine what it's for."12 I can only imagine what Ms. Clinton imagines it's for. What is the new American Embassy in Iraq — the biggest embassy in the entire history of the world, in the entire universe — What is that for? Another example of Obamachange that means no change. What is it with American officials? Why are they so insufferably arrogant and hypocritical?

Notes

1. Washington Post, February 24, 2009 ↩
2. See, for example, "Executive Order – Ensuring Lawful Interrogations", January 22, 2009 ↩
3. See The Observer (London), February 8, 2009 for an account of how conditions were still very awful at Guantanamo as of that date. ↩
4. Video of Bush ↩
5. New York Times, February 10, 2009, plus their editorial of the next day. In April, a federal appeals court ruled that the detainees' lawsuit could proceed. ↩
6. Testimony before the International Commission of Inquiry On Crimes Against Humanity Committed by the Bush Administration, session of January 21, 2006, New York City ↩
7. See William Blum, "Rogue State: A Guide to the World's Only Superpower", chapter 5. ↩
8. The Independent (London), May 27, 2007 ↩
9. Washington Post, April 26, 2009 ↩
10. Washington Post, October 28, 2003 ↩
11. New York Times, April 16, 2003 ↩
12. Associated Press, May 1, 2009 ↩

–

William Blum is the author of:

* Killing Hope: US Military and CIA Interventions Since World War 2
* Rogue State: A Guide to the World's Only Superpower
* West-Bloc Dissident: A Cold War Memoir
* Freeing the World to Death: Essays on the American Empire

Portions of the books can be read, and signed copies purchased, at www.killinghope.org

Previous Anti-Empire Reports can be read at this website.

To add yourself to this mailing list simply send an email to bblum6@aol.com with "add" in the subject line. I'd like your name and city in the message, but that's optional. I ask for your city only in case I'll be speaking in your area.

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The Real Issue is Iceland's Economic Independence

2009-04-30T10:46:00.002+10:00

Will Iceland be Handed Over to a New Gang of Kleptocrats?

By MICHAEL HUDSON

For Iceland’s voters in the election last Saturday the issues were more pragmatic than a supposed unseating of the right by the left, the trend most emphasized in news coverage. The country’s main problem is reckless neoliberal bank privatization and the proposed responses are not inherently left or right as such. At issue is whether voters have become so desperate in the wake of crooks wrecking the financial system that they will seek a more stable currency (the euro) by joining Europe on terms that forfeit control over Iceland’s North Atlantic fishing waters and burden taxpayers with unprecedented public debt, to compensate British, Dutch and other European bank depositors and speculators for their losses?

Europe would not dare make such a demand on the United States for the bad packages of junk mortgages it bought and for its losses when Lehman Brothers went bankrupt. But Iceland is a small country and may be easier and riper for plucking. For many voters the idea of joining the European Union is an attractive fantasy – adopting the euro to solve Iceland’s financial problems. The alternative is for the country simply to change its destructive bank rules and reverse the giveaways made in times past to politically connected insiders. The victorious Social Democrats favor joining Europe, the Left-Green and formerly dominant Independence Party do not, while the centrist and largely rural Progressive Party (for many decades the second leading party) is wary but at least is willing to discuss the terms on which EU membership might benefit Iceland.

Everyone is against the oligarchy’s insiders who ran up the debts. That is why their major sponsor, the Independence Party, lost one-third of its electoral support (down to just 20 per cent from its usual 33-35 per cent), the lowest percentage of votes and seats in the parliament (Althing) in the 80 years since it was founded in 1930. The days of the kleptocracy are over – and there is scarcely more sympathy for the foreign lenders and savers who were the enablers of these insiders. But voters are wary of the financial stance England and the rest of Europe have taken against Iceland, and of arrangements with the International Monetary Fund. Former Independence Prime Minister (and later head of the central bank) David Oddsson is adamant that Iceland’s government and people not take responsibility for these bad debts, and shares the view I found to be unanimous among Icelanders: These crooks betrayed the country. The myth of deregulated “free” enterprise has been broken, and privatization is seen to have been a euphemism for kleptocracy.

I recently returned from a week in Iceland – a week in which I met with politicians and former prime ministers, financial officials, university professors and students, film makers, TV hosts and “just plain people.” The terms “left” and “right” did not arise in a single conversation. The focus was on Iceland’s pro-creditor practice of indexing consumer mortgages and other debts – a 17 per cent “inflation” premium for creditors based on the consumer price index (in effect, the Icelandic krónur’s exchange rate, as most consumer goods are imported), on top of the normal nearly 6 per cent mortgage interest, leading a number of Icelanders to tell me they had lost their home to foreclosing bankers. Nobody can pay 23 per cent interest rates on mortgages for long while house prices are plunging, along with the economy at large. Most families are now paying by running down their savings, trying to carry debts that are practically unpayable.

This explains the population’s desire for a stable currency. It would remove the onerous interest rate add-on. Originally, wages as well as debts were indexed, Brazilian style. But one day the wage index was dropped, keeping the financial index on the spurious rationalization that it was a “contractual” payment for property, and agreements with labor were less legally grounded. In other words, big fish eat little fish. No creditor class, regardless of how greedy and aggressive, has ever achieved anything like this law. Yet Iceland let it happen – despite the country’s heavy homeownership-on-credit. Joining the euro is widely viewed as easier than changing the law to get rid of this debt fee, unique to Iceland among all countries of the world. I find this legalistic inertia incredible, but it seems to be a testament to Iceland’s faith in law, however crazy that may be.

The currency collapse was caused by the bankruptcy and nationalization of Iceland’s three major banks (Glitnir, Kaupthing and Landsbanki), which engaged in a wave of hubristic incompetence and outright fraud after being privatized in a series of insider dealings in 2002-03. These banks went under owing nearly $100 billion, but nobody knows just how much, or even who really is on the other end of many of the transactions involved. A special prosecutor has been retained to discover the details, which are still opaque.

In fact, Iceland is in many ways like the post-Soviet kleptocracies. But instead of emerging out of Komsomol, Red Directors and other vestiges of the Communist Party’s bureaucracy, Iceland’s kleptocrats emerged from the great landowners and politically powerful families that have dominated the nation for centuries, long before it achieved independence from Denmark in 1944, at a time when Denmark was overrun by the Nazis and independence represented a pro-Allied position.

Privatization of Iceland’s fishing grounds and their licenses

When the North Atlantic became free of German U-boats after the war, British trawlers competed with Icelandic fishing boats for the rich cod and other fish. After a series of showdowns extending into the 1970s, Iceland became the leader in establishing the 200-mile limit to define international sea rights – thanks largely to U.S. support, which Iceland has reciprocated politically ever since.

The Law of the Sea treaty deals with the issue of to whom the natural resources of the seas belong. To maintain the fish population (at least, that is the stated logic), Iceland issued licenses representing a specified proportion of the annual permitted catch, whose magnitude was set each year based on the estimated fish population. In contrast to classical economic practice, these licenses were not auctioned off each year by the government so as to recover fair value for the nation’s natural resource in the sea. Rather, the licenses were issued much like taxicab licenses in New York City: once issued, they became permanent, and naturally have risen in market price over time. The initial holders – the leading political insiders a century ago – have bequeathed them to their heirs, to be rented out to the actual fishermen or simply kept them in the family. Iceland’s Treasury receives no benefit from harvest the seas. Licenses simply have become a rent-extraction fee, a payment to the former insiders and their successors.

Under competitive bidding, the potential licensee would calculate the market value of whatever resources they reckon can be extracted, calculate their costs of extraction and their targeted profit margin. The sea legally belongs to the Icelandic people, and the government would receive the proceeds. But today, the heirs or others who obtained the quota licenses from the original insiders from the 1980s receive this money. So it is no surprise that many Icelanders are so disgusted at the privatization of fishing licenses that they may not care if Iceland loses its fishing rights. After all, under the current rent-extracting system, the losers would be the owners of these artificially designed licenses, not the Icelandic people.

But this attitude loses sight of a highly desirable alternative – one that should appeal on free market grounds to the two traditional centrist parties as well as to the “left” because it is so economically fair: Auction off the fishing quotas each year, with the benefit going to the Icelandic people as part of the public budget, as should be the case with natural resources including the land itself. It is not necessary to join Europe, give its insiders fishing rights and its bankers the rights to create credit (which should be viewed as a public utility) to achieve fiscal efficiency.

The Icesave tangle with Britain

The other conflict with Britain concerns the Landsbanki’s Icesave branches, which paid high enough interest rates to convince the Labour government to direct its local neighborhood councils to show “fiduciary responsibility” by placing their savings where rates were highest. It was as if high interest premiums were not a compensation for risk. And because Icesave took the form of local branches of Icelandic banks, Britain took no role in regulation or oversight of its own. I find this typical British economic incompetence, but it is in the character of incompetent governments to try to blame whomever else they can. So they reimbursed their depositors in full, and demanded that Iceland’s government tax its own people as if these deposits were public loans!

To force the issue, Britain froze the accounts of all its Icelandic bank branches, including those of Kaupthing on the Isle of Man. This prevented them from remitting funds out of the country, forcing the head offices back in Iceland into insolvency. The only law at hand for this financial grab was emergency anti-terrorist legislation, presumably against Irish and Arab groups. Britain branded Iceland as a terrorist country, while acting in a financially violent way itself. Icelanders naturally found it unreasonable that after having taken high interest charges, Britain should insist that its depositors not suffer any capital loss at all – in contrast to the huge losses they suffered in the U.S. and other foreign markets (not to mention Northern Rock and other reckless domestic mortgage lenders). But with some Icelanders thinking of bank debts as “our” debts, why not make as large demands as possible, despite the double standard obviously at work? (Imagine what the response would be if, say, Germany would accuse America of being a terrorist economy in order to seize U.S. assets to compensate for the losses that banks in Düsseldorf and Saxony suffered on U.S. subprime mortgages.)

Many U.S. newspaper reporters played along by calling Iceland “Vikings” and preferring to “Viking finance” to the more politically sensitive “oligarchy.” But the implication of a rough-and-tumble Nordic Wild West is silly. Iceland has no standing army, and America’s former NATO base has become Reykjavik’s international airport (and a long drive it is into the city proper – but pleasantly scenic through the volcanic island and the almost perpetual rainbows resulting from the fact that it always seems to be raining somewhere in the sea-laden air). Iceland’s hard-working and closely-knit population is as middle-class as one could imagine, with the world’s highest home ownership rates, high educational standards, and typically Nordic social welfare system and communalist values. It is a Scandinavian-type social democracy, but much more local in scale. And that may be part of the problem. Many Icelanders are so middle-class that they believe that paying bad bank gambles is a matter of honor, as if these were personal debts among neighbors. But the big banks were not like most neighbors, and engaged in deep financial fraud. This required complicity of the foreigners now demanding to be recompensed.

The IMF typically acts as a collection agent for global creditors, but in Iceland’s case its local mission seems to feel uncomfortable in this role. No IMF funds have yet been drawn down from the $10 billion line of credit recently negotiated. I was impressed that the finance ministry was not going to draw down IMF funds to pay foreigners. Finance Minister Steingrimur Sigfusson heads the Green Party and is dubious about how much such borrowing – or joining the EU – can help matters by the government borrowing to stabilize today’s inherently unstable situation.

This leaves the question of Iceland’s krónur relative to the euro. As long as the creditor-oriented 17 per cent foreign-exchange index is added onto mortgages, Icelandic homeowners (about 90 per cent of the population) understandably will want to see price stability. But the euro will not necessarily provide this. It would merely impose austerity, shrinking the economy to cut back imports. The way to revive the currency is for the economy to grow, and this means getting rid of debt indexing, a free lunch that no other nation on earth has given the financial sector.

There is much confusion as to what “joining Europe” means in practice. For Central and Eastern European members of the former Soviet Union, beauty was in the eye of the beholder. They voted to join the EU in the early 1990s under the impression that the EU would take them under its protective wing to help them install a modernized Western-style industrial capitalism with rising living standards. Instead, the EU leadership looked at these post- economies simply as markets for their own farm and industrial exports, and for its banks to make a killing by entering into a virtual partnership with the Soviet-style kleptocrats who dominated these economies. The EU looked the other way when it saw crooks taking over and indeed, actively supporting them as long as these crooks sold to the Europeans much as a burglar sells to a fence, privatizing the public domain in insider dealings, selling off property and stock to European investors, and borrowing in foreign currency to fuel the world’s most extreme (and unstable) real estate bubble. Collapse of this false start is tearing the euro apart.

The case of Latvia and its Baltic neighbors is instructive. Much like Iceland, they were burdened with a debt overhead far beyond their ability to pay – mortgage debts denominated in foreign currency, so that they cannot avail themselves of the time-honored policy of inflating their way out of debt. Nor will it help for the government to borrow from the IMF and EU to pay the debts of its insolvent real estate to Swedish and other foreign banks. Public-sector borrowing to bail out bad private-sector debts involves squeezing the money out of the domestic population by even higher taxes on labor, pricing it (and hence, domestic industry) out of world markets. In this condition the economy is unable to earn enough to cover its import dependency and the debt service with which it has been burdened.

This is the problem that Iceland must avoid. Unfortunately, the EU’s treatment of the post-Soviet economies has shown how predatory and defensive of narrow national interests it can be. Joaqim Almunia of the European Commission made this clear in a letter of January 26, 2009, to Latvia’s Prime Minister spelling out the terms on which Europe would bail out the foreign banks operating in Latvia – at Latvia’s own expense. He was explicit that Latvia not use EU loans to develop its economy or to lighten the tax burden blocking new employment, but only to pay off debts to its creditors in the West (mainly Scandinavian banks) and to buy imports from them.

Extended assistance is to be used to avoid a balance of payments crisis, which requires … restoring confidence in the banking sector [now entirely foreign owned], and bolstering the foreign reserves of the Bank of Latvia. … financial assistance is not meant to be used to originate new loans to businesses and households. … it is important not to raise ungrounded expectations among the general public and the social partners, and, equally, to counter misunderstandings that may arise in this respect. Worryingly, we have witnessed some recent evidence in Latvian public debate of calls for part of the financial assistance to be used inter alia for promoting export industries or to stimulate the economy through increased spending at large. It is important actively to stem these misperceptions.

This leaves Latvia in much the position of a nation defeated in war and having to pay reparations. Riots broke out, and protesters stormed the Treasury. It was a scene that has been repeated in Hungary, Ukraine and other countries recently, akin to Latin America’s “IMF riots” of the 1960s and’70s. It does not give much hope that joining Europe would, in itself, help Iceland solve its own similar economic clean-up needs. Instead of helping the post-Soviet nations develop self-reliant economies, the West viewed them as economic oysters to be broken open, sucked dry to extract interest charges and capital gains, and left as empty shells. After the domestic kleptocrats, foreign banks and investors have removed their funds from the economy, the Latvian lat will be permitted to depreciate. Foreign buyers then can come in and pick up local assets on the cheap once again.

This sounds remarkably like what Iceland has been going through. The danger is that it might surrender to European interests seeking to appropriate its fishing rights, obtain a monopoly on private bank credit, and lend to the government to bail out European investors who speculated and lost with the now-defunct Icelandic banks. One would hope that the Greens and Progressive Party would review the possible terms of entry into the EU and adoption of the euro, but not replace a domestic kleptocracy with foreign economic occupiers just because they are European. This would merely replace one group of politically well-connected insiders with others, largely to the benefit of Britain.

