Softpanorama

Home Switchboard Unix Administration Red Hat TCP/IP Networks Neoliberalism Toxic Managers
May the source be with you, but remember the KISS principle ;-)
Bigger doesn't imply better. Bigger often is a sign of obesity, of lost control, of overcomplexity, of cancerous cells

Debt enslavement

News Neocolonialism as Financial Imperialism Recommended Links IMF as the key institution for neoliberal debt enslavement Ukraine debt enslavement Greece debt enslavement
Eroding Western living standards Argentina vs vulture funds Merchants of Debt Credit Default Swaps Kleptocracy  
Control Fraud and Principal-agent problem Numbers racket Glass-Steagall repeal Vulture Funds    
 
"It's barbarism. I see it coming masqueraded under lawless alliances and predetermined enslavements. It may not be about Hitler's furnaces, but about the methodical and quasi-scientific subjugation of Man. His absolute humiliation. His disgrace"

Odysseas Elytis, Greek poet, in a press conference on the occasion of receiving the Nobel Prize (1979)

One of "innovations" of neoliberalism was extension known since Ancient Greece concept of debt slavery to the whole countries. Here is description based on Debt bondage - Wikipedia, the free encyclopedia

Debt bondage (also known as debt slavery or bonded labor) is a person's pledge of their labor or services as security for the repayment for a debt or other obligation. The services required to repay the debt may be undefined, and the services' duration may be undefined. Debt bondage can be passed on from generation to generation.

Debt bondage has been described by the United Nations as a form of "modern day slavery" and the [3]  Most countries are parties to the Convention, but the practice is still prevalent in South Asia. Debt bondage in India was legally abolished in 1976 but remains prevalent.

Debt bondage was very common in Ancient Greece. In ancient Athens, Solon forbade taking out loans using oneself as a security and ended such debts.

Europe

Classical antiquity

Debt bondage was "quite normal" in [4]  The poor or those who had fallen irredeemably in debt might place themselves into bondage "voluntarily"—or more precisely, might be compelled by circumstances to choose debt bondage as a way to anticipate and avoid worse terms that their creditors might impose on them.[5] In the Greco-Roman world, debt bondage was a distinct legal category into which a free person might fall, in theory temporarily, distinguished from the pervasive practice of slavery, which included enslavement as a result of defaulting on debt. Many forms of debt bondage existed in both ancient Greece and [6].

Debt bondage was widespread in ancient Greece. The only city-state known to have abolished it is Athens, as early as the Archaic period under the debt reform legislation of [7] Both enslavement for debt and debt bondage were practiced in [8]  By the Hellenistic period, the limited evidence indicates that debt bondage had replaced outright enslavement for debt.[8]

The most onerous debt bondage was various forms of paramonē, "indentured labor." As a matter of law, a person subjected to paramonē was categorically free, and not a slave, but in practice his freedom was severely constrained by his servitude.  Solon's reforms occurred in the context of democratic politics at Athens that required clearer distinctions between "free" and "slave"; as a perverse consequence.

The selling of one's own child into slavery is likely in most cases to have resulted from extreme poverty or debt, but strictly speaking is a form of chattel slavery, not debt bondage. The exact legal circumstances in Greece, however, are far more poorly documented than in ancient Rome.

Nexum was a debt bondage contract in the early Roman Republic. Within the Roman legal system, it was a form of mancipatio. Though the terms of the contract would vary, essentially a free man pledged himself as a bond slave (nexus) as surety for a loan. He might also hand over his son as collateral. Although the bondsman might be subjected to humiliation and abuse, as a legal citizen he was supposed to be exempt from corporal punishment. Nexum was abolished by the Lex Poetelia Papiria in 326 BC, in part to prevent abuses to the physical integrity of citizens who had fallen into debt bondage.

Roman historians illuminated the abolition of nexum with a traditional story that varied in its particulars; basically, a nexus who was a handsome but upstanding youth suffered sexual harassment by the holder of the debt. In one version, the youth had gone into debt to pay for his father's funeral; in others, he had been handed over by his father. In all versions, he is presented as a model of virtue. Historical or not, the cautionary tale highlighted the incongruities of subjecting one free citizen to another's use, and the legal response was aimed at establishing the citizen's right to liberty (libertas), as distinguished from the slave or [11]

Cicero considered the abolition of nexum primarily a political maneuver to appease the common people (plebs): the law was passed during the Conflict of the Orders, when plebeians were struggling to establish their rights in relation to the hereditary privileges of the patricians. Although nexum was abolished as a way to secure a loan, debt bondage might still result after a debtor defaulted.

While serfdom under feudalism was the predominant political and economic system in Europe in the High Middle Ages, persisting the Austrian Empire till 1848 and the Russian Empire until 1861 ([12]  debt bondage (and slavery) provided other forms of unfree labour.

Americas

For more details on indentured servitude in the American colonies, see Indentured servant.

Asia

The Indian indenture system was an ongoing system of indenture, based on debt bondage, by which perhaps two million Indians were transported to various colonies of European powers to provide labour for the (mainly sugar) plantations. It started from the end of slavery in 1833 and until 1920.

Current status

See also: Human trafficking

According to the Anti-Slavery Society:

Pawnage or pawn slavery is a form of servitude akin to bonded labor under which the debtor provides another human being as security or collateral for the debt. Until the debt (including interest on it) is paid off, the creditor has the use of the labor of the pawn.[15]

Debt bondage has been described by the United Nations as a form of "modern day slavery"[3] and is prohibited by international law. It is specifically dealt with by article 1(a) of the United Nations 1956 Supplementary Convention on the Abolition of Slavery. It persists nonetheless especially in developing countries, which have few mechanisms for credit security or bankruptcy, and where fewer people hold formal title to land or possessions. According to some economists, for example Hernando de Soto, this is a major barrier to development in those countries because, for example, entrepreneurs do not dare take risks and cannot get credit because they hold no citation needed

Researcher Siddharth Kara has calculated the number of slaves in the world by type, and determined that at the end of 2006 there were 18.1 million people subject to debt bondage.[16]

In India, the rise of Dalit activism, government legislation starting as early as 1949,[17] as well as ongoing work by NGOs and government offices to enforce labour laws and rehabilitate those in debt, appears to have contributed to the reduction of bonded labour there. However, according to research papers presented by the International Labour Organization, there are still many obstacles to the eradication of bonded labour in India.[19]

Reprinted from "SUPER CAPITALISM, SUPER IMPERIALISM by Henry C K Liu"

PART 1: A Structural Link

Robert B Reich, former US Secretary of Labor and resident neo-liberal in the Clinton administration from 1993 to 1997, wrote in the September 14, 2007 edition of The Wall Street Journal an opinion piece, "CEOs Deserve Their Pay", as part of an orchestrated campaign to promote his new book: Supercapitalism: The Transformation of Business, Democracy, and Everyday Life (Afred A Knopf). Hexter Professor of Social and Economic Policy at the Heller School for Social Policy and Management at Brandeis University. He is currently a professor at the Goldman School of Public Policy at the University of California (Berkley) and a regular liberal gadfly in the unabashed supply-side Larry Kudlow TV show that celebrates the merits of capitalism.

Reich's Supercapitalism brings to mind Michael Hudson's Super Imperialism: The Economic Strategy of American Empire (1972-2003). While Reich, a liberal turned neo-liberal, sees "supercapitalism" as the natural evolution of insatiable shareholder appetite for gain, a polite euphemism for greed, that cannot or should not be reined in by regulation, Hudson, a Marxist heterodox economist, sees "super imperialism" as the structural outcome of post-World War II superpower geopolitics, with state interests overwhelming free market forces, making regulation irrelevant. While Hudson is critical of "super imperialism" and thinks that it should be resisted by the weaker trading partners of the US, Reich gives the impression of being ambivalent about the inevitability, if not the benignity, of "supercapitalism".

The structural link between capitalism and imperialism was first observed by John Atkinson Hobson (1858-1940), an English economist, who wrote in 1902 an insightful analysis of the economic basis of imperialism. Hobson provided a humanist critique of neoclassical economics, rejecting exclusively materialistic definitions of value. With Albert Frederick Mummery (1855-1895), the great British mountaineer who was killed in 1895 by an avalanche while reconnoitering Nanga Parbat, an 8,000-meter Himalayan peak, Hobson wrote The Physiology of Industry (1889), which argued that an industrial economy requires government intervention to maintain stability, and developed the theory of over-saving that was given a glowing tribute by John Maynard Keynes three decades later.

The need for governmental intervention to stabilize an expanding national industrial economy was the rationale for political imperialism. On the other side of the coin, protectionism was a governmental counter-intervention on the part of weak trading partners for resisting imperialist expansion of the dominant power. Historically, the processes of globalization have always been the result of active state policy and action, as opposed to the mere passive surrender of state sovereignty to market forces. Market forces cannot operate in a vacuum. They are governed by man-made rules. Globalized markets require the acceptance by local authorities of established rules of the dominant economy. Currency monopoly of course is the most fundamental trade restraint by one single dominant government.

Adam Smith published Wealth of Nations in 1776, the year of US independence. By the time the constitution was framed 11 years later, the US founding fathers were deeply influenced by Smith's ideas, which constituted a reasoned abhorrence of trade monopoly and government policy in restricting trade. What Smith abhorred most was a policy known as mercantilism, which was practiced by all the major powers of the time. It is necessary to bear in mind that Smith's notion of the limitation of government action was exclusively related to mercantilist issues of trade restraint. Smith never advocated government tolerance of trade restraint, whether by big business monopolies or by other governments in the name of open markets.

A central aim of mercantilism was to ensure that a nation's exports remained higher in value than its imports, the surplus in that era being paid only in specie money (gold-backed as opposed to fiat money). This trade surplus in gold permitted the surplus country, such as England, to invest in more factories at home to manufacture more for export, thus bringing home more gold. The importing regions, such as the American colonies, not only found the gold reserves backing their currency depleted, causing free-fall devaluation (not unlike that faced today by many emerging-economy currencies), but also wanting in surplus capital for building factories to produce for domestic consumption and export. So despite plentiful iron ore in America, only pig iron was exported to England in return for English finished iron goods. The situation was similar to today's oil producing countries where despite plentiful crude oil, refined petrochemical products such as gasoline and heating oil have to be imported.

In 1795, when the newly independent Americans began finally to wake up to their disadvantaged trade relationship and began to raise European (mostly French and Dutch) capital to start a manufacturing industry, England decreed the Iron Act, forbidding the manufacture of iron goods in its American colonies, which caused great dissatisfaction among the prospering colonials. Smith favored an opposite government policy toward promoting domestic economic production and free foreign trade for the weaker traders, a policy that came to be known as "laissez faire" (because the English, having nothing to do with such heretical ideas, refuse to give it an English name). Laissez faire, notwithstanding its literal meaning of "leave alone", meant nothing of the sort. It meant an activist government policy to counteract mercantilism. Neo-liberal free-market economists are just bad historians, among their other defective characteristics, when they propagandize "laissez faire" as no government interference in trade affairs.

Friedrich List, in his National System of Political Economy (1841), asserts that political economy as espoused in England, far from being a valid science universally, was merely British national opinion, suited only to English historical conditions. List's institutional school of economics asserts that the doctrine of free trade was devised to keep England rich and powerful at the expense of its trading partners and it must be fought with protective tariffs and other protective devices of economic nationalism by the weaker countries.

Henry Clay's "American system" was a national system of political economy. US neo-imperialism in the post WWII period disingenuously promotes neo-liberal free-trade against governmental protectionism to keep the US rich and powerful at the expense of its trading partners. Before the October Revolution of 1917, many national liberation movements in European colonies and semi-colonies around the world were influenced by List's economic nationalism. The 1911 Nationalist Revolution in China, led by Sun Yat-sen, was heavily influenced by Lincoln's political ideas - government of the people, by the people and for the people - and the economic nationalism of List, until after the October Revolution when Sun realized that the Soviet model was the correct path to national revival.

Hobson's magnum opus, Imperialism, (1902), argues that imperialistic expansion is driven not by state hubris, known in US history as "manifest destiny", but by an innate quest for new markets and investment opportunities overseas for excess capital formed by over-saving at home for the benefit of the home state. Over-saving during the industrial age came from Richardo's theory of the iron law of wages, according to which wages were kept perpetually at subsistence levels as a result of uneven market power between capital and labor. Today, job outsourcing that returns as low-price imports contributes to the iron law of wages in the US domestic economy. (See my article Organization of Labor Exporting Countries [OLEC]).

Hobson's analysis of the phenology (study of life cycles) of capitalism was drawn upon by Lenin to formulate a theory of imperialism as an advanced stage of capitalism: "Imperialism is capitalism at that stage of development at which the dominance of monopolies and finance capitalism is established; in which the export of capital has acquired pronounced importance; in which the division of the world among the international trusts has begun, in which the division of all territories of the globe among the biggest capitalist powers has been completed." (Vladimir Ilyich Lenin, 1916, Imperialism, the Highest Stage of Capitalism, Chapter 7).

Lenin was also influenced by Rosa Luxemberg, who three year earlier had written her major work, The Accumulation of Capital: A Contribution to an Economic Explanation of Imperialism (Die Akkumulation des Kapitals: Ein Beitrag zur ökonomischen Erklärung des Imperialismus), 1913). Luxemberg, together with Karl Liebknecht a founding leader of the Spartacist League (Spartakusbund), a radical Marxist revolutionary movement that later renamed itself the Communist Party of Germany (Kommunistische Partei Deutschlands, or KPD), was murdered on January 15, 1919 by members of the Freikorps, rightwing militarists who were the forerunners of the Nazi Sturmabteilung (SA) led by Ernst Rohm.

The congenital association between capitalism and imperialism requires practically all truly anti-imperialist movements the world over to be also anti-capitalist. To this day, most nationalist capitalists in emerging economies are unwitting neo-compradors for super imperialism. Neo-liberalism, in its attempts to break down all national boundaries to facilitate global trade denominated in fiat dollars, is the ideology of super imperialism.

Hudson, the American heterodox economist, historian of ancient economies and post-WW II international balance-of-payments specialist, advanced in his 1972 book the notion of 20th century super imperialism. Hudson updated Hobson's idea of 19th century imperialism of state industrial policy seeking new markets to invest home-grown excess capital. To Hudson, super imperialism is a state financial strategy to export debt denominated in the state's fiat currency as capital to the new financial colonies to finance the global expansion of a superpower empire. No necessity, or even intention, was entertained by the superpower of ever having to pay off these paper debts after the US dollar was taken off gold in 1971.

Monetary Imperialism and Dollar Hegemony

Super imperialism transformed into monetary imperialism after the 1973 Middle East oil crisis with the creation of the petrodollar and two decades later emerged as dollar hegemony through financial globalization after 1993. As described in my 2002 AToL article, Dollar hegemony has to go, a geopolitical phenomenon emerged after the 1973 oil crisis in which the US dollar, a fiat currency since 1971, continues to serve as the primary reserve currency for  international trade because oil continues to be denominated in fiat dollars as a result of superpower geopolitics, leading to dollar hegemony in 1993 with the globalization of deregulated financial markets.

Three causal developments allowed dollar hegemony to emerge over a span of two decades after 1973 and finally take hold in 1993. US fiscal deficits from overseas spending since the 1950s caused a massive drain in US gold holdings, forcing the US in 1971 to abandon the 1945 Bretton Woods regime of fixed exchange rate based on a gold-backed dollar. Under that international financial architecture, cross-border flow of funds was not considered necessary or desirable for promoting international trade or domestic development. The collapse of the 1945 Bretton Woods regime in 1971 was the initial development toward dollar hegemony.

The second development was the denomination of oil in dollars after the 1973 Middle East oil crisis. The emergence of petrodollars was the price the US, still only one of two contending superpowers in 1973, extracted from defenseless oil-producing nations for allowing them to nationalize the Western-owned oil industry on their soil. As long as oil transactions are denominated in fiat dollars, the US essentially controls all the oil in the world financially regardless of specific ownership, reducing all oil producing nations to the status of commodity agents of dollar hegemony.

The third development was the global deregulation of financial markets after the Cold War, making cross-border flow of funds routine, and a general relaxation of capital and foreign exchange control by most governments involved in international trade. This neo-liberal trade regime brought into existence a foreign exchange market in which free-floating exchange rates made computerized speculative attacks on weak currencies a regular occurrence. These three developments permitted the emergence of dollar hegemony after 1994 and helped the US win the Cold War with financial power derived from fiat money.

Dollar hegemony advanced super imperialism one stage further from the financial to the monetary front. Industrial imperialism sought to achieve a trade surplus by exporting manufactured good to the colonies for gold to fund investment for more productive plants at home. Super imperialism sought to extract real wealth from the colonies by paying for it with fiat dollars to sustain a balance of payments out of an imbalance in the exchange of commodities. Monetary imperialism under dollar hegemony exports debt denominated in fiat dollars through a permissive trade deficit with the new colonies, only to re-import the debt back to the US as capital account surplus to finance the US debt bubble.

The circular recycling of dollar-denominated debt was made operative by the dollar, a fiat currency that only the US can print at will, continuing as the world's prime reserve currency for international trade and finance, backed by US geopolitical superpower. Dollars are accepted universally because oil is denominated in dollars and everyone needs oil and thus needs dollars to buy oil. Any nation that seeks to denominate key commodities, such as oil, in currencies other than the dollar will soon find itself invaded by the sole superpower. Thus the war on Iraq is not about oil, as former Federal Reserve chairman Alan Greenspan suggested recently. It is about keeping oil denominated in dollars to protect dollar hegemony. The difference is subtle but of essential importance.

Since 1993, central banks of all trading nations around the world, with the exception of the US Federal Reserve, have been forced to hold more dollar reserves than they otherwise need to ward off the potential of sudden speculative attacks on their currencies in unregulated global financial markets. Thus "dollar hegemony" prevents the exporting nations, such as the Asian Tigers, from spending domestically the dollars they earn from the US trade deficit and forces them to fund the US capital account surplus, shipping real wealth to the US in exchange for the privilege of financing further growth of the US debt economy.

Not only do these exporting nations have to compete by keeping their domestic wages down and by prostituting their environment, the dollars that they earn cannot be spent at home without causing a monetary crisis in their own currencies because the dollars they earn have to be exchanged into local currencies before they can be spent domestically, causing an excessive rise in their domestic money supply which in turn causes domestic inflation-pushed bubbles. While the trade-surplus nations are forced to lend their export earnings back to the US, these same nations are starved for capital, as global capital denominated in dollars will only invest in their export sectors to earn more dollars. The domestic sector with local currency earnings remains of little interest to global capital denominated in dollars. As a result, domestic development stagnates for lack of capital.

Dollar hegemony permits the US to transform itself from a competitor in world markets to earn hard money, to a fiat-money-making monopoly with fiat dollars that only it can print at will. Every other trading nation has to exchange low-wage goods for dollars that the US alone can print freely and that can be spent only in the dollar economy without monetary penalty.

The victimization of Japan and China

Japan is a classic victim of monetary imperialism. In 1990, as a result of Japanese export prowess, the Industrial Bank of Japan was the largest bank in the world, with a market capitalization of $57 billion. The top nine of the 10 largest banks then were all Japanese, trailed by Canadian Alliance in 10th place. No US bank made the top-10 list. By 2001, the effects of dollar hegemony have pushed Citigroup into first place with a market capitalization of $260 billion. Seven of the top 10 largest financial institutions in the world in 2001 were US-based, with descending ranking in market capitalization: Citigroup ($260 billion), AIG ($209 billion), HSBC (British-$110 billion), Berkshire Hathaway ($100 billion), Bank of America ($99 billion), Fanny Mae ($80 billion), Wells Fargo ($74 billion), JP Morgan Chase ($72 billion), RBS (British-$70 billion) and UBS (Swiss-$67 billion). No Japanese bank survived on the list.

China is a neoclassic case of dollar hegemony victimization even though its domestic financial markets are still not open and the yuan is still not freely convertible. With over $1.4 trillion in foreign exchange reserves earned at a previously lower fixed exchange rate of 8.2 to a dollar set in 1985, now growing at the rate of $1 billion a day at a narrow-range floating exchange rate of around 7.5 since July 2005, China cannot spend much of it dollar holdings on domestic development without domestic inflation caused by excessive expansion of its yuan money supply. The Chinese economy is overheating because the bulk of its surplus revenue is in dollars from exports that cannot be spent inside China without monetary penalty. Chinese wages are too low to absorb sudden expansion of yuan money supply to develop the domestic economy. And with over $1.4 trillion in foreign exchange reserves, equal to its annual GDP, China cannot even divest from the dollar without having the market effect of a falling dollar moving against its remaining holdings.

The People's Bank of China announced on July 20, 2005 that effective immediately the yuan exchange rate would go up by 2.1% to 8.11 yuan to the US dollar and that China would drop the dollar peg to its currency. In its place, China would move to a "managed float" of the yuan, pegging the currency's exchange value to an undisclosed basket of currencies linked to its global trade. In an effort to limit the amount of volatility, China would not allow the currency to fluctuate by more than 0.3% in any one trading day. Linking the yuan to a basket of currencies means China's currency is relatively free from market forces acting on the dollar, shifting to market forces acting on a basket of currencies of China's key trading partners. The basket is composed of the euro, yen and other Asian currencies as well as the dollar. Though the precise composition of the basket was not disclosed, it can nevertheless be deduced by China's trade volume with key trading partners and by mathematical calculation from the set-daily exchange rate.

Thus China is trapped in a trade regime operating on an international monetary architecture in which it must continue to export real wealth in the form of underpaid labor and polluted environment in exchange for dollars that it must reinvest in the US. Ironically, the recent rise of anti-trade sentiment in US domestic politics offers China a convenient, opportune escape from dollar hegemony to reduce its dependence on export to concentrate on domestic development. Chinese domestic special interest groups in the export sector would otherwise oppose any policy to slow the growth in export if not for the rise of US protectionism which causes shot-term pain for China but long-term benefit in China's need to restructure its economy toward domestic development. Further trade surplus denominated in dollar is of no advantage to China.

Emerging markets are new colonies of monetary imperialism

Even as the domestic US economy declined after the onset of globalization in the early 1990s, US dominance in global finance has continued to this day on account of dollar hegemony. It should not be surprising that the nation that can print at will the world's reserve currency for international trade should come up on top in deregulated global financial markets. The so-called emerging markets around the world are the new colonies of monetary imperialism in a global neo-liberal trading regime operating under dollar hegemony geopolitically dominated by the US as the world's sole remaining superpower.

Denial of corporate social responsibility
In Supercapitalism, Reich identifies corporate social responsibility as a diversion from economic efficiency and an un-capitalistic illusion. Of course the late Milton Friedman had asserted that the only social responsibility of corporations is to maximize profit, rather than to generate economic well-being and balanced growth through fair profits. There is ample evidence to suggest that a single-minded quest for maximizing global corporate profit can lead to domestic economic decline in even the world's sole remaining superpower. The US public is encouraged to blame such decline on the misbehaving trading partners of the US rather than US trade policy that permits US transnational corporation to exploit workers in all trading nations, including those in the US. It is a policy that devalues work by over-rewarding financial manipulation.

Yet to Reich, the US corporate income tax is regressive and inequitable and should be abolished so that after-tax corporate profit can be even further enhanced. This pro-profit position is at odds with even rising US Republican sentiment against transnational corporations and their global trade strategies. Reich also thinks the concept of corporate criminal liability is based on an "anthropomorphic fallacy" that ends up hurting innocent people. Reich sees as inevitable an evolutionary path towards an allegedly perfect new world of a super-energetic capitalism responding to the dictate of all-powerful consumer preference through market democracy.

Reich argues that corporations cannot be expected to be more "socially responsible" than their shareholders or even their consumers, and he implies that consumer preference and behavior are the proper and effective police forces that supersede the need for market regulation. He sees corporations, while viewed by law as "legal persons", as merely value-neutral institutional respondents of consumer preferences in global markets. Reich claims that corporate policies, strategies and behavior in market capitalism are effectively governed by consumer preferences and need no regulation by government. This is essentially the ideology of neo-liberalism.

Yet US transnational corporations derive profit from global operations serving global consumers to maximize return on global capital. These transnational corporations will seek to shift production to where labor is cheapest and environmental standards are lowest and to market their products where prices are highest and consumer purchasing power the strongest. Often, these corporations find it more profitable to sell products they themselves do not make, controlling only design and marketing, leaving the dirty side of manufacturing to others with underdeveloped market power. This means if the US wants a trade surplus under the current terms of trade, it must lower it wages. The decoupling of consumers from producers weakens the conventional effects of market pressure on corporate social responsibility. Transnational corporations have no home community loyalty. Consumers generally do not care about sweat shop conditions overseas while overseas workers do not care about product safety on goods they produce but cannot afford to buy. Products may be made in China, but they are not made by China, but by US transnational corporations which are responsible for the quality and safety of their products.

Further, it is well recognized that corporations routinely and effectively manipulate consumer preference and market acceptance often through if not false, at least misleading advertising, not for the benefit of consumers, but to maximize return on faceless capital raised from global capital markets. The subliminal emphasis by the corporate culture on addictive acquisition of material things, coupled with a structural deprivation of adequate income to satisfy the manipulated desires, has made consumers less satisfied than in previous times of less material abundance. Corporations have been allowed to imbed consumption-urging messages into every aspect of modern life. The result is a disposable culture with packaged waste, an obesity crisis for all age groups, skyrocketing consumer debt, the privatization of public utilities that demand the same fee for basic services from rich and poor alike, causing a sharp disparity in affordability. It is a phenomenon described by Karl Marx as "Fetishism of Commodities".

Marx's concept of Fetishism of Commodities
Marx wrote in Das Kapital:[1]

The relation of the producers to the sum total of their own labor is presented to them as a social relation, existing not between themselves, but between the products of their labor. This is the reason why the products of labor become commodities, social things whose qualities are at the same time perceptible and imperceptible by the senses … The existence of the things qua commodities, and the value relation between the products of labor which stamps them as commodities, have absolutely no connection with their physical properties and with the material relations arising therefrom. It is a definite social relation between men that assumes, in their eyes, the fantastic form of a relation between things. In order, therefore, to find an analogy, we must have recourse to the mist-enveloped regions of the religious world. In that world, the productions of the human brain appear as independent beings endowed with life, and entering into relation both with one another and the human race. So it is in the world of commodities with the products of men's hands. This I call the Fetishism which attaches itself to the products of labor, as soon as they are produced as commodities, and which is therefore inseparable from the production of commodities. This Fetishism of Commodities has its origin … in the peculiar social character of the labor that produces them.
Marx asserts that "the mystical character of commodities does not originate in their use-value" (Section 1, p 71). Market value is derived from social relations, not from use-value which is a material phenomenon. Thus Marx critiques the Marginal Utility Theory by pointing out that market value is affected by social relationships. For example, the marginal utility of door locks is a function of the burglary rate in a neighborhood which in turn is a function of the unemployment rate. Unregulated free markets are a regime of uninhibited price gouging by monopolies and cartels.

Thus the nature of money cannot be adequately explained even in terms of the material-technical properties of gold, but only in terms of the factors behind man's desire and need for gold. Similarly, it is not possible to fully understand the price of capital from the technical nature of the means of production, but only from the social institution of private ownership and the terms of exchange imposed by uneven market power. Market capitalism is a social institution based on the fetishism of commodities.