If we apply the traditional left/right dichotomies to the results of Saturday’s election, the pro-Europe approach seems right wing in promoting financial interests (economic austerity to subordinate debtor to creditor interests, and debt deflation to dismantle public welfare spending). Social Democratic parties throughout the world have been the most ideologically extreme privatizers, from Tony Blair’s New Labour to Roger Douglas’s New Zealand Labour Party and the Australian Labour Party.

Iceland’s Social Democrats are threatening to “fast-track” Europe, and to hold a take-it-or-leave-it referendum on whether to join on the terms her party negotiates, without bringing the citizenry into the process. Prime-minister elect Johanna Sigurdardottir hopes to start negotiations to join the EU within two months, and to hold a referendum on joining it by the end of next year. As far as parliamentary democracy is concerned, this plan is similar to the Independence and Progressive party leaders agreeing to join the Coalition of the Willing in Iraq, ignoring proper procedures by not consulting the Althing.

Meanwhile, the EU and euro are in danger of breaking up as the post-Soviet economies devalue, imposing austerity without having developed their economies outside of real estate. Yet I found little recognition of how the euro and indeed the expanded EU is being torn apart by the unstable post-Soviet economies that have no visible means of financing their structural trade deficits, now that the real estate bubble has burst and there is no more foreign-currency mortgage lending into these unfortunate countries. Europe’s monetary management is looking nearly as irresponsible as Iceland’s did.

The failure of EU tutelage in the Baltics and Central Europe suggests that Iceland would do best to set about solving its own problems, pursuing its national interest while cleaning up the residue from its disastrous neoliberal experiment. A true market reform would replace the remnants of feudal power with auctioned fishing rent rights so as to keep them as the tax base, and to restore a viable public banking system. Ultimately at issue is Iceland’s economic independence itself.

Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) He can be reached at mh@michael-hudson.com

Climate Change Catastrophe

2009-04-30T09:16:00.002+10:00

Useful discussion on RealClimate about a recent paper which confirms what we already understand about how serious this problem is and how poor the policy response is.

One commenter points out that exceeding the two degree limit (inevitable with the failed policy approach to date):

We don’t “adapt” to 4 °C of warming,” except in the sense that residents of New Orleans “adapted” to Katrina. It ain’t adaptation. As John Holdren would say, it’s “misery.”

It is also an exceedingly open question as to whether one can in fact “stabilize” at much above 2°C — or whether you destroy the tundra and the peatlands and saturate the sinks and basically quickly go up to 5°C or more. I think the science is moving in the direction of stabilize below 450 ppm or cross thresholds that take you shoot you up to 1000 ppm.

This means that the failure to act now to keep temperatures at no more than 2 degrees would likely be a catastrophic failure.

Another commenter also provides a link to a paper by Hansen where he advocates 100% Citizen's dividend from a carbon tax. Its a good idea, but perhaps it would be good as well to make a 50% split: 50% citizen's dividend, 50% dedicated to buildout of renewable energy infrastructure (windfarms etc).

Ruddspeak: War Escalation is 'Exit Strategy'

2009-04-30T08:29:00.002+10:00

link

A 50per cent increase in troop numbers in Afghanistan will help Australia get out of the war-torn country more quickly, Prime Minster Kevin Rudd says.... The extra soldiers would take Australia closer to its exit strategy building Afghan security forces until they are able to provide their own security but Mr Rudd could not say when troops would come home.

Appalling doublespeak from Rudd. Like Obama, it is possible Rudd believes the delusion about Afghanistan being 'the good war'. Perhaps he thinks now that the Russian invasion was also a 'good war'?

Even Hugh White, usually a reliable supporter of Imperial policy, is now openly calling the Afghan war "an unwinnable and an unnecessary and an unpopular war", and pointing out that the increased troop levels "in terms of the impact it'll make on the ground, in Oruzgan Province, in and around Tarin Kowt, and in terms of the difference it'll make to the broader situation in Afghanistan, I don't think it counts for much. I think the chance of this making any real difference to the situation there is pretty low"

According to White this obviously futile effort, that "is being lost", is being done for "political strategy". Bearing in mind that this is a real war, where real people are being killed, both Australian soldiers and Afghanis, to knowingly wage an unwinnable war for "political" reasons can only be described as despicable behaviour. Human lives obviously dont count for much in political calculations.

All Australian troops (in fact all Whitepower troops) should leave Afghanistan as soon as possible. And a law should be passed banning the deployment of Australian forces anywhere in the Northern Hemisphere. We have since Gallipoli in 1915 long since forfeited any credibility and have shown ourselves time and time again to be merely and appendage of Anglo-Saxon empire.

Bush & Torture

2009-04-25T12:23:00.003+10:00

That the Bush regime ordered and practiced widespread torture as a matter of administrative policy complete with odious lawyerly justifications, is such a commonplace it is hardly remarked upon.

Here, however, are a couple highlights in recent commentary.

William Pfaff:

Yet there is a limit. The latest case of the human moral vacuum created and encouraged during the Bush years is so outrageous, perverse, sadistic and nihilistic that it demands attention, for all that it tells us about the rest that has happened. I speak of the ordered, authorized, and conscientiously supervised water-boarding of two prisoners 266 times.

The men who authorized, ordered, and performed such acts should be hanged. It is as simple as that.

Now as we dont believe in the death penalty, this option is not available to us, but arrested, prosecuted, convicted and jailed: yes.

Marjorie Cohn highlights one of the more freakish or ironic elements, Torture Used to Try to Link Saddam with 9/11:

Why, then, the relentless waterboarding of these two men? It turns out that high Bush officials put heavy pressure on Pentagon interrogators to get Mohammed and Zubaydah to reveal a link between Saddam Hussein and the 9/11 hijackers, in order to justify Bush’s illegal and unnecessary invasion of Iraq in 2003. That link was never established.

Now there was no link between Saddam and 9/11, nor any weapons of mass destruction, it was all a knowing lie. So what are we to make of this? Incompetence? They savagely tortured these people and couldnt get them to admit that Saddam was in on the plot?

Fujimori Guilty

2009-04-25T09:10:00.004+10:00

The news of former Peruvian President Alberto Fujimori's conviction in Peru has not attracted as much attention as perhaps it should have.

As is pointed out:

The Lima judicial proceeding represents a major milestone, the first trial of a democratically elected head of state in his own country.

The Western powers since the end of WW11 have been notorious for their double standards and hypocrisy, beginning with the Nuremburg trials themselves. Nazi war criminals have been chased to the ends of the earth to this very day, more than 60 years after the war ended, but their own have never been prosecuted or charged, in spite of a ceaseless record of crimes and atrocities comprising many millions of victims.

One day this will change. The wheels of justice move slowly, but move they do.

Iceland: Repudiate the Debt

2009-04-22T08:44:00.003+10:00

by Michael Hudson

Iceland is under attack – not militarily but financially. It owes more than it can pay. This threatens debtors with forfeiture of what remains of their homes and other assets. The government is being told to sell off the nation’s public domain, its natural resources and public enterprises to pay the financial gambling debts run up irresponsibly by a new banking class. This class is seeking to increase its wealth and power despite the fact that its debt-leveraging strategy already has plunged the economy into bankruptcy. On top of this, creditors are seeking to enact permanent taxes and sell off public assets to pay for bailouts to themselves.

Being defeated by debt is as deadly as outright military warfare. Faced with loss of their property and means of self-support, many citizens will get sick, lead lives of increasing desperation and die early if they do not repudiate most of the fraudulently offered loans of the past five years. And defending its civil society will not be as easy as it is in a war where the citizenry stands together in coping with a visible aggressor. Iceland is confronted by more powerful nations, headed by the United States and Britain. They are unleashing their propagandists and mobilizing the IMF and World Bank to demand that Iceland not defend itself by wiping out its bad debts. Yet these creditor nations so far have taken no responsibility for the current credit mess. And indeed, the United States and Britain are net debtors on balance. But when it comes to their stance vis-à-vis Iceland, they are demanding that it impoverish its citizens by paying debts in ways that these nations themselves would never follow. They know that it lacks the money to pay, but they are quite willing to take payment in the form of foreclosure on the nation’s natural resources, land and housing, and a mortgage on the next few centuries of its future.

If this sounds like the spoils of war, it is – and always has been. Debt bondage is the name of this game. And the major weapon in this conflict of interest is how people perceive it. Debtors must be convinced to pay voluntarily, to put creditor interests above of the economy’s prosperity as a whole, and even to put foreign demands above their own national interest. This is not a policy that my country, the United States, follows. But popular discussion in Iceland to date has been one-sided in defense of creditor interests, not that of its own domestic debtors.

Ultimately, Iceland’s adversary is not a nation or even a class, but impersonal financial dynamics working globally and domestically. To cope with its current debt pressure, Iceland must recognize how uniquely destructive an economic regime its bankers have created, through self-serving legislation and outright fraud. With eager foreign complicity, its banks have managed to create enough foreign debt to cause chronic currency depreciation and hence domestic price inflation for many decades to come.

To put Iceland’s financial dilemma in perspective, examine how other countries have dealt with huge debt obligations. Historically, the path of least resistance has been to “inflate their way out of debt.” The idea is to pay debts with “cheap money” in terms of its reduced purchasing power. Governments do this by printing money and running budget deficits (spending more than they take in through taxes) large enough to raise prices as this new money chases the same volume of goods. That is how Rome depreciated its currency in antiquity, and how America managed to erode much of its own debt in the 1970s – and how the dollar’s falling international value has wiped out much of the U.S. international debt in recent years. This price inflation reduces the debt burden – as long as wages and other income rise in tandem.

Faced with an unprecedented explosion of debt obligations – many of them apparently fraudulent, and certainly in violation of traditional credit practice – Iceland has turned this inflationary solution inside out. Instead of permitting the classic credit cure of inflating the currency, it has created a dream economy for creditors, preventing the classical escape from debt. Iceland has found a way to inflate its way into debt, not out of it. By indexing debt to the rate of inflation, it has guaranteed a unique windfall for banks that vastly increases what they receive in a “down market,” at the expense of wage earners and industrial profits. Linking mortgage loans to the consumer price index (CPI) in the face of a depreciating currency and heavy balance-of-payments drain to foreigners can have only one result: destruction of Iceland’s society and its traditional way of life.

Iceland needs to repudiate this debt bomb. Under present policy its debts will never lose value, because they are indexed to inflation. This in turn is being caused in large part by foreign debt service collapsing the currency, raising import prices and thus causing even larger debt payments in an endless treadmill. The economy shrinks, wages fall and assets lose value, yet debt obligations continue to grow and grow. The resulting evisceration of wages, living standards and consumer spending will further shrink the economy – a prescription for economic virus that threatens to plague Iceland for many decades if it is not reversed now. Capital formation will plunge as consumers lack money to spend. Many may not have enough to survive. The economy will be “crucified on a cross of gold,” to use William Jennings Bryan’s famous phrase in the 1896 American presidential election when he advocated an inflationary coinage of silver to alleviate debt pressure on U.S. farmers and labor.

Another side to the discussion?

Despite having spent the past half-century focusing on countries with balance-of-payments problems, even I find Iceland’s uniquely self-destructive financial regime shocking. Before you dismiss my candor, I should offer a short personal résumé so that you understand that my conclusions are based mainly on having been an insider to the game of imperial-style plundering of nations for forty years. In the mid-1960s I was the balance-of-payments economist for the Chase Manhattan Bank and then for Arthur Anderson, and later for the United Nations Institute for Training and Research (UNITAR). I have taught international economics at the graduate level since 1969, and now head an international group on economic and financial history based at Harvard. In 1990 at Scudder Stevens and Clark, I organized the world’s first sovereign-debt fund. All these jobs involved analyzing the limited ability of debtor countries to pay – how much could be extracted from them through foreign-currency loans and how much public infrastructure was available to be sold off in a voluntary virtual foreclosure process by countries willing to submit to creditor-dictated rules.

I first wrote about monetary imperialism in the 1970s in my book Super Imperialism. It should have been entitled “Monetary Imperialism” because it detailed how replacing gold with paper dollar IOUs for trade and balance-of-payments deficits in 1971 allowed the United States to exploit the rest of the world without limit. Phasing out gold payments among central banks in favor of fiat paper money allowed the United States to run up massive debts equal to its cumulative payments deficit, far beyond its ability to pay. It currently owes over $4 trillion, while running a chronic trade deficit with enormous overseas military spending, financed entirely by other countries through their central banks. This is euphemized as the “international monetary system.”

I also was an advisor to the Canadian government in the 1970s. My main work was to write a monograph explaining why countries should not borrow in foreign currencies, but should monetize their own credit for domestic spending and investment. In recent years I have taught in Latvia and given this same advice to its officials. I provide this background because it has obvious relevance to Iceland’s financial situation today. It has broken the cardinal rule of international finance: Never borrow in a foreign currency for credit that you can create freely at home. Governments can inflate their way out of domestic debt – but not out of foreign debt. That is a large part of the problem that Iceland now faces.

The main thrust of my comments therefore will focus on the international dimension of Iceland’s debt problem, especially with regard to its relations with Europe. It therefore is relevant to look at what is happening in today’s “expanded Europe.” As the financial press has been reporting, post-Soviet economies have met with disastrous results after having moved to join the European Union during the past decade. The recent riots of debtors, farmers and labor union members from the Baltics to Hungary are symptomatic of the deep economic woes surging over these countries. Resentment is growing that instead of helping them industrialize and become more efficient, Europe and its Lisbon Treaty simply handed matters over to its bankers, who looked at these countries simply as credit customers to be loaded down with debt – not for loans to build up manufacturing and the infrastructure sorely needed by these countries, but loans mainly against existing real estate and infrastructure collateral already in place. That is the quickest way to make money, after all – and finance traditionally has lived in the short run.

This problem was bound to arise, given Europe’s postindustrial faith that whatever increases “wealth” – even by the trick of puffing up real estate and other asset prices – is as productive as building new industrial capacity and infrastructure. The result of this ideology was a set of bubble economies built on debt-financed real estate and stock market inflation. Such bubbles always burst at some point. Only belatedly are nations re-discovering the classical axiom that the only way to pay for imports on a sustainable basis is to produce exports.

Unfortunately, neither foreign banks nor European advisors encouraged this. Their policy de-industrialized the post-Soviet countries, which financed deepening trade deficits by borrowing in foreign currency against their real estate. The Baltic States borrowed euros, sterling and Swiss francs, mainly from Swedish banks to finance a real estate bubble, while Hungary and its Central European neighbors borrowed heavily from Austrian banks. Their economies are shrinking now that their casino economies gambling on asset-price inflation have burst. Rental income and hence property prices are plunging, and exchange rates are following suit. This makes a foreign-currency mortgage cost more than local property is yielding. The result is widespread mortgage default, causing severe losses for Swedish and Austrian banks.

Bad real estate debts also are pulling down banks in the two leading creditor nations, Britain and the United States. Real estate prices, stock market prices and employment are going down in a straight line unprecedented even in the Great Depression of the 1930s. This has turned the neoliberal financial dream of “creating wealth” by inflating asset prices, by creating credit without actually increasing tangible capital formation (wages and living standards) into a nightmare. Just as individuals can’t live off a credit card forever, neither can nations. As any classical economist knows, societies that only manufacture debt are unsustainable. Casinos may be fun places to visit (customers pay by losing their money), but no place to live. The same is true of casino economies.

No help from the EU or the current global economy

The European Union is not in a position to offer much help in solving Iceland’s financial problems. The continent’s integration in the 1950s was pioneered by social democrats and pro-industrial idealistic capitalists such as Konrad Adenauer and Charles de Gaulle hoping to end the continent’s internecine wars forever. They succeeded, by forming the seven-nation Common Market in 1957. But further European expansion occurred largely on the financial sector’s terms. That is the source of problems fracturing “old” and “new” Europe today. It is the context in which Iceland’s debt problem is now being played out.

It seems natural enough for people to pay debts that have been taken on honestly. The normal expectation is that people will borrow – and banks will make loans – only for sound investments, ones that are able make a profit enabling the debtor to pay back the lender with interest. This is how banks have worked for many centuries – hence, the image of the prudent bankers who says “no” to any questionable deals brought before them.

At least that was the old way of doing things. Almost nobody anticipated a world in which bankers would create credit irresponsibly, leading to the massive defaults we are seeing throughout the world today. In the United States, for example, no less than a third of home mortgages have fallen into a state of Negative Equity. That is to say, the mortgage exceeds the market price of the real estate pledged as collateral. The U.S. national debt has tripled during the past year, from $5 trillion to $15 trillion as a result of financial bailouts including the government taking on the $5.2 trillion mortgage-packaging giants, Fannie Mae and Freddie Mac. A single insurance company, A.I.G., has been slated to receive a quarter-trillion dollars of bailout money, and a single bank, Citibank, has received over $70 billion and still counting. The stocks of these hitherto financial giants have fallen to just pennies, and Congress is now debating whether finally to nationalize them and wipe out their stockholders and even their bondholders.

In Britain much the same has occurred. Sitting in the lounge of Heathrow airport last month, I watched the hearings on BBC where members of Parliament expressed amazement that the most seriously affected banks were not led by bankers but by marketing men. Their job was not to calculate prudent loans, but to sell as much debt as possible, without regard for the debtor’s ability to pay. The result is that the Bank of England – like the U.S. Treasury – is printing new bonds whose interest charges will have to be paid by taxes on labor and industry.

How can Iceland be expected to cope in this kind of financial environment? To get a perspective on what would be a dystopian future, one may look at the dress rehearsal for the so-called financial “reforms” played out in the 1990s in Russia and other post-Soviet countries. These are reforms that creditors – including the European banks, I’m sorry to say – now wish to impose on Iceland. In Russia, life expectancies sharply declined, while health, prosperity and hope withered as outside forces imposed austerity measures and high interest rates. Russians woke up to find that the devastation of the reforms foisted on them were as severe as the Second World War in reducing population, destroying industry, spreading disease and losing control of their economy. Living standards plunged, especially for retirees, while employment prospects closed for the young. Much the same occurred throughout the former Soviet Union.

This policy remains the “fix” for debtor countries: Sell off assets for pennies on the dollar to kleptocrats across the globe, and gut the nation’s social welfare programs just at a time they are needed most. By contrast, look at the nations calling most loudly for Iceland to pay the loans made by global speculators and arbitrageurs. They include the largest debtor nations, headed by the United States and Britain, led by politicians who never would dream of imposing such hardship on themselves. While cutting their own taxes and increasing their own government budget deficits, these nations are attempting to extricate financial tribute from smaller, weaker countries that they can bully, as they did to Third World debtors in the 1980s and ‘90s.

Dismantling industrial capitalism

This is a crisis that calls for blunt truths. What creditor nations and their international financial institutions are promoting is not capitalism as traditionally understood. Instead of helping industrialize the countries to which they extended credit so as to make them viable and self-reliant with new means of paying for their imports – and indeed, paying the debts taken on to rebuild their productive capacity – European planners oversaw the dismantling of manufacturing.

Even worse, they did so in a way that empowered a neo-feudal set of financial oligarchs. Indebted economies have been turned into a gaggle of casinos, with special games (e.g., opaque financial instruments such as credit-default swaps) reserved exclusively for insiders. Even to get into this game, one must be at last a millionaire, signing legal releases that one can afford to lose the entire investment and still survive economically. The European Union thus adds insult to injury by presenting its financial agencies euphemistically as donors bringing aid. They turn out to be the same ideologues that have crippled industrial capitalism across the globe by proliferating debt-leveraged gambles that have redistributed wealth upwards wherever they have operated.

This policy creates debt peonage for most citizens, above all in the newer countries seeking to join the European Union. Even in the richest nation on earth – the United States – nearly half of all citizens now have no net worth, and the gulf between the wealthiest 10 percent and the rest of society has widened geometrically since 1980. This is the unfair system that the world’s top creditors would export to Iceland – if they can convince its voters to accept neoliberal debt pyramiding as a way to get rich. The recent riots throughout the post-Soviet states suggest that this plan is not working. Their populations are now feeling how deeply the so-called financial reforms (e.g., financial deregulation) promoted by European banks and the Lisbon Agreements have polarized their economies.

Recognizing the enemy within

The only defense against such disastrous policy is to recognize that there are better alternatives. It simply is not possible for today’s astronomically indebted economies to “work their way out of debt” with the old trick of inflating the money supply. Trying to do so will collapse the currency’s exchange rate and divert so much revenue to pay creditors – and transfer so much property out of local hands – that a new kind of post-capitalist, non-production/consumption economy will be created, one less and less able to be self-reliant and independent, to say nothing about being just and sustainable.

Iceland’s financial crisis today is less an issue of international law as of outright lawlessness perpetrated by the purveyors of so-called free market democracy. Nations pressing Iceland for payment impose one set of laws for others while following quite a different set for themselves. Preaching to Iceland about international law, the United States and Great Britain themselves have broken the clearest of international laws – those against waging aggressive war. Their propagandists are skillful at using the language of capitalism and morality, yet they are neither capitalist nor moral. Their financial strategy is to play an ages-old psychological game. Make countries like Iceland feel guilty about being debtors rather than recognizing they have been victims of an international Ponzi scheme. In a nutshell, the game is to lay down “laws” for debtors in the form of destructive austerity programs fashioned by irresponsible and indeed, parasitic creditors. This “aid advice” ends in outright asset stripping, both public and private.

Asset stripping to pay debts has caused collapse time and again in history, but is strangely downplayed in today’s academic curriculum as an “inconvenient truth” as far as vested financial interests are concerned. Income is siphoned off by a scheme that is elegant and simple. Hapless victims – and now entire economies, not just individuals – are maneuvered onto a debt treadmill from which there is no escape. Creditors pile on credit and let the debts grow at the “magic of compound interest,” knowing that their loans cannot be repaid – except by asset sell-offs. No economy’s productivity can keep pace with exponentially compounding debt. Whatever was owned (and indeed, financed originally by public debt but now paid off) is stripped away for interest payments that never end. The aim is for these payments to absorb as much of the surplus as possible, so that the national economy in effect works to pay tribute to the new global financial class – bankers and money managers of mutual funds, pension funds and hedge funds.

The product they are selling is debt. They build up their own wealth by indebting others, and then forcing sell-offs to buyers who take on their own debt in the hope of making asset-price gains as property prices are impossibly inflated relative to the wages of living labor. This has become the new, euphemistically dubbed post-industrial form of wealth creation – a strategy that is now collapsing economies throughout the world.

The role of the United States

The United States has trapped other countries into a nightmarish system in which they have little practical choice but to recycle their excess balance-of-payments dollar inflows back to the United States, mainly in the form of loans to the U.S. Treasury. When foreign central banks receive dollars for their exports (or for the sale of their companies), they are limited in what they can do with these dollars. The U.S. Congress will not let them buy up important domestic companies or resources, and will not part with U.S. gold holdings. So foreign central banks are obliged to buy Treasury bonds – or, as the supply of these bonds has run out (being limited by the domestic budget deficit), mortgage-backed securities issued by the now-public Fannie Mae and Freddie Mac packagers of subprime mortgages. These two semi-official agencies were formally nationalized last year after a series of financial frauds and disastrous investments wiped out their capital, obliging the U.S. Government to step in and mollify governments from China to Israel whose central banks had been recycling their surplus dollar inflows into these securities.

Icelanders should keep one basic principle uppermost in their minds. The United States is the world’s largest debtor nation, and will never repay its own foreign debt. Over and above its presently outstanding four trillion dollars, its Treasury intends to keep on issuing new paper IOUs in exchange for the goods, services and real assets of China, Japan and other creditor nations – until governments stuck with these paper dollars turn their back on this Madoff-Ponzi scheme (note that these schemes always are named for American operators), recognizing what Adam Smith explained in The Wealth of Nations: No nation has ever repaid its debts. Small nations like Iceland, along with small taxpayers in wealthy countries, may be coerced with propaganda, mind games and outright threats into paying – until they have no assets left to hand over. But the big boys are above the law. They control the courts (which often rule without much regard for the actual law), just as they write history and newspaper coverage – and business school curricula – to serve their own interests.

The second important principle is how radically today’s post-capitalist order has inverted traditional ways of making money. Instead of making profits on new capital investment, the easiest path to quick riches in today’s global financial system is to foreclose at pennies on the dollar, and make a “capital gain” by flipping property onto world financial markets that are being inflated by central banks. While financial spokespersons promise that “there is no such thing as a free lunch,” today’s hit-and-run financial bubble, fraud and insider privatizations culminating in public-sector bailouts (“socializing the risk” while privatizing the profits and capital gains) – has become all about obtaining a free lunch.

Iceland’s zero-sum financial gamble

But it is a zero-sum gambling game, with losers on the other side of the table from the winners. One party’s gain is another’s loss – and indeed, this kind of game ends up shrinking the economy by diverting resources away from real investment in tangible capital formation. Unlike industrial capitalism, which employs labor and invests in capital equipment to turn raw materials into salable commodities, today’s post-industrial financialized system only offers the virtual (and temporary) wealth of asset bubbles. Its financial managers claim to be acting in the tradition of classical economists and share their concept of free markets, but in actuality they have been part of an intellectual fraud that depicts their system as something other than the financialized wealth extraction on the real economy of production and consumption that it is. Financialized wealth is extractive, not productive. That is because loans, stocks and bond securities are claims on wealth, not real wealth itself.

This is the context in which today’s financial war against Iceland is being waged. Homeowners are paying tribute, not in the form of taxes to an invading occupying force, but in interest to local sponsors of the debt pyramiding that has got Iceland into such deep trouble, and to the international creditors and enablers of this over-financialization of the economy. The nation’s public domain, its land and geothermal resources, its tourist industry and public assets are being eyed by foreign creditors as prey to be seized in the way that has occurred in many Third World countries. It is what ruined Turkey and Egypt in the late 19th century and brought down other kingdoms for centuries before that. Yet many Icelanders are heading into this future voluntarily, as if it somehow is fair rather than an exercise in predatory finance led by nations that have shown no willingness (or ability) to pay their own international debts.

Nations know when they are being attacked militarily. Defense forces fight to prevent invaders from seizing their land and imposing tribute. No country would think of welcoming a foreign army to do what William the Conqueror did to England after 1066. He ordered his accountants to compile the Domesday Book within thirty years (it was ready by 1086), calculating the rental value of English land in order to tax it for the Crown.

That is how most of Europe’s kingdoms were created. The rent was paid to the companions of military warlords, and their heirs ruled as absentee Lords for nine centuries. They quickly moved to keep what started out as royal revenue for themselves, celebrating this as the victory for free-market “democracy” in the Magna Carta liberatum (1215) and subsequent Revolt of the Barons (1258-65). Today, these lords of the land and those who have bought their property have run up mortgage debt, paying creditors what formerly was paid first as taxes and then taken as rent.

What took centuries to achieve in feudal Europe is now being threatened in Iceland, compressed into the space of just a decade or so. And in many ways this financial situation doesn’t make sense – unless one looks through history to see how the same tragedy has happened again and again.

The United States, Britain and the International Monetary Fund (“the global investment community”) are couching their demands for draconian austerity policies in the language of capitalism. But what they actually are promoting is a financial system that threatens to end in debt peonage, not democratic capitalism. Across the globe, from the Baltics to Hungary in Europe, and indeed from Russia to China, riots and wildcat strikes recently have broken out to protest this post-capitalist financial dynamic. It already has destroyed the industrial capacity of debtor countries subjected to the cruel austerity programs imposed by the IMF as acting agent for the global financial class. This merely repeats what the British did in India. Industrial growth has been replaced with a financialized real estate bubble. The “final stage” of this dynamic is to foreclose and sell off the assets of debtors at giveaway prices. Talk about democracy from the financial elite is a public-relations cover story. Their “magic of compound interest” sales pitch threatens to destroy entire nations.

Fortunately, this need not happen in countries that do not impose debt leveraging on themselves, but only in countries that let the public utility of money and credit creation be privatized in the hands of a cosmopolitan financial class. Iceland still has an alternative future before it, if voters recognize this in time. But to achieve the better future that most of its citizens want, it must understand the predatory debt trap into which it has fallen – or more accurately, been pushed by believing in the same illegitimate financial doctrine that has ruined Russia and other post-Soviet economies, as well as Third World countries before them under decades of IMF “austerity plans” designed to stifle domestic growth (and competition) and economic stability to pay foreign creditors. History provides tragic examples – the aftermath of World War I, and England itself in the centuries of its seemingly perpetual wars with France.

Industrial economies reverting to “tollbooth economies”

The world is plunging “back to the future,” to an epoch of neo-feudalism and debt peonage. It is a travesty of the promise of industrial capitalism as it seemed to be evolving on the eve of the 20th century and the Progressive Era of social democracy. What was not recognized was the financial time bomb implanted in the DNA of Europe as it evolved out of the Middle Ages.

As European feudalism gave way to the formation of nation-states, most kingdoms became dependent on foreign loans to fight their wars – starting with the Crusades, whose looting of Byzantium provided an enormous influx of gold and silver. This is what broke down Church bans on usury. Once governments paid interest to elite Church orders such as the Templars and Hospitallers, it became permissible for banks to join in lending at interest – to kings, the nobility and the merchant classes as major customers.

The birth of international post-medieval banking proved disastrous for many family banks that foundered on what turned out to be bad loans to the leading powers of early Europe, from Spain to France and England. The historian Richard Ehrenberg notes that Spanish bankruptcies “occurred at intervals of about twenty years – 1557, 1575, 1596, 1607, 1627, 1647,” often being rationalized by pious allusions to Church prohibitions against usury. England declared bankruptcy under Edward III in 1339, and Charles II shut down the Exchequer in 1672 and suspended payment on its floating debt. Wiping out debts was the only way to retain basic economic and political relations and national independence. In view of this long experience, England’s advice to Iceland today is in the character of “Do as we say, not as we ourselves have done and are doing.”

Central banks were formed to advance credit to governments, and commercial banks to help finance the Industrial Revolution’s expanding trade and related infrastructure spending, mining and shipping, capped by infrastructure monopolies such as canals, railroads and ports, and later by fuel and power. The medieval epoch’s “primitive accumulation” – the extraction of revenue by military seizure – was replaced by the more peaceful and seemingly civilized practice of creditors appropriating the economic surplus by making interest-bearing loans, and by foreclosing on property when the interest charges could not be paid.