Democracy threatened by the corporate state
While Reich is on target in warning about the danger to democracy posed by the corporate state, and in claiming that only people can be citizens, and only citizens should participate in democratic decision making, he misses the point that transnational corporations have transcended national boundaries. Yet in each community that these transnational corporations operate, they have the congenital incentive, the financial means and the legal mandate to manipulate the fetishism of commodities even in distant lands.

Moreover, representative democracy as practiced in the US is increasingly manipulated by corporate lobbying funded from high-profit-driven corporate financial resources derived from foreign sources controlled by management. Corporate governance is notoriously abusive of minority shareholder rights on the part of management. Notwithstanding Reich's rationalization of excessive CEO compensation, CEOs as a class are the most vocal proponents of corporate statehood. Modern corporations are securely insulated from any serious threats from consumer revolt. Inter-corporate competition presents only superficial and trivial choices for consumers. Motorists have never been offered any real choice on gasoline by oil companies or alternatives on the gasoline-guzzling internal combustion engine by car-makers.

High pay for CEOs
Reich asserts in his Wall Street Journal piece that modern CEOs in finance capitalism nowadays deserve their high pay because they have to be superstars, unlike their bureaucrat-like predecessors during industrial capitalism. Notwithstanding that one would expect a former labor secretary to argue that workers deserve higher pay, the challenge to corporate leadership in market capitalism has always been and will always remain management's ruthless pursuit of market leadership power, a euphemism for monopoly, by skirting the rule of law and regulations, framing legislative regimes through political lobbying, pushing down wages and worker benefits, increasing productivity by downsizing in an expanding market and manipulating consumer attitude through advertising. At the end of the day, the bottom line for corporate profit is a factor of lowering wage and benefit levels.

Reich seems to have forgotten that the captains of industry of 19th century free-wheeling capitalism were all superstars who evoked public admiration by manipulating the awed public into accepting the Horatio Alger myth of success through hard work, honesty and fairness. The derogatory term "robber barons" was first coined by protest pamphlets circulated by victimized Kansas farmers against ruthless railroad tycoons during the Great Depression.

The manipulation of the public will by moneyed interests is the most problematic vulnerability of US economic and political democracy. In an era when class warfare has taken on new sophistication, the accusation of resorting to class warfare argument is widely used to silence legitimate socio-economic protests. The US media is essentially owned by the moneyed interests. The decline of unionism in the US has been largely the result of anti-labor propaganda campaigns funded by corporations and government policies influenced by corporate lobbyists. The infiltration of organized crime was exploited to fan public anti-union sentiments while widespread corporate white collar crimes were dismissed as mere anomalies. (See Capitalism's bad apples: It's the barrel that's rotten)

Superman capitalism
As promoted by his permissive opinion piece, a more apt title for Reich's new book would be Superman Capitalism, in praise of the super-heroic qualities of successful corporate CEOs who deserve superstar pay. This view goes beyond even fascist superman ideology. The compensation of corporate CEOs in Nazi Germany never reached such obscene levels as those in US corporate land today.

Reich argues that CEOs deserve their super-high compensation, which has increased 600% in two decades, because corporate profits have also risen 600% in the same period. The former secretary of labor did not point out that wages rose only 30% in the same period. The profit/wage disparity is a growing cancer in

the US-dominated global economy, causing over-production resulting from stagnant demand caused by inadequate wages. A true spokesman for labor would point out that enlightened modern management recognizes that the performance of a corporation is the sum total of effective team work between management and labor.

System analysis has long shown that collective effort on the part of the entire work force is indispensable to success in any complex organism. Further, a healthy consumer market depends on a balance between corporate earnings and worker earnings. Reich's point would be valid if US wages had risen by the same multiple as CEO pay and corporate profit, but he apparently thought that it would be poor etiquette to raise embarrassing issues as a guest writer in an innately anti-labor journal of Wall Street. Even then, unless real growth also rose 600% in two decades, the rise in corporate earning may be just an inflation bubble.

An introduction to economic populism

To be fair, Reich did address the income gap issue eight months earlier in another article, "An Introduction to Economic Populism" in the Jan-Feb, 2007 issue of The American Prospect, a magazine that bills itself as devoted to "liberal ideas". In that article, Reich relates a "philosophical" discussion he had with fellow neo-liberal cabinet member Robert Rubin, then treasury secretary under Bill Clinton, on two "simple questions".

The first question was: Suppose a proposed policy will increase the incomes of some people without decreasing the incomes of any others. Of course Reich must know that it is a question of welfare economics long ago answered by the "pareto optimum", which asserts that resources are optimally distributed when an individual cannot move into a better position without putting someone else into a worse position. In an unjust society, the pareto optimum will perpetuate injustice in the name of optimum resource allocation. "Should it be implemented? Bob and I agreed it should," writes Reich. Not exactly an earth-shaking liberal position. Rather, it is a classic neo-liberal posture.

And the second question: But suppose the people whose incomes will rise are already wealthier than everyone else. Although no one will lose ground, inequality will widen. Should it still be implemented? "I won't tell you where he and I came out on that second question," writes Reich without explaining why. He allows that "we agreed that people who don't share in such gains feel relatively poorer. Widening inequality also further tips the balance of political power in favor of the wealthy."

Of course, clear thinking would have left the second question mute because it would have invalidated the first question, as the real income of those whose nominal income has not fallen has indeed fallen relative to those whose nominal income has risen. In a macro monetary sense, it is not possible to raise the nominal income of some without lowering the real income of others. All incomes must rise together proportionally or inequality in after-inflation real income will increase.

Inequality only a new worry?

But for the sake of argument, let's go along with Reich's parable on welfare economics and financial equality. That conversation occurred a decade ago. Reich says in his January 2007 article that "inequality is far more worrisome now", as if it had not been or that the policies he and his colleagues in the Clinton administration, as evidenced by their answer to their own first question, did not cause the now "more worrisome" inequality. "The incomes of the bottom 90% of Americans have increased about 2% in real terms since then, while that of the top 1% has increased over 50%," Reich wrote in the matter of fact tone of an innocent bystander.

It is surprising that a former labor secretary would err even on the record on worker income. The US Internal Revenue Service reports that while incomes have been rising since 2002, the average income in 2005 was $55,238, nearly 1% less than in 2000 after adjusting for inflation. Hourly wage costs (including mandatory welfare contributions and benefits) grew more slowly than hourly productivity from 1993 to late 1997, the years of Reich's tenure as labor secretary. Corporate profit rose until 1997 before declining, meaning what should have gone to workers from productivity improvements went instead to corporate profits. And corporate profit declined after 1997 because of the Asian financial crisis, which reduced offshore income for all transnational companies, while domestic purchasing power remained weak because of sub-par worker income growth.

The break in trends in wages occurred when the unemployment rate sank to 5%, below the 6% threshold of NAIRU (non-accelerating inflation rate of unemployment) as job creation was robust from 1993 onwards. The "reserve army of labor" in the war against inflation disappeared after the 1997 Asian crisis when the Federal Reserve injected liquidity into the US banking system to launch the debt bubble. According to NAIRU, when more than 94% of the labor force is employed, the war on wage-pushed inflation will be on the defensive. Yet while US inflation was held down by low-price imports from low-wage economies, US domestic wages fell behind productivity growth from 1993 onward. US wages could have risen without inflationary effects but did not because of the threat of further outsourcing of US jobs overseas. This caused corporate profit to rise at the expense of labor income during the low-inflation debt bubble years.

Income inequality in the US today has reached extremes not seen since the 1920s, but the trend started three decades earlier. More than $1 trillion a year in relative income is now being shifted annually from roughly 90,000,000 middle and working class families to the wealthiest households and corporations via corporate profits earned from low-wage workers overseas. This is why nearly 60% of Republicans polled support more taxes on the rich.

Carter the granddaddy of deregulation

The policies and practices responsible for today's widening income gap date back to the 1977-1981 period of the Carter administration which is justly known as the administration of deregulation. Carter's deregulation was done in the name of populism but the results were largely anti-populist. Starting with Carter, policies and practices by both corporations and government underwent a fundamental shift to restructure the US economy with an overhaul of job markets. This was achieved through widespread de-unionization, breakup of industry-wide collective bargaining which enabled management to exploit a new international division of labor at the expense of domestic workers.

The frontal assault on worker collective bargaining power was accompanied by a realigning of the progressive federal tax structure to cut taxes on the rich, a brutal neo-liberal global free-trade offensive by transnational corporations and anti-labor government trade policies. The cost shifting of health care and pension plans from corporations to workers was condoned by government policy. A wave of government-assisted compression of wages and overtime pay narrowed the wage gap between the lowest and highest paid workers (which will occur when lower-paid workers receive a relatively larger wage increase than the higher-paid workers with all workers receiving lower pay increases than managers). There was a recurring diversion of inflation-driven social security fund surpluses to the US fiscal budget to offset recurring inflation-adjusted federal deficits. This was accompanied by wholesale anti-trust deregulation and privatization of public sectors; and most egregious of all, financial market deregulation.

Carter deregulated the US oil industry four years after the 1973 oil crisis in the name of national security. His Democratic challenger, Senator Ted Kennedy, advocated outright nationalization. The Carter administration also deregulated the airlines, favoring profitable hub traffic at the expense of traffic to smaller cities. Air fares fell but service fell further. Delays became routine, frequently tripling door-to-door travel time. What consumers save in airfare, they pay dearly in time lost in delay and in in-flight discomfort. The Carter administration also deregulated trucking, which caused the Teamsters Union to support Ronald Reagan in exchange for a promise to delay trucking deregulation.

Railroads were also deregulated by Railroad Revitalization and Regulatory Reform Act of 1976 which eased regulations on rates, line abandonment, and mergers to allow the industry to compete with truck and barge transportation that had caused a financial and physical deterioration of the national rail network railroads. Four years later, Congress followed up with the Staggers Rail Act of 1980 which provided the railroads with greater pricing freedom, streamlined merger timetables, expedited the line abandonment process, and allowed confidential contracts with shippers. Although railroads, like other modes of transportation, must purchase and maintain their own rolling stock and locomotives, they must also, unlike competing modes, construct and maintain their own roadbed, tracks, terminals, and related facilities. Highway construction and maintenance are paid for by gasoline taxes. In the regulated environment, recovering these fixed costs hindered profitability for the rail industry.

After deregulation, the railroads sought to enhance their financial situation and improve their operational efficiency with a mix of strategies to reduce cost and maximize profit, rather than providing needed service to passengers around the nation. These strategies included network rationalization by shedding unprofitable capacity, raising equipment and operational efficiencies by new work rules that reduced safety margins and union power, using differential pricing to favor big shippers, and pursuing consolidation, reducing the number of rail companies from 65 to 5 today. The consequence was a significant increase of market power for the merged rail companies, decreasing transportation options for consumers and increasing rates for remote, less dense areas.

In the agricultural sector, rail network rationalization has forced shippers to truck their bulk commodity products greater distances to mainline elevators, resulting in greater pressure on and damage to rural road systems. For inter-modal shippers, profit-based network rationalization has meant reduced access - physically and economically - to Container on Flat Car (COFC) and Trailer on Flat Car (TOFC) facilities and services. Rail deregulation, as is true with most transportation and communication deregulation, produces sector sub-optimization with dubious benefits for the national economy by distorting distributional balance, causing congestion and inefficient use of land, network and lines.

Carter's Federal Communications Commission's (FCC) approach to radio and television regulation began in the mid-1970s as a search for relatively minor "regulatory underbrush" that could be
cleared away for more efficient and cost-effective administration of the important rules that would remain. Congress largely went along with this updating trend, and initiated a few deregulatory moves of its own to make regulation more effective and responsive to contemporary conditions.

Reagan's anti-government fixation

The Reagan administration under Federal Communications Commission (FCC) chairman Mark Fowler in 1981 shifted deregulation to a fundamental and ideologically-driven reappraisal of regulations away from long-held principles central to national broadcasting policy appropriate for a democratic society. The result was removal of many longstanding rules to permit an overall reduction in FCC oversight of station ownership concentration and network operations. Congress grew increasingly wary of the pace of deregulation, however, and began to slow the pace of FCC deregulation by the late 1980s.

Specific deregulatory moves included (a) extending television licenses to five years from three in 1981; (b) expanding the number of television stations any single entity could own from seven in 1981 to 12 in 1985, with further changes in 1995; (c) abolishing guidelines for minimal amounts of non-entertainment programming in 1985; (d) elimination of the Fairness Doctrine in 1987; (e) dropping, in 1985, FCC license guidelines for how much advertising could be carried; (f) leaving technical standards increasingly in the hands of licensees rather than FCC mandates; and (g) deregulation of television's competition, especially cable which went through several regulatory changes in the decade after 1983.

The 1996 Telecommunications Act eliminated the 40-station ownership cap on radio stations. Since then, the radio industry has experienced unprecedented consolidation. In June 2003, the FCC voted to overhaul limits on media ownership. Despite having held only one hearing on the complex issue of media consolidation over a 20-month review period, the FCC, in a party-line vote, voted 3-2 to overhaul limits on media concentration. The rule would (1) increase the aggregate television ownership cap to enable one company to own stations reaching 45% of our nation's homes (from 35%), (2) lift the ban on newspaper-television cross-ownership, and (3) allow a single company to own three television stations in large media markets and two in medium ones. In the largest markets, the rule would allow a single company to own up to three television stations, eight radio stations, the cable television system, cable television stations, and a daily newspaper. A wide range of public-interest groups filed an appeal with the Third Circuit, which stayed the effective date of the new rules.

According to a BIA Financial Network report released in July 2006, a total of 88 television stations had been sold in the first six months of 2006, generating a transaction value of $15.7 billion. In 2005, the same period saw the sale of just 21 stations at a value of $244 million, with total year transactions of $2.86 billion.

Congress passed a law in 2004 that forbids any network to own a group of stations that reaches more than 39% of the national television audience. That is lower than the 45% limit set in 2003, but more than the original cap of 35% set in 1996 under the Clinton administration - leading public interest groups to argue that the proposed limits lead to a stifling of local voices.

Newspaper-television cross-ownership remains a contentious issue. Currently prohibited, it refers to the "common ownership of a full-service broadcast station and a daily newspaper when the broadcast station's area of coverage (or "contour") encompasses the newspaper's city of publication".

Capping of local radio and television ownership is another issue. While the original rule prohibited it, currently a company can own at least one television and one radio station in a market. In larger markets, "a single entity may own additional radio stations depending on the number of other independently owned media outlets in the market".

Most broadcasters and newspaper publishers are lobbying to ease or end restrictions on cross-ownership; they say it has to be the future of the news business. It allows newsgathering costs to be spread across platforms, and delivers multiple revenue streams in turn. Their argument is also tied to a rapidly changing media consumption market, and to the diversity of opinions available to the consumer with the rise of the Internet and other digital platforms.

The arguments against relaxing media ownership regulations are put forth by consumer unions and other interest groups on the ground that consolidation in any form inevitably leads to a lack of diversity of opinion. Cross-ownership limits the choices for consumers, inhibits localism and gives excessive media power to one entity.

Professional and workers' guilds of the communication industry (the Screen Actors Guild and American Federation of TV and Radio Artists among others) would like the FCC to keep in mind the independent voice, and want a quarter of all prime-time programming to come from independent producers. The Children's Media Policy Coalition suggested that the FCC limit local broadcasters to a single license per market, so that there is enough original programming for children. Other interest groups like the National Association of Black Owned Broadcasters are worried about what impact the rules might have on station ownership by minorities.

Deregulatory proponents see station licensees not as "public trustees" of the public airwaves requiring the provision of a wide variety of services to many different listening groups. Instead, broadcasting has been increasingly seen as just another business operating in a commercial marketplace which did not need its management decisions questioned by government overseers, even though they are granted permission to use public airways. Opponents argue that deregulation violates a key mandate of the Communications Act of 1934 which requires licensees to operate in the public interest. Deregulation allows broadcasters to seek profits with little public service programming.

Clinton and telecommunications deregulation

The Telecommunications Act of 1996 was the first major overhaul of US telecommunications law in nearly 62 years, amending the Communications Act of 1934, and leading to media consolidation. It was approved by Congress on January 3, 1996 and signed into law on February 8, 1996 by President Clinton, a Democrat whom some have labeled as the best president the Republicans ever had.

The act claimed to foster competition, but instead it continued the historic industry consolidation begun by Reagan, whose actions reduced the number of major media companies from around 50 in 1983 to 10 in 1996 and 6 in 2005.

Regulation Q

The Carter administration increased the power of the Federal Reserve through the Depository Institutions and Monetary Control Act (DIDMCA) of 1980 which was a necessary first step in ending the New Deal restrictions placed upon financial institutions, such as Regulation Q put in place by the Glass-Steagall Act of 1933 and other restrictions on banks and financial institutions.

The populist Regulation Q imposed limits and ceilings on bank and savings-and-loan (S&L) interest rates to provide funds for low-risk home mortgages.

But with financial market deregulation, Regulation Q created incentives for US banks to do business outside the reach of US law, launching finance globalization. London came to dominate this offshore dollar business.

The populist Regulation Q, which regulated for several decades limits and ceilings on bank and S&L interest to serve the home mortgage sector, was phased out completely in March 1986. Banks were allowed to pay interest on checking account - the NOW accounts - to lure depositors back from the money markets. The traditional interest-rate advantage of the S&Ls was removed, to provide a "level playing field", forcing them to take the same risks as commercial banks to survive. Congress also lifted restrictions on S&Ls' commercial lending, which promptly got the whole industry into trouble that would soon required an unprecedented government bailout of depositors, with tax money. But the developers who made billions from easy credit were allowed to keep their profits. State usury laws were unilaterally suspended by an act of Congress in a flagrant intrusion on state rights. Carter, the well-intentioned populist, left a legacy of anti-populist policies. To this day, Greenspan continues to argue disingenuously that subprime mortgages helped the poor toward home ownership, instead of generating obscene profit for the debt securitization industry.

The party of Lincoln taken over by corporate interests

During the Reagan administration, corporate lobbying and electoral strategies allowed the corporate elite to wrest control of the Republican Party, the party of Lincoln, from conservative populists.

In the late 1980s, supply-side economics was promoted to allow corporate interests to dominate US politics at the expense of labor by arguing that the only way labor can prosper is to let capital achieve high returns, notwithstanding the contradiction that high returns on capital must come from low wages.

New legislation and laws, executive orders, federal government rule-making, federal agency decisions, and think-tank propaganda, etc, subsequently followed the new political landscape, assisting the implementation of new corporate policies and practices emerging from corporate headquarters rather than from the shop floor. Economists and analysts who challenged this voodoo theory were largely shut out of the media.

Workers by the million were persuaded to abandon their institutional collective defender to fend for themselves individually in the name of freedom. It was a freedom to see their job security eroded and wages and benefits fall with no recourse.

Note
1. Das Kapital, Volume One, Part I: Commodities and Money, Chapter One: Commodities, Section I.

Next: PART 2: Global war on labor

Henry C K Liu is chairman of a New York-based private investment group. His website is at http://www.henryckliu.com.

Copyright 2007, Henry C K Liu


Top Visited
Switchboard
Latest
Past week
Past month

NEWS CONTENTS

Old News ;-)

[Apr 12, 2019] Italy How to Ruin a Country in Three Decades naked capitalism

Apr 11, 2019 | www.nakedcapitalism.com

April 11, 2019 by Yves Smith By Servaas Storm, a Dutch economist and author who works on macroeconomics, technological progress, income distribution & economic growth, finance, development and structural change, and climate change. Originally published at the Institute for New Economic Thinking website

While Brexit and Trump have been making the headlines, the Italian economy has been sliding into a technical recession (again). Both the OECD and the European Central Bank (ECB) have lowered the growth forecasts for Italy to negative numbers, and in what analysts see as a precautionary move, the ECB is reviving its sovereign bond buying programme, which it had started to unwind just five months earlier.

"Don't underestimate the impact of the Italian recession," is what French Economy Minister Bruno Le Maire told Bloomberg News (Horobin 2019). "We talk a lot about Brexit, but we don't talk much about an Italian recession that will have a significant impact on growth in Europe and can impact France, because it's one of our most important trading partners." More important than trade, however, and what Le Maire is not stating, is that French banks are holding around €385 billion of Italian debt, derivatives, credit commitments and guarantees on their balance sheets, while German banks are holding €126 billion of Italian debt (as of the third quarter of 2018, according to the Bank for International Settlements).

In light of these exposures to Italian debt, it is no wonder that Le Maire, along with the European Commission, is worried by Italy's third recession in a decade -- as well as by the growing anti-euro rhetoric and posturing of Italy's coalition government, comprised by the Five-Star Movement (M5S) and the Lega. The knowledge that Italy is too big to fail is fuelling the audacity of Italy's coalition government in its attempt to reclaim fiscal policy space by openly flouting the budgetary rules of the E.U.'s Economic and Monetary Union (EMU).

The result is a catch-22. The more the European Commission tries to bring the Italian government into line, the more it will feed the anti-establishment and anti-euro forces in Italy. On the other hand, the more the European Commission gives in to the demands of the Italian government, the more it will fritter away its credibility as the guardian of the EMU's Stability and Growth Pact. This stalemate is not going away as long as Italy's economy remains paralyzed.

A Crisis of the Post-Maastricht Treaty Order of Italian Capitalism

It is therefore vital to understand the true origins of Italy's economic crisis in order to find pathways out of Italy's permanent stagnation. In a new paper , I provide an evidence-based pathology of Italy's recession -- which, I argue, must be regarded as a crisis of the post-Maastricht Treaty order of Italian capitalism, as Thomas Fazi (2018) calls it. Until the early 1990s, Italy enjoyed decades of relatively robust economic growth, during which it managed to catch up with other Eurozone nations in income (per person) (Figure 1). In 1960, Italy's per capita GDP (at constant 2010 prices) was 85% of French per capita GDP and 74% of (weighted average) per capita GDP in Belgium, France, Germany and the Netherlands (the Euro-4 economies). By the mid-1990s, Italy had almost caught up with France (Italian GDP per person equalled 97% of French per capita income) and also with the Euro-4 (Italian GDP per capita was 94% of per capita GDP in the Euro-4).
Figure 1

Three decades of catching up, 25 years of falling behind: real GDP per person in Italy relative to France/Euro-4, 1960-2018

Source : author's calculation based on AMECO data.

But then a very steady decline began (see Figure 1), erasing decades of (income) convergence. The income gap between Italy and France is now (as of 2018) 18 percentage points, which is more than what it was in 1960; Italian GDP per capita is 76% of per capita GDP in the Euro-4 economies. Beginning in the early to mid-1990s, Italy's economy began to stumble and then fall behind, as all major indicators -- income per person, labour productivity, investment, export market shares, etc. -- began a very steady decline.

It is not a coincidence that the sudden reversal of Italy's economic fortunes occurred after Italy's adoption of the "legal and policy superstructure" imposed by the Maastricht Treaty of 1992, which cleared the road for the establishment of the EMU in 1999 and the introduction of the common currency in 2002. Italy, as I show in the paper, has been the star pupil in the Eurozone class -- the one economy that committed itself most strongly and consistently to the fiscal austerity and structural reforms that form the essence of the EMU macroeconomic rulebook (Costantini 2017, 2018). Italy kept closer to the rules than France and Germany and paid heavily for this: The permanent fiscal consolidation, the persistent wage restraint and the overvalued exchange rate killed Italian aggregate demand -- and the demand shortage asphyxiated the growth of output, productivity, jobs and incomes. Italy's stasis is an object lesson for all Eurozone economies, but -- paraphrasing G.B. Shaw -- as a warning, not as an example.

Perpetual Fiscal Austerity

Italy did more than most other Eurozone members in terms of self-imposed austerity and structural reform in order to satisfy the conditions of EMU (Halevi 2019). This is clear when comparing Italy's fiscal policy post-1992 to that of France and Germany. Various Italian governments ran continuous primary budget surpluses (defined as public expenditure excluding interest payments on public debt, minus public revenue), averaging 3% of GDP per year during 1995-2008. French governments, in contrast, ran primary deficits of 0.1% of GDP each year on average during the same period, while German governments managed to generate a primary surplus of 0.7% on average per year during those same 14 years. Italy's permanent primary surpluses during 1995-2008 would have reduced its public debt-to-GDP ratio by around 40 percentage points -- from 117% in 1994 to 77% in 2008 (while keeping all other factors constant). But slow (nominal) growth relative to high (nominal) interest rates pushed up the debt ratio by 23 percentage points and washed away more than half of the public debt-to-GDP reductions of 40 percentage points achieved by austerity. Could it be true that Italy's permanent austerity, intended to lower the debt ratio by running permanent primary surpluses, backfired because it slowed down economic growth?

Italy's governments (including the left-of-centre Renzi coalition) continued to run significant primary budget surpluses (of more than 1.3% of GDP on average per year) during the crisis period of 2008-2018. Showing permanent fiscal discipline was a top priority, as Prime Minister Mario Monti admitted in a 2012 interview with CNN, even if that meant "destroying domestic demand" and pushing the economy into decline. Italy's almost "Swabian" commitment to fiscal discipline stands in some contrast to the French (" laissez aller ") attitudes: The French government ran primary deficits at an average of 2% of GDP during 2008-2018 and allowed its public debt-to-GDP ratio to rise to almost 100% in 2018. The cumulative fiscal stimulus thus provided by the French state amounted to €461 billion (in constant 2010 prices), whereas the cumulative fiscal drain on Italian domestic demand was €227 billion. The Italian budget cuts show up in non-trivial declines in its public expenditure on social expenditure per person, which is now (as of 2018) around 70% of public social spending per capita in Germany and France. One doesn't dare speculate what the "Gilets Jaunes" (yellow vest) protests in France would have looked like if France had put through an Italian-style fiscal consolidation post-2008.

Permanent Real Wage Restraint

When Italy signed the Maastricht Treaty, its high rates of inflation and unemployment were regarded as major problems. Inflation was blamed on the "excessive" power of labour unions and an "excessively" centralized wage bargaining system, which resulted in strong wage-push inflation and a profit squeeze -- as wage growth tended to exceed labour productivity growth, which lowered the profit share. Seen this way, the blame for Italy's high unemployment could be shifted onto its "rigid" labour markets and too strongly protected "worker aristocracy." Bringing down inflation and restoring profitability required wage moderation, which in turn could only be achieved by a radical deregulation of labour markets, or what is euphemistically called, "structural reforms."

Italy does not have a statutory minimum wage (unlike France) and also does not have a generous unemployment benefit system (in terms of unemployment insurance replacement rates and duration, and entitlement conditions) compared with the E.U. average. Employment protection for regular employees in Italy is roughly at the same level as job protection in France and Germany. Italy's structural labour market reforms involved drastically reducing employment protection for temporary workers, and as a result, the share of temporary workers in total Italian employment increased from 10% during 1991-1993 to 18.5% in 2017. Between 1992 and 2008, total (net) employment in Italy increased by 2.4 million new jobs, of which almost three-quarters (73%) were fixed-term jobs. In France, by comparison, (net) employment grew by 3.6 million jobs during 1992-2008, of which 84% were regular (permanent) jobs and only 16% were temporary positions.

In addition, the bargaining power of unions was reduced by the abandoning of the target of full employment in favour of public debt reduction (Costantini 2017) and by a much more restrictive (anti-inflation) central bank policy and the fixed exchange rate. As a result, real wage growth per employee, which averaged 3.2% per year during 1960-1992, was lowered to a mere 0.1% per year during the period 1992-1999 and to 0.6% per annum during 1999-2008. Within the E.U., Italy's turnaround was remarkable: From 1992 through 2008, the growth of Italian real wages per worker (0.35% per year) was only half the real wage growth in the Euro-4 (0.7% per annum) and it was even lower compared to real wage growth in France (0.9% per year). Interestingly, from 1992 through2008, Italian real wage growth per employee was slightly lower than (already stingy) German real wage growth (0.4% per year). To see the long-run picture, Figure 2 plots the ratio of the real wage of an Italian worker to the real wage of the average French, German and Euro-4 worker from 1960 through2018. In the early 1960s, the average wage of Italian workers was about 85% of the French wage, and this ratio increased to 92% in 1990-1991. Starting in 1992, the Italian real wage began a steady decline in terms of the average French wage -- and in 2018, the average Italian employee earned only 75% of the wage earned by her/his French comrade. The wage gap between Italy and France is bigger today than it was in the 1960s. The same pattern holds when one compares Italian wages to German and/or Euro-4 wages.
Figure 2

Three decades of catching up, 25 years of falling behind: real wage per employee in Italy relative to France / Germany / Euro-4, 1960-2018

Source : author's calculation based on AMECO data.

Italy's wage moderation proved an effective strategy to kill three (not just two) birds with only one stone. First, wage restraint helped to bring down inflation -- to 3.4% on average per year from 1992 through 1999 (from 9.6% on average per annum from 1960-1992) and further down to 2.5% per year from 1999 through 2008 and 1.1% from 2008 through 2018. Italy is no longer prone, in a structural sense, to high and accelerating inflation. Second, wage restraint increased the labour intensity of Italy's GDP growth -- and thus reduced unemployment. Italy's unemployment rate peaked in the mid-1990s at more than 11%, but labour market deregulation and wage restraint successfully brought down unemployment to 6.1% in 2007 and 6.7% in 2008 -- which was lower than the unemployment rates of France (which equaled 8% in 2007 and 7.4% in 2008) and Germany (where unemployment was 8.5% in 2007 and 7.4% in 2008). Finally, as intended, wage moderation led to a substantial increase in the profit share of Italy's GDP: The profit share rose by more than 5.5 percentage points, from 36% in 1991 to about 41.5% from 2000 through 2002, after which it stabilized around 40% until 2008. During the 1990s, the recovery of the profit share was considerably stronger in Italy than in France, and comparable to what happened in Germany -- notwithstanding the fact that Italy's profit share was already relatively high to begin with.

Italy's structural reforms of the 1990s paid off handsomely in terms of a higher profit share, in other words, and Italy's profit share remained substantially higher than that of France and Germany. With lowered inflation, effective wage restraint, declining unemployment, public indebtedness on the decline and the profit share considerably raised, Italy appeared to be set for a long period of strong growth. It did not happen. The operation was carried out successfully, but the patient died. According to the coroner's post-mortem, the cause of death was a structural lack of aggregate demand.

The Suffocation of Italian Aggregate Demand after 1992

By keeping close to the EMU rulebook, Italian economic policy created a chronic shortage of (domestic) demand. Domestic demand growth per Italian averaged 0.25% per year from 1992 through2018 -- a sharp decline compared to the domestic demand growth (of 3.3% per year) recorded from 1960 through1992 and also much below domestic demand growth (of 1.1% per person per year) in the Euro-4 countries. Italy's real export growth (per person) also declined, from 6.6% on average per year from 1960 through 1992 to 3% per year from 1992 through 2018. Average annual export growth (per person) was 4.4% in the Euro-4 countries from 1992 through 2018. Italy's chronic demand shortage reduced capacity utilization (especially in manufacturing) and this, in turn, lowered the profit rate. According to my estimates, capacity utilization in Italian manufacturing declined by a staggering 30 percentage points relative to capacity utilization in French manufacturing between 1992 and 2015.

The utilization rate of Italian manufacturing relative to German manufacturing declined from 110% in 1995 to 76% in 2008, and sunk further to 63% in 2015 -- a decline by a stunning 47 percentage points. Lower capacity utilization reduced the rate of profit in Italian manufacturing by 3 to 4 percentage points relative to French and German profit rates. This must have considerably depressed Italian manufacturing investment and growth. Let me emphasize the fact that Italy's profit rate declined even when the share of profits in income increased. This means that Italy's strategy of fiscal austerity and wage restraint proved to be counterproductive, because it failed to improve the profit rate: The drop in demand and capacity utilization had a bigger (negative) impact on firm profitability than the increase in the profit share.

As I argue in the paper, this condition of chronic demand shortage was created, in particular, by ( a ) perpetual fiscal austerity, ( b ) permanent real wage restraint, and ( c ) a lack of technological competitiveness which, in combination with an unfavourable (euro) exchange rate, reduces the ability of Italian firms to maintain their export market shares in the face of increasing competition of low-wage countries (China in particular). These three factors are depressing demand; reducing capacity utilization and lowering firm profitability; and hurting investment, innovation, and productivity growth. They are hence locking the country into a state of permanent decline, characterized by the impoverishment of the productive matrix of the Italian economy and the quality composition of its trade flows (Simonazzi et al. 2013).

Italy's manufacturing sector is not "technology intensive" and suffers from stagnating productivity. As Figures 3 and 4 illustrate, the cost competitiveness of Italian manufacturers vis-à-vis the Euro-4 countries depends on low wages and not on superior productivity performance. Whereas industrial workers in France and Germany were earning €35 per hour (in constant 2010 prices) in 2015, and their colleagues in Belgium and the Netherlands earned even more, Italian workers in manufacturing were bringing home only €23 per hour (in constant 2010 prices) -- or one-third less (see Figure 3). But at the same time, industrial labour productivity per hour of work is considerably higher in France and Germany (at €53 per hour in constant 2010 prices) than in Italy, where it is around €33 per hour (Figure 4). Italian manufacturers are thus taking the low road, while firms in the Euro-4 countries are travelling on the high road. Or in other words, compared with German and French manufacturers, Italian firms suffer from a lack of technological strength, which in Germany is based on high productivity, innovative efforts and high product quality. True, Italian firms do stand out for their high relative quality in more traditional, lower-tech export products such as footwear, textiles, and other non-metallic mineral products. But they have been steadily losing ground in export markets of more dynamic products characterized by higher levels of R&D and technology intensity, such as chemicals, pharmaceuticals and communications equipment (Bugamelli et al. 2018).

Locked into a Position of Structural Weakness

For two reasons, this specialization in low- and low-medium technology activities locks the country into a quasi-permanent position of structural weakness. The first is that the exchange-rate elasticity of export demand is larger for traditional exports than for medium- and high-tech exports. As a result, the appreciation of the euro did hurt Italian exporters of traditional products harder than German and French firms exporting more "dynamic" goods and services. Thus, the overvalued euro penalizes Italian export growth more than it damages export growth in the Euro-4 economies.

The second factor is that Italian firms are operating in global markets which are more strongly exposed to the growing competition of low-wage countries and China in particular. In 1999, 67% of Italy's exports consisted of (traditional) products exposed to medium to high competition from Chinese firms -- compared to a similar exposure to Chinese competition of 45% of exports in France and 50% of exports in Germany (Bugamelli et al . 2018). The share of Italy's exports in world imports declined from 4.5% in 1999 to 2.9% in 2016 -- and the market share loss was heavily concentrated in more traditional market segments characterized by high exposure to Chinese competition (Bugamelli et al. 2018). As Chinese and other developing economy firms continue to expand their production capabilities and to upscale, competitive pressures will mount in medium- and medium-high tech segments as well. Italian firms have difficulties facing competition from low-wage countries: They are generally too small to wield any pricing power, too often single-product producers unable to diversify market risks, and too dependent on foreign markets, because their home market is in the doldrums.
Figure 3

Real wage per hour of work in manufacturing: Italy versus the Euro-4 countries, 1970-2015 (euro's, constant 2010 prices)

Source : author's calculation based on EU-KLEMS (Jäger 2017).

Figure 4 Manufacturing labour productivity per hour of work: Italy versus the Euro-4 countries, 1970-2015 (euro's, constant 2010 prices)

Source : author's calculation based on EU-KLEMS (Jäger 2017).

Italy's Permanent Crisis Is a Warning for the Eurozone

There are rational ways to get the Italian economy out of the current paralysis -- none of them easy, and all of them founded on a long-term strategy of "walking on two legs": (a) reviving domestic (and export) demand, and (b) diversifying and upgrading the productive structure and innovative capabilities and strengthening the technological competitiveness of Italy's exports (to get away from direct wage-cost competition with China). This means that both austerity and real wage growth suppression must stop. Instead, the Italian government should gear up for providing unambiguous directional thrust to the economy by means of higher public investment (in public infrastructure and "greening" and decarbonizing energy and transportation systems) and novel industrial policies to promote innovation, entrepreneurship and stronger technological competitiveness.

There is no dearth of constructive proposals by Italian economists to help their economy out of the current mess -- including Guarascio and Simonazzi (2016), Lucchese et al. (2016), Pianta et al. (2016), Mazzucato (2013), Dosi (2016), and Celi et al. (2018). These proposals all centre on creating a self-reinforcing process of investment-led and innovation-driven growth, orchestrated by an "entrepreneurial state" and founded on relatively regulated and co-ordinated firm-worker relationships, rather than on deregulated labour markets and hyper-flexible employment relations. These proposals might work well.

The same cannot be said, however, of the "one-leg" fiscal stimulus proposed by the M5S-Lega coalition government, the aim of which is a short-run revival of domestic demand by means of higher public (consumption) spending. None of the proposed spending will help solving Italy's structural problems. What is completely lacking is any longer-term directional thrust, or the second leg of a viable strategy -- which the neoliberal Lega will be unwilling to provide and the "progressive-in-name-only" M5S seems incapable of devising (Fazio 2018). Plus ça change, plus c'est la même chose.

More importantly, any rational "two-leg" developmental strategy will be incompatible with sticking to the EMU macroeconomic rulebook and keeping financial markets calm, which are supposed to act as the disciplinarian of Eurozone sovereigns (Costantini 2018; Halevi 2019). This is clear from what happened when the M5S-Lega government came up with an expansionary Draft Budgetary Plan (DBP) for 2019. The total impact of the one-leg fiscal stimulus initially proposed in the 2019 DBP amounted to an estimated 1.2% of GDP in 2019, 1.4% in 2020 and 1.3% in 2021 -- and even this minute budgetary expansion triggered strong negative responses from the European Commission and increases in Italian bond yields.

Blanchard et al. (2018, p. 2) formalize this status quo in a mechanical debt-dynamics model and conclude that the 2019 DBP risks triggering "unmanageable spreads and serious crisis, including involuntary exit from the Eurozone." Blanchard et al . (2018, p. 16) argue for a fiscally neutral budget, which they think would lead to lower interest rates and "probably" (in their words) to higher growth and employment. Equations, graphs and technocratic econospeak are competently used to turn what in fact constitutes a very modest transgression of the EMU rulebook into a low-probability- catastrophic event -- which everyone would want to avoid (see Costantini 2018). What is tragic is that the 2019 DBP does not come close to what would be needed for a rational strategy. All the sound and fury is for nothing.

Worse still is the fact that maintaining Italy's status quo, which is what a fiscally neutral budget would mean, carries a real, but unrecognized low-probability, high-impact risk: a breakdown of political and social stability in the country. Continued stagnation will feed the resentment and anti-establishment, anti-euro forces in Italy. This will destabilize not just Italy, but the entire Eurozone. Italy's crisis thus constitutes a warning to the Eurozone as a whole: Continued austerity and real wage restraint, in combination with the de-democratization of macroeconomic policymaking, make for a "dangerous game" (Costantini 2018) -- a game which risks further empowering anti-establishment forces elsewhere in the Eurozone as well.

This is like opening Pandora's box. No one can tell where this will end. Economists (including Italians) carry an enormous responsibility in all this, both because they are much to blame for the chaos and because they fail to continue to unite behind rational strategic solutions to resolve the Italian crisis. "Perhaps," John Maynard Keynes wrote, "it is historically true that no order of society ever perishes save by its own hand" (Keynes 1919). Rational economists have to prove Keynes' verdict wrong, starting in Italy -- if only because the Brexit mess appears to be beyond redemption.

https://c.deployads.com/sync?f=html&s=2343&u=https%3A%2F%2Fwww.nakedcapitalism.com%2F2019%2F04%2Fitaly-how-to-ruin-a-country-in-three-decades.html

https://acdn.adnxs.com/ib/static/usersync/v3/async_usersync.html

https://eus.rubiconproject.com/usync.html

Italy: How to Ruin a Country in Three Decades | <img src="http://b.scorecardresearch.com/p?c1=2&c2=16807273&cv=2.0&cj=1" />

Yikes , April 11, 2019 at 10:15 am

Article seems to ignore why Germany is holding so much Italian Debt, which to my reading is Germany wanted to create a captured market and kill off export competition with the foundation of a currency union at the exchange rates set and provision of easy credit for German goods, with the long term goal of creating a 4th Reich by means of capital slavery. Like climate change, many Italian intellectual elite knew this was going to happen, but that it would enrich them at the cost to both the old capital elite and working classes, with the bill falling due long after they had passed away.

DJG , April 11, 2019 at 11:55 am

When people talk about Italy being unstable: From the post, which describes the stability of austerity >

Italy kept closer to the rules than France and Germany and paid heavily for this: The permanent fiscal consolidation, the persistent wage restraint and the overvalued exchange rate killed Italian aggregate demand -- and the demand shortage asphyxiated the growth of output, productivity, jobs and incomes. Italy's stasis is an object lesson for all Eurozone economies, but -- paraphrasing G.B. Shaw -- as a warning, not as an example.

And people wonder why the Movimento Cinque Stelle arose? Or why Matteo Salvini, Trump imitator, now has so much influence?

All of the graphs show that the average person in Italy has been made poorer because of EU policies and the euro. The remarkable thing is that Italians still want to remain in the EU and in the euro because these supranational structures keep the Italian state in line. Yet job creation is stalled. There is a considerable brain drain. The Mezzogiorno is gradually losing population–emptying out because the economic prospects are so dire.

And the left is in collapse because of years of Renzi's Blairism / Clintonism.

This is all according to plan.

[Apr 10, 2019] Money-love [ , philochr matia] has always been extreme because wealth is addictive

Notable quotes:
"... "They're only up in arms if they believe that there is an alternative." ..."
"... "Evil essentially is predatory and destructive behavior. Socrates said that it ultimately is ignorance, because nobody would set out intentionally to do it. But in that case, evil would be an educational system that imposes ignorance and tunnel vision, distracting attention from understanding how economic society actually works in destructive ways." ..."
"... MH: It's becoming a second Gilded Age. An abrupt change of direction in economic trends occurred after Ronald Reagan and Margaret Thatcher were elected in 1979/80. The result has been to invert what the 19th-century economists understood to be a free market -- that is, a market free from a privileged hereditary class living on unearned income in the form of land rent, monopoly rent and financial extraction. ..."
"... JS: I was in my first few years of college when Thatcher came in in 1979, and when Reagan was elected in 1980. I asked my economics professors what was going on, but I could not find a single professor to coherently describe the U-turn that was occurring. It certainly wasn't in Paul Samuelson's textbook that we were given. ..."
"... Neoliberalism actually started with Carter in the late 1970's, and it was Volcker's monetary assault that helped lose him the election (and of course the Iran hostage crisis). ..."
"... The outcomes were not so predetermined and could have been Carter-Callaghan rather than the Reagan-Thatcher duo that did so much to force the world along the neoliberal path, and bring us "New" Neoliberal Labour (that Thatcher actually stated was her greatest achievement) ..."
"... I think evil takes on a life of its own. Over the course of civilization it gets standardized. But what I see happening right now is a bunch of apoplectic, frantic "oligarchs" with egg on their face begging us all to help them change. ..."
"... I don't wish to mount a defense of the Republican Elite; the system did pressure towards money-love. However, there were counter balancing features. Money was vital, but so was virtue. Honour, courage, dignity were ..."
"... A Roman aristocrat had to perform the minimum set required military campaigns. Only intellectual freaks such as Cicero could climb the hierarchy without making somekind of significant military achievement. ..."
"... Caesar won the Laural crown (?) through genuine acts of bravery. Roman aristocrats risked their lives & died in war. And their troops knew it. ..."
"... Systems of Survival ..."
"... Money addiction -- I have trouble reconciling that concept with the short-term biases of the wealthy and their seeming lack of interest in economic growth. They aren't happy with a bigger slice of pie from a bigger pie. They want grow their slice from the pie relative to everyone else -- even if the pie grows smaller. Money as power, and an insatiable lust for power is more consistent with the actions of the oligarchs. ..."
"... "That leaves the question facing us today: Is the American oligarchy and state as rapacious as that of Rome?" -- I'm not sure this post really answered that opening question. I believe the American oligarchy, while continuing in the long tradition of oligarchic depredation, is much more rapacious than that of Rome and much more dangerous as the world rushes toward collapse. After the fossil fuels are gone there are no more. The Climate is already lurching into chaos and may have already crossed a point of no near-term return to the relatively mild and stable climate immediately preceding the Anthropocene. ..."
Apr 08, 2019 | www.nakedcapitalism.com

hemeantwell , April 5, 2019 at 9:44 am

Money-love [φιλοχρηματία, philochrêmatia] has always been extreme because wealth is addictive

From what I've been able to glean regarding Roman society, wealth acquisition was strongly driven by the demands of a political order that was relatively unstructured and unstable, depending on imperial whims, favoritism, influence purchasing. In the eyes of a pleb it might look like elites were just whooping it up -- and that was certainly true -- but their fun had a systemic driver to it. To be sure you're in favor, or that your coalition is holding up, you need sesterces.

That's what the Romans told their provinces. Everything they did was always to preserve "good order," meaning open opportunities for their own wealth grabbing. They never said they were out to destroy and loot other societies.

This is largely true, but I was gobsmacked to find Caesar, in his Commentary on the Gallic Wars, serving up an extended quote of a Gallic "state" leader exhorting his followers to fight Caesar in order to escape slavery. Caesar even allows the guy to distinguish between earlier conflicts, in which another state would invade, plunder, and then leave, from conflicts with the Romans, in which the state would be occupied forever and its people enslaved. Brunt cites Caesar as boasting the wars gained 1,000,000 slaves, a figure he regards as inflated, but he also notes that other writers of the time didn't strongly dispute it.

hemeantwell , April 5, 2019 at 3:05 pm

I've got it on Kindle, so why not let Caesar report Critognatus' speech:

The Cimbri, after laying Gaul waste, and inflicting great calamities, at length departed from our country, and sought other lands; they left us our rights, laws, lands, and liberty.

But what other motive or wish have the Romans, than, induced by envy, to settle in the lands and states of those whom they have learned by fame to be noble and powerful in war, and impose on them perpetual slavery?

For they never have carried on wars on any other terms.

Carolinian , April 5, 2019 at 9:45 am

There's little logic for neoliberalism beyond a faith that short-term greed is the best way to optimize long-term growth.

Or as George H.W. Bush said: Voodoo economics. But he didn't stick to that position very long once Reagan took him on board.

Thanks again to NC for the great series. However this non economics person will very humbly repeat my objection that while money equals power, power doesn't necessarily have to be about money. I recently read a book about the history of the Plains indians and for them power was represented by horses–a kind of wealth to be sure–but also by bravery and skill at violence. So perhaps what we are really talking about is not economic systems and theories but this will to dominate that causes power to corrupt and creates the mindset that "too much is never enough." In other words the problem is really all about psychology with economics as a subbranch. A future era of better psychologists may produce better economists. Or here's hoping.

rod , April 5, 2019 at 11:29 am

"They're only up in arms if they believe that there is an alternative."

"Evil essentially is predatory and destructive behavior. Socrates said that it ultimately is ignorance, because nobody would set out intentionally to do it. But in that case, evil would be an educational system that imposes ignorance and tunnel vision, distracting attention from understanding how economic society actually works in destructive ways."

"If we don't go for it then somebody will and we'll lose out" was the frustrating bottom line for an iron worker I was speaking with about the proposal to drop a new NFL tax payer subsidized practice facility into our already development gridlocked area. Every point I made to him circled right back to this justification.

He just couldn't conceive of an alternative and I wasn't prepared enough to offer him others.

Because nowadays we must consider the economic tradeoff on everything–just like we are told.

which brings up that sweet definition of evil by MH–within the context of JS's question about enabling Climate Change

Watt4Bob , April 5, 2019 at 11:40 am

As soon as that guy becomes more concerned about feeding his kids, and less concerned about football stadiums, it's possible he'll be much more focused, more understanding, and willing to listen to your opinion.

georgieboy , April 5, 2019 at 11:47 am

MH: It's becoming a second Gilded Age. An abrupt change of direction in economic trends occurred after Ronald Reagan and Margaret Thatcher were elected in 1979/80. The result has been to invert what the 19th-century economists understood to be a free market -- that is, a market free from a privileged hereditary class living on unearned income in the form of land rent, monopoly rent and financial extraction.

JS: I was in my first few years of college when Thatcher came in in 1979, and when Reagan was elected in 1980. I asked my economics professors what was going on, but I could not find a single professor to coherently describe the U-turn that was occurring. It certainly wasn't in Paul Samuelson's textbook that we were given.

This interview with Mr. Hudson has been a fascinating education. Thank you, Yves.

That said, there is a tendency, at least in the tone of the interview, to ascribe a kind of insuperable power to top-down manipulation and control by the oligarchies of which Hudson speaks. My sense is that, instead, sometimes the mass of people want to be so free of one perceived set of problems that they support stepping into another -- as in the early 1980s.

MMT and "intelligent jubilee" (i.e., the opposite of what Geithner/Obama/Benanke did) supporters -- of which I am one -- might do well to consider what preceded the so-called Reagan revolution:

Rising inflation and unemployment in the 1970s were perceived to becoming inescapable in the US political landscape of the time.

The bad news about life in the Soviet Union was leaking out faster and faster in the late 1970s, once the American media lionized the cause of refuseniks like Natan Sharansky during the Carter years. (Remember Peter Jennings covering the trials and persecution of sweet, innocent, Natan Sharansky -- the wolf who dropped his sheep's clothing once he arrived in Israel?) Sometimes bad guys provoke important news about other, more powerful, bad guys.

Thousands of American workers came home from Moscow after Carter cancelled US participation in the 1980 Olympics -- with shocking tales of just how crappy the Russians had it.

Reagan beat Carter and Anderson 51-41-7 in 1980, and Reagan then whooped Mondale 59-41 in the 1984 popular vote. Job growth had picked up, the American media was generally happy to lead cheers for the US while pummeling the nasty Soviets. It felt like the Bear that is misfortune had been satisfied with catching the Russkis.

The old joke points out that we humans instinctively know we can't outrun the Bear; the natural tendency is to therefore sometimes focus on outrunning our neighbors, so the Bear is satisfied to get them. Our ancestors were selected for that feature.

As 'hemeantwell' noted, the fact that Caesar brought home lots of slaves casts a broader light (than Mr. Hudson's interview) on for whom Caesar's revolution was intended. How might MMT advocates wrestle with the push and pull of similar 'social identity' competitions when the Bear is seen to be coming?

JEHR , April 5, 2019 at 12:16 pm

Is it possible that the bear is just as frightened of the eagle as the eagle is of the bear?

deplorado , April 5, 2019 at 6:30 pm

The bear was frightened, I can tell you, I lived behind the Iron Curtain.

But there was a lot of talk about peace. A lot. Like – everywhere. And it was not fake. People looked on Americans with genuine interest and a bit of trepidation, and of course (what proved unhealthful) desire to emulate. And they wanted to be friends and learn from them. Look at C-SPAN videos of 1989, 1990 – for example one of Soviet banking officials at a seminar with US bankers – and you will see genuine, practically childlike belief that what the US experts and and banking practitioners were saying was gospel.

Btw I don't know whether the same talk of peace was present in the US at the time. What continually strikes me is how talk of peace is utterly absent in MSM now, has been for the last 20 years that I have observed.

Lots of common sense things are absent from MSM.

JEHR , April 5, 2019 at 12:13 pm

It's so beneficial to have Mr. Hudson and others who have studied ancient history from the point of view of how money and indebtedness works to share all this learning with us. How little is the difference between ancient oligarchs and modern ones! We think our civilization is so wonderful and enlightened when it is just another part of the old system of inequality playing itself out over and over again. I too wonder how long the wheel of fortune will take to complete this particular circuit, but with climate change skulking so near, it may not be long.

Roger Boyd , April 5, 2019 at 12:31 pm

Neoliberalism actually started with Carter in the late 1970's, and it was Volcker's monetary assault that helped lose him the election (and of course the Iran hostage crisis). The same in the UK, with the Labour government bringing in the IMF and fighting with the unions in the later 1970s to cause the "winter of discontent" that brought in Thatcher (and without the Falklands War Thatcher would have been out after one term). Labour could have called an earlier election and probably won, but decided not to in a huge tactical mistake.

The outcomes were not so predetermined and could have been Carter-Callaghan rather than the Reagan-Thatcher duo that did so much to force the world along the neoliberal path, and bring us "New" Neoliberal Labour (that Thatcher actually stated was her greatest achievement)

https://www.salon.com/2011/02/08/lind_reaganism_carter/

eg , April 5, 2019 at 4:17 pm

My only quibble would be to point out that you are referring to the neoliberal implementation -- it's tenets are rather older, dating back at least to the 1938 Walter Lippmann Colloquium.

icancho , April 6, 2019 at 2:20 pm

And well before that, as demonstrated clearly in Quinn Slobodian's recent "Globalists".

This stimulating book considers the historical development of the nexus of ideas and policy initiatives that fall under the umbrella term 'neoliberalism' -- the political-economic structures and processes that have given us expanding 'globalizing financialization', legal trade agreements that constrain national sovereignty, massively increasing asset and income disparities, and the consequent precariousness and stress -- even misery -- afflicting most of us.

Though neoliberalism's origin is commonly associated with the Mont Pèlerin Society, founded in 1947, and prominently with the figures of Ludwig von Mises, Friedrich von Hayek, and more recently with Milton Friedman and the "Chicago Boys", Slobodian demonstrates that neoliberalism's roots reach much deeper -- into the collapse of the Austro-Hungarian Empire -- indeed of all traditional off-shore empires -- following WW1, and in subsequent decolonization and the rise of new nations with aspirations of their own. In large part, neoliberal order, with its international trade deals, was a response to the "problem" posed by the demands of these diverse new nations to join the 'developed' world on an equal footing with their erstwhile colonial overlords, and to take sovereign control of their own resources.

So, contrary to conventional understanding, neoliberalism did not spring fully-formed, post-WW2, from the foreheads of Walter Lippman, von Mises, or Hayek; indeed, the cast of characters playing their parts in this developing drama is a rather large one, and their origins, interconnections, and contributions are many and diverse, and often surprising.

Scott1 , April 5, 2019 at 2:42 pm

Mankind survived the collapse of Rome. Barbarism was ascendent in the West. Civilization rose again. This time the collapse will result in barbarism at the best.

The world problem is Climate Change. Climate change is a product of overpopulation & portable energy as that which creates Climate change.

The US Treasury creates currency when Congress Votes a Bill that requires it. What is required is an MMT principled Fund that pays for renewables, energy capture, nuclear power and those new machines that suck CO2 out of the air & turn it into clean hydrocarbon fuels. The machine has been invented by Carbon Engineering. Takes up 30 acres. Hundreds of thousands are needed to stabilize CO2 levels in the atmosphere.