In recent years financial managers have persuaded many countries to sell off public enterprises like their water or energy supplies, mainly to raise the money to pay debts or to cut taxes on the highest wealth brackets. This sale of the “commons” by naïve, myopic leaders (and the “useful idiots” promoted by financial lobbyists to be their economic advisors) turns debtor countries into “tollbooth economies” in which basic services become a vehicle to extract greater and greater portions of national income and wealth for the benefit of the few. This is the antithesis of “free markets” as classical economists understood the term. They are markets designed and controlled by the financial sector to appropriate for itself the surplus produced by labor and tangible capital investment.

To promote this siphoning off of surplus income, the rich have funded extensive disinformation (propaganda) campaigns around the world. Their tactic is to use familiar and revered ideological terms such as “free markets,” “economic democracy” and “fairness” to win the hearts and minds of the population while actually imposing a set of policies in stark contrast to Enlightenment ideology, classical political economy, Progressive Era reform and 20th century social democracy – the ideals of freedom-loving peoples everywhere. Financial lobbyists have spent billions of dollars spent on public-relations think tanks to achieve this ideological con job. They have endowed business schools and gained control of government agencies to promote their creditor-oriented point of view, headed by central banks to serve as the ideological wedge for today’s anti-democratic forces. This is the ideology that has pushed much of the Third World into poverty since the 1960s, as well as today’s tragically debt-ridden post-Soviet economies.

Financial warfare

Finance seems at first sight to be quite different from outright warfare. Everyone knows well enough that invading armies do not come on friendly terms. Foreign navies and troops are not welcomed, even if they promise to help build up the economy by constructing new roads and bridges (the better for their tanks and troops to travel on), hydropower and geothermal stations to export electricity (keeping the earnings for themselves), hotels and spas for themselves and foreigners to enjoy (and keep the rental incomes and site values), and create detailed statistical analyses (such as the Domesday Book alluded to above) to manage the economy in their favor.

Today this financial strategy has become multilateral. The IMF acts as enforcer for global creditors to appropriate the income of real estate, national infrastructure and industry as a financial boondoggle. What is remarkable is that countries throughout the world are losing their economic and fiscal independence peacefully – at least it is peaceful when target countries do not fight back. (Chile, Cuba and Iran are object lessons for the punitive economic sanctions imposed on countries that do not accept today’s predatory economic ethic.) Financial conquest is thus more covert than military warfare. It relies more on the educational and psychological dimension, and is most successful when the victim does not even realize it is being attacked.

But the effects are as devastating on human life as what Russia suffered at the hands of Western “reformers” in the 1990s. The financial austerity imposed by creditor-run regimes shortens life spans, reduces birth rates, and increases labor flight, suicide rates, disease, alcoholism and drug abuse. Just as war kills an economy’s males of fighting age (25-35), financial austerity drives them to emigrate to find work. This is why U.S. investor Warren Buffett has called collateralized debt obligations (CDOs), credit default swaps and similar debt-leveraging instruments “weapons of mass financial destruction.”

Consider the role of banking in this neo-feudal order. Banks do not create credit to finance manufacturing – that is done mainly out of retained earnings and equity. Banks create credit primarily to lend against collateral already in place – loans that simply extract money from the economy. This is an inherently destructive act, one that is anti-capitalist in the sense that it undercuts industrial growth in favor of interest extraction and short-term speculative gains.

The trick is to get this policy welcomed as if it were progress, as “post-industrial” rather than a lapse backward. Only today is it becoming apparent that the collateral-based lending of banks “creates wealth” mainly by inflating asset-price bubbles, especially in real estate. Bankers calculate how much debt a given flow of residential or commercial real estate income can support, and create enough credit to make a loan large enough to absorb this surplus revenue. Bankers do the same with industry by lending corporate raiders enough money in take-over “junk” bonds to turn profits into a flow of interest payments for themselves, and with capital gains for the raiders. Central banks fuel this process by swamping economies with easy credit (that is, debt) that keeps the financial sector fat while impoverishing the increasingly indebted nation.

Finance thus is the historical antithesis of property, sanctifying its own right to expropriate indebted property owners. Originally denounced by Christianity, Judaism and Islam, interest-bearing debt has sanctified itself as the predominant form of wealth. This is not what the classical economists and democratic political reformers expected to see. They explained how to avoid this economic dystopia by appropriate government tax policy and regulation to minimize the economic role and political power of post-feudal bankers and rentiers. (Rentiers are people who live off interest and rents, that is, off absentee incomes paid on a regular basis. A rente was a French government bond paying interest at regular intervals; the idea was extended to landlords.)

How banks and the financial sector gained dominant power

This supremacy of the banks and the financial sector took thousands of years to achieve. It was not easy to overthrow traditional social values and to impoverish so many economies by subordinating customary property relations with legal priority for creditors. Iceland only recently has come under this kind of financial attack by creditors operating globally. Bankers managed to convince ambitious fortune-seekers that the way to wealth and economic growth lay in debt leveraging, not in staying free of debt. Selling debt as their product, banks and speculators at the world’s financial core needed to prepare for what they must have known would lead to economic collapse and destroyed economies throughout history. They prepared the path to ruin by ideological engineering aimed at shaping how populations think about history, so as to accept debt pyramiding as a good economic strategy.

As an example of their warped thinking, consider an attractively priced home. Would you rather own 100% of a home free of all debt with a market value of 100,000 euros if free of debt – or, would you rather own 60% of the same home at an inflated market price valued at 250,000 euros? In the second scenario you would have 50,000 euros of “surplus wealth” (60% x 250,000 = 150,000 euros, compared to 100,000 in the first example). People across the globe have been convinced that the second scenario represents “wealth creation.” What is overlooked is that the higher-priced home carries interest charges on its higher market price. This charge would amount to 6,000 euros a year, or 500 euros a month, at 6% interest. The same property is worth more, but includes a much larger debt overhead – income for the financial sector.

In Iceland – but nowhere else – home mortgages have a uniquely bad twist. Creditors have managed to protect the weight of their claims on debtors by indexing mortgage loans to the nation’s consumer price inflation (CPI) rate. Each month the debt principal is increased by the CPI increase – and so is the interest charge. During 2008 that index rose by 14.2%, so a 100,000-euro mortgage at the start of 2008 would have grown to 114,230 euros by yearend. These monthly adjustments also would added an entire percentage point onto the interest payment – an extra 100 euros to be paid to creditors monthly, in addition to the growing principal to be amortized. Talk about making money without effort …!

Such heavy debt charges would shrink any economy, and that is what is happening in Iceland. Prices for real estate declined by an estimated 21 percent for housing in 2008. So in the above example, the market price of the house worth 100,000 euros at the beginning of the year would have been worth only 79,000 at yearend, while the mortgage would have grown by 14% to 114,230. This would have plunged the homeowner 35,000 euros into negative equity – a remarkable 35% change.

In every other country, investors lose out when prices decline for real estate, stocks and bonds, while creditors find the purchasing power of their loans eroded by inflation. That is how most countries have “inflated their way out of debt” for many centuries. But Iceland’s creditors have created a system in which their position actually is improved as the rest of the economy suffers inflationary price erosion. Their claims rise in proportion to the rate at which consumer-price inflation eats away at wages and business profits. Where is the sense in this?

What makes this so ironic is that the purpose of calculating the consumer-price index in all countries has been to support consumer income. It was to protect wage earners and retirees against inflation eating away at their ability to maintain their standard of living. That is why in the United States, Social Security retirees receive an annual cost-of-living adjustment based on the CPI. But Iceland inverts this political aim, protecting the claims of creditors against debtors (and hence against most wage-earners). The creditor’s objective is to maximize the power of debt over living labor. That is the literal meaning of “mortgage:” a “dead hand” of the past over the present, of past wealth and credit over the living. For Iceland the debts run up during the “wealth creation” phase of the financial bubble are to be left in place and even grow at an accelerating rate reflecting the pace of currency depreciation and hence import prices and consumer prices generally. Debtors lose out as prices plunge for the homes they own, while creditors maintain their economic grip intact and even strengthen their hand by increasing their take.

Turning economic power into political power

Creditors in most countries have been able to turn their economic power into political power with the aim of shifting the tax burden off themselves and onto labor and industry. The final coup de grace occurs when they get the government to bail them out from their losses on bad loans. In the United States, Congress has tripled the national debt in less than a year to bail out creditors with little thought of helping debtors, or even of prosecuting the massive financial fraud involved in its subprime real estate bubble and the sale of junk mortgages to gullible foreign buyers.

Iceland’s citizens will own a smaller and smaller proportion of their homes as its banks become the main claimants on the nation’s property value. By subjecting Iceland to this unique kind of financial squeeze, Icelandic policy stands in diametrical contrast to that of the United States. The U.S. policy is to stabilize its economy and avoid depression by writing down debts to bring them in line with today’s lower market prices and, more specifically, to bring carrying charges on mortgage debt within the ability of homeowners to pay no more than 32% of their income. Other countries also are writing down their debts to bring them in line with the ability to pay. But Iceland is subjecting its own homeowners and consumers into debt deflation and plunging them into Negative Equity status – by law!

The only way its banks can succeed in this ploy is to keep Iceland’s voters unaware of what is happening in the rest of the world – and indeed, to block the government from drawing up a balance sheet of the nation’s debts, a roster of whom these debts are owed to, and a calculation of the economy’s ability to pay.

Iceland’s present policy will lower disposable income for homeowners and other debtors – the great majority of its citizens – while wealth gushes to the top of the economic pyramid, to those who are creating as much credit as they can find borrowers for. The result is not what former Federal Reserve chairman Alan Greenspan and President George W. Bush claimed to be creating in America – an “ownership” society. It really is a “loanship” society, an economy of ersatz assets in which debt pyramiding – owning less and less of a home or other asset – seemed to be a strategy for growing richer instead of the debt trap it is. Has Iceland fallen into a similar semantic trap?

Pensions and retirement

As in the United States, Iceland has convinced labor to “prefund” its retirement. The idea is to save up in advance, so as to provide for retirement in a purely financial way. Of course, the most important way to support retirees is to see that they can afford the basic goods and services needed to live. To the extent that “financializing” an economy ends up eroding the “real” economy, pension funding – and government Social Security funds (regressive taxes that enable the Treasury to cut taxes for the higher wealth brackets) – tends to shrink the economy rather than provide for the expansion in output needed to support an aging population. As matters stand, pension savings are mobilized to increase the volume of interest-extracting debt and fuel financial bubbles (as in America’s “pension-fund capitalism” that pushed up stock markets in the past). Pension savings works against employment most visibly when they are lent to corporate raiders who pay off their bondholders by downsizing the work force and squeezing more “productivity” out of the remaining employees. Economic “growth” under such circumstances takes the form of a financial and property-sector overhead, not growth or stability in living standards or the capacity to produce.

Allowing economies to be crippled with interest payments was unthinkable until recently. To achieve so radical a break in the public’s idea of prosperity and self-reliance, it has been necessary for creditors to wipe out knowledge of how legal systems have been amended to put creditor interests above those of debtors over the past eight centuries – and how the leading classical economists and Enlightenment cultural and religious leaders sought to subordinate creditor interests to those of growth and prosperity for the economy at large. But the new banking class has been clever enough to hire the best propagandists money can buy while remaining blind to the havoc they are wreaking with people’s lives.

The debt game

Like many people, Icelanders tend to think of debt in personal terms, as if creditors are neighbors much like themselves. The normal thing to do when problems arise would be to sit down and reach a common agreement. But Iceland’s creditors are impersonal billion-dollar financial conglomerates, and creditor-debtor relations under such conditions are inherently adversarial, as anyone who has had a recent disagreement with a bank can attest. Whatever creditors can gain in today’s highly politicized, legalistic and ideological tug-of-war will be the debtor’s loss. And the magnitude of Iceland’s prospective loss threatens to plunge its economy into depression for generations, turning it into a Third World oligarchy, or worse, a dictatorship. The price of paying its debts thus threatens to be loss of its national identity and a loss of its future.

The trick is to fool debtors into thinking that “free markets” means paying one’s debts. Creditors can succeed in letting debt leveraging and “the magic of compound interest” empty out economies only by diverting attention from what Adam Smith and other classical economists warned against. For them, a free market was one free of debt – especially foreign debt. In The Wealth of Nations (especially Book V, chapter 3), Smith warned against creditors becoming “free” enough to disable the ability of governments to protect citizens from creditors – especially the Dutch, who were the major investors in British monopolies created to be sold to pay for that nation’s seemingly eternal wars with France. The problem was that creditors sought to extract the wealth of nations for themselves, not to create wealth. Their greed was destructive to society as a whole, because it was easier to simply strip assets than to create real capital.

That is the problem with creditors historically. They tend to care only about how to extract as much as they can, as quickly as possible. “A creditor of the public, considered merely as such,” wrote Smith, “has no interest in the good condition of any particular portion of land, or in the good management of any particular portion of capital stock. As a creditor of the public he has no knowledge of any such particular portion. He has no inspection of it. He can have no care about it. Its ruin may in some cases be unknown to him, and cannot directly affect him.” The problem obviously is worst with absentee creditors.

Smith concluded: “When national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and completely paid. The liberation of the public revenue, if it has ever been brought about is by bankruptcy; sometimes by an avowed one, but always by a real one, though frequently by a pretended payment.”

Adam Smith’s portrait is engraved on England’s £20-pound note, and Andrew Jackson on the US $20 bill. The irony is that Smith denounced public debts and urged wars to be financed on a pay-as-you-go basis so that people would feel their burden – and stay out of debt. As for Andrew Jackson, he closed down the Second Bank of the United States, accusing bankers of ruining the nation and seeking to destroy democracy. Bankers and finance therefore leave something important out of the account when it comes to the views of their own patron saints of democratic free markets.

As noted above, creditors for many centuries now have suffered bankruptcies when foreign countries default. That is the norm, not the exception. Yet today’s popular media greet every new default as “unanticipated” and “surprising,” as if it were not the bankers’ fault that they failed to understand the market’s inability to pay. Dumbed-down economics textbooks chime in with their inbred ignorance voiced by the financial sector’s proverbial “useful idiots” prattling about “equilibrium” and “automatic stabilizers.” These un-learned academics are useful to the bankers because of the passion with which they proclaim that all debts should and can be paid by suitable “adjustments” (including what turns out to be economic and demographic collapse). The question being asked with a straight face is: If it is the fault of victims rather than the bankers, then is it not proper for governments to bail out the banks?

The tacit assumption is not that bankers’ exorbitant greed is achieved at the expense of the economy at large, but that the financial sector’s prosperity is a precondition for the economy to grow. The bankers try to cap matters by trotting out poor retirees (like the widows and orphans of old – presumably those living on “fixed incomes” in the form of trust funds) whose meager savings should be supported. Doing so just happens to save the financial oligarchy of billionaires at the top of the economic pyramid, but not the proverbial victims.

The use of human shields such as union members concerned about the investments of their pension funds to protect the wealth of the kleptocrats is likewise shameless. Wall Street sages in the United States, for example, shed crocodile tears over the fate of the working people suffering from the stock market collapse, knowing full well that financial assets are heavily concentrated at the top of the economic pyramid, with workers having, only a meager share of those stocks and bonds. Ignored is the fact that the government could bail out failing pension funds (like Social Security) directly at just a small fraction of the cost of propping up the assets of the affluent.