Methane was never factored in very well into the 1970s understanding of what was then called Ecology. Now we know that the Methane being released by fracking and permafrost melting is already happening and will keep happening and accelerating so that there will be a Methane Bubble Melt. 10 to 15 years and all the Methane will melt.

I see what was expected to happen to earth with a population of 9 billion as happening at 7.5 billon or exactly where we are now. The expectation was that 9 billion was sustainable. 13 billion was said to be sustainable for 3 weeks.

Coral reefs are dying. Insects are dying. Diatoms are the bottom of the food chain in the oceans. They are dependent on coral reefs. Birds depend on insects and their populations are dwindling.

I consider MMT, the work of conceptual art that allows currency to be generated by bills passed by governments, or a World government, as a Last Chance Concept.

"The civilized work for what they want, while the barbarians steal what they want." In my civilization I am paid to do work. Concepts are made real as money is given out for what is not yet real. The young want to have families and the old want the world they helped build and make safe survive. Such compulsions are innate and often ethical. It is simply unethical to leave the world worse than you found it.

Idea to idea to real & Ideal is ideal. The American philosophy is ethical eclectic pragmatism. Climate Change is not just to be fought because it will get hotter but because the food chain will collapse. Other than from the MMT Funding for what it will take to possibly protect the food chain, what have we?

Thanks

Susan the other` , April 5, 2019 at 3:00 pm

I think evil takes on a life of its own. Over the course of civilization it gets standardized. But what I see happening right now is a bunch of apoplectic, frantic "oligarchs" with egg on their face begging us all to help them change.

And none of us feel much warmth toward them. Somehow in the late 70s we the people, the laborers, small farmers, and mom & pops and small business got blamed for everything that went wrong. And austerity was force-fed to us. What went wrong was actually military hubris. Now there's an example of non-productive interest inflating away the empire. If the money had been used rationally we'd have created an equal, balanced society and encouraged others by our example. Humans have always chosen the things that work best. Somewhere, mid-century we freaked out and decided that we needed to control oil and growth but we were literally overtaken by our own successes – big agriculture, population growth and ponzi economics. The thing we have to do now is bring this mess back down to Earth. Requiring a fundamental change.

To change everything and turn it around. No more little tweaks of denial. Instead of the once successful "industrial" capitalism, what we must have now is environmental capitalism. Value and share the gains of preserving the planet. It sounds like a full reversion to a time before money, which is the symbol of material exploitation.

And it just so happens we still have the instinct for cooperation. The gains can be distributed to everyone. We just must find ways that preserve rather than destroy the planet. Same idea, different god. There are plenty of jobs to go around. We have good science and technology. We're not total idiots, yet. It only takes a minority of people to see the light and everything will change. I do think we are already there, except for the shouting, as they say.

Summer , April 5, 2019 at 4:59 pm

But those holding and near the levers of power are really sick and deluded individuals. And we have to understand this about the nukes (post 1945): They exist in case the USA loses a big war or doesn't get its way. Yes, that is the level of depravity that has developed.

flora , April 5, 2019 at 5:41 pm

Thanks so much for this series of posts on the ancient world and its comparison to today. I once read Seneca's "Letters from a Stoic" and was surprised to see/realize the considerable apparent overlap between stoicism – which was itself the continuation of an earlier tradition – and the early Christian church.

There is much in this series of posts to ponder.

The Rev Kev , April 6, 2019 at 12:00 am

A great article this with lots to chew on. What he says rings true from what I have read. After the second Punic war, Roman veterans found that the wealthy had seized their small farm holdings while they were gone and incorporated them into their own estates. These were to become the great Latifundium. Meanwhile, the dispossessed Romans veterans made their way to Rome and joined the plebs there. Over time, as the Roman army could not recruit these same type of landed men as the smaller holdings were being eliminated, the Romans had to resort to a professional standing body which no longer owed their allegiance to Rome but to whatever Roman general paid them – with disastrous results. Caesar was not the first here and the name Sulla also comes to mind. By the end of the empire the Romans were resorting to paying barbarian tribes to fight for them which worked, until it didn't. So in short, the greed of the wealthy in Rome destroyed the very thing that had made Rome so successful and resilient.

animalogic , April 6, 2019 at 8:09 am

I don't wish to mount a defense of the Republican Elite; the system did pressure towards money-love. However, there were counter balancing features. Money was vital, but so was virtue. Honour, courage, dignity were required.

A Roman aristocrat had to perform the minimum set required military campaigns. Only intellectual freaks such as Cicero could climb the hierarchy without making somekind of significant military achievement.

Caesar won the Laural crown (?) through genuine acts of bravery. Roman aristocrats risked their lives & died in war. And their troops knew it.

Other factors also tended to mitigate against the oligarchic instinct. For instance, Senators were legally barred from trade or money lending (& yes, they often got around such bans. ) Sumptuary laws were tried (& failed).

It should also be remembered that for all the economic polarisation, Roman citizenship was highly valued. The Roman's won the 2nd Punic , essentially because Hannibal fundamentally miscalculated -- Roman allies, Latins etc did not go over to Hannibal in hordes. They stayed loyal.

Mel , April 6, 2019 at 10:19 am

In Systems of Survival , Jane Jacobs meditated on different power structures. Some required virtus , steadfastness, etc., others, notably money power didn't.

Somebody, somewhere, wrote about alchemy's response to money, in seeking the Philosopher's Stone. That would be a chemical that could be transformed into anything in a chemical reaction, rather as money could in the market. I thought it was in Graeber's Debt , but it's not showing up there.

Amfortas the hippie , April 7, 2019 at 8:16 am

Philosopher's Stone= the Replicator Tech in Star Trek. costless production of basic needs. add in warp drive(=unlimited expansion, limited time-cost), and the inherent human traits that cause all the problems(ie: greed, etc) are overcome without having to fix/eliminate them just give them somewhere to go.(this is why i'm all for asteroid mining)

Mel , April 7, 2019 at 9:00 am

Boz Scaggs explained how money's unlimited shape-shifting power makes it infinitely attractive:

If you can be
Anyone you want to be,
Why'd you want to be
Someone else?

Jeremy Grimm , April 6, 2019 at 1:42 am

Several things trouble me about this post. People believe there is no alternative -- I disagree with that view. I'd restate the assertion as great efforts are and have been made to convince people there is no alternative. You don't need to be my age to learn a little about tax rates in the Eisenhower years. The economy did all right then. My impression talking with young people isn't that they believe there is no alternative, instead they have no idea how to make things change for the better, and neither do us old farts. Our democracy is broken. It no longer cares for the public good.

Money addiction -- I have trouble reconciling that concept with the short-term biases of the wealthy and their seeming lack of interest in economic growth. They aren't happy with a bigger slice of pie from a bigger pie. They want grow their slice from the pie relative to everyone else -- even if the pie grows smaller. Money as power, and an insatiable lust for power is more consistent with the actions of the oligarchs.

I think the concept of growth which shows up in several parts of the post needs some adjustment. Growth is tied to the consumption of fossil fuels as is increased CO2 in the atmosphere. Fossil fuels are nearing points of declining and unstable production. Unless growth can be decoupled from fossil fuels all the imperial control of what fossil fuels remain will do little but extend our time at the expense of others as we all race toward a point of collapse.

Some of the discussion of Neoliberalism confuses me. -- Neoliberalism is not the same as laissez-faire or neoclassical economics.

"That leaves the question facing us today: Is the American oligarchy and state as rapacious as that of Rome?" -- I'm not sure this post really answered that opening question. I believe the American oligarchy, while continuing in the long tradition of oligarchic depredation, is much more rapacious than that of Rome and much more dangerous as the world rushes toward collapse. After the fossil fuels are gone there are no more. The Climate is already lurching into chaos and may have already crossed a point of no near-term return to the relatively mild and stable climate immediately preceding the Anthropocene.

Thermonuclear weapons scattered in many hands adds existential danger to the threats posed by the American oligarchy and Power Elite structures and their insane lust for power.

Other than these quibbles, this is a remarkable series of posts presenting what to me is a very new view of the ancient world. It offers a much better understanding of the ancient world and some of its key literature and early writings. Time to order some books [I still haven't ordered a copy of "Forgive Them Their Debts" and now have to add a copy of this most recent book.]

McWatt , April 6, 2019 at 7:18 am

Had lunch with one of the "Chicago Boys" that Hudson describes as the source of economics current woes.

After that lunch, which was a discussion of many of Michael's themes, I completely agree with his assessment of what they have wrought. While the Chicago Boys may profess to have Mill and Ricardo as hero's, as Hudson does, Mills and Ricardo's theories are obliterated by the way the Chicago Boys have completely fallen in love with Ayn Rand's philosophy. Everyone is on their own. The rich are rich because they are naturally better at stuff than those who are not. They hate government regulation, they view government as the creator of problems, they have no compunction for watching the population sink into debt and penury. After all "it's their own look out".

Funny, when you read things abstractly on a wonderful site like Naked Capitalism, but then witness this terrible philosophy first hand, suddenly things are not so abstract. Michael's right.

[Apr 08, 2019] The Delphic Oracle Was Their Davos, by Michael Hudson and John Siman - The Unz Review

Apr 08, 2019 | www.unz.com

Note: Michael Hudson published and forgive them their debts: Lending, Foreclosure, and Redemption From Bronze Age Finance to the Jubilee Year in November of last year. It is the first volume in what will be a trilogy on the long history of the tyranny of debt. I have interviewed him extensively as he writes the second volume, The Collapse of Antiquity.

John Siman : Michael, in the first volume of your history of debt -- "

ORDER IT NOW

and forgive them their debts , dealing with the Bronze Age Near East, Judaism and early Christianity -- you showed how over thousands of years, going back to the invention of interest-bearing loans in Mesopotamia in the third millennium BC, many kings from a variety of Mesopotamian civilizations proclaimed Clean Slate debt cancellations on a more or less regular basis. And you showed that these royal proclamations of debt amnesty rescued the lower classes from debt bondage, maintaining a workable economic balance over many centuries. Because these kings were so powerful -- and, let's say, enlightened -- they were able to prevent the social and economic polarization that is inevitable when there is no check on an oligarchic creditor class extracting exponentially increasing interest from debtors.

But now, as you write the second volume, your theme gets turned upside down. You are showing how the Greeks and the Romans learned about interest-bearing debt from their contacts with Middle Eastern civilizations, but tragically failed to institute programs of Clean Slate debt amnesty. Their failure has been a kind of albatross around the neck of Western economies ever since.

So I'd like to start this conversation in the late 500s BC, because we can see at that time the beginnings of both the Athenian democracy and the Roman Republic, plus of two more important civilizations. First was the Athens of Cleisthenes, who had led the overthrow the "tyrant" Hippias and became the father of Athenian democracy. Second, there was the Roman Republic of Lucius Junius Brutus, who overthrew the last of Rome's legendary kings, the "tyrant" Tarquinius Superbus.Third was the Persian civilization of Cyrus the Great. He was a "divine king," in many ways in the ancient tradition of Hammurabi. Fourth were the post-exilic Jews of Ezra and Nehemiah, who returned to Jerusalem, rebuilt the Temple and redacted the Bible. They were the inventors of the Jubilee years of Clean Slate debt forgiveness, even though they depicted the teaching as coming from Moses.

So, beginning with the late 500s BC, to what extent was the notion of Clean Slate debt amnesty remembered, and to what extent was it rejected?

Michael Hudson : Every kind of reform, from Mesopotamia to Greece, was put forth as if it simply restored the way things were in the beginning. There was no concept of linear progress in Antiquity. They thought that there was only one way to do things, so any reform must be the way the world was meant to be in the very beginning. All reformers would say that in the beginning everybody must have been equal. Their reform was aimed at restoring this state of affairs.

That's why, when Plutarch and even the Spartan kings in the third century BC talked about canceling debts and promoting equality, they said that they were simply restoring the original system that Lycurgus had created. But there was no sign that Lycurgus had really done these things. It was made up. Lycurgus was a legendary figure. So was Moses in the Jewish tradition. When the Bible was redacted and put together after the return from Babylon, they put debt cancellation and land redistribution -- the Jubilee Year -- right in the center of Mosaic Law. So it seemed that this was not an innovation, but what Moses said in the beginning. They created a Moses figure much like the Greeks created a Lycurgus figure. They said that this is how things were meant to be. This is how it was in the beginning -- and it just happened to be their own program.

This was a projection backwards: a retrojection. Felix Jacoby wrote that Athenian history was that way, basically party pamphleteering projecting their ideal program back to Solon or to whomever one might choose as a good guy to model. Writers would then say that this original good guy supported the program that they were proposing in their epoch. This was the ancient analogy to "Constitutional Originalism" in the United States as a frame for right-wing policies.

JS : So, ever since the 500s BC, the surefire way to critique the status quo has been to say you are trying to go back to the Garden of Eden or to some other pristine Saturnian Golden Age.

MH : Yes, you want to say that the unfair world around you isn't what was meant, so this couldn't have been the original plan, because the past had to be a successful takeoff. So the program that reformers always turned out to be what the Founding Fathers meant.

JS : That's veryinspirational!

MH : The key is to appear as a conservative, not a radical. You accuse the existing status quo as being the beneficiaries of the radicals who have distorted the original Fair Plan that you're trying to restore.

JS : So in the 500s BC we have Cyrus -- and his inscription on the Cyrus Cylinder -- boasting that he freed the Babylonians from their tax debt and bonds, and we have the post-exilic Jews proclaiming d'ror [דְּרֹ֛ור] in Leviticus 25, proclaiming "liberty throughout the land." We also have the reforms of Cleisthenes in Athens, isonomia [ἰσονομία, literally, equality under the law], a genuine attempt at democracy. But let's start with Rome. What do you want to say about the nova libertas , the "new liberty" proclaimed in Rome after the last king was expelled and the Republic was founded? Didn't Brutus and his wellborn friends boast that they were the institutors of true liberty?

MH : Liberty for them was the liberty to destroy that of the population at large. Instead of cancelling debts and restoring land tenure to the population, the oligarchy created the Senate that protected the right of creditors to enslave labor and seize public as well as private lands (just as had occurred in Athens before Solon). Instead of restoring a status quo ante of free cultivators -- free of debt and tax obligations, as Sumerian amargi and Babylonian misharum and andurarum meant -- the Roman oligarchy accused anyone of supporting debtor rights and opposing its land grabs of "seeking kingship." Such men were murdered, century after century.

Rome was turned into an oligarchy, an autocracy of the senatorial families. Their "liberty" was an early example of Orwellian Doublethink. It was to destroy everybody else's liberty so they could grab whatever they could, enslave the debtors and create the polarized society that Rome became.

JS : OK, but this program worked. The Republic grew and grew and conquered everyone else for century after century. Then the Principate became the supreme power in the Western world for several more centuries.

MH : It worked by looting and stripping other societies. That can only continue as long as there is some society to loot and destroy. Once there were no more kingdoms for Rome to destroy, it collapsed from within. It was basically a looting economy. And it didn't do more than the British colonialists did: It only scratched the surface. It didn't put in place the means of production that would create enough money for them to grow productively. Essentially, Rome was a financial rentier state .

Rentiers don't create production. They live off existing production, they don't create it. That's why the classical economists said they were supporting industrial capitalists, not British landlords, not monopolists and not predatory banks.

JS : This has all been forgotten, both in the United States and in England --

MH : Let's say, expurgated from the curriculum.

JS : Worse than forgotten!

MH : That's why you don't have any history of economic thought taught anymore in the United States. Because then you'd see that Adam Smith, John Stuart Mill and the "Ricardian socialists" and indeed most of the 19th century had a completely opposite idea of what constituted a free market.

JS : Opposite? How so?

MH : Opposite from the neoliberal idea that freedom means freedom for the wealthy to indebt and destroy the economy. Opposite from the liberty of Brutus to overthrow the Roman kings and establish an autocratic oligarchy.

JS : So do we want to see the Roman kings as defenders of the people -- defending them from predatory oligarchs?

MH : Yes, especially Servius Tullius. There was a great flowering of Rome, making it attractive to immigrants by making the city livable for newcomers. They did this because at that time, in the 6th century BC, all societies had a shortage of labor. Labor was the factor of production in short supply, not land. Not even in Athens was land in short supply in the 6th and 5th centuries. You needed labor, and so you had to make it attractive for immigrants to join your society instead of having your people run away, as they would in a society run by creditors reducing clients to bondage.

JS : So you are writing about how Roman liberty was actually the liberty of oligarchic creditors from populist pressures for debt forgiveness. What of the d'ror of Leviticus 25 -- the liberty of the postexilic Jews? Did they actually proclaim years of Jubilee in which debts were forgiven and bondservants were returned to their families?

MH : After the Babylonian Jews returned to Jerusalem, I'm sure that they said that it was time for the land to be returned to its original owners -- and their families, by the way, were the original owners who were exiled in the Babylonian Captivity. I rely largely on Baruch Levine for this idea of the ge'ullah [גְּאֻלָּה], saying give us back our ancestral lands. [See thecolloquium Levine and Hudson co-edited on Land and Urbanization in the Ancient Near East , and their preceding volume on ancient privatization.] There must have been some kind of settlement along those lines. Unfortunately, the Judaic lands did not keep their records on on clay tablets that could be thrown out and recovered thousands of years later. We don't have any record of their economic history after the Return.

JS : Now I've brought along the transcriptions of several Egyptian papyri for you to look at. I also want to show you a papyrus in Aramaic from Judæa. It's not direct evidence that the post-exilic Jews were having Jubilee years, but it's indirect evidence, because it says that a particular debt has to be paid, even during a time of general debt amnesty, even if it falls due in a shmita [שמיטה], a sabbath year. So it sounds like the Jews were finding loopholes --

MH : It certainly sounds like it! Babylonian creditors tried a similar ploy, but this was disallowed. (We have court records confirming the realm's misharum acts.)

JS : In the Mosaic commandments to forgive debt, can we infer that there was some sort of program of debt forgiveness in place already in place in postexilic Jerusalem?

MH : Yes, but it ended with Rabbi Hillel and the Prozbul clause. Debtors had to sign this clause at the end of their debt contracts saying that they waived their rights under the Jubilee year in order to get a loan. That was why Jesus fought against the Pharisees and the rabbinical leadership. That's what Luke 4 is all about [ And there was delivered unto him the book of the prophet Isaiah. And when he had opened the book, he found the place where it was written, "The Spirit of the Lord is upon me, because he hath anointed me to preach the gospel to the poor; he hath sent me to heal the brokenhearted, to preach deliverance to the captives, and recovering of sight to the blind, to set at liberty them that are bruised, to preach the acceptable year of the Lord" = the Jubilee year.] Luke also pointed out that the Pharisees loved money!

JS : Let me ask you about Egypt here. Unfortunately, as you said, the postexilic Jews did not leave us any clay tablets and almost no papyri, but we do have loads of papyri concerning the Ptolemaic kings of Egypt. So from, say, 300 B.C. to the death of Cleopatra, we have official evidence that the Egyptian kings proclaimed debt amnesties. Maybe one of the reasons, or perhaps the main reason for this, is because they were so powerful, like the Mesopotamian kings. So even though the Ptolemaic kings were biologically and genetically Macedonian Greek -- married to their sisters, too -- they aspired to rule in the ancient Egyptian pharaonic tradition of We Are God-Kings and We Own Everything in the Kingdom.

MH : Certainly the Hellenistic kings had the ancient pharaonic Sed festivals, which go back thousands of years and were a kind of jubilee. The Egyptians had regular debt cancellations, because under the pharaohs the debts that would have been cancelled were basically tax debts. They were owed to the crown, so he was cancelling debts owed to himself ultimately. And we see this thousands of years later in the trilingual stone, the Rosetta Stone, which the priests wrote for that young boy who was Ptolemy V. They explained to him that this is how Egypt always had done it, and to act as a pharaoh, he had to do the same.

JS : And I think it is worth pointing out here that the same verb-plus-noun combination for forgiving debts that the priests used in Greek on the Rosetta Stone is also used by Matthew in the Lord's Prayer [ἀφῆκεν/ἄφες ὀφειλήματα, aphēken/aphes opheilēmata]. It shows up in lots of papyri. The same Greek verb and noun, again and again and again.

But let's go back to the Greeks of the 500s BC. They are a couple of hundred years out of their Dark Age, so their society has been reconstituted after the demographic wipeout. It's been reconstituted, but without Near Eastern-style "divine kingship" and its Clean Slate proclamations. Just the opposite. Socrates had conversations with the rhapsodes who had memorized and recited the Iliad . Even in their great epic, the Greeks' legendary king of kings Agamemnon comes across as a kind of narcissistic loser. How would you describe Greek kingship, especially the so-called tyrants?

MH : There never really were Greek kings of the type found throughout the Bronze Age Near East and surviving into the first millennium in Assyria and even in Persia. The Greek polities that emerged from their Dark Age were run by what shrewd Classicists call mafiosi , something like the post-Soviet kleptocrats. They formed closed political monopolies reducing local populations to clientage and dependency. In one polity after another they were overthrown and exiled, mainly by aristocratic reformers from the elite families (often secondary branches, as was Solon). Later oligarchic writers called them "tyrants" as an invective, much as the word rex -- king -- became an invective in oligarchic Rome.

These tyrant-reformers consolidated their power by redistributing land from the leading families (or in Sparta, land conquered from Messenia, along with its population reduced to helotage) to the citizen-army at large all over Greece – except in Athens. That was one of the most reactionary cities in the 7th century, as shown by what is known about the laws of Draco. After some abortive coups in the seventh century, Solon was appointed in 594 to avoid the kind of revolution that had led reformer "tyrants" to overthrow narrow aristocracies in neighboring Megara and Corinth. Solon decreed a half-way reform, abolishing debt slavery (but not the debtor's obligation to work off debts with his own labor), and did not redistribute Athenian land from the city's elites.

Athens was one of the last to reform but then because it was such a badly polarized autocratic society, it swung -- like Newton's Third Law of Motion: every action has an equal and opposite reaction -- it swung to become the most democratic of all the Greek polities.

Some historians in the past speculated that Solon might somehow have been influenced by Judaic law or other Near Eastern practice, but this is not realistic. I think Solon was simply a pragmatist responding to widespread demands that he do what the reformers -- the so-called tyrants -- were doing throughout Greece. He didn't redistribute the land like they did, but he at least ended outright debt slavery. Free debtors (mainly cultivators on the land) were being seized and sold outside of Athens to slave dealers. Solon also tried to recover some of the land that wealthy families had grabbed. At least, that's what he wrote in his poems describing his actions.

So to answer your question, I think debt cancellations were not a diffusionist policy from the East, but a spontaneous pragmatic response such as was being widely advocated as far west as Rome with its Secession of the Plebs a century later -- followed by much of Greece in the 4th century BC, and Sparta's kings in the late 3rd century BC.

Poorer Athenians were so angry with Solon for being not revolutionary enough that he went into exile for 10 years. The real creators of Athenian democracy were Peisistratos [died 528/7 BC], his sons, also called tyrants, and then Cleisthenes in 507. He was a member of the wealthy but outcast family, the Alcmaeonidae, who had been expelled in the 7th century. Solon had allowed them to return, and they were backed by Delphi (to which the family contributed heavily). Cleisthenes fought against the other oligarchic families and restructured Athenian politics on the basis of locality instead of clan membership. Servius Tullius is credited for enacting much the same reform in Rome. Lewis Henry Morgan's Ancient Society [1877] described this restructuring of voting districts as the great watershed creation of western-style democracy.

JS : Let me go back now to the way Athens and the other poleis emerged from the Dark Age.

MH : Judging from the art and pottery, Greece didn't begin to recover until the 8th century BC.

JS : So we're talking about the 700s BC. As Greece was learning from the Near Eastern civilizations, everything from mythology to the alphabet to weights and measures --

MH : And commercial practices, credit practices.

JS : Yes, all this came from the Near East, including the practice of charging interest. But what about Clean Slate debt amnesty? I want to argue logically here -- not from any hard historical evidence, but only deductively -- that the Greeks would have wanted the concept of Clean Slate debt forgiveness, they would have wanted to learn this too from the Near East, but they could not do it because they were always going to lack a Hammurabi-style "divine king."

MH : I think you miss the whole point of how Western civilization evolved here. First of all, who "wanted" Near Eastern kingship? Certainly not the emerging oligarchies. The ruling elites wanted to use interest-bearing debt to enrich themselves – by obtaining control over the labor power of debtors.

Second, I don't think the Greeks and Italians knew about Near Eastern royal proclamations, except as an alien practice much further East than Asia Minor. Falling into debt was a disaster for the poor, but a means for their Western patrons to gain power, land and wealth. There is no record of anyone suggesting that they should be in the Near East. The connection between the Near East and Greece or Italy was via traders. If you're a Phoenician or Syrian merchant with the Aegean or Italy, you're going to set up a temple as an intermediary, typically on an island. Such temples became the cosmopolitan meeting places where you had the oligarchs of the leading families of Greek cities visiting each other as part of a Pan-Hellenic group. You could say that Delphi was the "Davos" of its day.

It was through these trading centers that culture diffused – via the wealthiest families who travelled and established relationships with other leading families. Finance and trade have always been cosmopolitan. These families learned about debt obligations and contracts from the Near East, and ended up reducing much of their local populations to clientage, without kings to overrule them. That would have been the last thing they wanted.

JS : So absent Hammurabi-style "divine kingship," is debt bondage and brutal polarization almost inevitably going to happen in any society that adopts interest-bearing debt?

MH : We see a balance of forces in the ancient Near East, thanks to the fact that its rulers had authority to cancel debt and restore land that wealthy individuals had taken from smallholders. These kings were powerful enough to prevent the rise of oligarchies that would reduce the population to debt peonage and bondage (and in the process, deprive the palace of revenue and corvée labor, and even the military service of debtors owing their labor to their private creditors). We don't have any similar protection in today's Western Civilization. That's what separates Western Civilization from the earlier Near Eastern stage. Modern financialized civilization has stripped away the power to prevent a land-grabbing creditor oligarchy from controlling society and its laws.

So you could characterize Western Civilization is being decadent. It's reducing populations to austerity on a road to debt peonage. Today's new oligarchy calls this a "free market," but it is the opposite of freedom. You can think of the Greek and Roman decontextualization of Near Eastern economic regulations as if the IMF had been put in charge of Greece and Rome, poisoning its legal and political philosophy at the outset. So Western Civilization may be just a vast detour. That's what my forthcoming book, The Collapse of Antiquity, is all about. That will be the second volume in my trilogy on the history of debt.

JS : So are we just a vast detour?

MH : We have to restore a balanced economy where the oligarchy is controlled, so as to prevent the financial sector from impoverishing society, imposing austerity and reducing the population to clientage and debt serfdom.

JS : How do you do that without a Hammurabi-style "divine kingship"?

MH : You need civil law to do what Near Eastern kings once did. You need a body of civil law with a strong democratic government acting to shape markets in society's overall long-term interest, not that of the One Percent obtaining wealth by impoverishing the 99 Percent. You need civil law that protects the population from an oligarchy whose business plan is to accumulate wealth in ways that impoverish the economy at large. This requires a body of civil law that would cancel debts when they grow too large for the population to pay. That probably requires public banking and credit – in other words, deprivatization of banking that has become dysfunctional.

All this requires a mixed economy, such as the Bronze Age Near Eastern economies were. The palace, temples, private sector and entrepreneurs acted as checks and balances on each other. Western Civilization isn't a mixed economy. Socialism was an attempt to create a mixed economy, but the oligarchs fought back. What they call a "free market" is an unmixed monolithic, centrally planned financialized economy with freedom for the oligarchy to impoverish the rest of society. That was achieved by landlordism monopolizing the land in feudal Europe, and it is done by finance today.

Part 2: Mixed Economies Today, Compared to Those of Antiquity

John Siman : Could you define what you mean by a mixed economy ?

Michael Hudson : There are many degrees of how "mixed" an economy will be -- meaning in practice, how active its government sector will be in regulating markets, prices and credit, and investing in public infrastructure.

In the 20 th century's Progressive Era a century ago, a "mixed economy" meant keeping natural monopolies in the public sector: transportation, the post office, education, health care, and so forth. The aim was to save the economy from monopoly rent by a either direct public ownership or government regulation to prevent price gouging by monopolies.

The kind of "mixed economy" envisioned by Adam Smith, John Stuart Mill and other classical 19 th century free market economists aimed at saving the economy from land rent paid to Europe's hereditary landlord class. Either the government would tax away the land's rent, or would nationalize it by taking land out of the hands of landlords. The idea was to free markets from economic rent ("unearned income") in general, including monopoly rents, and also to subsidize basic needs to create a price-competitive national economy.

Long before that, in the Bronze Age -- which I describe in and forgive them their debts -- the palace reversed the buildup of personal and agrarian debts by annulling them on a more or less regular basis. This freed the economy from the overgrowth of debt that tended to build up chronically from the mathematical dynamics of compound interest, and from crop failures or other normal "market" phenomenon.

In all these cases a mixed economy was designed to maintain stability and avoid exploitation that otherwise would lead to economic polarization.

JS: So a mixed economy is still a market economy?

MH : Yes. All these degrees of "mixed economy" were market economies. But their markets were regulated and subordinated to broad social and political objectives rather than to personal rent-seeking or creditor gains. Their economic philosophy was long-term, not short-term, and aimed at preventing economic imbalance from debt and land monopoly.

Today's "mixed economy" usually means an active public sector undertaking investment in infrastructure and controlling money and credit, and shaping the context of laws within which the economy operates. This is best understood by contrasting it to what neoliberals call a "pure" or "market" economy – including what the Trump administration accuses China of when it proposes countervailing tariffs to shape the U.S. and international market in a way that favors American corporations and banks.

So it is necessary to clear the terminological slate before going into more detail. Every economy is a "market economy" of some sort or another. What is at issue is how large a role governments will play -- specifically, how much it will regulate, how much it will tax, how much it will invest directly into the economy's infrastructure and other means of production or act as a creditor and regulator of the monetary and banking system.

JS: What can we learn from the mixed economies of the Ancient Near East? Why were they so prosperous and also stable for so long?

MH : The Bronze Age mixed economies of Sumer, Babylonia, Egypt and their Near Eastern neighbors were subject to "divine kingship," that is, the ability of kings to intervene to keep restoring an economy free of personal and rural debt, so as to maintain a situation where the citizenry on the land was able to serve in the military, provide corvée labor to create basic infrastructure, and pay fees or taxes to the palace and temples.

Mesopotamian rulers proclaimed Clean Slates to keep restoring an idealized status quo ante of free labor (free from debt bondage). Babylonian rulers had a more realistic view of the economy than today's mainstream economists. They recognized that economies tended to polarize between wealthy creditors and debtors if what today are called "market forces" are not overridden -- especially the "market forces" of debt, personal liberty or bondage, and land rent. The task of Bronze Age rulers in their kind of mixed economy was to act from "above" the market so as to prevent creditors from reducing the king's subjects (who were their military defense force) to bondage from appropriating their land tenure rights. By protecting debtors, strong rulers also prevented creditors from becoming an oligarchic power in opposition to themselves.

JS: What kind of economic theories and economic models are the critics of mixed economies trying to advance?

MH : Opponents of a mixed economy have developed an "equilibrium theory" claiming to show that markets come to a natural, fair and stable balance without any government "interference." Their promise is that if governments will refrain from regulating prices and credit, from investing and from providing public services, economies will settle naturally at a highly efficient level. This level will be stable, unless "destabilized" by government "interference." Instead of viewing public investment as saving the economy from monopoly rent and debt peonage, the government itself is described as a "rent seeker" exploiting and impoverishing the economy.

JS: But is this sort of economic theory legitimate, or just a libertarian-sounding camouflage for neoliberal pillage?

MH : It's Orwellian Doublethink. Today's neoliberal theory justifies oligarchies breaking free of public control to appropriate the economic surplus by indebting economies to skim off the economic surplus as interest and then foreclose on personal landholdings and public property, overthrowing "mixed economies" to create a "pure oligarchy." Their idea of a free market is one free for creditors and monopolists to deny economic freedom to the rest of the population. The political extension of this approach in antiquity was to unseat kings and civic regimes, to concentrate power in the hands of an increasingly predatory class reducing the economy to bondage, impoverishing it, and ultimately leaving it to be conquered by outsiders. That is what happened to Rome in Late Antiquity.

Advocates of strong government have a diametrically opposite mathematical model. Ever since the Bronze Age, they recognized that the "natural" tendency of economies is to polarize between a wealthy creditor and land-owning class and the rest of society. Bronze Age rulers recognized that debts tend to grow faster than the ability to pay (that is, faster than the economy). Babylonian rulers recognized that if rulers did not intervene to cancel personal debts (mainly agrarian debts by cultivators) when crops failed, when military action interfered, or simply when debts built up over time, then creditors would end up taking the crop surplus and even the labor services of debtors as interest, and finally foreclosing on the land. This would have deprived the palatial economy of land and labor contributions. And by enriching an independent class of creditors (on their way to becoming large landowners) outside of the palace, financial wealth would express itself in economic and even military power. An incipient financial and landholding oligarchy would mount its own military and political campaign to unseat rulers and dismantle the mixed palatial/private economy to create one that was owned and controlled by oligarchies.

The result in Classical Antiquity was economic polarization leading to austerity and bondage, grinding the economy to a halt. That is the tendency of economies in "unmixed" economies where the public sector is privatized and economic regulation is dismantled. Land and credit was monopolized and smallholders became dependent clients and ultimately were replaced by slaves.

Mixed economies by the late 19 th century aimed at minimizing market prices for real estate and monopoly goods, and for credit. The economic aim was to minimize the cost of living and doing business so as to make economies more productive. This was called "socialism" as the natural outgrowth of industrial capitalism protecting itself from the most burdensome legacies of feudalism: an absentee landlord class, and a banking class whose money-lending was not productive but predatory.

JS: So mixed economies require strong and ultimately good governments.

MH : Any "mixed" economy has some basic economic theory of what the proper role of government is. At the very least, as in the 20 th century, this included the limitation of monopoly rents. The neoclassical (that is, anti-classical) reaction was to formulate a euphemistic theory of consumer "demand" -- as if American consumers "demand" to pay high prices for pharmaceuticals and health care. Likewise in the case of housing prices for renters or, for owner-occupied housing, mortgage charges: Do renters and home buyers really "demand" to pay higher and higher rents and larger and larger mortgages? Or are they compelled to pay out of need, paying whatever their suppliers demand ( e.g ., as in "Your money or your life/health").

So to answer your question, a mixed economy is one in which governments and society at large realize that economies need to be regulated and monopolies (headed by credit and land ownership) kept out of the hands of private rent-seekers in order to keep the economy free and efficient.

JS : Has there ever been a civil society that effectively implemented a mixed economy since, say, 500 BC?

MH : All successful economies have been mixed economies. And the more "mixed" they are, the more successful, stable and long-lasting they have been as a result of their mutual public/private checks and balances.

America was a mixed economy in the late 19th century. It became the world's most successful industrial economy because it didn't have an absentee landlord class like Europe did (except for the railroad octopus), and it enacted protective tariffs to endow a domestic manufacturing class to catch up with and overtake England.

JS : Other countries?

MH : Germany began to be a mixed economy in the decades leading up to World War I. But it had a mentally retarded king whom they didn't know how to restrain, given their cultural faith in royalty. China is of course the most successful recent mixed economy.

JS : Isn't it pretty brutal in China for most of the population?

MH : Most of the population does not find it brutal there. It was brutal under colonialism and later still, under Mao's Cultural Revolution. But now, most people in China seem to want to get rich. That's why you're having a consolidation period of trying to get rid of the local corruption, especially in the rural areas. You're seeing a consolidation period that requires clamping down on a lot of people who became successful through shady operations.

JS : So how would you describe an ideal society without a Hammurabi-style "divine kingship"? An ideal mixed economy?

MH : The credit system would be public. That way, public banks could create credit for socially productive purposes -- and could cancel the occasional overgrowth of debts without causing private creditors to lose and protest. The public sector also would own and operate the natural infrastructure monopolies. That was the basic principle of classical economics from Adam Smith to Marx, even for erstwhile libertarians such as Henry George. Everybody in the 19th century expected a mixed economy with governments playing a growing role, replacing absentee landlords, bankers and monopolists with public collection of economic rent, public control of the credit system and provider of basic needs.

JS : How extensive should the public sector be?

MH : A classical public sector would include the natural monopolies that otherwise would engage in price gouging, especially the credit and banking system. These sectors should be public in character. For one thing, only a public bank can write down the debts -- like student debts today -- without hurting an independent oligarchic financial class. If student debts and mortgage debts were owed to public banks, they could be written down in keeping with the reasonable ability to be paid. Also, public banks wouldn't make junk mortgage loans to NINJA borrowers, as did Citibank and the other crooked banks. A public bank wouldn't make predatory corporate raiding and takeover loans, or finance and speculate in derivative gambles.

Most of all, when the debt overhead becomes too large -- when a large corporation that is essential to the economy can't pay its debts -- public banks can write down the debt so that the company isn't forced into bankruptcy and sold to an American vulture fund or other vulture fund. It can keep operating. In China the government provides this essential service of public banks.

The key public concern throughout history has been to prevent debt from crippling society. That aim is what Babylonian and other third-millennium and second-millennium Near Eastern rulers recognized clearly enough, with their mathematical models. To make an ideal society you need the government to control the basic utilities -- land, finance, mineral wealth, natural resources and infrastructure monopolies (including the Internet today), pharmaceuticals and health care so their basic services can be supplied at the lowest price.

All this was spelled out in the 19 th century by business school analysts in the United States. Simon Patten [1852-1922] who said that public investment is the "fourth factor of production." But its aim isn't to make a profit for itself. Rather, it's to lower the cost of living and of doing business, by providing basic needs either on a subsidized basis or for free. The aim was to create a low-cost society without a rentier class siphoning off unearned income and making this economic rent a hereditary burden on the economy at large. You want to prevent unearned income.

To do that, you need a concept to define economic rent as unearned and hence unnecessary income. A well-managed economy would do what Adam Smith, David Ricardo, John Stuart Mill, Marx and Veblen recommended: It would prevent a hereditary rentier class living off unearned income and increasing society's economic overhead. It's okay to make a profit, but not to make extractive monopoly rent, land rent or financial usury rent.

JS : Will human beings ever create such a society?

MH : If they don't, we're going to have a new Dark Age.

JS : That's one thing that especially surprises me about the United States. Is it not clear to educated people here that our ruling class is fundamentally extractive and exploitative?

MH : A lot of these educated people are part of the ruling class, and simply taking their money and running. They are disinvesting, not investing in industry. They're saying, "The financial rentier game is ending, so let's sell everything and maybe buy a farm in New Zealand to go to when there is a big war." So the financial elite is quite aware that they are getting rich by running the economy into the ground, and that this must end at the point where they've taken everything and left a debt-ridden shell behind.

JS : I guess this gets back to what you were saying: The history of economics has been expurgated from the curriculum.

MH : Once you strip away economic history and the history of economic thought, you wipe out memory of the vocabulary that people have used to criticize rent seeking and other unproductive activity. You then are in a position to redefine words and ideals along the lines that euphemize predatory and parasitic activities as if they are productive and desirable, even natural. You can rewrite history to suppress the idea that all this is the opposite of what Adam Smith and the classicaleconomists down through Marx advocated.

Today's neoliberal wasteland is basically a reaction against the 19 th century reformers, against the logic of classical British political economy. The hatred of Marx is ultimately the hatred of Adam Smith and John Stuart Mill, because neoliberals realize that Smith and Mill and Ricardo were all leading to Marx. He was the culmination of their free market views -- a market free from rentiers and monopolists.

That was the immediate aim of socialism in the late 19 th century. The logic of classical political economy was leading to a socialist mixed economy. In order to fight Marxism, you have to fight classical economics and erase memory of how civilization has dealt with (or failed to deal with) the debt and rent-extracting problems through the ages. The history of economic thought and the original free-market economics has to be suppressed. Today's choice is therefore between socialism or barbarism, as Rosa Luxemburg said.

JS : Let's consider barbarism: When I observe the neoliberal ruling class -- the people who control the finance sector and the managerial class on Wall Street -- I often wonder if they're historically exceptional because they've gone beyond simple greed and lust for wealth. They now seek above all some barbaric and sadistic pleasure in the financial destruction and humiliation of other people. Or is this historically normal?

MH : The financial class has always lived in the short run, and you can make short-term money much quicker by asset stripping and being predatory can by being productive. Moses Finley wrote that there was not a single productive loan in all of Antiquity. That was quite an overstatement, but he was making the point that there were no productive financial markets in Antiquity. Almost all manufacturing, industry, and agriculture was self-financed. So the reader of Finley likely infers that we modern people have progressed in a fundamental way beyond Antiquity. They were characterized by the homo politicus , greedy for status. We have evolved into homo œconomicus , savvy enough to live in stable safety and comfort.

We are supposedly the beneficiaries of the revolution of industrial capitalism, as if all the predatory, polarizing, usurious lending that you had from feudal times (and before that, from Antiquity), was replaced by productive lending that finances means of production and actual economic growth.

But in reality, modern banks don't lend money for production. They say, "That's the job of the stock market." Banks only lend if there's collateral to grab. They lend against assets in place. So the result of more bank lending is to increase the price of the assets that banks lend against -- on credit! This way of "wealth creation" via asset-price inflation is the opposite of real substantive progress. It enriches the narrow class of asset holders at the top of the economic pyramid.

JS : What about the stock market?

MH : The stock market no longer primarily provides money for capital investment. It has become a vehicle for bondholders and corporate raiders to borrow from banks and private funds to buy corporate stockholders, take the companies private, downsize them, break them up or strip their assets, and borrow more to buy back their stocks to create asset-price gains without increasing the economy's tangible real asset base. So the financial sector, except for a brief period in the late 19th century, especially in Germany, has rarely financed productive growth. Financial engineering has replaced industrial engineering, just as in Antiquity creditors were asset strippers.

The one productive activity that the financial sector engaged in from the Bronze Age onward was to finance foreign trade. The original interest-bearing debt was owed by merchants to reimburse their silent partners, typically the palace or the temples, and in time wealthy individuals. But apart from financing trade – in products that were already produced – you've rarely had finance increase the means of production or economic growth. It's almost always been to extract income. The income that finance extracts is at the expense of the rest of society. So the richer the financial sector is, the more austerity is imposed on the non-financial sector.

JS : That's pretty depressing.

MH : When I did the show with Jimmy Dore [ https://www.youtube.com/watch?v=PSvcB55R8jM ], he saw that the most important dynamic to understand is that debts grow more rapidly than the economy at large. The rate of interest is higher than the rate of growth. It may not be higher than the profit rate, but it's higher than the rate of growth. So every society that has interest-bearing debt is going to end up deeper and deeper in debt. At a certain point the creditors are paid at the expense of production and investment -- and soon enough they foreclose.

JS : And then?

MH : Then you have debt deflation. That is the norm. Austerity. It is not an anomaly, but the essence. The Babylonians knew this, and they tried to avoid debt deflation by wiping out the predatory personal debts, not the business debts that were commercial and productive. Only the non-commercial debts were wiped out.

JS : How could Modern Monetary Theory be used now, effectively?

MH : The main way is to say that governments don't have to borrow at interest from existing financial "savers," mainly the One Percent. The government can do what America did during the Civil War: print greenbacks. (The MMT version is the Trillion-dollar platinum coin.) The Treasury can provide the money needed by the economy. It does that by running a budget deficit and spending money into the economy. If you don't do that, if you do what Bill Clinton did in the last years of his presidency and run a budget surplus, then you force the economy to depend on banks for credit.

The problem is that bank credit is essentially predatory and extractive. The same thing happens in Europe. The Eurozone governments cannot run a budget deficit of more than 3 percent, so the government is unable to spend enough money to invest in public infrastructure or anything else. As a result, the Eurozone economy is subject to debt deflation, which is exacerbated by people having to borrow from the banks at high interest rates that far exceeds the rate of growth. So Europe is suffering an even more serious debt deflation than the United States.

JS : Is any of this going to change, either in Europe or here?

MH : Not until there's a crash. Not until it gets serious enough that people realize that there has to be an alternative. Right now Margaret Thatcher and the neoliberals have won. She said there was no alternative, and as long as people believe There Is No Alternative, they're not going to realize that it doesn't have to be this way, and that you don't need a private banking sector. A public banking sector would be much more efficient.

JS : How would you sum up Wall Street right now? Is it entirely predatory? Entirely parasitical? What are Wall Street's essential functions now?

MH : Number one, to run a casino. By far the largest volume at stake is betting on whether interest rates, foreign exchange rates or stock prices will go up or down. So the financial system has turned into a gambling casino. Its second aim is to load the economy down with as much debt as possible. Debt is the banking system's "product," and the GDP counts its "carried interest" penalties and late fees, its short-term trading gains as "financial services" counted as part of Gross Domestic Product (GDP).

The aim is to get as much of these financial returns as possible, and finally to foreclose on as much property of defaulting debtors as possible. The business plan -- as I learned at Chase Manhattan years ago -- is to transfer all economic growth into the hands of financial investors, the One Percent. The financial business plan is to create a set of laws and mount a campaign of regulatory capture so that all the growth in the economy accrues to the One Percent, not the 99 Percent. That means that as the One Percent's rentier income grows, the 99 Percent gets less and less each year, until finally it emigrates or dies off, or is put into a for-profit prison, which looks like a growth industry today.

JS : Is there a single good thing that Wall Street does? Is there anything good that comes out of Wall Street?

MH: You have to look at it as a system. You can't segregate a particular action from the overall economy. If the overall system aims at making money in predatory ways at somebody else's expense, then it is a zero-sum game. That is essentially a short-run business model. And politically, it involves opposing a mixed economy. At least, the "old fashioned" socialist mixed economy in which governments subordinate short-term gain-seeking to long-term objectives uplifting the entire economy.

As the Greek philosophers recognized, wealthy people define their power by their ability to injure the rest of society, so as to lord it over them. That was the Greek philosophy of money-lust [πλεονεξία, pleonexia ] and hubris [ὕβρις] -- not merely arrogance, but behavior that was injurious to others.

Rentier income is injurious to society at large. Rentiers define a "free market" as one in which they are free to deny economic freedom to their customers, employees and other victims. The rentier model is to enrich the oligarchy to a point where it is able to capture the government.

Part 3: The Inherent Financial Instability in Western Civilization's DNA

John Siman : It seems that unless there's a Hammurabi-style "divine king" or some elected civic regulatory authority, oligarchies will arise and exploit their societies as much as they can, while trying to prevent the victimized economy from defending itself.

Michael Hudson : Near Eastern rulers kept credit and land ownership subordinate to the aim of maintaining overall growth and balance. They prevented creditors from turning citizens into indebted clients obliged to work off their debts instead of serving in the military, providing corvée labor and paying crop rents or other fees to the palatial sector.

JS : So looking at history going back to 2000 or 3000 BC, once we no longer have the powerful Near Eastern "divine kings," there seems not to have been a stable and free economy. Debts kept mounting up to cause political revolts. In Rome, this started with the Secession of the Plebs in 494 BC, a century after Solon's debt cancellation resolved a similar Athenian crisis.

MH : Near Eastern debt cancellations continued into the Neo-Assyrian and Neo-Babylonian Empires in the first millennium BC, and also into the Persian Empire. Debt amnesties and laws protecting debtors prevented the debt slavery that is found in Greece and Rome. What modern language would call the Near Eastern "economic model" recognized that economies tended to become unbalanced, largely as a result of buildup of debt and various arrears on payments. Economic survival in fact required an ethic of growth and rights for the citizenry (who manned the army) to be self-supporting without running into debt and losing their economic liberty and personal freedom. Instead of the West's ultimate drastic solution of banning interest, rulers cancelled the buildup of personal debts to restore an idealized order "as it was in the beginning."

This ideology has always needed to be sanctified by religion or at least by democratic ideology in order to prevent the predatory privatization of land, credit, and ultimately the government. Greek philosophy warned against monetary greed [πλεονεξία, pleonexia ] and money-love [φιλοχρηματία, philochrêmatia ] from Sparta's mythical lawgiver Lycurgus to Solon's poems describing his debt cancellation in 594 and the subsequent philosophy of Plato and Socrates, as well as the plays of Aristophanes. The Delphic Oracle warned that money-love was the only thing that could destroy Sparta [Diodorus Siculus 7.5]. That indeed happened after 404 BC when the war with Athens ended and foreign tribute poured into Sparta's almost un-monetized regulated economy.

The problem, as famously described in The Republic and handed down in Stoic philosophy, was how to prevent a wealthy class from becoming wealth-addicted, hubristic and injurious to society. The 7 th -century "tyrants" were followed by Solon in Athens in banning luxuries and public shows of wealth, most notoriously at funerals for one's ancestors. Socrates went barefoot [ἀνυπόδητος, anupodêtos ] to show his contempt for wealth, and hence his freedom from its inherent personality defects. Yet despite this universal ideal of avoiding extremes, oligarchic rule became economically polarizing and destructive, writing laws to make its creditor claims and the loss of land by smallholders irreversible. That was the opposite of Near Eastern Clean Slates and their offshoot, Judaism's Jubilee Year.

JS : So despite the ideals of their philosophy, Greek political systems had no function like that of Hammurabi-like kings -- or philosopher-kings for that matter -- empowered to hold financial oligarchies in check. This state of affairs led philosophers to develop an economic tradition of lamentation instead. Socrates, Plato and Aristotle, Livy and Plutarch bemoaned the behavior of the money-loving oligarchy. But they did not develop a program to rectify matters. The best they could do was to inspire and educate individuals -- most of whom were their wealthy students and readers. As you said, they bequeathed a legacy of Stoicism. Seeing that the problem was not going to be solved in their lifetimes, they produced a beautiful body of literature praising philosophical virtue.

MH : The University of Chicago, where I was an undergraduate in the 1950s, focused on Greek philosophy. We read Plato's Republic , but they skipped over the discussion of wealth-addiction. They talked about philosopher-kings without explaining that Socrates' point was that rulers must not own land and other wealth, so as not to have the egotistical tunnel vision that characterized creditors monopolizing control over land and labor.

JS : In Book 8 of the Republic , Socrates condemns oligarchies as being characterized by an insatiable greed [ἀπληστία, aplêstia ] for money and specifically criticizes them for allowing polarization between the super-rich [ὑπέρπλουτοι, hyper-ploutoi ] and the poor [πένητες, penêtes ], who are made utterly resourceless [ἄποροι, aporoi ].

MH : One needs to know the context of Greek economic history in order to understand The Republic 's main concern. Popular demands for land redistribution and debt cancellation were resisted with increasing violence. Yet few histories of Classical Antiquity focus on this financial dimension of the distribution of land, money and wealth.

Socrates said that if you let the wealthiest landowners and creditors become the government, they're probably going to be wealth-addicted and turn the government into a vehicle to help them exploit the rest of society. There was no idea at Chicago of this central argument made by Socrates about rulers falling subject to wealth-addiction. The word "oligarchy" never came up in my undergraduate training, and the "free market" business school's Ayn Rand philosophy of selfishness is as opposite from Greek philosophy as it is from Judeo-Christian religion.

JS : The word "oligarchy" comes up a lot in book 8 of Plato's Republic . Here are 3 passages:

1. At Stephanus page 550c "And what kind of a regime," said he, "do you understand by oligarchy [ὀλιγαρχία]?" "That based on a property qualification," said I, "wherein the rich [πλούσιοι] hold office [550d] and the poor man [πένης, penês ] is excluded.

2. at 552a "Consider now whether this polity [ i.e . oligarchy] is not the first that admits that which is the greatest of all such evils." "What?" "The allowing a man to sell all his possessions, which another is permitted to acquire, and after selling them to go on living in the city, but as no part of it, neither a money-maker, nor a craftsman, nor a knight, nor a foot-soldier, but classified only as a pauper [πένης, penês ] and a dependent [ἄπορος, aporos ]." [552b] "This is the first," he said. "There certainly is no prohibition of that sort of thing in oligarchical states. Otherwise some of their citizens would not be excessively rich [ὑπέρπλουτοι, hyper-ploutoi ], and others out and out paupers [πένητες, penêtes ]."

3 at 555b: "Then," said I, "is not the transition from oligarchy to democracy effected in some such way as this -- by the insatiate greed [ἀπληστία, aplêstia ] for that which oligarchy set before itself as the good, the attainment of the greatest possible wealth?"

MH : By contrast, look where Antiquity ended up by the 2 nd century BC. Rome physically devastated Athens, Sparta, Corinth and the rest of Greece. By the Mithridatic Wars (88-63 BC) their temples were looted and their cities driven into unpayably high debt to Roman tax collectors and Italian moneylenders. Subsequent Western civilization developed not from the democracy in Athens but from oligarchies supported by Rome. Democratic states were physically destroyed, blocking civic regulatory power and imposing pro-creditor legal principles making foreclosures and forced land sales irreversible.

JS: It seems that Greek and Roman Antiquity could not solve the problem of economic polarization. That makes me want to ask about our own country: To what extent does America resemble Rome under the emperors?

MH: Wealthy families have always tried to break "free" from central political power -- free to destroy the freedom of people they get into debt and take their land and property. Successful societies maintain balance. That requires public power to check and reverse the excesses of personal wealth seeking, especially debt secured by the debtor's labor and land or other means of self-support. Balanced societies need the power to reverse the tendency of debts to grow faster than the ability to be paid. That tendency runs like a red thread through Greek and Roman history.

This overgrowth of debt is also destabilizing today's U.S. and other financialized economies. Banking and financial interests have broken free of tax liability since 1980, and are enriching themselves not by helping the overall economy grow and raising living standards, but just the opposite: by getting the bulk of society into debt to themselves.

This financial class is also indebting governments and taking payment in the form of privatizing the public domain. (Greece is a conspicuous recent example.) This road to privatization, deregulation and un-taxing of wealth really took off with Margaret Thatcher and Ronald Reagan cheerleading the anti-classical philosophy of Frederick von Hayek and the anti-classical economics of Milton Friedman and the Chicago Boys.

Something much like this happened in Rome. Arnold Toynbee described its oligarchic land grab that endowed its ruling aristocracy with unprecedented wealth as Hannibal's Revenge. That was the main legacy of Rome's Punic Wars with Carthage ending around 200 BC. Rome's wealthy families who had contributed their jewelry and money to the war effort, made their power grab and said that what originally appeared to be patriotic contributions should be viewed as having been a loan. The Roman treasury was bare, so the government (controlled by these wealthy families) gave them public land, the ager publicus that otherwise would have been used to settle war veterans and other needy.