Likewise, the volume of government bailout money for the financial sector ostensibly to deal with the subprime mortgage crisis – about $13 trillion during 2008-09 – clashes with the fact that the total value of mortgage debt owed by all households in the entire United States is only $11 trillion as of yearend 2008! The bailout funds ended up being used mainly to buy other banks to create even larger financial conglomerates “too big to fail,” to pay executives whose greed for short-term gains and bonuses caused the financial meltdown, and to pay dividends to stockholders to support their stock price and hence the value of stock options that financial managers gave themselves. The closest parallel to this scandal is the “watered stock” practices of Wall Street’s railroad barons and other financial manipulators in the late 19th-century Gilded Age.

There was a time when banks hesitated to make loans irresponsibly, that is, beyond the ability of debtors – and entire national economies – to generate a surplus to pay their creditors. My job as balance-of-payments economist for the Chase Manhattan Bank in the 1960s was to calculate how much export earnings and other foreign exchange the major Latin American countries could generate. Their balance-of-payments surplus represented how much they could afford to borrow. The aim of New York banks was to lend Third World countries money to absorb their entire economic surplus. From the bankers’ point of view, that was what a national surplus was for – not to sustain higher living standards or invest in becoming economically self-sufficient, but simply to pay creditors. And “wealth” was defined as the capitalized value of the entire economic surplus they could generate – discounted at the going rate of interest, as if it all could be paid as debt service, so that the entire surplus would be paid to carry the debt.

This certainly is not a model of human progress. But it was that decade’s version of “wealth creation,” and it is the concept of “wealth creation” in terms of the market value of debt-financed asset prices that Alan Greenspan would foist on the United States in the 1990s to convince it that an asset bubble was the path to postindustrial wealth, not the road to debt serfdom.

So Adam Smith was right. Today, creditors and bondholders care about foreign economies only to the extent that they can charge interest that will absorb their entire economic surplus. Until recently, creditors thought that lending more than can be repaid would be “irresponsible.” Not any more.

Political checks and balances on the economy

The best path for nations is to put their own economic growth before the interests of creditors. For many generations this ethic supported a set of political checks and balances that kept the growth of international debt in terms considered to be tolerable – much too heavy by the free-market standards of Smith and John Stuart Mill, but not so high as to prompt widespread defaults and debt repudiation.

This ethic has changed in recent years. Countries have accepted creditor propaganda that debts are a “point of honor,” much as the poor believe that paying their debts – even when they are in negative equity – is the “honest thing to do.” Obviously this ethic is not self-applied to the world’s largest financial institutions or real estate speculators. But Iceland accepted it in what is a characteristic of small, closely-knit communities where the word of neighbors is their bond. The root of Iceland’s ethic is mutual aid and prosperity for all. It is a fine, highly socialized attitude, and therefore tragic that it has helped lead the nation to fall prone to the snake oil of debt peonage.

Political leaders who fail to recognize the fact that checks and balances are a proper function of government are liable to sacrifice their nation’s hope for economic growth and rising living standards in a vain attempt to pay creditors. Such attempts must be in vain, because “the magic of compound interest” is a cruel myth: In reality every rate of interest implies a doubling time, and no economy’s “real” growth ever has been able to grow exponentially at a fast enough rate to pay the debts that keep accruing interest.

In today’s deregulated environment where “the sky’s the limit,” these accruals have been recycled in yet new loans. These then are packaged and resold, loading the economy down with more and more debt that so far has been almost impossible to track. And to cap matters, financial speculators then place trillions of dollars of bets on whether the debts can be paid or not, and how much their market prices are likely to change. What was supposed to be a financial system designed to fund new capital investment to produce more and raise living standards has turned into a casino economy – where gamblers are staked by the bankers to play the debt game, with the government standing by to make the winners “whole” in cases where the debtors have lost too much of their play-money to pay up.

Debts that can’t be paid, won’t be

Every economist who has looked at the mathematics of compound interest has pointed out that in the end, debts cannot be paid. Every rate of interest can be viewed in terms of the time that it takes for a debt to double. At 5%, a debt doubles in 14½ years; at 7 percent, in 10 years; at 10 percent, in 7 years. As early as 2000 BC in Babylonia, scribal accountants were trained to calculate how loans principal doubled in five years at the then-current equivalent of 20% annually (1/60th per month for 60 months). “How long does it take a debt to multiply 64 times?” a student exercise asked. The answer is, 30 years – 6 doubling times.

No economy ever has been able to keep on doubling on a steady basis. Debts grow by purely mathematical principles, but “real” economies taper off in S-curves. This too was known in Babylonia, whose economic models calculated the growth of herds, which normally taper off. A major reason why national economic growth slows in today’s economies is that more and more income must be paid to carry the debt burden that mounts up. By leaving less revenue available for direct investment in capital formation and to fuel rising living standards, interest payments end up plunging economies into recession. For the past century or so, it usually has taken 18 years for the typical real estate cycle to run its course.

Nations that have not paid their debts

Let us draw up a roster of nations that have annulled their debts – or run them up with no intention of paying. The list starts with the world’s largest debtor, the United States. Its government owes $4 trillion to foreign central banks. A moment’s thought will show that there is no way it can pay, even if it wanted to do so. The United States is running a chronic trade deficit, on top of which is a deepening outflow of military spending. In addressing this chronic living beyond the nation’s international financial means, American diplomats are almost the only ones in the world who conduct international diplomacy the way that textbooks assume that all countries should do: They act purely and ruthlessly in their own national interest. This interest lies in getting the proverbial free lunch, by giving IOUs for other countries’ real resources and assets, with no intention or ability to pay.

U.S. officials already have suggested that this debt be wiped out. Their plan would convert it into “paper gold.” Foreign central banks would simply stamp their U.S. Treasury bonds “good only for payment among central banks and the International Monetary Fund.” No other nation would be allowed to wipe out its debts in this way. Only the debtor at the center would be able to continue issuing debt-money without foreign constraint.

To be sure, U.S. diplomats have freed countries from debt when they have a political reason to do so. The most famous modern example of an economy-wide debt cancellation is that of Germany in 1947. The Allies cancelled German personal and business debt, on the ground that most were owed to former Nazis. The only debts left on the books were current wage-debts that employers owed to their work force, and basic working balances for companies and families.

A generation earlier, in 1931, the Allies wiped out Germany’s reparations debt stemming from World War I, and negotiated a moratorium on their arms debts to the United States. The world’s leading governments realized that keeping these debts on the books would collapse the global economy. But by the time they reached this conclusion it already was too late. The combination of Inter-Ally arms debts owed to the United States and the reparations debts imposed by the Allies largely to pay America already was one of the major factors pushing the world into a depression.

The U.S. economy was collapsing under the weight of its domestic debt pyramiding. Other countries had used less debt leveraging, but all ended up writing off large swaths of real estate and business debts during the Depression Years. By the time the Second World War ended in 1945, most countries were free of debt. Prices reflected direct production costs, with minimum diversion of revenue to pay banks, absentee property owners and other rentiers.

In the postwar period the World Bank lent dollars for governments to build infrastructure – only to turn around a generation later and help loot what it had financed. After Mexico and other Latin American governments announced that they were insolvent in 1982, U.S. diplomats organized a debt write-down in the form of “Brady bonds.” By 1990, Argentina and Brazil had to pay 45% on new dollarized foreign debt, and Mexico paid 23%.

Having stuck Third World countries with debts beyond their ability to pay, the IMF and World Bank used their creditor leverage to force governments to impose draconian austerity plans that had the effect of preventing growth toward industrial and agricultural self-sufficiency, thereby also crushing prospects for competitiveness. The IMF and World Bank then demanded that debtor countries sell off their public infrastructure, land, subsoil rights and other assets to pay the debts that these institutions sponsored so irresponsibly. (If IMF loans were not simply irresponsible, then they knowingly crippled debtor-country economies.) It is an age-old story of conquest, now accomplished without conventional warfare.

Two thousand years ago Rome stripped Asia Minor and other provinces and colonies of money using military force. Its financial oligarchy then translated their economic power into political power, destroying democracy and bringing on centuries of Dark Ages. The historical lesson is that economies taken over by creditors are plunged into depression as predatory lending strips away the surplus, leaving nothing remaining for subsistence, let alone capital renewal. This prevents nations from paying their debts, leading to widespread foreclosure, an extreme polarization of property and wealth, and impoverishment of its people. The ensuing lack of prosperity ends up crippling the ability to sustain a military overhead, and such countries tend to be conquered, as the Goths overran Rome. Outsiders always were at the gates – but it was the hollowing out of Rome’s domestic economy that left it prone to conquest.

Most recently, creditor-sponsored dirigiste takeover of national economic and social institutions has turned Russia, the Baltic States and other post-Soviet economies into neoliberal kleptocracies, driving skilled labor abroad in tandem with capital flight. Latvia is being pushed back toward subsistence life on the land. Creditor mismanagement is the most important problem that any country today should strive to avert.

Creditors play the terrorism card

9/11 signaled the beginning of a new power grab in the United States and Britain. U.K. officials have used anti-terrorist legislation to seize Icelandic assets abroad. What makes this so ironic is that throughout history it has been creditors who have used violence against debtors, not the other way around. I know of only one exception, and it did not involve bloodshed: Jesus overthrew the tables of the moneychangers in Jerusalem’s temple. It is the only record of a violent act in his life.

Psychologists have explained the creditor proclivity for violence by the tendency for rentiers to fight for unearned income – inheritance, or other “free wealth” that they have obtained without effort of their own. People who work for a living and are able to support themselves believe that they can survive, and so there is less of the kind of panic that creditors and other free lunchers feel at the thought that their extractive revenue may end. They fight passionately against the prospect of having to live on what they produce or earn by their own merits. So the last thing that rentiers really want is a free market. In a shameless irony, they tend to accuse populations of being terrorists if they seek to defend themselves against predatory creditors and land-grabbers!

Describing creditor violence, Plutarch describes how Sparta’s king Agis IV and his successor Cleomenes III sought to cancel the debts late in the 3rd century BC. The city-state’s creditors murdered Agis, drove Cleomenes to suicide in exile, and killed Sparta’s next leader, Nabis – and then called in Rome to fight against pro-debtor democracies throughout Greece. Livy and other Roman historians describe how a century later, in 133 BC, the Roman Senate responded to the Gracchi Brothers attempt at debt and land reform by pushing the democratic Senators over the cliff to their death, inaugurating a century of bloody civil war.

In the 19th century the United States sent gunboats to collect debts from Latin American countries, installing collectors at the local customs houses. England applied similar imperial force to ruin India, Egypt and Turkey, stripping their assets with debt and plunging their populations into poverty that persists to the present day. More recently, America’s hand in the violence that overthrew Chile’s elected president Salvador Allende has continued this policy. Having south to isolate the Soviet Union, Cuba and other countries that rejected creditor-oriented rules and rentier property interests, the United States then capped its Cold War victory over the Soviet Union by promoting a flat-tax regime that imposed the fiscal burden entirely on labor and industry, not on finance and real estate. Instead of being democratized, the post-Communist countries were steered directly into oligarchic kleptocracies that ran up rising debts to the West.

This is just the opposite of the free markets that were promised them back in 1990-91. Instead of economic growth, the “real” economy of production and consumption shrunk, even as foreign financial inflows inflated property prices for housing and office space, fuel and public utilities. Real estate and utility services hitherto provided freely or at subsidy to the economy at large were turned into a predatory vehicle for foreigners to extract income, putting the domestic population on rations, much as what occurs under military occupation. Yet the public media, academic centers and parliaments have persuaded populations that this is part of a natural order, even the product of how a free-market is supposed to operate, rather than a retrogression back to quasi-feudal institutions. The simplistic idea is that making money is itself “capitalist” ipso facto, regardless of whether industrial capital is being created or dismantled and stripped.

How hard times affect people

Public health reports throughout the world document how lifespans shorten as economic inequality and poverty increase. The moral is that “debt kills,” by impoverishing and destroying populations. Those who try to defend themselves are branded as terrorists by their financial predators. Malthus’s population doctrine, after all, was composed to rationalize the free lunch of his landlord class, and World Bank policies to reduce the populations of indebted Third World countries likewise was the natural complement to the financial asset stripping it endorsed. Fewer people to feed, clothe and house in a situation where investors seek mainly the public enterprises for whose construction governments have already run into foreign debt, plus land and resources supplied by nature rather than by human labor.

Nowhere is the violence of creditors more pronounced than in their destruction of education, especially economic studies and knowledge of history. The first act of the Chicago Boys (University of Chicago monetarists, headed by Nobel Prize winner Milton Friedman) in Pinochet’s Chile after the 1974 military coup was to close down every economics and social science department in the nation, except for the monetarist stronghold at the Catholic University where they held sway. The idea was to strip academia of any alternative point of view. Matters are not much different in other countries. At a post-Keynesian economics conference in Berlin on “financialization” last November, I heard many complaints that alternative views to Chicago School orthodoxy were unable to get a hearing in the leading European academic journals. And just this March at the Eastern Economic Association’s annual meeting in New York City, I heard similar complaints that alternative economic ideas were excluded from the major refereed journals in which aspiring academics must gain entry in order to be promoted to tenure track jobs at most U.S. universities. An intellectual Iron Curtain has been lowered by dysfunctional “free market” orthodoxy. Evidently a free market in ideas is anathema to financial free marketers. With such strong intellectual control, of course, overt violence is unnecessary.

Such intellectual intolerance is in the DNA of the creditor mentality because it cannot withstand awareness and understanding of its destructive effects. The “miracle of compound interest” is not achievable in practice beyond the short run. To pretend that it may form the basis for a sustainable model of wealth creation does violence to rationality and economic logic. This is why the economic theory that creditors prefer – and subsidize – is learned ignorance propagated by useful idiots. Its role is to distract attention from society’s most important economic dynamics, those of finance and property polarization via debt, evidently on the premise that what is not seen or analyzed will not be regulated or taxed. One is reminded of Baudelaire’s quip: “The devil wins at the point where he convinces people that he does not exist.” A “free market” for rentiers thus is one “free” of alternative ideas.

That is the political function of mainstream economic theory today. And to cap matters, the creditor-oriented worldview does similar violence to the teachings of world’s major religions.

Christian endorsement of debt cancellation and Clean Slates

From at least as early as 2400 BC it was normal for Sumerian and Babylonian rulers to annul the population’s personal and agrarian “barley” debts upon taking the throne for their first full year of rule. In addition to annulling these debts, Mesopotamian Clean Slates freed bondservants and restored self-support land to former owners who had forfeited their crop rights to foreclosing creditors. The Babylonian word for these Clean Slates was andurarum, and Jewish law adopted them with the cognate Hebrew word deror. But by the first millennium BC, kings had come to represent local oligarchies, so Mosaic Law took Clean Slates out of the hands of rulers and placed them at the center of Judaic religion in the Jubilee Year of Leviticus 25. Like Babylonian law, it cancelled personal debts, freed bondservants and restored land tenure to its “original” holders.

Debt cancellation is at the heart of the laws of Exodus, Leviticus and Deuteronomy calling for debts to be cancelled periodically, and to liberate indebted bondservants. Ezra and Nehemiah describe how they returned from Babylon to restore order by canceling the debts – and re‑discovering the Book of Deuteronomy. But creditor oligarchies were on the rise throughout the Mediterranean region in the centuries that followed. By the time of Jesus the mainstream of Jewish leadership had mounted an attack on the Jubilee Year, endorsing Rabbi Hillel’s prosbul, a legal clause by which creditors forced debtors to sign away their rights to debt annulment at the Jubilee. In his first sermon, Jesus sought to retain the Jubilee year by unrolling the scroll of Isaiah and announcing that he had come to proclaim the Year of Our Lord.