Once you inherit wealth, you tend to think that it's naturally yours, not part of society's patrimony for mutual aid. You see society in terms of yourself, not yourself as part of society. You become selfish and increasingly predatory as the economy shrinks as a result of your indebting it and monopolizing its land and property. You see yourself as exceptional, and justify this by thinking of yourself as what Donald Trump would call "a winner," not subject to the rules of "losers," that is, the rest of society. That's a major theme in Greek philosophy from Socrates andPlato and Aristotle through the Stoics. They saw an inherent danger posed by an increasingly wealthy landholding and creditor ruling class atop an indebted population at large. If you let such a class emerge independently of social regulation and checks on personal egotism and hubris, the economic and political system becomes predatory. Yet that has been the history of Western civilization.

Lacking a tradition of subordinating debt and land foreclosure from smallholders, the Greek and Italian states that emerged in the 7 th century BC took a different political course from the Near East. Subsequent Western civilization lacked a regime of oversight to alleviate debt problems and keep the means of self-support broadly distributed.

The social democratic movements that flowered from the late 19 th century until the 1980s sought to re-create such regulatory mechanisms, as in Teddy Roosevelt's trust busting, the income tax, Franklin Roosevelt's New Deal, postwar British social democracy. But these moves to reverse economic inequality and polarization are now being rolled back, causing austerity, debt deflation and the concentration of wealth at the top of the economic pyramid. As oligarchies take over government, they lorded it over the rest of society much like feudal lords who emerged from the wreckage of the Roman Empire in the West.

The tendency is for political power to reflect wealth. Rome's constitution weighted voting power in proportion to one's landholdings, minimizing the voting power of the non-wealthy. Today's private funding of political campaigns in the United States is more indirect in shifting political power to the Donor Class, away from the Voting Class. The effect is to turn governments to serve a financial and property-owning class instead of prosperity for the economy at large. We thus are in a position much like that of Rome in 509 BC, when the kings were overthrown by an oligarchy claiming to "free" their society from any power able to control the wealthy. The call for "free markets" today is for deregulation of rentier wealth, turning the economy into a free-for-all.

Classical Greece and Italy had a fatal flaw: From their inception they had no tradition of a mixed public/private economy such as characterized in the Near East, whose palatial economy and temples produced the main economic surplus and infrastructure. Lacking royal overrides, the West never developed policies to prevent a creditor oligarchy from reducing the indebted population to debt bondage, and foreclosing on the land of smallholders. Advocates of debt amnesties were accused of "seeking kingship" in Rome, or aspiring to "tyranny"(in Greece).

JS: It seems to me that you're saying this economic failure is Antiquity's original sin as well as fatal flaw. We have inherited a great philosophic and literary tradition from them analyzing and lamenting this failure, but without a viable program to set it right.

MH: That insight unfortunately has been stripped out of the curriculum of classical studies, just as the economics discipline sidesteps the phenomenon of wealth addiction. If you take an economics course, the first thing you're taught in price theory is diminishing marginal utility: The more of anything you have, the less you need it or enjoy it. You can't enjoy consuming it beyond a point. But Socrates and Aristophanes emphasized, accumulating money is not like eating bananas, chocolate or any other consumable commodity. Money is different because, as Socrates said, it is addictive, and soon becomes an insatiable desire [ἀπληστία, aplêstia ].

JS: Yes, I understand! Bananas are fundamentally different from money because you can get sick of bananas, but you can never have too much money! In your forthcoming book, The Collapse of Antiquity , you quote what Aristophanes says in his play Plutus (the god of wealth and money). The old man Chremylus -- his name is based on the Greek word for money, chrêmata [χρήματα] -- Chremylus and his slave perform a duet in praise of Plutus as the prime cause of everything in the world, reciting a long list. The point is that money is a singular special thing: "O Money-god, people never get sick of your gifts. They get tired of everything else; they get tired of love and bread, of music and honors, of treats and military advancement, of lentil soup, etc., etc. But they never get tired of money. If a man has thirteen talents of silver -- 13 million dollars, say -- he wants sixteen; and if he gets sixteen, he will want forty, and so forth, and he will complain of being short of cash the whole time."

MH: Socrates's problem was to figure out a way to have government that did not serve the wealthy acting in socially destructive ways. Given that his student Platowas an aristocrat and that Plato's students in the Academy werearistocratsas well, how can you have a government run by philosopher-kings? Socrates's solution was not practical at that time: Rulers should not have money or property. But all governments were based on the property qualification, so his proposal for philosopher-kings lacking wealth was utopian. And like Plato and other Greek aristocrats, they disapproved of debt cancellations, accusing these of being promoted by populist leaders seeking to become tyrants.

JS: Looking over the broad sweep of Roman history, your book describes how, century after century, oligarchs were whacking every energetic popular advocate whose policies threatened their monopoly of political power, and their economic power as creditors and privatizers of the public domain, Rome's ager publicus , for themselves.

I brought with me on the train Cæsar's Gallic War . What do you think of Cæsar and how historians have interpreted his role?

MH: The late 1 st century BC was a bloodbath for two generations before Cæsar was killed by oligarchic senators. I think his career exemplifies what Aristotle said of aristocracies turning into democracies: He sought to take the majority of citizens into their own camp to oppose the aristocratic monopolies of landholding, the courts and political power.

Cæsar sought to ameliorate the oligarchic Senate's worst abuses that were stifling Rome's economy and even much of the aristocracy. Mommsen is the most famous historian describing how rigidly and unyieldingly the Senate opposed democratic attempts to achieve a role in policy-making for the population at large, or to defend the debtors losing their land to creditors, who were running the government for their own personal benefit. He described how Sulla strengthened the oligarchy against Marius, and Pompey backed the Senate against Caesar. But competition for the consulship and other offices was basically just a personal struggle among rival individuals, not rival concrete political programs. Roman politics was autocratic from the very start of the Republic when the aristocracy overthrew the kings in 509 BC. Roman politics during the entire Republic was a fight by the oligarchy against democracy and the populace as a whole.

The patricians used violence to "free" themselves from any public authority able to check their own monopoly of power, money and land acquisition by expropriating smallholders and grabbing the public domain being captured from neighboring peoples. Roman history from one century to the next is a narrative of killing advocates of redistributing public land to the people instead of letting it be grabbed by the patricians, or who called for a debt cancellation or even just an amelioration of the cruel debts laws.

On the one hand, Mommsen idolized Cæsar as if he were a kind of revolutionary democrat. But given the oligarchy's total monopoly on political power and force, Mommsen recognized that under these conditions there could not be any political solution to Rome's economic polarization and impoverishment. There could only be anarchy or a dictatorship. So Caesar's role was that of a Dictator -- vastly outnumbered by his opposition.

A generation before Caesar, Sulla seized power militarily, bringing his army to conquer Rome and making himself Dictator in 82 BC. He drew up a list of his populist opponents to be murdered and their estates confiscated by their killers. He was followed by Pompey, who could have become a dictator but didn't have much political sense, so Caesar emerged victorious. Unlike Sulla or Pompey, he sought a more reformist policy to check the senatorial corruption and self-dealing.

The oligarchic Senate's only "political program" was opposition to "kingship" or any such power able to check its land grabbing and corruption. The oligarchs assassinated him, as they had killed Tiberius and Gaius Gracchus in 133 and 121, the praetor Asellio who sought to alleviate the population's debt burden in 88 by trying to enforce pro-creditor laws, and of course the populist advocates of debt cancellation such as Catiline and his supporters. Would-be reformers were assassinated from the very start of the Republic after the aristocracy overthrew Rome's kings.

JS: If Caesar had been successful, what kind of ruler might he have been?

MH: In many ways he was like the reformer-tyrants of the 7 th and 6 th centuries in Corinth, Megara and other Greek cities. They all were members of the ruling elite. He tried to check the oligarchy's worst excesses and land grabs, and like Catiline, Marius and the Gracchi brothers before him, to ameliorate the problems faced by debtors. But by his time the poorer Romans already had lost their land, so the major debts were owed by wealthier landowners. His bankruptcy law only benefited the well-to-do who had bought land on credit and could not pay their moneylenders as Rome's long Civil War disrupted the economy. The poor already had been ground down. They supported him mainly for his moves toward democratizing politics at the expense of the Senate.

JS: After his assassination we get Caesar's heir Octavian, who becomes Augustus. So we have the official end of the Republic and the beginning of a long line of emperors, the Principate. Yet despite the Senate's authority being permanently diminished, there is continued widening of economic polarization. Why couldn't the Emperors save Rome?

MH: Here's an analogy for you: Just as nineteenth-century industrial reformers thought that capitalism's political role was to reform the economy by stripping away the legacy of feudalism -- a hereditary landed aristocracy and predatory financial system based mainly on usury -- what occurred was not an evolution of industrial capitalism into socialism. Instead, industrial capitalism turned into finance capitalism. In Rome you had the end of the senatorial oligarchy followed not by a powerful, debt-forgiving central authority (as Mommsen believed that Caesar was moving toward, and as many Romans hoped that he was moving towards), but to an even more polarized imperial garrison state.

JS: That's indeed what happened. The emperors who ruled in the centuries after Cæsar insisted on being deified -- they were officially "divine," according to their own propaganda. Didn't any of them have the potential power to reverse the Roman economy's ever-widening polarization of the, like the Near Eastern "divine kings" from the third millennium BC into the Neo-Assyrian, Neo-Babylonian and even the Persian Empire in the first millennium?

MH: The inertia of Rome's status quo and vested interests among patrician nobility was so strong that emperors didn't have that much power. Most of all, they didn't have a conceptual intellectual framework for changing the economy's basic structure as economic life became de-urbanized and shifted to self-sufficient quasi-feudal manor estates. Debt amnesties and protection of small self-sufficient tax-paying landholders as the military base was achieved only in the Eastern Roman Empire, in Byzantium under the 9 th – and 10 th -century emperors (as I've described in my history of debt cancellations in and forgive them their debts ).

The Byzantine emperors were able to do what Western Roman emperors could not. They reversed the expropriation of smallholders and annulled their debts in order to keep a free tax-paying citizenry able to serve in the army and provide public labor duties. But by the 11 th and 12 th centuries, Byzantium's prosperity enabled its oligarchy to create private armies of their own to fight against centralized authority able to prevent their grabbing of land and labor.

It seems that Rome's late kings did something like this. That is what attracted immigrants to Rome and fueled its takeoff. But with prosperity came rising power of patrician families, who moved to unseat the kings. Their rule was followed by a depression and walkouts by the bulk of the population to try and force better policy. But that could no be achieved without democratic voting power, so faith was put in personal leader -- subject to patrician violence to abort any real economic democracy.

In Byzantium's case, the tax-avoiding oligarchy weakened the imperial economy to the point where the Crusaders were able to loot and destroy Constantinople. Islamic invaders were then able to pick up the pieces.

The most relevant point of studying history today should be how the economic conflict between creditors and debtors affected the distribution of land and money. Indeed, the tendency of a wealthy overclass to pursue self-destructive policies that impoverish society should be what economic theory is all about. We'll discuss this in Part 4.

Part 4: A New "Reality Economics" Curriculum is Needed

John Siman: I want to spell out the implications of the points that Socrates brought up, and with which you and I agree. That leaves the question facing us today: Is the American oligarchy and state as rapacious as that of Rome? Or is it universally the nature of oligarchy in any historical setting to be rapacious? And if so, where is it all leading?

Michael Hudson : If Antiquity had followed the "free market" policies of modern neoliberal economics, the Near East, Greece and Rome would never have gained momentum. Any such "free market" avoiding mutual aid and permitting a wealthy class to emerge and enslave the bulk of the population by getting it into debt and taking its land would have shrunk, or been conquered from without or by revolution from within. That's why the revolutions of the 7 th century BC, led to reformers subsequently called "tyrants" in Greece (and "kings" in Rome) were necessary to attract populations rather than reduce them to bondage.

So of course it is hard for mainstream economists to acknowledge that Classical Antiquity fell because it failed to regulate and tax the wealthy financial and landowning classes, and failed to respond to popular demands to cancel personal debts and redistribute the land that had been monopolized by the wealthy.

The wealth of the Greek and Roman oligarchies was the ancient counterpart to today's Finance, Insurance and Real Estate (FIRE) sector, and their extractive and predatory behavior is what destroyed Antiquity. The perpetuation of this problem even today, two thousand years later, should establish that the debt/credit dynamic and polarization of wealth is a central problem of Western civilization.

JS : So what were -- and are -- the political and social dynamic at work?

MH : The key is the concept of wealth addiction and how it leads to hubris -- arrogance that seeks to increase power in ways that hurt other people. Hubris is not merely over-reaching; it is socially injurious. The wealthy or power injure other people knowingly, to establish their power and status.

That is what Aristophanes meant when his characters say that wealth is not like bananas or lentil soup. Wealth has no object but itself . Wealth is status -- and also political control. The creditor's wealth is the debtor's liability. The key to its dynamic is not production and consumption, but assets and liabilities -- the economy's balance sheet. Wealth and status in the sense of who/whom. It seeks to increase without limit, and Socrates and Aristotle found the major example to be creditors charging interest for lending "barren" money. Interest had to be paid out of the debtor's own product, income or finally, forfeiture of property; creditors did not provide means of making interest to pay off the loan.

This is the opposite of Austrian School theories that interest is a bargain to share the gains to be made from the loan "fairly" between creditor and debtor. It also is the opposite of neoclassical price theory. The economics taught in universities today is based on a price theory that does not even touch on this point. The liberty that oligarchs claim is the right to indebt the rest of society and then demand full payment or forfeiture of the debtor's collateral. This leads to massive expropriations, as did the Junk Mortgage foreclosures after 2008 when President Obama failed to write down debts to realistic market values for real estate financed on loans far beyond the buyer's ability to pay. The result was 10 million foreclosures.

Yet today's mainstream economics treats the normal tendency to polarize between creditors and debtors, the wealthy and the have-nots, as an anomaly. It has been the norm for the last five thousand years, but economics sidesteps actual empirical history as if it is an anomaly in the fictional parallel universe created by the mainstream's unrealistic assumptions. Instead of being a science, such economics is science fiction.It trains students in cognitive dissonance that distracts them from understanding Classical Antiquity and the driving dynamics of Western civilization.

JS: This gets us back to the question of whether universities should just be shut down and started up all over again.

MH: You don't shut them down, you create a new group of universities with a different curriculum. The path of least resistance is to house this more functional curriculum in new institutions. That's what America's Republican and pro-industrial leaders recognized after the Civil War ended in 1865. They didn't shut down Harvard and Yale and Princeton and the Christian free-trade Anglophile colleges. They created state colleges funded by land grants, such as Cornell in upstate New York, and business schools such as the Wharton School at the University of Pennsylvania, endowed by industrialists to providing an economic logic for the state's steel-making and related industrial protectionism. The result was an alternative economics to describe how America should develop as what they saw as a new civilization, free of the vestiges of Europe's feudal privileges, absentee ownership and colonialist mentality.

The Republicans and industrialists saw that America's prestige colleges had been founded long before the Civil War, basically as religious colleges to train the clergy. They taught British free trade theory, serving the New England commercial and banking interests and Southern plantation owners. But free trade kept the United States dependent on England. My book America's Protectionist Takeoff describes how the American School of Political Economy, led by Henry Carey and E. Peshine Smith (William Seward's law partner), developed an alternative to what was being taught in the religious colleges.

This led to a new view of the history of Western civilization and America's role in fighting against entrenched privilege. William Draper's Intellectual Development of Europe , and Andrew Dixon White's History of the Warfare of Science with Theology saw the United States as breaking free from the feudal aristocracies that were a product of the way in which antiquity collapsed, economically and culturally.

JS : So business schools were originally progressive!

MH : Surprising as it may seem, the answer is Yes, to the extent that they described the global economy as tending to polarize under free trade and an absence of government protectionism, not to become more equal. They incorporated technology, energy-use and the environmental consequences of trade patterns into economic theory, such as soil depletion resulting from plantation monocultures. Mainstream economics fought against such analysis because it advocated markets "free" for polluters, "free" for nations to pursue policies that made them poorer and dependent on foreign credit.

JS : So this is how the Wharton School's first professor of economics, Simon Patten, one of the founders of American sociology, fits into this anti- rentier tradition! That is such a revelation to me! They developed an analysis of technology's effects on the economy, of monopoly pricing and economic rent as unearned income that increases the cost of living and cost of production. They explained the benefits of public infrastructure investment. Today that is called "socialism," but it was industrial capitalists who took the lead in urging such public investment, so as to lower their cost of doing business.

MH : The first U.S. business schools in the late 19 th century described rentiers as unproductive. That is why today's neoliberals are trying to rewrite the history of Institutionalism in a way that expurgates the Americans who wanted the government to provide public infrastructure to make America a low-cost economy, undersell England and other countries, and evolve into the industrial giant it became by the 1920s.

JS : That was Simon Patten's teaching at the Wharton School -- government-subsidized public infrastructure as the fourth factor of production.

MH : Yes. America's ruling political class tried to make the United States a dominant economy instead of a rentier economy of landlords and financial manipulators.

JS : How did the robber barons fit into this story?

MH : Not as industrialists or manufacturers, but as monopolists opposed by the industrial interests. It was Teddy Roosevelt's trust-busting and the Republicans that enacted the Sherman antitrust act. Its spirit was continued by Franklin Roosevelt.

JS :Is today's economy a second age of robber barons?

MH : It's becoming a second Gilded Age. An abrupt change of direction in economic trends occurred after Ronald Reagan and Margaret Thatcher were elected in 1979/80. The result has been to invert what the 19 th -century economists understood to be a free market -- that is, a market free from a privileged hereditary class living on unearned income in the form of land rent, monopoly rent and financial extraction.

JS : I was in my first few years of college when Thatcher came in in 1979, and when Reagan was elected in 1980. I asked my economics professors what was going on, but I could not find a single professor to coherently describe the U-turn that was occurring. It certainly wasn't in Paul Samuelson's textbook that we were given.

MH : There's little logic for neoliberalism beyond a faith that short-term greed is the best way to optimize long-term growth. It is natural for the wealthiest classes to have this faith. Neoliberalism doesn't look at the economy as a social system, and it excludes as "externalities" concerns with the environment, debt dependency and economic polarization. It only asks how to make a short-term hit-and-run gain, regardless of whether this is done in a way that has a positive or negative overall social effect. Realistic economic logic is social in scope, and distinguishes between earned and unearned income. That is why economists such as Simon Patten and Thorstein Veblen decided to start afresh and create the discipline of sociology, to go beyond narrow individualistic economics being taught.

Today's mathematical economics is based on circular reasoning that treats all that has happened as having been inevitable. It is all survival of the fittest, so it seems that there is no alternative. This policy conclusion is built into economic methodology. If we weren't the fittest, we wouldn't have survived, so by definition (that is, circular reasoning), any alternative is less than fit.

Regarding the fact that you had to read Samuelson when you were in college, he was famous for his Factor Price Equalization Theorem claiming to prove mathematically that everybody and every nation tends naturally to become more and more equal (if government stands aside). He denied that the tendency of the global economy is to polarize, not equalize. The political essence of this equilibrium theory is its claim that economies tend to settle in a stable balance. In reality they polarize and then collapse if they do not reverse their polarizing financial and productivity and wealth dynamics are.

The starting point of economic theorizing should explain the dynamic that lead economics to polarize and collapse. That is the lesson of studying antiquity that we have discussed in our earlier talks. Writers in classical antiquity, like Bronze Age Near Eastern rulers before them and the Biblical prophets, recognized that a rentier economy tends to destroy the economy's productivity and widespread prosperity, and ultimately its survival. In today's world the Finance, Insurance,and Real Estate [FIRE] sector and monopolies are destroying the rest of the economy, using financial wealth to take over the government and disable its ability to prevent their operating in corrosive and predatory ways.

JS : Why aren't more people up in arms?

MH : They're only up in arms if they believe that there is an alternative. As long as the vested interests can suppress any idea that there is an alternative, that matters don't have to be this way, people just get depressed. In our third interview you spoke about Socrates and the Stoics producing a philosophy of lamentation and resignation. By his day there seemed no solution except to denounce wealth. When matters got much worse in the Roman Empire, wealth was abhorred. That became the message of Christianity.

What is needed is to define the scope of the alternative that you want. How can the economy grow when households, business, and government have to pay more and more of their revenue to the financial sector, which then turns around and lends its interest and related income out to indebt the economy even more? The effect is to extract even more income. Rising government debt and tax cuts for the rentiers lead to the privatization of public infrastructure and natural monopolies. Higher prices are charged for tolls to pay for public healthcare, education, roads and other services that were expected to be provided for free a century ago. Financialized privatization thus creates a high-rent, high-cost economy -- the opposite of industrial capitalism evolving into socialism to finally free society from rentier income.

JS: Wouldn't that be based on the insatiable desire [ἀπληστία, aplêstia ] for money and the super-rich [ὑπέρπλουτοι, hyper-ploutoi ] oligarchs in Book 8 of Plato's Republic ? So we get back to my question: Is the behavior of the super-rich a constant in human nature?

MH: Money-love [φιλοχρηματία, philochrêmatia ] has always been extreme because wealth is addictive. But their dynamic of credit -- other peoples' debts -- increasing at compound interest is mathematized and the economy is put on automatic pilot to self-destruct. Its business plan to "create wealth" by making financial gains at somebody else's expense, without limit. This kind of financial wealth is a zero-sum activity. The wealth of the creditor class, the One Percent, is achieved by indebting the 99 Percent.

JS: Why is it a zero-sum activity?

MH: A zero-sum activity is when one party's gain is another's loss. Instead of income paid to creditors being reinvested in means of production to help the economy grow, it's spent on buying more assets. The most wasteful examples are corporate stock buyback programs and financial raids. And the largest effect of financialization occurs as loans and Quantitative Easing simply bid up the price of real estate, stocks, bonds and other assets. The effect is to put housing and a retirement income further out of range of people who have to live by working for wages and salaries instead of living off absentee ownership, interest and financial asset-price gains.

JS: Why is this being done instead of investing in the economy to help the population live a better and more prosperous life?

MH: The tax and regulatory system is set up to make financial gains or create monopoly privileges. That is quicker and more certain, especially in an economy shrinking as a result of financialization and the austerity it imposes. It's hard to make profits by investing in a shrinking economy suffering from debt deflation and a squeeze on family budgets to pay for health care, education and other basic needs.

JS: So it becomes more about extraction. Let's come back to Global Climate Change and rising sea levels as a foundation of American foreign policy.

MH: Since the 19th century, American policy has been based on the recognition that GDP growth reflects rising energy use per capita. Rising productivity is almost identical with the curve of energy use per worker. That was the basic premise of E. Peshine Smith in 1853, and subsequent writers, whom I describe in America's Protectionist Takeoff: 1918-1914 . The policy conclusion is that if you can control the source of energy -- which remains mainly oil and coal -- then you can control global GDP growth. That is why Dick Cheney invaded Iraq: to grab its oil. It is why Trump announced his intention to topple Venezuela and take its oil.

If other nations are obliged to buy their oil from the United States or its companies, then it's in a monopoly position to turn off their electricity (like the United States did to Venezuela) and hurt their economies if they don't acquiesce in a world system that lets American financial firms come in and buy out their most productive monopolies and privatize theirpublic domain. That's why America's foreign policy is to monopolize the world's oil, gas and coal in order to have a stranglehold on the rate of growth of other countries by being able to deny them energy. It's like denying countries food in order to starve them out. The aim isto exploit Europe, Asia, Africa and Latin America what Rome exploited its Empire.

JS: Would you be comfortable using words like evil to describe what's going on now?

MH : Evil essentially is predatory and destructive behavior. Socrates said that it ultimately is ignorance, because nobody would set out intentionally to do it. But in that case, evil would be an educational system that imposes ignorance and tunnel vision, distracting attention from understanding how economic society actually works in destructive ways. On that logic, post-classical neoliberal economics and the Chicago Boys are evil because their ideology breeds ignorance and leads its believers to act in ways that are injurious to society, preventing personal fulfillment through economic growth. Evil is a policy that makes most of society poorer, simply in order to enrich an increasingly wealth-addictive rentier layer at the top. Werner Sombart described the bourgeoisie as floating like a globules of fat on top of a soup.

JS: This is now happening on a path that follows an exponential extreme. I guess global warming makes it particularly evil. We're not simply talking about taking advantage of other people within a society, we're talking about destruction of the planet and its environment.

MH: Economists dismiss this as an "externality," that is, outside the scope of their models. So these models are deliberately ignorant. You could say that this makes them evil.

JS: That is what I've suspected since we started the Iraq War in 2003.

MH: America's military buildup, its anti-environmental policy and global wars are part of the same symbiotic strategy. The reason why America will not be part of a real effort to mitigate global warming is that its policy is still based on grabbing the oil resources of the Near East, Venezuela, and everywhere else that it can. Also, the oil industry is the most tax-exempt and politically powerful sector. If it also happens to be the primary cause of global warming, that is viewed as just collateral damage to America's attempt to control the world by controlling the oil supply. In that sense the environmental impasse is a byproduct of American imperialism.

JS: What's hopeful in the United States right now? What is a possible good outcome?

MH: T he precondition would be for people to realize that there is an alternative. Starting with wiping out of student debts, they can realize that the overall debt overhead can be wiped out without hurting the economy -- and indeed, rescuing it from the financial rentier class inasmuch as all debts on the liabilities side of the balance sheet have their counterpart on the asset side as the savings of today's financial oligarchy, which is doing to the U.S. economy what Rome's Senate did to the ancient world.

JS: How can people proceed from here?

MH: Understanding must come first. Once you have to have a sense of history, you realize that there is an alternative. You also see what happens when a creditor oligarchy gets strong enough to prevent any public power from writing down debts and to prevent attempts to tax it.

You have to do to America today what the Republicans did after the Civil War: You have to have a new university curriculum dealing with economic history, the history of economic thought and the real world's long-term development.

JS: And what would be the premise for such economic history?

MH: T he starting point is to realize that civilization began in the ancient Near East, and made a turn to oppose a strong public regulatory sector in Classical Greece and Rome. The long-term tension is the eternal fight by the oligarchy of creditors and large land owners to reduce the rest of society to serfdom, and to oppose strong rulers empowered to act in the economy's long-term interest by creating checks against this polarization.

JS : So how much longer does this go on -- for months, for years, for decades?

MH : It always goes on longer than you think it will. Inertia has a great elastic self-reinforcing power. Polarization will widen until people believe that there is an alternative and decide to fight for it. Two things are required for this to happen: First, a large proportion of people need to see that the economy is impoverishing them, and that the existing picture of what is happening is misleading. Instead of wealth trickling down, it is defying gravity and sucking income up from the base of the economic pyramid. People are having to work harder just to stay in place, until their life style breaks down.

Second, people must realize that it doesn't have to be this way. There is an alternative

JS : Right now most people think that government regulation and progressive taxation will make things worse, and that the wealthy are job creators, not job destroyers. They think that the system needs to be bolstered, not replaced, because the alternative is "socialism" -- that is, what the Soviets did, not what Franklin Roosevelt was doing. But today bailing out the banks and giving subsidies to new employers is said to be for our own good.

MH : That's what the Romans told their provinces. Everything they did was always to preserve "good order," meaning open opportunities for their own wealth grabbing. They never said they were out to destroy and loot other societies. Madeline Albright followed this rhetorical pattern in describing as being, like the Romans and France's brutal mission civilisatrice , a program to uplift the world free-market efficiency. For performing this service, the imperial power takes all the money that its colonies, provinces and allies can generate. That's why the U.S. meddles in foreign politics, as we have just seen in Ukraine, Libya and Syria.

JS : You've described the greatest meddling as distorting the narrative of history to depict creditor and rentier drives toward oligarchy as being democratic and helping to raise living standards and culture. Your books show just the opposite.

MH : Thank you. (Republished from Naked Capitalism by permission of author or representative)


Dutch Boy , says: April 6, 2019 at 7:07 pm GMT

Questions for Dr. Hudson: Why should a public banking system charge interest at all on loans? Could they not merely charge a one-time service fee to cover the cost of loan administration and a one-time insurance fee to cover the costs of defaulting on the loan? After all, they are not actually loaning money – they are creating money at minimal risk to the bank. Charging interest to create money strikes me as mere theft.
obwandiyag , says: April 7, 2019 at 2:37 am GMT
But, you see, Michael Hudson is a liberal, and so you can't listen to him. Even if you understood what he was saying.
wayfarer , says: April 7, 2019 at 4:58 am GMT
Abrahamism, the red herring du jour, for humanity.

source: https://en.wikipedia.org/wiki/Abrahamic_religions

MEFOBILLS , says: April 7, 2019 at 7:14 am GMT
@Dutch Boy

Charging interest to create money strikes me as mere theft.

The school of Salamanca is where this idea of interest on money was codified, where the Jesuit priests proclaimed it as a loss of wants. That is, since people loaned out their money, they didn't get use of it, so they should be paid for their loss.

If you examine how banking works, banks hypothecate new money the moment you sign a debt instrument. Both the new bank credit and debt instrument pop into being simultaneously.

To ask for compounding interest on this simple legerdemain is an outrageous abuse, so you are right it is theft.

There are situations where it is not usurious. For example, Schacht's MefoBills scheme, the interest fluxed outward from Reichsbank to the bill holder. A bill would be presented to industry, and said industry would then start work making goods. Bill would then be presented for discount, which is fancy way of saying paid for, or paid off. Upon discount, bill would be examined to see if goods were produced. Then the bill would be paid its full face value AND the interest it accrued.

Reichsmarks flowed from Reichsbank to the bill holder, who was paid interest. The bill holder then spent his new Reichsmarks into the money supply.

Benjamin Franklin's public bank spent into the commons the extra money necessary for debtors to pay interest on their loans. The commons were improved, so one could view this as non usurious, even though it was positive interest. For the most part, FEES are all that should accompany new loans, not compounding interest.

Canada had a quasi sovereign economy 1938 to 1974 and spent debt free into the commons and on public infrastructure, their economy did not polarize toward creditors. The Ministry of Finance owned all the common shares of Bank of Canada. BOC was a crown bank.

Note in all the "good" examples, interest flowed outward from an exogenous creator toward the population. In bad examples of interest, it drains purchasing power from the population.

By the way, a MEFOBILL scheme today could be used to release debts. The bill is created exogenously by Treasury or even a shell company. The bill has a drawer, payee and drawee. It is like a check. It channels toward a specific goal. For example, if you wanted to pay off student debts, then the bill would aim at the student, who then presents bill to bank holding student's debt instrument. Bill would eventually make its way to the FED through bank reserve loops, and FED would expand their ledger. FED would use their keyboard to make new dollars, which flow back into private bank system to pay off the students debt instrument. So double entry mechanic laws are not abrogated. Student's debt disappeared, and Mefobill stays on FED ledger forever, not accruing interest. Or, you could specify a small amount of interest to the bank as a fee for their operations.

U.S. could use Mefobill scheme to lure industry back to the U.S. as it specifically channels toward a goal.

The money system is something we humans created, it can be used for good or ill. To paraphrase Michael, we need good civil law that codes for morality.

Max , says: April 7, 2019 at 8:42 am GMT
That was a soul-transforming read. It put into words what I could never put into words, but on an instinctive level I have always felt these things. I have always had this irrational hatred of bankers, landlords, capitalists, and any one else who dances to that faggy Gordon Gekko tune. But I could never figure out why, let alone explain it clearly. This article has done that for me right here and right now today. I am so grateful. This one is a keeper, now I finally understand my hate. And I am proud of it. This is why Hitler was a good person, he made these little bitch finance fags squeal and screech like the untermenschen they really are.

It is interesting to note that the facts explored in this article corroborate and synchronize with the facts explored in an amateur work titled "The Sumerian Swindle: How the Jews Betrayed Mankind." If you look you can print the book free off the internet somewhere.

From now on I only see humans in two distinct groups: productive people who work for a living, and parasitic leeches who exploit the former. Twas ever thus. Let us successfully genocide the latter in the near future.

Heil Hitler!

Sean , says: April 7, 2019 at 8:49 am GMT
The book sounds extremely interesting. I will probably get it, but that thing about the Kaiser is a bad mistake. The German nation had been subjected to France and its proxies marching across it for centuries. As always happens it unified in the face of threat, but financially the structure was still harking back to the Holy Roman Empire. Being decentralised as far as raising revenues was concerned, the Kaiser was unable to exert the full strength of Germany. The Weimar government instituted reforms were intended to remedy that for defensive purposes, but unfortunately Hitler inherited those reforms and that extra wherewithal was a major reason for the early military successes in WW2 that set the world agog.

Germany began to be a mixed economy in the decades leading up to World War I. But it had a mentally retarded king whom they didn't know how to restrain, given their cultural faith in royalty. China is of course the most successful recent mixed economy.

Dubious.France had financed massive military preparation by Russia, and Poincaire (cousin of the brilliant physicist) was fixated with recovering Alsace and Lorraine (where he was born). The military situation was gravely deteriorating for Germany partly because Germany. The Kaiser did not attack France in 1905 when Britain had a tiny army and Russia was in chaos. That was the craziest thing he did as leader.

G. Poulin , says: April 7, 2019 at 11:01 am GMT
Mr. Hudson thinks we can get the desirable results of Divine Kingship without having Divine Kings, simply by enacting "laws" that promote a broad distribution of wealth. But he also says that the oligarchy makes the laws and appoints the "elected" lawmakers. So he's engaged in an exercise in wishful thinking. There is no democratic path to his desired result.
jacques sheete , says: April 7, 2019 at 12:16 pm GMT
An excellent tour de force completely relevant to the major problems we face today, so thank you , Ron Unz!

and turn the government into a vehicle to help them exploit the rest of society.

It's extremely obvious that's is exactly what our "constitution" was designed to do. Hudson's insistence that debt must be government controlled runs into the problem consistently, which both he and the interviewer discuss.

Essentially, the problem is that whoever gets the power will abuse it. "The government" is no more a disinterested group of parties than the oligarchs or the plutocrats. The best answer is to have a noble ruling class, but good luck with that; it will never happen at least on a permanent basis.

So what's the answer? I wish I knew

The best [the Greek philosophers] could do was to inspire and educate individuals

I highly doubt anyone can do much more, but the last thing to do is to hope for some Messiah, especially a rich one. Are you tRumpeteers listening?

PS: I liked the mention of Aristophanes. All of his plays are as instructive as they are amusing and should be read by all. Same with Lucian of Samosata and Juvenal to mention just a few.

onebornfree , says: Website April 7, 2019 at 12:39 pm GMT
JS said: "Right now most people think that government regulation and progressive taxation will make things worse,"

Er, no, most people do not "think" that [ if they "think" at all].

They mostly "think" the exact opposite.

Due to their public [ie government funded] er,"education" [ie brainwashing], they are actually dumb enough to believe that more government, and more regulations will make things better for them, despite the fact that more than any other factor, it is the size and scope of government that has directly caused the financial problems most of them are now experiencing. "Stupid is a stupid does".

In fact, more, bigger government and more regulations will only further increase poverty and make things even worse for them all than they are today.

This just in:

"Because they are all ultimately funded via both direct and indirect theft [taxes], and counterfeiting [central bank monopolies], all governments are essentially, at their very cores, 100% corrupt criminal scams which cannot be "reformed","improved", nor "limited" in scope, simply because of their innate criminal nature." onebornfree

Government doesn't work" Harry Browne

"Taking the State wherever found, striking into its history at any point, one sees no way to differentiate the activities of its founders, administrators and beneficiaries from those of a professional-criminal class." Albert J. Nock

"Everything government touches turns to crap" Ringo Starr

"The kind of man who wants the government to adopt and enforce his ideas is always the kind of man whose ideas are idiotic" H.L.Mencken

Regards, onebornfree

Externality Combustion , says: April 7, 2019 at 12:46 pm GMT
Regarding global warming: Given that " just five to six degrees in average global warming would be enough to wipe out most life on the planet ," and realizing that the Trump Administration's National Highway Traffic Safety Administration (NHTSA) has already acquiesced to 4°C by 2100 , it is apparent that by 2125 to 2150 or soon thereafter, humanity will be over, guaranteed. Probably much sooner. Even completely destroying industrial civilization right now won't stop the 6th Mass Extinction, because of McPherson's Paradox .
David , says: April 7, 2019 at 12:52 pm GMT

There was no concept of linear progress in Antiquity. They thought that there was only one way to do things, so any reform must be the way the world was meant to be in the very beginning.

The Hebrews had their liberation from captivity, Hesiod had his three prior ages "before there was iron," Odysseus travels the world observing the various ways of men, Plato envisions a radical transformation of human society, Aristotle compares the constitutions of various Greek city-states, Thucydides resorts to archaeology to show that the Athenians were not the original inhabitants of the Attic Peninsula.

It's not difficult to come up with what seem to be counter examples to Hudson's assertion that there was no "linear progress" and no vision of other ways of doing things in Antiquity. Ancient Mediterranean societies did see humanity as moving in a direction, evolving by discovery and by making new institutions to address novel problems.

jacques sheete , says: April 7, 2019 at 1:09 pm GMT
@Sean

but that thing about the Kaiser is a bad mistake.

I found that peculiar as well. Another thing that was out of place was the "deification" of Teddy Roosevelt and his so called trust busting as well as FDR's continuously "evolving" New Deals. Both Roosevelts and their programs were tRump-like frauds whose main interest was self aggrandizement at whatever cost.

Like tRump, the rhetoric was grand but the motive and execution left much to be desired. While I get what Hudson is saying when he sez "there oughta be a law," I think history has proven, repeatedly, that while there's a possibility that there ought to be one, it's not likely it'll do much good, and certainly no permanent good.

Great article nevertheless.

DESERT FOX , says: April 7, 2019 at 1:15 pm GMT
The greatest debt creator in the history of America is the zionists privately owned FED and the zionist owned central banks in every country in the world that create money out of thin air and charge the goyim/proles for the use of this zionist created charade, which started in 1913 here in the zio/US with the diabolical draconian demonic FED.

Free America, abolish the FED and return to government created , debt free money as was the case prior to December 23, 1913!

onebornfree , says: Website April 7, 2019 at 1:22 pm GMT
@Externality Combustion Externality Combustion says: "it is apparent that by 2125 to 2150 or soon thereafter, humanity will be over, guaranteed."

Hmm .Unless we all vote for . who exactly[who promises to do what, exactly]?

Who's gonna be our saviour, according to you, pray tell ?

Regards, onebornfree

onebornfree , says: Website April 7, 2019 at 2:39 pm GMT
@G. Poulin G. Poulin says: "Mr. Hudson thinks we can get the desirable results of Divine Kingship without having Divine Kings, simply by enacting "laws" that promote a broad distribution of wealth. "

Yup. The whole, as per usual, "benevolent dictator" fantasy writ large, yet once again. It never stops.

You'd think that by now, this late in the game, and given history, that most people would have finally figured out that government "solutions" never worked , and never can, or will.

But no, luckily for governments, there's always a plentiful supply of new, brainwashed dreamer/fantasists [or "suckers" as P.T Barnum reportedly called them], who are ever more eager for a government that does what they think it should do, and who "think" that it/they actually will, despite all the historical evidence directly contradicting their inane fantasies.

See: "Why Government Doesn't Work" by Harry Browne:
https://wiki.mises.org/wiki/Why_Government_Doesn%27t_Work

Regards, onebornfree

jacques sheete , says: April 7, 2019 at 3:00 pm GMT

"Sometimes it is said that man cannot be trusted with the
government of himself. Can he, then, be trusted with the
government of others? Or have we found angels in the form of
kings to govern him? Let history answer this question."

–Thomas Jefferson: 1st Inaugural, 1801.

" idealists and realists begin to get on each other's nerves. But the real difference is in the capacity for appreciating the immense gap of blue inane which separates earth from heaven, and in the realist's unwillingness to assume that men have angels' wings. "

– Walter Lippman, Angels to the Rescue, The New Republic, January 1, 1916, p. 221 –

Human nature is still human nature. The angels haven't started breeding yet.

– William Allen White, Graft and Human Nature, review of Public Plunder, by David G. Loth, The Saturday Review, October 1, 1938, p. 6

MEFOBILLS , says: April 7, 2019 at 3:24 pm GMT
@onebornfree oneborn free, your screed is you projecting fears about abusive government.

Hudson just explained in historical terms that it is only properly constructed government that can reign in Oligarchy. It is clear that society WILL polarize toward creditors if certain safeguards are not put in place.

So, you will have to come to grips with your cognitive dissonance.

Hudson also sets the framework for governments "proper role." Anything outside of that role is government overstepping its bounds.

By providing the framework, Hudson is doing the world a tremendous service, and as such he will go down as one of the great men of history.

New glasses are being put on your nose, but you prefer to wear your old glasses that make you see improperly?

It reminds me of all the wishful thinking about China, how their ghost cities are going to do them in, and their economy cannot keep doing so well, and so on. It is people not believing what is right in front of their eyes, or their inability to see outside of their brainwashed mentality.

Wally , says: April 7, 2019 at 3:44 pm GMT
@obwandiyag No, Hudson is a Communist.
MEFOBILLS , says: April 7, 2019 at 3:49 pm GMT
Hudson says that public banks are an option for erasing debts.

China does this now with their state banks, which is one of their secret weapons.

In the mid 90's China swept all of their old communist era debt into the trash can. This then made their "books" look good to Western Finance standards, and China was essentially given MFN status.

Then it was game on! Wall Street soon greenmailed American industry to leave for China, to then get some of that wage arbitrage. We are living in the aftermath of this civilization destroying decision making by our ruling finance class.

China has helped the wall street finance class loot America, as China creates new Yuans from their state banks to match their countries growth rate. These new Yuans have to be there in order to swap for dollars won in trade. The dollars end up in China's state banks, and are recycled back to the U.S. to buy TBills instead of buying goods from mainstreet.

Today and reality is staring you in the face. Look at it. America's finance class did indeed export jobs and our patrimony, and china did indeed use their public banking system. China is working for their people's benefit, while a traitor class of finance oligarchy is working against the public interest in America.

Those of you who are against Public banks need to get real and look at actual data. For example, the bank of North Dakota is a public bank and has a good track record. Please, use data and think for yourself rather than being a brainwashed dupe.

Another way is to continue to use PRIVATE BANKS, and have public money. The money supply is nationalized, not the bank. All new money comes into being from a monetary authority or Treasury as per the constitution. Banks then become gyro, which is a fancy word for inter-mediation. Banks stop making money with a new debt instrument, but instead only match up new creditors and debtors with existing money.

Within each private bank are two piles of numbers: 1) Pile A is people's savings, which preferably was debt free at inception 2) Pile B is government credit, or national credit.

National Credit can be channeled toward specific goals that the country has agreed is in its interests.

You as a debtor can borrow from either pile. The national credit creates a debt instrument that can be easily jubileed in the same easy way as could a debt instrument hypothecated at a public bank.

Public banks to my mind are a little too close to government even though they have a good history. Nationalizing the money supply instead is better. Why? A good percentage of supply becomes floating money (debt free) and this component becomes a permanent inheritance to the people, giving them freedom to do commerce. An economically free people are also politically free.

Externality Combustion , says: April 7, 2019 at 3:56 pm GMT
@onebornfree Savior? Nothing can stop what has been set in motion, namely, Earth's Sixth Mass Extinction, as the climate shifts rapidly to a New Cretaceous "hothouse" climate. Neither voting nor your anarchism can invalidate scientific evidence. Apparently, you can't read, because McPherson's Paradox explains humanity's conundrum in plain terms: (a) continuing to evaporate Earth's coal beds and oil fields into the atmosphere ensures our quick extinction from global warming, and (b) stopping fossil fuel use only hastens our demise, because of "global masking effect" or " global dimming ." Do you really think that evaporating coal beds and oil fields into the atmosphere has no consequences?

"[T]heir complete extinction (in the co-extinction scenario) was abrupt, and happened far from their tolerance limits, and close to global diversity collapse ( around 5 °C of heating )"

Co-extinctions annihilate planetary life during extreme environmental change (Scientific Reports volume 8, Article number: 16724, published 13 November 2018) http://www.nature.com/articles/s41598-018-35068-1

Remember, Trump has already promised 4 °C of heating is baked into the cake, and stopping fossil fuel use would remove the "global dimming" effect of air pollution and lead to a near instantaneous rise of 2°C. A true paradox has no solution.

Biff , says: April 7, 2019 at 4:15 pm GMT
@onebornfree You're a broken record that needs to be tossed up in the air in front of a twelve gauge.
flashlight joe , says: April 7, 2019 at 4:15 pm GMT
@MEFOBILLS @MEFOBILLS

Very good and well thought out reply.

anonymous [340] Disclaimer , says: April 7, 2019 at 6:07 pm GMT
@onebornfree Young man (I'm guessing):

1. Please use your commenting privilege to address the substance of the articles. The sentence that you first quote is ancillary to this one, but you've plucked it out as a wedge for your umpteenth anarchic strut.

2. Why so frequently insulting? I happen to share your general perspective, but if you're prosletyzing your style stinks.

3. If nothing else, please realize that you only need to piss once on each hydrant to leave your mark.

Stern , says: Website April 7, 2019 at 6:23 pm GMT
Sorry for my English. Could anyone write about whether or not there is a consolidated influence of the Zionist Jewish community within China?
strikelawyer , says: Website April 7, 2019 at 7:03 pm GMT
Can't we just solve our problems with a constitutional amendment?

https://strikelawyer.wordpress.com/2019/02/13/homestead-amendment-just-the-text/

niteranger , says: April 7, 2019 at 7:17 pm GMT
@Dutch Boy Unfortunately, Dr. Hudson never attacks the "Elephant in the Room -- –The Control of Economies by the Magic Jews." The Jews control all pathways including media, social and economic which they will never relinquish because with the money they make they control the world's politicians by using the greed of mankind against them.

The Jews use the Holocaust to intimidate stupid whites in Western Civilization with guilt and control everything including our foreign policy to immigration. Civilization will not survive as long as the power of the Jews continue to rule mankind.

tz1 , says: April 7, 2019 at 7:20 pm GMT
@Dutch Boy Consider that a 10 year loan at 4% now would then have a fee (simple, not even compound interest) of 40% of the principle.

It defeats the purpose of a loan paying over time. Even the 20% down is for equity, not prepayment of interest.

Or you could simply roll the fees in. There is a House for sale for $200,000. The bank buys it but then to get ownership with lein, and you have to pay the bank $300,000 to cover everything (do you get any equity before going positive?).

How about just saving money including gold in your mattress until you can afford something?

tz1 , says: April 7, 2019 at 7:22 pm GMT
@MEFOBILLS Federal Reserve, TARP, and QE – the debts of the banksters were erased and they paid themselves bonuses, and it took more cash that would pay off every mortgage of those who lost their homes
jacques sheete , says: April 7, 2019 at 7:55 pm GMT
@Stern

Sorry for my English. Could anyone write about whether or not there is a consolidated influence of the Zionist Jewish community within China?

Your English is fine, and your question excellent.

MEFOBILLS , says: April 7, 2019 at 8:28 pm GMT
@niteranger

Unfortunately, Dr. Hudson never attacks the "Elephant in the Room -- –The Control of Economies by the Magic Jews."

Hudson does but in a peripheral way. See below. Our (((friends))) like to use their capital rather than labor. They use usury as a weapon, and tend to be among the Oligarch class. Why? Because their religion gives cover and sanction for predatory behavior. Note that our friends adore Hillel. Jewish religion went off the rails after Hillel, and is now an apologist for the creditor class, and hence against a balanced logos type world.

Hudson cannot go after the Jews, but I can and so can you. It is ok to point out where Jewish ideology becomes "Crime Inc." In fact, I find the most moral people to be anti-semites, so Hudson who obviously has a strong moral basis, is smart enough to NOT touch the Jewish third rail, or he would become persona non-grata.

There is no question Hudson possesses a first class mind, and by not touching the third rail he is preserving his career. It is up to us to decode what he is saying and we can be more blunt about things.

You don't have to be Jewish to be a predator, and by association most of us can decode what he is saying.

MH: Yes, but it ended with Rabbi Hillel and the Prozbul clause. Debtors had to sign this clause at the end of their debt contracts saying that they waived their rights under the Jubilee year in order to get a loan. That was why Jesus fought against the Pharisees and the rabbinical leadership. That's what Luke 4 is all about

Sean , says: April 7, 2019 at 8:33 pm GMT
@jacques sheete He also seems very keen on China's policy. From what I can make out this is because the government loans the money and can cancel the debt. So China being locked into growth by massively Keynesian policies that cannot be haltet for fear of global economic collapse is a good thing it seems. Hmmm.
jacques sheete , says: April 7, 2019 at 8:34 pm GMT
@flashlight joe Yes it is. I prefer his second option.
MEFOBILLS , says: April 7, 2019 at 8:38 pm GMT
@tz1 Federal Reserve, TARP, and QE – the debts of the banksters were erased and they paid themselves bonuses, and it took more cash that would pay off every mortgage of those who lost their homes

______________________________________________________

Yes of course. It would have been much better to take over the banks and give the "bond holders" a haircut.

What the haircut means is that the debt instrument cannot make claims on the future. The amount it can claim is written down to what the real economy can pay.

Our financial oligarchy did not want to take a haircut, and since they own the government, they made their politician puppets dance.

We cannot see what is in the bill till we pass the bill.

Some here have pointed out that democracy is a joke. Yes it is. Universal Suffrage democracy, where any rube can vote is especially bad.

You do need a ruling class which looks like the people it rules over. This ruling class also has to be servants of their people.

China's ruling class is constantly polling their people to get data on how they are doing. If a politician is found to be corrupt, they are killed or ejected. Think of it like your body, bad elements and parasites are attacked by the immune system, otherwise you (the host) will die.

onebornfree , says: Website April 7, 2019 at 8:49 pm GMT
@Biff "You're a broken record that needs to be tossed up in the air in front of a twelve gauge."

Seem like a lot of trouble to go to – especially as I might be carrying a 12 gauge, or similar, myself

This just in:
there's an "ignore" button – I suggest you learn how to use it.

No regards, onebornfree

onebornfree , says: Website April 7, 2019 at 8:52 pm GMT
@anonymous anonymous[340] • Disclaimer says: " your style stinks. "

I happen to like to "stink". Get used to it, get over it, or use the "ignore" button.

No regards, onebornfree

onebornfree , says: Website April 7, 2019 at 8:58 pm GMT
@Wally Wally says: "No, Hudson is a Communist."

Yes, that appears to be the case.

But regardless of whether the "commniunist" label is completely accurate or not, he's just yet another in a long line of naive intellectuals who thinks that the government can solve problems, problems it alone created.

"The kind of man who wants the government to adopt and enforce his ideas is always the kind of man whose ideas are idiotic" H.L.Mencken

Regards, onebornfree

MEFOBILLS , says: April 7, 2019 at 8:59 pm GMT
@tz1 Fee's on a loan should cover the bank's cost, which is a tiny fraction of what they take now in the form of usury.

Think closely on this, the bank makes a loan, and it is only a matter of typing of a debt instrument. Today with computers that amounts to a few minutes of work. They then on-sale the debt instrument to another, usually TBTF bank, and get rid of any risk.

The better way is for people to pool their savings, and the bank is gyro. Debtor then buys a house borrowing your savings. The old savings and loan system worked like this.

In Canada, when they had a sovereign banking system (1938 to 1974) they used trusts. Banks were not allowed to hypothecate new housing loans. Trusts and savings and loans both pool existing money and loan it out.

It was a beneficial cycle where the young borrowed from the old, and the old benefited from some interest income, to then buy goods and services produced by the young.

Interest isn't always bad, but you have to look at it in context. About 70% of debt instruments resident at banks are hypothecated against land. This is so finance oligarchy can GRAB THE LAND in a depression via swaps or other schemes. Depressions are inevitable when M2 is always draining to pay debts at interest.

In the case of Canada's trust system, the interest was cycling back to the young (interest was pointing outward to the population) to buy goods and services they produced.

onebornfree , says: April 7, 2019 at 9:18 pm GMT
@MEFOBILLS MEFOBILLS says: "Hudson just explained in historical terms that it is only properly constructed government that can reign in Oligarchy. It is clear that society WILL polarize toward creditors if certain safeguards are not put in place.So, you will have to come to grips with your cognitive dissonance. Hudson also sets the framework for governments "proper role." Anything outside of that role is government overstepping its bounds."

Short answer: "The kind of man who wants the government to adopt and enforce his ideas is always the kind of man whose ideas are idiotic" H.L.Mencken

MEFOBILLS says: "Hudson also sets the framework for governments "proper role.""

This just in: it's "proper role" [ in the US] was already [supposedly ]"set" via the Declaration of Independence, the Articles of Confederation, and more famously via a coup d'etat which resulted in the scam called "The Constitution and Bill of Rights" .

Although the Constitution remains a scam to this day, a return to its supposed limits would, at least temporarily, drastically downsize the federal government, which would be step in the right direction.

For government is the problem, never the solution.

But of course, yourself [and most others here] remain too brainwashed [by the government, and with your money] to ever understand that

regards, onebornfree

onebornfree , says: Website April 7, 2019 at 9:23 pm GMT
@onebornfree Correction: "communist" , not "commniunist". My bad.
Sollipsist , says: April 7, 2019 at 9:37 pm GMT
Ya gotta watch out when someone takes Marx's economic observations (which were impressive) as an automatic pass for his social prescriptions (which were a gateway to hell on earth).
Wizard of Oz , says: April 7, 2019 at 9:38 pm GMT
@Dutch Boy As a matter of logic aren't those creators of money reducing the value of the money held by those who have saved to get it? So doesn't fairness require that they use interest rates to maimtain the stability of the currency's value?
Wizard of Oz , says: April 7, 2019 at 9:49 pm GMT
@Max So you advocate euthanasia (when you are feeling nice rather than cruel and vengeful) of the rapidly increasing retired population? Understood that you need to support the infant generation but Hitler had the answer for that one didn't he: euthanasia of those who wouldn't be able to contribute. How long do we indulge people with an unemployment benefit?
Wizard of Oz , says: April 7, 2019 at 9:54 pm GMT
@Sean Thank you. Even if I conclude the BS component is high, you have given me thoughts to follow up
Wizard of Oz , says: April 7, 2019 at 10:03 pm GMT
@jacques sheete Which US subsidy programs might be regarded as proleptic jubilees? And writeoffs like that massive solar energy disaster under Obama are surely equivalent to the jubilees. And welfare payments are surely jubilees in advance.
anon [420] Disclaimer , says: April 7, 2019 at 10:06 pm GMT
@niteranger The Control of Economies by the Magic Jews? But do we Gentiles not owe our material wealth to the Jews for the blessing they've provided us ? Whites are utterly incapable of providing their own salvation .
Ilyana_Rozumova , says: April 7, 2019 at 10:32 pm GMT
Yup! kings forgave debts.
.
When they needed suckers to fight and die for them.
onebornfree , says: Website April 7, 2019 at 10:34 pm GMT
@Sollipsist Sollipsist says: "Ya gotta watch out when someone takes Marx's economic observations (which were impressive) as an automatic pass for his social prescriptions (which were a gateway to hell on earth)."