The Jewish oligarchy appealed to Rome to crucify Jesus. As he and his followers gained adherents by advocating debt forgiveness, Rome used violence against them. But Christianity grew by creating communities of mutual aid. Upon achieving political power, the new religion’s most important economic achievement was to outlaw debt bondage throughout Western civilization. However, the idea of a Clean Slate had to be postponed until the Day of Judgment at the end of history.

As creditors drove the post-Roman economy into a Dark Age, Christians banned the charging of interest altogether, even on commercial “silver” loans. Ancient languages had no words to distinguish “interest” from “usury.” This distinction was drawn only in the 13th century, as Church theologians applied the term “interest” to commercial loans in which “silent backers” advanced money to entrepreneurs. It was permissible for bankers to charge a foreign-exchange agio premium (that typically included an interest charge in practice), as long as the charge could be justified by their own labor and related outlays to provide money-transfer and loans. However, mortgages loans and personal loans were deemed usurious. The 13th-century Churchmen treated usury as theft and hence in violation of the Eighth Commandment: “Thou shalt not steal.”

From antiquity through medieval European times, most theft took the form of usury, getting debtors to forfeit collateral they had pledged in exchange for emergency funds. Thomas Aquinas and Martin Luther in 1516 warned that this practice destroyed cities much as a worm destroys an apple from within its core. John Calvin in 1565, the last year of his life, likewise defined usury and fraud as theft on a plane with highwaymen and robbers. This ethic produced a line of development extending down to only a generation ago as Western law became more humane toward debtors. Debtors unable to pay are no longer turned into bondservants to their creditors, and debtors’ prisons have been closed down. Bankruptcy laws permit individuals (and corporations) to annul debts when they cannot pay.

But this eight-century-long historical trend is now being confronted with an anti-Enlightenment threatening to reverse it. In the United States, credit card companies have given enormous sums of campaign contributions to politicians willing to rewrite the bankruptcy laws to make home mortgage debts permanent and beyond the power of judges to write down. Wealthy individuals with more than one home can have their own mortgage debts on these properties written down, but homeowners with just a single residence are confronted with a lifetime of debt peonage. This is just the reverse of ancient law that protected the self-support land of citizens, but not their townhouses and other surplus property.

Credit without oligarchy

Most societies throughout history have sought to provide credit legally in ways that do not permit creditor oligarchies to emerge. Today’s creditor advocates are at war with the spirit of this idea. And in taking this position, they reject the thrust of the Enlightenment’s anti-usury laws, classical political economy’s distinction between productive and sterile investment, the St. Simonian attempt at financial reform, and the Progressive Era’s attempt to mobilize national credit to fund productive industrial investment rather than being extractive, benefiting only the few. The classical idea of economic freedom itself was formulated as the antithesis to feudal-epoch finance. And the ideal of freedom from predatory finance is what is being threatened today, as if society has forgotten how long and hard the reform struggle has been.

The fight to end debt bondage and debtors prisons took many centuries to achieve its humanitarian objective. Handel’s Messiah is a staple of the Christmas and Easter season celebrating the life and teachings of Jesus Christ. What has been forgotten is the context in which Handel arranged the first performance of this oratorio in Dublin, on April 13, 1742. It was a charity concert for the benefit “of the Prisoners in several Gaols, and for the Support of Mercer’s Hospital in Stephen Street, and of the Charitable Infirmary on the Inn's Quay.” Enough money was raised to free a hundred and forty two prisoners. The oratorio’s text accordingly contained references to “breaking bonds asunder” and “casting away yokes,” recalling the early Christian belief that the Messiah’s reign would bring liberty (Hebrew deror or debt cancellation) and release (Greek aphesis) from debt bondage. The “redeemer” was literally the redeemer from debt.

This recalls the original, literal meaning of the Lord’s Prayer. It refers not only to forgiving sins and sinners in the abstract, but specifically to “forgive us our debts” – a translation distorted in much modern reading. “Sin” was the word for “debt” in all Indo-European languages: Schuld (the root of German sollen and English should), and devoir, the root of English debt. It meant obligation – referring in ancient practice to the obligation of an offender to make good payment to atone for his offense, as in European wergild tradition. The original debts were not paid to the rich, but by them, for manslaughter or physical wergild injury to their victims (who typically had to settle for payment rather than taking revenge). Today’s offenders disrupting social harmony are wealthy creditors, but society is paying money to them, not fining them. Seen from the ancient perspective, it is as if indebted society owes retribution to the rich. No wonder the spirit of modern religion has so thoroughly overturned that of its origins!

It therefore seems remarkable that in our own epoch – strained as it is by unprecedented and questionably created debt overhead that reduces not just individuals but entire nations to debt servitude – no major opposition has appeared on religious grounds. Churches have avoided the issue that was the cornerstone of so much of their earlier concern, and moved toward other concerns rather than remaining on the high ground of alleviating the debt burden.

Back to basics, and a call for transparent statistics

The classical economics of Adam Smith and John Stuart Mill, the Progressive Era reforms and Social Democracy are rooted in the moral philosophy of the 17th- and 18th-century Enlightenment. The labor theory of value can be traced from the 13th-century Schoolmen via John Locke to Adam Smith and the Scottish Deists, via David Ricardo’s isolation of economic rent (what Mill called the “unearned increment” that landowners and others receive “in their sleep” rather than through their own labor) as an element of price in excess of cost-value. The distinction between intrinsic value and market price led to socialist and progressive theories of a just society free of economic privilege, free of prices in excess of socially necessary costs of production and of rentier income and wealth without effort.

The common thread in these ideas is that people deserve to receive the fruits of their labor. This means bringing prices in line with actual labor-costs of production. It also means that one’s wealth should be limited to only what one creates – not land and natural resources, or monopoly privileges to extract income via control of roads, the right to create money and other natural monopolies. The aim of social reform for many centuries has been to purge capitalism of its legacy of absentee rentier property ownership patterns and creditor-oriented laws inherited from medieval times. The way to do this is to treat banking like transportation and the broadcasting spectrum, as a public utility to form a just fiscal base, not something to be privatized so that individual rentiers can tax society at large for what rightly is a public utility.

Beyond creating a travesty of international law, rentier interests have turned seemingly empirical statistics into a fictitious set of accounts that understate actual returns to the finance, insurance and real estate (FIRE) sector and the magnitude and information on land and other wealth ownership and distribution. Recent U.S. news has seen a fight by Wall Street to count short-term trading gains in stocks, bonds and financial derivatives as “capital” gains taxed at only a fraction of wages and profits. The financial managers in charge of national statistics likewise describe economy’s largest asset category, real estate, in largely fictitious economic terms. U.S. Federal Reserve statistics on asset values meanwhile depict the rise in real estate prices not as higher land valuation – which the land-price maps of major cities show to be the cause of rising prices, fueled by an exponentially expanding pyramid of credit relative to a fairly fixed land area – but as “replacement cost” of buildings. The inflation of real estate prices is assigned to “capital,” not land. This enables real estate owners to avoid paying income tax by depreciating their property as if it is wearing out, not rising in value. Buyers can start writing off the price of an already written-off building as soon as they buy it, treating its “wearing out” as a tax credit – even though older buildings bring a premium over today’s cost-cutting construction practices. This write-off, of course, is not granted to homeowners, only to absentee owners.

In the sphere of financial wealth, banks have fought truth-in-lending regulations for years in order to conceal the real interest rate their customers are having to pay when all the fees and other charges are added on. They are fighting tooth-and-nail against “mark to market” accounting practices that would oblige them to let depositors and investors know how much their assets actually are worth – and hence, how much they have lost by irresponsible gambling. Whereas economic textbooks claim that a precondition of market efficiency is full knowledge of the market (otherwise, how can a market be deemed to be provide informed choice?), the financial sector always has fought tooth and nail against realizing this condition in practice.

Today the financial sector claims that the U.S. crisis was brought on not by bad investments by bank conglomerates and pension funds or misleadingly high credit ratings given to securities belatedly admitted to be junk, but by banks having to admit that the collateralized debt obligations (CDOs) and credit-default swaps they had been selling to global investments were in fact worthless from the outset. On March 12, 2009, the U.S. Congressional subcommittee in charge of financial reporting backed the bank lobbyists in “freeing” them from having to reveal their actual condition and (lack of) value of the securities they have been pawning off. As a New York Times reporter summed up the issue: “Next time you hear a banker denounce mark-to-market rules, ask if he runs his business that way. Will he offer you a mortgage loan based on what you think your home should be worth, which you can repay only if you make a lot more money than anyone will pay you? … maybe that is not such a good idea. The banks already tried that, with liars’ loans. Those loans did not work out so well.”[1]

This helps explain why every new press release of bad financial news is greeted with the adjectives “unexpected,” “surprising,” “unforeseeable,” “once-in-a-century” and kindred terms. The financial sector seeks to free itself from criticism rather than taking the blame for having plunged headlong over the debt cliff. It can succeed in this economic fiction in proportion to the degree to which the public can be blocked from understanding just what is going on and how the financial sector gains at the expense of the economy at large. Shaping popular perception becomes the name of the game, and statistics are depicted as “empirical” reality rather than the result of intensive lobbying to promote politicians willing to back a distorted economic roadmap.

The problem goes to the very foundation of economic theory. Any set of statistics reflects categories in economic theory, and in recent years the Chicago School has taken the lead in what is now a nationwide trend to exclude the history of economic thought from the academic curriculum. One can get all the way through a Ph.D. without having surveyed the evolution of classical economics from the Physiocrats through Adam Smith, John Stuart Mill and the Progressive Era reformers. The essence of social reform throughout the Enlightenment, and indeed extending all the way back to the Church Schoolmen is no longer taught – the distinctions between earned and unearned income and wealth, and productive and unproductive (or “sterile”) employment and investment. Post-classical thought insists that all income is productive in proportion to whatever it earns – including the collection of economic rent or extortion of monopoly super-profit, or financial charges for interest and credit card fees, and the exorbitant salaries and bonuses that financial managers pay themselves. All revenue – and therefore, all wealth – appears to be “earned.” By their definition. This denies the concept of “investment in zero-sum activities that merely transfer income into the unproductive sector’s pockets, in contrast to creating income.

As a guide to policy reform, classical economics aimed at creating an economic and fiscal system that would bring market prices in line with technologically necessary costs of production. All such costs ultimately are reducible to labor. The necessary complement to the labor theory of value (adjusted for different grades of labor, the cost of their education and the linkage between wage levels and productivity) was the analysis of economic rent – an institutional add-on reflecting property ownership patterns, financial charges and taxes, not inherent costs of production. The classical reform program was to minimize the cost of production and of living, making economies more competitive by purifying industrial capitalism and removing its remaining feudal legacies, above all the right of hereditary absentee owners (landlords) to siphon off a rental charge for access to land for sites supplied by nature and given value by local public spending (e.g., “location, location, and location,” as real estate agents explain matters to prospective buyers) – and the right of bankers to charge for creating credit that governments could freely create themselves.

Fighting against progressive reforms, banks and other financial institutions have sought to preserve their special privileges by law, minimizing taxes on themselves by shifting the burden onto labor and industry. What they have achieved by financializing economies is (1) to raise the cost of living and the cost of doing business; (2) to free their major customers – mortgage borrowers – from taxation so as to leave as much surplus as possible available to be paid as interest; (3) to collect revenue hitherto used to finance the public sector by capitalizing it into interest charges and to inflate the price of housing and other real estate and privatized monopolies; (4) to effectively shift taxes onto labor and industry, thereby raising prices and undermining the competitive power of financialized economies. This is a travesty of classical “free market” policy. It is a policy for predators that mainly burdens economies with high interest and fees while also making the tax burden more oppressive while they reap the benefits.

John Maynard Keynes believed that the proper task of governments was to prevent over-indebtedness from leading to economic depression. He concluded his General Theory (1936) with a call for “euthanasia of the rentier.” Hoping to make credit productive, not extractive, his followers have advocated making banking a public utility so as to steer debt creation to fund growth in the means of production, not economic overhead by inflating property bubbles. Radical as this may appear today, this was the aim of the 19th century classical economists, and underlay the financial reforms that shaped the 20th-century economic takeoff. Only quite recently has the global financial press rediscovered this logic in the wake of today’s bubble meltdown. In a recent Financial Times column, Martin Wolf pointed out that in view of the huge bailouts that banks are demanding from the government to make the industrial economy and labor force pay for their losses, “banks are not commercial operations; they are expensive wards of the state and must be treated as such.” He concludes: “The UK government has to make a decision. If it believes that costly bail-out must be piled upon ever more costly bail-out, then the banking system can never be treated as a commercial activity again: it is a regulated utility – end of story. If the government does want it to be a commercial activity, then defaults are necessary, as some now argue. Take your pick. But do not believe you can have both. The UK cannot afford it.”[2] Neither can Iceland or any other country.

Backed by global creditors, the IMF wants to keep its power

But the financial sector is fighting back. Its global lobbyist, the International Monetary Fund, has sought to consolidate financial control of economies irreversibly. Article VIII of its charter, drawn up in a period of reaction against the blocked currency practices and tariff protectionism of the 1930s, rules that once a country has removed controls on its “current account” transactions, it is not legal to re-impose any new controls. The current account is defined to include not only import and export trade in goods and services, but also interest on foreign debt and the remittance of profits on foreign-owned investment. In the 1930s, interest payments were conceptually integrated with credit and debts on capital account. But in the 1940s the IMF and other countries changed their balance-of-payments accounting formats away from this logic.

Ostensibly aimed at freeing trade, the IMF’s Article VIII in reality created “free capital movements,” that is, the ability of financial gangs to freely raid currencies such as occurred in the 1997 Asian crisis and similar speculations. Governments were not permitted to protect their currency and exchange rates by limiting such raids or erecting barriers to predatory credit and destructive debt (or from U.S.-subsidized agricultural exports, for that matter). The legal effect of the IMF’s ruling was to block governments from regulating their financial sector, despite its rentier role as a public utility. For Iceland, this means that the government cannot keep the nation’s international debt within the economy’s ability to carry. The most basic criterion for national sovereignty thus is ruled illegal!

In practice, nearly every country has simply added the interest accrual onto its national debt balance each year. Nominally, it “borrows the interest,” but the effect is more like an accrual than a true new loan. Over time these public debts grow at an exponential rate – far in excess of the “real” economy’s rate of growth, a recurring theme in today’s post-classical economies.

Lessons for Icelandic financial policy

The first thing that Iceland needs to do is to realize that it is under financial attack from outside as well as from within – by foreigners supported by a domestic banking class. To succeed, these creditors are trying to convince the population that all debt is productive, and that the economy benefits to the extent that its net worth rises (the price of assets in excess of debt). The fatal error is the assumption that prices will never go down, and if they do, debts should be left in place even when this causes negative equity. To their erroneous way of thinking, a price plunge (recession or depression) is an accident that happens once in a century, not the inevitable result of debts growing at compound interest without a concurrent increase in earning power to pay higher prices and interest.

This deceptive mythology is capped by a mind game being played with Icelandic voters. The game is to promote the myth that there is no alternative but to pay the debts that a few insiders have rung up, debts that accrue interest when they go unpaid. This myth can be dispelled by recognizing that the volume of debt payments being demanded is beyond the country’s capacity to pay. The financial strategy is to postpone awareness of this fact as long as is possible, so as to proceed with the foreclosure and voluntary pre-bankruptcy sell-off of national assets to pay creditors. The one question that creditors do not want to be asked is, “Just how do you propose that we should pay you?” Creditors hesitate to come right out and answer, “By shrinking your economy, by shifting your wealth and property into the hands of a small and shrinking financial oligarchy, and by pricing your labor and industry out of world markets as a result of the heavy financial charges built into your pricing system.” They prefer to act “surprised” when economic force majeur obliges economies to replace defined-benefit pension programs with “defined contribution” plans in which all that workers know is how much they pay into the plan, not what they will end up with.

Iceland as a model test case for economic justice

The realization of the impossibility of paying its debts while maintaining a fair society with a financially level playing field in which people live by what they produce (rather than a debt peonage society headed by creditors) will help Iceland confront reality sooner rather than later. Some form of Clean Slate moratorium should be inevitable. The extent cannot be known until an accounting of who owes what to whom is made. But as a sovereign nation, Iceland can apply whatever economic laws it wishes, as long as these do not discriminate specifically against foreigners. (That can be the result of a general law, as long as foreigners are subject to the same laws as domestic citizens.)

Global creditors will complain mightily, hoping to convince Iceland to let finance make itself an extra-legal sector, beyond the scope of national law to regulate – or to tax. The aim is to place financial dynamics beyond the ability of legal systems throughout the world to contain or otherwise control, so as to make debt collection autonomous from democratic regulation. To achieve this victory, financial interests seek to dismantle the power of governments to limit the ability of creditors to engage in predatory lending and foreclosure. Financial lobbyists accuse government power of being a “road to serfdom,” whereas in reality only governments can protect populations from creditor-imposed debt peonage.

As another tactic in today’s debt crisis, creditors are trying to rush matters. The United States provides an object lesson in the pitfalls of not giving the government enough time to reason things through so as trace how the losses came to be suffered. Treasury Secretary Paulson represented the interest of his own firm, Goldman Sachs, in ramming through an $800 billion “bailout” giveaway package to Wall Street’s leading investment bankers. The sum included $180 billion dispersed so far to A.I.G. to pay speculators in derivatives (including $12 billion to its largest counterparty, Paulson’s own firm,), and $45 billion for Citigroup to pay its counterparty gamblers on the winning side of casino-style bets.

95% of American voters opposed this giveaway. The Treasury Secretary made the usual glib promises that this package would be used largely for debt relief and mortgage renegotiation. It was all a lie –which Mr. Paulson clearly knew to be a lie, because the terse three-page draft law he sent to Congress demanded that no government or law enforcement agency could punish financial lying under his program. The bankers took the money and ran. They used the money to pay themselves enormous bonuses and dividends to stockholders in a vain effort to support the stock price – and to buy smaller banks so as to create yet more giant financial conglomerates “too big to fail,” that is, too big to fail without bringing the entire U.S. financial system crashing down.

Unfortunately, a rush to judgment will give money to bankers irrecoverably. They then will do like U.S. Federal Reserve Chairman Ben Bernanke has done, and wring their hands and offer crocodile tears of apology. Such talk is costly! American voters are now angrier than ever at the government for voting this giveaway.

On national television on March 15, Mr. Bernanke used a false analogy already popularized by President Obama. He asked what people should do if an irresponsible smoker let his bed catch fire so that the house burn down. Should the neighbor say, “it’s his fault, let the house burn”? This would threaten the whole neighborhood, Mr. Bernanke said. The implication, he said, was that economic recovery required a strong banking and financial system.

But banking houses are not in the same neighborhood where most people live. In effect the United States is taking over houses that have not burned down, throwing out their owners and occupants to turn over to the culprits who burned down their own house. To Mr. Bernanke the “solution” to the debt problem is to get the banks lending again. They are to lend enough money so that their clients can borrow the money to pay them the stipulated interest charges. The aim is a return to “normalcy,” defined as new exponential growth in the volume of debt – more of the bubble economics that has just crashed all around us!

Iceland can lead the way

This clearly is not something that Iceland can afford. In fact, the United States cannot afford it either, as much real estate already has sunk into negative equity so that banks are not going to be willing to lend in any event. Fortunately, Iceland’s situation is so extreme that it may be saved even from the thought of creating yet new debt. It can face the financial problem and start to write down the debt overhead, to bring it in line with the economy’s ability to pay or in many cases simply write it off altogether.

First, Iceland needs to take a census of the magnitude of debts owed at home and abroad, and of the institutions to which these debts are owed. Second, it needs to assess the economy’s ability to pay these debts. This was the principle on which the world’s creditor nations founded the Bank for International Settlements in 1931, to assess Germany’s capacity to pay. Reference must be made both to the magnitude of debt relative to current price trends for the collateral supposedly backing this debt, and to the economy’s ability to produce a domestic-currency and foreign-exchange surplus over and above basic needs, including capital replenishment to grow at historical rates over time.

By insisting on a fully transparent financial analysis of who owes how much to whom, Iceland can toss the ball back into the creditors’ court and ask the bankers to explain just how they propose that Iceland should pay – and what they anticipate will be the economy-wide effect of such payment. How much can Iceland afford to pay in the next few years without losing its democratic home ownership and property ownership patterns and without abandoning its social democratic public policies? How can Iceland pay its debts without bankrupting itself, abandoning its social democracy and polarizing its hitherto homogeneous population between a tiny creditor oligarchy and the rest of the population? The island is in danger of creating a new ruling class that will control its destiny for the next century. Again, Adam Smith warned that financial oligarchies act with concern only for how much they can extract, not what they can help produce. They are not good forward planners and do not act responsibly because it is easier for creditors to strip assets than to create new capital.

In taking this position Iceland will simply be following the moral philosophy laid down by every major religion and every body of ancient and modern law as a core principle: the idea that credit must be kept within the ability to pay. It is obvious enough that global lenders have extended credit far beyond Iceland’s ability to pay. For over two centuries the United States has an excellent tradition in how to deal with this problem. Already in the colonial period New York State enacted the Fraudulent Conveyance law, which has remained on the books ever since New York joined the new nation. The problem it faced was British creditors and speculators coming to upstate New York to cheat local farmers out of their rich, well-situated land. The ploy was to extend a loan to a needy farmer, and then call it in just before harvest-time when the debtor lacked the money to pay. Alternatively, the speculator might simply lend more than the farmer could afford to pay even under normal conditions. So New York blocked this predatory practice by passing a law saying that if a bank or other creditor made a loan without knowing just how the debtor was to repay it, the loan would be declared null and void. It would be wiped off the books.

This law received considerable attention in the 1980s when Drexel Burnham and its emulators began providing junk-bond credit to corporate raiders. Companies defended themselves by pointing out that the only way that these high-interest bonds could be paid was by breaking up the target company and downsizing its labor force. But most of all, the law has international relevance. Most U.S. bank consortia have a New York City lead bank negotiate with Third World governments and other foreign borrowers. So far, none of these debtors have sought to annul their loans on the ground that the only way they can pay is to sell off their public enterprises and other government assets. But the enabling legislation is there, and provides an excellent model for Iceland to emulate. By pursuing this policy Iceland would achieve the kind of economic freedom defined by the classical economists – a market free of technologically unnecessary overhead charges, headed by surplus extraction by a vested oligarchy.

For financial interests, by contrast, their idea free market is one that leaves them free to do the economic planning “free” from government regulation and democratic constraint on their extractive, predatory credit and foreclosure practices. Wherever they have gained sway they have shrunk economies. Since the 1960s their proxies at the IMF and World Bank have imposed austerity programs on Third World countries, extending foreign-currency loans whose effect has been to make these countries more dependent and driven them even deeper into debt. In the post-Soviet economies since 1991, financial strategists have focused on prying away public enterprise, selling it off or using it as collateral for loans. The result of “financializing” these economies has been to provide a free field for predatory vested interests in league with globalized domestic financial oligarchies. In sum, the neoliberal model victimizes debtors, preventing them from paying their debts. Instead of funding new capital formation, it strips economies of their assets and empties them out. Ultimately this drags down the creditor economies themselves, as occurred in ancient Rome, medieval Spain, and the United States and Britain in the Great Depression (not to mention what is unfolding today).

Iceland is facing a bold con job. Should it feel obliged to pay countries that have no intention of ever paying their own debts? To get paid, creditors must convince their prey to accept the falsehood that debts can and indeed should be paid. The lie is that they can be paid without dismantling social democracy, selling off the public domain and polarizing society between creditors and debtors.

The point of reference should be Iceland’s broad long-term picture – the economy’s survival and growth prospects for the future. Foreign-currency loans should be denominated in domestic currency at written-down (and de-indexed) interest rates, or repudiated outright. The guiding principle should be to annul debts taken out under terms that are destructive and extractive.

As for the nitty-gritty of negotiating a resolution to Iceland’s debt crisis, the nation needs to re-frame the terms of the debate by removing fictitious assumptions that have no basis in reality. The first trammel of the mind is the assumption that Iceland needs to negotiate in a way that wins the creditors’ approval in a compromise. It is not possible for any fair agreement to be reached in this way. Any negotiation between creditors and debtors is adversarial, and creditors have spent many decades refining demagogic public relations ploys to divert attention to abstractions about “fairness.” A typical ploy is to ask whether it is fair for some debtors to receive larger write-offs than others. Is it fair for the most highly indebted individuals to gain the most – more than people who were more responsible? The aim here is to inflame popular resentment that some debtors will get a bigger write-off than others (and some debtors are indeed as as guilty as the perpetrators who sold them on the idea that home prices only go up), so as to blame the poor and most highly indebted rather than reckless creditors.

The real issue is the health of the overall economy. The parties seeking the most are not the most indebted individuals, but the largest creditors. Their aim is to increase their dominion over the rest of society. Above all, their aim is to maximize the power of debt over labor. The worse the economy does, the stronger the creditor position will grow. This is a recipe for economic suicide that will lead to outright debt peonage as domestic depression intensifies. Creditors everywhere else in the world are writing down their claims for payment to reflect plunging property values. Iceland has an opportunity to make itself a model test case for economic justice. What better time to post the basic principle of what is to be saved – an unsupportable debt burden that must collapse in the end, or a society’s survival? Will the government defend its citizens from financial predators, or turn the economy over to them? That is the question.

NOTES

[1] Floyd Norris, “The Problem? Bankers Point to the Rules,” The New York Times, March 13, 2009.

[2] Martin Wolf, “Big risks for the insurer of last resort,” Financial Times, March 6, 2009.

The Anti-Empire Report April 4th, 2009

2009-04-22T08:04:00.001+10:00

The Anti-Empire Report

April 4th, 2009
by William Blum
www.killinghope.org

Some thoughts about socialism

"History is littered with post-crisis regulations. If there are undue restrictions on the operations of businesses, they may view it to be their job to get around them, and you sow the seeds of the next crisis."
– Liz Ann Sonders, chief investment analyst, CharlesSchwab & Co., a leading US provider of investment services.1

And so it goes. Corporations, whether financial or not, strive to maximize profit as inevitably as water seeks its own level. We've been trying to "regulate" them since the 19th century. Or is it the 18th? Nothing helps for long. You close one loophole and the slime oozes out of another hole. Wall Street has not only an army of lawyers and accountants, but a horde of mathematicians with advanced degrees searching for the perfect equations to separate people from their money. After all the stimulus money has come and gone, after all the speeches by our leaders condemning greed and swearing to reforms, after the last congressional hearing deploring the corporate executives to their faces, the boys of Wall Street, shrugging off a few bruises, will resume churning out their assortment of financial entities, documents, and packages that go by names like hedge funds, derivatives, collateralized debt obligations, index funds, credit default swaps, structured investment vehicles, subprime mortgages, and many other pieces of paper with exotic names, for which, it must be kept in mind, there had been no public need or strident demand. Speculation, bonuses, and scotch will flow again, and the boys will be all the wiser, perhaps shaken a bit that they're so reviled, but knowing better now what to flaunt and what to disguise.

This is another reminder that communism or socialism have almost always been given just one chance to work, if that much, while capitalism has been given numerous chances to do so following its perennial fiascos. Ralph Nader has observed: "Capitalism will never fail because socialism will always be there to bail it out."

In the West, one of the most unfortunate results of the Cold War was that 70 years of anti-communist education and media stamped in people's minds a lasting association between socialism and what the Soviet Union called communism. Socialism meant a dictatorship, it meant Stalinist repression, a suffocating "command economy", no freedom of enterprise, no freedom to change jobs, few avenues for personal expression, and other similar truths and untruths. This is a set of beliefs clung to even amongst many Americans opposed to US foreign policy. No matter how bad the economy is, Americans think, the only alternative available is something called "communism", and they know how awful that is.

Adding to the purposeful confusion, the conservatives in England, for 30 years following the end of World War 2, filled the minds of the public with the idea that the Labour Party was socialist, and when recession hit (as it does regularly in capitalist countries) the public was then told, and believed, that "socialism had failed".

Yet, ever since the dissolution of the Soviet Union in 1991, polls taken in Russia have shown a nostalgia for the old system. In the latest example, "Russia Now", a Moscow publication that appears as a supplement in the Washington Post, asked Russians: "What socio-economic system do you favor?" The results were: "State planning and distribution": 58% ... "Based on private property and market relations": 28% ... "Hard to say": 14%.2

In 1994, Mark Brzezinski (son of Zbigniew) was a Fulbright Scholar teaching in Warsaw. He has written: "I asked my students to define democracy. Expecting a discussion on individual liberties and authentically elected institutions, I was surprised to hear my students respond that to them, democracy means a government obligation to maintain a certain standard of living and to provide health care, education and housing for all. In other words, socialism."3

Many Americans cannot go along with the notion of a planned, centralized society. To some extent it's the terminology that bothers them because they were raised to equate a planned society with the worst excesses of Stalinism. Okay, let's forget the scary labels; let's describe it as people sitting down to discuss a particular serious societal problem, what the available options there are to solve the problem, and what institutions and forces in the society have the best access, experience, and assets to deliver those options. So, the idea is to prepare these institutions and forces to deal with the problem in a highly organized, rational manner without having to worry about which corporation's profits might be adversely affected, without relying on "the magic of the marketplace". Now it happens that all this is usually called "planning" and if the organization and planning stem from a government body it can be called "centralized". There's no reason to assume that this has to result in some kind of very authoritarian regime. All of us over a certain age —individually and collectively — have learned a lot about such things from the past. We know the warning signs; that's why the Bush administration's authoritarianism was so early and so strongly condemned.

The overwhelming majority of people in the United States work for a salary. They don't need to be motivated by the quest for profit. It's not in our genes. Virtually everybody, if given the choice, would prefer to work at jobs where the main motivations are to produce goods and services that improve the quality of life of the society, to help others, and to provide themselves with meaningful and satisfying work. It's not natural to be primarily motivated by trying to win or steal "customers" from other people, no holds barred, survival of the fittest or the most ruthless.

A major war can be the supreme test of a nation, a time when it's put under the greatest stress. In World War 2, the US government commandeered the auto manufacturers to make tanks and jeeps instead of private cars. When a pressing need for an atom bomb was seen, Washington did not ask for bids from the private sector; it created the Manhattan Project to do it itself, with no concern for balance sheets or profit and loss statements. Women and blacks were given skilled factory jobs they had been traditionally denied. Hollywood was enlisted to make propaganda films. Indeed, much of the nation's activities, including farming, manufacturing, mining, communications, labor, education, and cultural undertakings were in some fashion brought under new and significant government control, with the war effort coming before private profit. In peacetime, we can think of socialism as putting people before profit, with all the basics guaranteed — health care, all education, decent housing, food, jobs. Those who swear by free enterprise argue that the "socialism" of World War 2 was instituted only because of the exigencies of the war. That's true, but it doesn't alter the key point that it had been immediately recognized by the government that the wasteful and inefficient capitalist system, always in need of proper financial care and feeding, was no way to run a country trying to win a war.

It's also no way to run a society of human beings with human needs. Most Americans agree with this but are not consciously aware that they hold such a belief. In 1987, nearly half of 1,004 Americans surveyed by the Hearst press believed Karl Marx's aphorism: "From each according to his ability, to each according to his need" was to be found in the US Constitution.4

Along these lines, I've written an essay entitled: "The United States invades, bombs, and kills for it, but do Americans really believe in free enterprise?"5

I cannot describe in detail what every nut and bolt of my socialist system would look like. That might appear rather pretentious on my part; most of it would evolve through trial and error anyway; the important thing is that the foundation — the crucial factors in making the important decisions — would rest on people's welfare and the common good coming before profit. Humankind's desperate need to halt environmental degradation regularly runs smack into the profit motive, as does the American health-care system. It's more than a matter of ideology; it's a matter of the quality of life, sustainability, and survival.

"Omission is the most powerful form of lie." – George Orwell

I am asked occasionally why I am so critical of the mainstream media when I quote from them repeatedly in my writings. The answer is simple. The American media's gravest shortcoming is much more their errors of omission than their errors of commission. It's what they leave out that distorts the news more than any factual errors or out-and-out lies. So I can make good use of the facts they report, which a large, rich organization can easier provide than the alternative media.

In early March, the Washington Post ran an article about Iran which stated that "Iranian leaders ... reiterated that the Holocaust was 'a lie'." The article then went on to add that Iranian president Mahmoud Ahmadinejad "repeated his assertion that the Holocaust is a 'big lie'."6 That's all we're told. What is the poor reader to conclude but that some Iranian leaders must be amongst that much vilified and ridiculed group called "Holocaust deniers"?

What the article fails to mention is that these Iranian leaders use the word "lie" to refer to only particular features of the Holocaust. There is no report of any of them simply, clearly, unambiguously, and unequivocally asserting that what we know as the Holocaust never took place. Ahmadinejad, for example, has instead commented about the peculiarity and injustice of a Holocaust which took place in Europe resulting in a state for the Jews in the Middle East instead of in Europe. Why are the Palestinians paying a price for a German crime? he asks. And he wonders about the accuracy of the number of Jews — six million — allegedly killed in the Holocaust, as have many other people of all political stripes and nationalities, including the noted Italian author Primo Levi, a Holocaust survivor. Even Mahmoud Abbas, President of the Palestinian National Authority — Israel and Washington's favorite Palestinian because of his opposition to Hamas, their least favored Palestinians — wrote in his doctoral dissertation: "The truth of the matter is that no one can verify this number, or completely deny it. In other words, the number of Jewish victims might be 6 million and might be much smaller — even less than 1 million."7

It is also worth noting that at the end of the Post article we learn that "a senior Israeli official in Washington, who spoke on the condition of anonymity because he was not cleared to discuss such matters publicly" has asserted that "Iran would be unlikely to use its missiles in an attack [against Israel] because of the certainty of retaliation." Really? That's what I and others have been saying for years. It should have been the story's headline, not the very last sentence, literally. Yet, we can be certain that Israeli and American officials and their disciples will continue to warn the world of the danger of Iranian missile attacks. So will the Washington Post, engaging in future omissions of its own news story.

What actually has long worried Israeli and US officials about possible Iranian nuclear weapons is not that Iran might attack anyone, but that Israel's beloved security blanket — being the only nuclear power in the Middle East — would be at risk, as might be Washington's dominance of the area.

Later in March, the Los Angeles Times ran an obituary of Janet Jagan, the former president of Guyana and widow of Cheddi Jagan who had earlier also been president. The obituary says not a word about the fact that for 11 years, 1953-64, two of the oldest democracies in the world, Great Britain and the United States, went to great lengths in their repeated attempts to prevent the democratically elected Cheddi Jagan from occupying his office.8

I've selected these examples of omission virtually at random. If I wanted to report on each media omission concerning significant US foreign policy matters I could fill this newsletter each month with nothing else.

It happens that in late March the Washington Post also provided us with the less common out-and-out lie. In an editorial about the leftist former guerillas in El Salvador, the FMLN, winning the presidential election with their candidate Mauricio Funes, the Post said: "If Mr. Funes as well as the election's losers now respect the rule of law, the result could be the consolidation of the political system the United States was aiming for when it intervened in El Salvador's civil war during the 1980s. At the time, the goal of a successful Salvadoran democracy was dismissed as a mission impossible, just as some now say democracy is unattainable in Iraq and Afghanistan."9

The idea that the US intervention in the Salvadoran civil war stemmed from a desire to bring democracy to the country is so breathtaking in its audacity that it's conceivable the Post editorial writer is suffering from early-stage Alzheimer's; it's wholly comparable to saying that the Apartheid regime of South Africa strove to increase harmony and equality between blacks and whites. In the process of supporting a Salvadoran government of remarkable tyranny, brutality and human-rights violations, the United States provided the country's armed forces with a never-ending supply of funds, weapons and training that brought continual destruction and suffering to the people of El Salvador. The Post's "disclosure" will not send historians scurrying to rewrite their books. Nor can it serve to conceal the fact that the United States is not fighting for "democracy" in Iraq and Afghanistan any more than it did in El Salvador.

The ideology of Barack Obama

In the past two months:

* US Vice President Joe Biden was asked by reporters at a summit in Chile if Washington plans to put an end to the near-50-year-old economic embargo against Cuba. He replied "No."10
* Israeli authorities broke up a series of Palestinian cultural events in Jerusalem, disrupting a children's march and bursting balloons at a schoolyard celebration.11 There has not been, nor will there be, any embargo of any kind by the United States against Israel. Nor will President Obama make any comment about what he really feels about invading a children's party and bursting their balloons.
* The White House and the Pentagon appear to be having a competition over who can announce the most troops being sent to Afghanistan. Is anyone keeping a body count?
* US drones continue to drop bombs on people's homes and wedding parties in Pakistan. No one in Washington publicly admits to this or comments in any way about the legality or morality of it all.
* Bolivia and Ecuador have expelled American diplomats for what their hosts saw as conspiring to undermine the government.

Any number of other examples can be given of how alike the foreign policies of the Bush and Obama administrations are, how little, if any, change has occurred; certainly nothing of any significance. Yet, my saying such a thing is precisely what most often bothers Obama supporters who read or hear my comments. They're in love with the man with the toothpaste-advertisement smile, who's "smart" (whatever that means), who plays basketball, and is not George W. Bush, and his wife who puts her arm around the queen of England.

Obama's popularity around the world is enhanced, to an important extent, by the fact that he has endeavored to conceal or obscure his real ideology. As an example, in early March, in an interview with the New York Times, he was asked: "Is there a one word name for your philosophy? If you're not a socialist, are you a liberal? Are you progressive? One word?"

"No, I'm not going to engage in that," replied the president.12

The next day he called the Times reporter, telling him: "It was hard for me to believe that you were entirely serious about that socialist question". Obama then gave the reporter several examples of why his policies show that he isn't a socialist.13

He didn't have to convince me. Obama's centrist bent is clear to anyone who bothers to look. But after the Times incident — which apparently bothered him — he may have felt the need to be more clear about his ideological leanings to avoid any further silly "socialist" episodes. The next day, meeting at the White House with members of the New Democrat Coalition, a group of centrist Democratic members of the House, Obama said at one point: "I am a New Democrat."14

Most conservatives will probably continue to see him as a dangerous leftist. They should be happy that Obama is the president and not any kind of real progressive or socialist or even a genuine liberal, but the right wing is greedy.
Notes

1. Washington Post, March 29, 2009 ↩
2. "Russia Now", in Washington Post, March 25, 2009 ↩
3. Los Angeles Times, September 2, 1994 ↩
4. Frank Bernack, Jr., Hearst Corp. President, address to the American Bar Association, early 1987, reported in In These Times magazine (Chicago), June 24 - July 7, 1987 ↩
5. William Blum, "Rogue State: A Guide to the World's Only Superpower", chapter 26 ↩
6. Washington Post, March 5, 2009 ↩
7. The Middle East Media Research Institute, "Inquiry and Analysis", No. 95, May 30, 2002; also see Wikipedia, entry for Mahmoud Abbas, "Doctoral Dissertation" section. ↩
8. Los Angeles Times, March 29, 2009. See William Blum, "Killing Hope: US Military and CIA Interventions Since World War II", chapter 16 for what was left out. ↩
9. Washington Post, March 21, 2009 ↩
10. Miami Herald, March 28, 2009 ↩
11. Washington Post, March 22, 2009 ↩
12. New York Times, March 7, 2009 ↩
13. New York Times, March 8 2009 ↩
14. Politico magazine, online, March 10, 2009 ↩

–

William Blum is the author of:

* Killing Hope: US Military and CIA Interventions Since World War 2
* Rogue State: A Guide to the World's Only Superpower
* West-Bloc Dissident: A Cold War Memoir
* Freeing the World to Death: Essays on the American Empire

Portions of the books can be read, and signed copies purchased, at www.killinghope.org

Previous Anti-Empire Reports can be read at this website.

To add yourself to this mailing list simply send an email to bblum6@aol.com with "add" in the subject line. I'd like your name and city in the message, but that's optional. I ask for your city only in case I'll be speaking in your area.

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Any part of this report may be disseminated without permission. I'd appreciate it if the website were mentioned.

A criminally stupid war on drugs in the US

2009-04-14T09:02:00.002+10:00

Financial Times:

How much misery can a policy cause before it is acknowledged as a failure and reversed? The US “war on drugs” suggests there is no upper limit. The country’s implacable blend of prohibition and punitive criminal justice is wrong-headed in every way: immoral in principle, since it prosecutes victimless crimes, and in practice a disaster of remarkable proportions. Yet for a US politician to suggest wholesale reform of this brainless regime is still seen as an act of reckless self-harm.

Even a casual observer can see that much of the damage done in the US by illegal drugs is a result of the fact that they are illegal, not the fact that they are drugs. Vastly more lives are blighted by the brutality of prohibition, and by the enormous criminal networks it has created, than by the substances themselves. This is true of cocaine and heroin as well as of soft drugs such as marijuana. But the assault on consumption of marijuana sets the standard for the policy’s stupidity.

I think there are two special factors which make it hard for drug law reform: the simply colossal sums of money involved, all of which by definition supports massive corruption across the world; and the involvement of secret police and intelligence agencies in drug trafficking, as a source of covert revenue.

But of course drug prohibition should be completely abandoned. A better response to the problem of drug and substance abuse is a regime of taxation, regulation and education.

Turnbull attacks Ruddnet

2009-04-14T08:14:00.003+10:00

Using the unquestioned dogma of neo-classical economics, that if the private sector can't finance it or make a profit out of it, it should not be built, Opposition Leader Turnbull criticises the Ruddnet:

MALCOLM Turnbull has likened Kevin Rudd's $43 billion high-speed broadband plan to the failed business case for Sydney's Cross City Tunnel, which cost nearly $1 billion to build but went broke, with shareholders losing their investment.

The Opposition Leader writes in The Australian today that just as the tunnel venture went broke because of "wildly optimistic" traffic assumptions, the Prime Minister's failure to research the business case for the broadband venture could produce a catastrophe for taxpayers.

Time for a paradigm shift: the function of government is to build infrastructure, and it should not be operated for a profit. Its purpose is to provide a benefit.

Rudd proposes to fund the Ruddnet by issuing bonds but in my view a better funding method would be rating land values. Infrastructure creates land value and thus the economic surplus or economic rent is the ideal and natural source of funding for infrastructure investment. Pricing of the service once built should follow what's been called 'marginal cost pricing', ie price it cheaply or even make it free to encourage maximum usage and takeup. All of this of course is nearly the exact opposite of the neo-liberal, neo-classical cult of "privatize and deregulate and let the market supply the cargo" (in spite of the fact as Turnbull admits in regards both to the Ruddnet and the cross city tunnel) that the cargo will not arrive.

Broadband Infrastruture: Govt does the right thing!

2009-04-08T07:53:00.005+10:00

A lot of people seem to be responding with surprise the Federal Government's announcement that it will itself build a nationwide Fibre to the Premises (FTTP) broadband network.

It's telling for me that one of the most basic functions of government - to build and maintain physical infrastructure that is in the nature of a natural monopoly - is so neglected that the right decision comes as a surprise. Neo-classical economics (which declares the cargo cult of the market will provide) and neo-liberalism (which loudly says privatize and let the chaos of the market rule) have conspired with both major parties to nearly eliminate Government's basic role.

T-Cwp infrastructure (transport, communications, water, power) can and should be funded by land revenue as well. See how much 'property values' are worth when every bridge has been bombed, every road potholed, every telecommunications exchange, power generation and water sanitation plant destroyed as we did in Iraq.

That's one thing that could be said for neoliberal/neoconservative ideology: they dont know how to fund and build infrastructure but they sure know how to wreck it.

One can compare this decision to the brain dead decision of earlier years to allow 'competing' telecommunications companies to run two cables down some streets but none down others. Almost incredible that such stupidity would be allowed to actually materialize, but it did.

The government's decision raises some rather obvious issues: it was a mistake to privatize Telstra (the monopoloy carrier) in the first place; so why do they insist of also privatizing the new network once it is built? Time to re-embrace public ownership. Infrastructure is not for 'profit', its for public benefit. The charges should the least that can be done to build and maintain the network to the desired standard. And instead of selling 'Aussie Infrastructure Bonds' to finance it (not a bad idea in itself), why not raise revenue from land rates? (see above re property values). Here's the slogan: T-CWP by LR.

There's a deal of interesting commentary on this decision, mostly positive:

Crikey: Packer would have stopped it

End of the Copper Monopoly

Australia to lead the world at something good

Shiny New Network

Government got it right

The people on whirlpool have got some interesting comments

More on Ayn Rand

2009-04-06T22:35:00.007+10:00

More on the horror that is (or was) Ayn Rand. Amazingly, it's even worse than many of us have long thought.

Admiring the Psychopath

In her defence it's claimed she was 'still under the spell of Nietzsche' - but this is a perverted, distorted, Nazi-like Nietzsche, no doubt very popular in the heyday of fascism and nazism. (And despite a setback involving a bullet to the hero's head, still rather more popular than many people want to admit.)

It's awfully telling that the right promoted Rand as a 'philosopher'. Between her, the anti-evolutionists, Strauss and the neocons, and the AGW deniers, there's some powerful thought, isn't there?

"At this point in my life, I did not think it was possible to significantly lower my estimate of Ayn Rand, or to regard her as even more of a psychological and moral mess than I had already taken her to be."

"-- There are two novels that can change a bookish fourteen-year old's life: The Lord of the Rings and Atlas Shrugged. One is a childish fantasy that often engenders a lifelong obsession with its unbelievable heroes, leading to an emotionally stunted, socially crippled adulthood, unable to deal with the real world. The other, of course, involves orcs."