Wrongo. Marx's economic theories were as as idiotic as his social prescriptions- in fact, his "social prescriptions" were directly derived from his idiotic economic theories, which is exactly why such "social prescriptions" are, as you say, "a gateway to hell on earth".

As for the author of this article , pure Marxist or not, his own "social prescriptions" are, like Marx's , the mere pontifications of a pseudo-intellectual statist, fantasizing about solving social problems via that which he worships and adores , that is , yet more government [of the "right" kind, mind you, and despite its obvious failure to do any such thing to date].

Another case of "the blind leading the blind", I'm afraid, just more of the same old hackneyed "government should do this- government can solve this " claptrap .

.and so it goes.

Regards, onebornfree

republic , says: April 7, 2019 at 10:43 pm GMT
@Max https://archive.org/details/TheSumerianSwindle/page/n1
MEFOBILLS , says: April 7, 2019 at 10:50 pm GMT
@Wally

No, Hudson is a Communist.

Hudson spent half the article talking about mixed economies being the best and only type to work.

Also, it was the JEWISH CREDITOR CLASS, that funded Bolshevism. Wall Street Jews and some London money funded the Bolsheviks.

Bolshevism in turn was not what Marx had intended.

Marx thought that industrial capitalism, especially that of the type he witnessed in Germany, would evolve into an advanced form of socialism mixed economy. It would evolve after industrial capitalism failed, or industrial capitalism would have evolved.

Instead, finance capitalism, that of the rentier credit class won out .

When Marx died, he said "I am a most unhappy man."

Instead of getting caught up in labels, look at the data or what they actually believe in. It takes a little bit more energy and effort, rather than falling for simple platitudes.

Hudson's childhood background was Bolshevik, but he didn't pick his parents. If you look at his actual body of work, he is analyzing where all economic systems fail.

Russian and Chinese communism failed because markets are not purely inelastic. You cannot pretend that every market type needs government control, especially when pricing signals will work. Systems that are predicated on lies, will not survive in the long term.

MEFOBILLS , says: April 7, 2019 at 10:57 pm GMT
@onebornfree

For government is the problem, never the solution.

Simple minded platitudes.

ALL COMPLEX SYSTEMS HAVE HIERARCHY!

All advanced civilizations have hierarchy.

There has to be a "brain" for any complex organization, it will not self organize.

This whole market is your god, or gold is your god is the rentier class duping you with hypnosis.

Funny thing about Libertarian-tards and their junk economics, the very thing they want they cannot have because their ideology brings about what they don't want – economic slavery.

Free markets are free for the rentier to take his gains on your life energy and turn you into his debt slave.

OH BUT MY FREE-DUMB.

Anonymous [184] Disclaimer , says: April 7, 2019 at 11:08 pm GMT
@onebornfree Your LoLbertarianism has the same stupid goal as Marxism, i.e., achieving glorious stateless society.

• "Withering away of the state" is a Marxist concept
http://en.wikipedia.org/wiki/Withering_away_of_the_state

• Both anarchists and Marxists seek a stateless society
http://socialistworker.org/2009/03/06/marxist-view-of-the-state

• This is the "anarchy" of the future stateless society which Marx and Engels had accepted in 1872. Man becomes "his own master – free". The first condition for this full-fledged freedom is: freedom from the state, not of the state, nor merely in the state. As far as Marx's eye could see, the state is not the guarantor of freedom
http://www.marxists.org/archive/draper/1970/xx/state.html

You and Marx are cut from the same cloth.

Sam J. , says: April 7, 2019 at 11:08 pm GMT
This is one the most brilliant things I've ever read here. I've read a great deal about the various facts and events Mr. Hudson talks about but I've never been able to put them together like Mr. Hudson. He's provided a framework for realizing how all these seemingly disparate events fit together. I'm very grateful.
Anon [277] Disclaimer , says: April 7, 2019 at 11:26 pm GMT
@Wizard of Oz Retirees weren't regarded as parasites by National Socialism, Schlomo. Your parasitic ilk, however, were.

"The Nazi social welfare provisions included old age insurance , rent supplements, unemployment and disability benefits, old-age homes the NSV often refused to provide aid to Jews " – National Socialist People's Welfare

Alfred , says: April 7, 2019 at 11:32 pm GMT
return from Babylon

This is fake history. Mythology becoming history. A Jewish speciality.

1- The Jews were never in Ancient Egypt – or the Egyptians would have documented it.

2- There is absolutely no archeological artifact from the Palestine region that show that they were there before their exile. Plenty of proof that the Egyptians had been there earlier on.

3- Palestine was desert at that time and had been abandoned by the Egyptians as it was infertile – not a land of milk and honey. Yemen was agricultural and prosperous.

4- The Jews were exiled from Yemen – because they and non-Jewish Arabs (the Jews and Arabs were the same people at that time), continued to raid the caravans bringing goods from Yemen to Petra. The Babylonians punished them by taking them back to Babylon. After the Persians liberated them, some went back to Yemen and some went to Palestine.

5- Locations in the Old Testament correspond to places in Yemen and Hejaz. Even their names.

lysias , says: April 8, 2019 at 12:06 am GMT
The best counter to Robert Michels's iron law of oligarchy (whatever the ostensible form of government, it turns out in practice to be oligarchic rule by the group that has the real power) was devised by Cleisthenes in Athens shortly before 500 B.C.: give power to average citizens by appointing to offices ordinary citizens randomly chosen. It worked, as is shown by how deeply resented it was by oligarchs like Plato.
lysias , says: April 8, 2019 at 12:08 am GMT
@Alfred Mythical history can have a profound effect on the people who believe in the myth.
lysias , says: April 8, 2019 at 12:13 am GMT
@MEFOBILLS Doctrinaire idolators of the laissez-faire mythology have a habit of calling anyone who disagrees with their dogmas Communist.
wayfarer , says: April 8, 2019 at 12:46 am GMT

Executive Order 6102

Is a U.S. Presidential Executive Order signed on April 5, 1933 , by President Franklin D. Roosevelt forbidding the hoarding of gold within the continental United States .

It required all persons to deliver on or before May 1, 1933, all but a small amount of gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve , in exchange for $20.67 (consumer price index, adjusted value of $400 today) per troy ounce. Under the Trading with the Enemy Act of 1917, as amended by the recently passed Emergency Banking Act of March 9, 1933, violation of the order was punishable by fine up to $10,000 (equivalent to $193,548 today) or up to ten years in prison, or both .

Order 6102 specifically exempted "customary use in industry, profession or art", a provision that covered artists, jewelers, dentists, and sign makers among others. The order further permitted any person to own up to $100 in gold coins (a face value equivalent to 5 troy ounces (160 g) of gold valued at about $6,339 in 2016).

source: https://en.wikipedia.org/wiki/Executive_Order_6102

onebornfree , says: Website April 8, 2019 at 1:38 am GMT
@MEFOBILLS MEFOBILLS says: "All advanced civilizations have hierarchy.There has to be a "brain" for any complex organization, it will not self organize. "

So presumably, a half wit such as yourself knows exactly what that hierarchy should be, who the "brain" "should" be and exactly what and where everyone's "correct" place within it "should" be, because people cannot self organize.

Sieg Heil, mein fuhrer! You're an even dumber sheep than I had initially suspected!

"Because they are all ultimately funded via both direct and indirect theft [taxes], and counterfeiting [central bank monopolies], all governments are essentially, at their very cores, 100% corrupt criminal scams which cannot be "reformed","improved", nor "limited" in scope, simply because of their innate criminal nature." onebornfree

"Taking the State wherever found, striking into its history at any point, one sees no way to differentiate the activities of its founders, administrators and beneficiaries from those of a professional-criminal class." Albert J. Nock

"Everything government touches turns to crap" Ringo Starr

"The kind of man who wants the government to adopt and enforce his ideas is always the kind of man whose ideas are idiotic" H.L.Mencken

No regards, onebornfree

mcohen , says: April 8, 2019 at 1:41 am GMT
@Alfred Alfie.

5th century bc jewish settlement.Common knowledge amongst the Chosen.This where we learnt the secrets of the gateways to the soul.

https://en.m.wikipedia.org/wiki/Elephantine

EliteCommInc. , says: April 8, 2019 at 1:45 am GMT
There are several problems with Dr. Hudson's views here. Some have referenced some. I would point out that we already have laws and practices to restrict the use of wealth from impoverishing the population. But you have to have a leadership willing to enforce or apply them. We have had no less than three major financial bailouts of the financial class in the US. And at no time was the bailout extended to the industries consumers. I am unclear what the prescription is to divorce the political class from the financial class.

The only new law that would make sense are laws that bar legislators from owning, stocks, sitting on the boards of stocks or any financial institution they manage. And that would have to extend to all immediate family members. Further, one has to completely cut off funds from lobbyists, activists and the corporate class entities.

The economy is already comprised of mixed practices: private ownership and wealth creation, government employment, non-profit entities and taxation and other programs that assist citizens, i.e. welfare

EliteCommInc. , says: April 8, 2019 at 1:53 am GMT
The one over riding observation I would make about the economy is that we continue to have a trade imbalance, which according to an old rule of thumb suggests that economy is not really growing.
annamaria , says: April 8, 2019 at 2:08 am GMT
@G. Poulin Mr. Hudson makes his contribution towards the greater good by educating the populace. What's your problem? -- He is not a fairy. He is a knowledgeable and honest person; the former requires a lot of willpower, the second requires courage.
utu , says: April 8, 2019 at 2:45 am GMT
@MEFOBILLS Libertarians were invented and constructed on purpose to serve as the useful idiots of oligarchs whom they worship and do everything to protect their right to be oligarchs while at the same time being sodomized by them.
Anonymous [570] Disclaimer , says: April 8, 2019 at 3:56 am GMT
@onebornfree The Government of the State is people self-organizing. Who else organized it, the dogs?
restless94110 , says: April 8, 2019 at 4:24 am GMT
I am very happy to read this interview, because for me, this is the first time that I have completely understood Michael Hudson's work. And I say this after watching countless of his interviews over the past 8 years.

Before this interview here, I had always wanted to ask him if the Clean Slate policies disappeared over 3000 years ago, then what was he saying in his books and lectures? If the entirety of Western Civilization is based on oligarchy, rentiers, then what hope is there for anything? I mean the Romans lasted a thousand years doing this rentier stuff. That's a long time for misery.

Now, with this interview I understand more fully the period after the Civil War and into the FDR Presidency as a partially-successful attempt to make things in the country different, more egalitarian, more correct. And after this interview, I understand Hudson's main point: the road to change lies in understanding the failures of antiquity.

Looking at things through the rentier oligarchy lens has been the revelation in my life in the past 10 years. I never undeststood Chile & Allende until then. Likewise with antiquity and likewise with the history of the United States. But those of us who do understand these things, thanks in great part to Michael Hudson, are few.

As part of a very late stage college degree I earned 4 years ago, I took an Econ class in my last semester. The class featured certain films as it related to economics and that was indeed very interesting (I had never seen Coppola's "Tucker: The Man And His Dream" before so that was "entertaining"), but the text book for the class was Friedman. I read it and could not believe how dunderheaded, how wrong it was. And I realized from communication with the professor that he believed all of it. His attitude seemed to be: who are you to question economics orthodoxy, you uppity undergrad.

This interview above was both enlightening and depressing. How many decades longer do we have to go before things change?

[Apr 08, 2019] Angry Bear Opioid Use since 1968 and Why It s Abuse Increased

Apr 08, 2019 | angrybearblog.com

likbez , April 8, 2019 2:43 am

I would say that the opioid addition epidemics reveals not only greed of Big Pharma, but also strongly resembles the epidemics of alcoholism in the USSR in late 70th and 1980th.

It probably might be viewed as yet another sign of the despair of people with the current economic and social conditions. And also sign of crisis of neoliberalism as an ideology much like Marxism before it

Only a complete idiot now believe in "shareholder value" mantra, or "free market" hype ( "free" for whom, why" free" and nor "fair" ), or the USA "democracy promotion" policies abroad (which for some reason always accompanied by looting of the target country)

A large percentage of students at universities laugh about the content of their "neo-classical" economics courses behind the professor back and view them as just an exercise in hypocrisy necessary to get the diploma.

Milton Friedman now is viewed not as a respectable scholar but as a criminal who supported Pinochet and despicable intellectual prostitute of the financial oligarchy.

What is interesting is that the current economic conditions as dismal as they are still much better in the USA than in other societies in which people were converted into debt slaves and country are mercilessly looted by the local neoliberal oligarchy and international financial institutions.

So it might be that not the absolute level that matters, but the level of and the speed of deterioration of the standard of living and social security. As well as the general understanding that "the train left the station" and the situation will only deteriorate.

A couple of relevant quotes from Pope Francis Evangelii Gaudium (2013):

55. One cause of this situation is found in our relationship with money, since we calmly accept its dominion over ourselves and our societies. The current financial crisis can make us overlook the fact that it originated in a profound human crisis: the denial of the primacy of the human person! We have created new idols. The worship of the ancient golden calf (cf. Ex 32:1-35) has returned in a new and ruthless guise in the idolatry of money and the dictatorship of an impersonal economy lacking a truly human purpose. The worldwide crisis affecting finance and the economy lays bare their imbalances and, above all, their lack of real concern for human beings; man is reduced to one of his needs alone: consumption.

And another:

Human beings are themselves considered consumer goods to be used and then discarded. We have created a "disposable" culture which is now spreading. It is no longer simply about exploitation and oppression, but something new.

Exclusion ultimately has to do with what it means to be a part of the society in which we live; those excluded are no longer society's underside or its fringes or it's disenfranchised – they are no longer even a part of it.

The excluded are not the "exploited" but the outcast, the "leftovers".

In any case, it is indisputable that in the USA under neoliberalism in 40 years or so the standard of living of middle class deteriorated and good job disappeared. In this sense, the opioids epidemics is just the tip of the iceberg.

Trump election is another manifestation of the same -- rejection by people of the neoliberal establishment -- the middle finger to the ruling elite.

The USA is not an exception. In most countries, far-right is gaining strength politically, like in 1920th. And that's a dangerous development which in the USA is strengthened by imperial thinking of the elite (aka "Full Spectrum Dominance") that decimates the standard of living of the middle class due to the current level of military expenditures needed to maintain absolute military superiority and the cost of permanent neo-colonial wars.

So the "Full Spectrum Dominance" might be a mousetrap from which the USA can't escape without major damage.

Still, as corrupt and despicable as the current neoliberal elite is (Biden, Hillary, Pelosi, Trump, and so on and forth), they are preferable to neo-fascists.

[Feb 07, 2019] Venezuela's central bankers were persuaded to pledge their oil reserves and all assets of the state oil sector (including Citgo) as collateral for its foreign debt

Feb 07, 2019 | www.unz.com

kauchai, February 7, 2019 at 1:51 am GMT

" Second, Venezuela's central bankers were persuaded to pledge their oil reserves and all assets of the state oil sector (including Citgo) as collateral for its foreign debt. This meant that if Venezuela defaulted (or was forced into default by U.S. banks refusing to make timely payment on its foreign debt), bondholders and U.S. oil majors would be in a legal position to take possession of Venezuelan oil assets."

Solid proof that it was the empire who invented the practice of "debt trap" and is still flourishing with it.

hunor, February 7, 2019 at 6:24 am GMT

Thank you ! Made it very clear. Perfect reflection of the " Values of Western Civilization ".

Reaching to grab the whole universe, with no holds barred . And never show of any interest for the " truth". They are not even pretending anymore , awakening will be very painful for some.

Reuben Kaspate, February 7, 2019 at 2:38 pm GMT • 100 Words

Why would the U. S. based White-Protestant aristocracy care a hoot about the Brown-Catholic elites in the far off land? They don't! The comprador aristocracy in question isn't what it seems It's the same group that plagues the Americans.

The rootless louts, whose only raison d'ê·tre is to milk everything in sight and then retire to coastal cities, i.e. San Francisco, if you are a homosexual or New York City and State, if you are somewhat religious.

Poor Venezuelans don't stand a chance against the shysters!

[Feb 03, 2019] As US Freezes, This Is Where Europeans Can't Afford To Heat Their Homes

Feb 03, 2019 | www.zerohedge.com

While the US Midwest suffers with Arctic temperatures, winter tightens its icy stranglehold on Europe, where a considerable number of people are struggling to keep their homes warm.

Statista's Niall McCarthy reports that, according to new data released by Eurostat , eight percent of the EU population couldn't afford to adequately heat their homes in 2017. That still represents an improvement on recent years, particularly 2012 when it peaked at 11 percent.

You will find more infographics at Statista

Among member states , the largest share of people who could not afford to properly heat their home was recorded in Bulgaria at 36.5 percent. It was followed by Lithuania (28.9 percent) and Greece (25.7 percent). The lowest figures were recorded in Luxembourg (1.9 percent), Finland (2.0 percent) and Sweden (2.1 percent).

[Jan 22, 2019] Latin America Here's how neoliberal economists wreak havoc on the global poor while protecting the financial elite by Vijay Prashad

Notable quotes:
"... November 14, 2018 ..."
"... This article was produced by Globetrotter , a project of the Independent Media Institute. ..."
www.defenddemocracy.press
Thanks to the IMF, the pockets of the forgotten from Argentina to Mexico will suffer so that finance is left intact.

November 14, 2018

On December 1, Mexico will have a new president -- Andrés Manuel López Obrador. He will take over the presidency from the lackluster Enrique Peña Nieto, whose administration is marinated in corruption. Peña Nieto's legal office has already asked the Supreme Court to shield his officials from prosecution for corruption. The elite will protect itself. López Obrador will not be able to properly exorcize the corrupt from the Mexican state, let alone from Mexican society. Corrupt weeds grow on the soil of capitalism, the loam of profit and greed as well as of rents from government contracts.

López Obrador comes to the presidency as a man of the left, but the space for maneuvering that he has for a left agenda is minimal. Mexico's economy, through geography and trade agreements, is fused with that of the United States. More than 80 percent of Mexico's exports go to its neighbor to the north, while Mexico's financial sector is almost entirely at the mercy of Northern banks.

Already, López Obrador has had to deal with the leash from Northern banks that sits tightly around Mexico's throat. On October 28, after the election, López Obrador canceled the project to build a new airport for Mexico City. This new airport -- at a cost of US$13.4 billion -- is seen as far too expensive (Istanbul has just inaugurated a new airport, far bigger, for almost US$2 billion less). The peso fell, the Mexican stock market fell, Fitch downgraded Mexico to "negative," and international investors frowned.

Then, in early November, legislators from López Obrador's party -- Morena -- proposed laws to limit bank fees. Mexico's stock market collapsed. It was the worst single-day loss of the BMV stock index in seven years. The bankers sent López Obrador a message: don't rock the boat.

Hastily, López Obrador's choice for the finance ministry -- Carlos Urzúa -- scolded the legislators and winked to the banks. Urzúa, an economist, has spent years consulting for the World Bank and other such agencies. It is hard to find an economist these days who has not put his fingers into a consultancy for either the World Bank or the International Monetary Fund (IMF). The economics profession has slid almost wholesale into the pocket of international agencies that are committed to a very asphyxiating version of public policy -- one that goes by the name of neoliberalism. It is a policy framework that favors multinational corporations over workers, one that seeks to control inflation rather than find ways to improve the livelihood of people. Finance is the religion, while Money is God.

Read also: Trump's Plan Makes Nuclear War More Likely

López Obrador and Urzúa do not have the political power to challenge the order of things.

IMF Comes to Mexico City

Just a month before López Obrador takes office, the IMF sent a team to Mexico. This team came to do a study based on the IMF charter's Article IV. Its report set limits on what López Obrador's government can do. There is the usual verbal concern expressed for inequality and poverty, but this is just window-dressing. Nothing in the IMF staff statement indicated a policy that would tackle Mexico's grave problems of poverty and inequality.

What the report details instead is a caution that López Obrador must not try to invest funds in infrastructure that benefits the Mexican people -- investment, for instance, in the sclerotic oil industry (Pemex). Mexico, an oil exporting state, imports oil because it has limited refining capacity. López Obrador has said he wants Mexico to properly develop the state-run oil firm Pemex. But the IMF staff statement says that "further improvements of Pemex's financial situation are a prerequisite before new investments in refining can be contemplated." López Obrador will be forced to make drastic cuts in Pemex and to continue to drain the exchequer to import oil. No structural change is going to be possible here without a negative IMF report, which would further encourage an investment strike into Mexico.

Someone should encourage the IMF to stop sending staff teams into countries like Mexico. Each report is identical to the previous one. Nothing seems to be learned by these teams. Years ago, a senior IMF economist told me that when he arrived in a Central Asian country he knew nothing of that country, he got to see nothing of it when he was there and he knew virtually nothing when he drafted the Article IV review. All he did in the country was sit in one air-conditioned room after another, listen to canned reports from nervous finance ministry officials and then develop the report based on the IMF's same old recipe -- make cuts, target welfare, privatize and make sure that the banks are happy.

Read also: Brexit: Here's how top economists are reacting to Britain's shocking vote

Latitude for creative policy making is simply not available. The IMF comes to town to tell new governments to behave. López Obrador and his cabinet will have to listen. Any deviation from the IMF recipe will make investors flee and foreign investment dry up. It is so easy these days to suffocate a country.

IMF Comes to Buenos Aires

For the past two decades, the IMF had found it difficult to dictate terms in Latin America. From 2002 to 2007, left-leaning governments governed most of the region, where economic activity was helped along by high commodity prices (including oil prices) and high remittance payments.

Even Mexico's conservative President Felipe Calderón (2006-2012) had to lean into the prevailing winds of Bolivarianism. In 2011, at the Community of Latin American and Caribbean States, Calderón championed integration of Latin America -- something that is least to be expected from a Mexican head of government, because Mexico is firmly integrated into the United States.

The world financial crisis from 2007 hit Latin America hard. Calderón went to Davos the next year and said that Latin America would be insulated from the crisis. Far from it, Mexico had already begun to suffer job loss as the economy of its main trade partner -- the United States -- contracted. An IMF study found that Latin America lost 40 percent of its wealth in 2008. Public finances contracted, and public investments declined. Inflation led to higher poverty rates and to social instability.

A quick summary: Why did Latin America's economies suffer a crisis after 2007? It was not because of the left-leaning governments and their policies. It was because of the over-leveraged financial system, only one of whose asset bubbles -- U.S. housing prices -- collapsed. Deep integration into and reliance upon the U.S.-dominated financial system, and poor diversification of their economies from the U.S. market, meant that as the U.S. banks contracted, Latin America felt the pain. Over 80 percent of Argentina's private debt was in dollars in 2002, while only a quarter of Argentina's economy was geared toward exports. This was the fuel that was fated to burst into flame. It is this dollar reliance that could not be corrected.

Read also: BRICS: Superpowers in Traditional Medicine

The exported economic problem had a political impact. It weakened the left-leaning governments, even as these governments tried to ameliorate the crisis. Many of these governments -- from Argentina to Brazil -- lost elections, while social turmoil struck others -- from Venezuela to Nicaragua. It is in this context that the International Monetary Fund returned to Latin America with a vengeance.

After two decades of relative absence, the IMF has now returned to Argentina (on which please see this dossier from Tricontinental: Institute for Social Research). Its Article IV staff statement from December last year pointed to the problems of high borrowing in foreign currency, a problem that was recognized in 2001-2002. But the power of international finance -- centered at Wall Street and the City of London -- prevented any easy pivot out of this problem. It was easier to demand cuts from the already meager incomes of ordinary people.

In 1994, Mexico suffered from what became known as the "tequila crisis," as the peso collapsed when international capital fled the country. The government would not place capital controls to protect the peso against currency speculators. The "tequila effect" then spread to South America. No one was prepared to stand up to the dollar and the speculators. From the forests of Chiapas, Subcomandante Marcos of the Zapatistas spoke out in favor of the pockets of the forgotten, the people who did not cause the crisis but who would bear the cost of these financial shenanigans. Once more, with help from the IMF, the pockets of the forgotten from Argentina to Mexico will suffer so that finance is left intact.

This article was produced by Globetrotter , a project of the Independent Media Institute.

Published at https://www.alternet.org/2018/11/international-monetary-fund-flexes-its-muscles-latin-america/

[Jan 11, 2019] The ticking time bomb is because a large part of young people working now are working on non – permanent contracts that don t pay benefits. These people won t have any pension at all and there are a lot of them

Naomi Klein's book "Shock Doctrine", encapsulated by this post as "global elites used periods of crisis around the world to force damaging neoliberal policies derived from the Chicago School and Washington Consensus upon unhappy populations that suffered greatly as a result."
Notable quotes:
"... Eventually, Poland emerged as the major US agent of influence within the EU (along with GB) with the adamant anti-Russian stance. Which taking into account the real state of Polish manufacturing deprived of the major market is very questionable. Later by joining sanctions, they lost Russian agricultural market (including all apple market in which they have a prominent position). ..."
"... Gowan's book, Global Gamble, is also good on the details of shock therapy in the former Warsaw Pact nations. One key problem was that shock therapy partly rested on he assumption that western European buyers would want to invest in modernizing plant and equipment in industries they acquired, but it quickly turned out that the German and other western buyers were really interested only in acquiring new MARKETS for their own products. ..."
"... I remember a couple of paragraphs about Poland in my Economics 101 course, some 20 years ago. Was it in in Mankiw's book? or Lipsey-Chrystal? I do not remember anymore. One of those vicious neoliberal propaganda mouthpieces, anyway. The textbook pitched Poland's success story against Russia's abject failure, claiming that the former had dismantled and shut down all its inefficient state-run companies, while the latter still kept its unprofitable heavy industry on life support. ..."
"... Somehow neoclassical economists always distort history into a cartoonish parody that confirms their models. ..."
"... If you looked carefully, you could still find older books, barely touched, that touted Albania as a neoliberal success story along the same lines as Poland. Albania almost collapsed in civil war in 1998. ..."
"... The author's criticism doesn't really address Klein's central points at all, which would be that the crisis was used as leverage to ram through otherwise politically unpalatable change, and that a great deal of the constraint forcing that was provided by actors both undemocratic and external. He seems to be of the school that regards such niceties as beside the point, as long as various macroaggregates eventually rose. ..."
"... Any discussion of the Polish economy that completely ignores this massive level of economic outmigration, and it's continued rise among the young, misses a great deal. In a vibrant economy, it seems unlikely that so many educated Poles would find, for example, lower tier jobs in Britain to be their best path forward. ..."
"... Out-migration is a huge factor in eastern and central Europe and without it, the picture would look entirely different. The Baltics, Bulgaria and Romania are even more affected. ..."
"... Inter-war Poland is celebrated a lot in Poland these days, conveniently ignoring the facts it was really a totalitarian state – when Czechoslovakia was Muniched in 1938, Poles (and Hugarians) were quick to grab bits of territory right after that. ..."
"... Poland has taken around a million Ukrainians over the past ten years so while many Poles are emigrating to Europe, they are being replaced by Ukrainians, who are ethnically and linguistically fairly similar to Poles. ..."
Jan 11, 2019 | www.nakedcapitalism.com

The argument largely seems to hold for the original poster boy example in Chile with the Pinochet coup against the socialist Allende regime. A military coup replaced a democratically government. Whiole Chlle was experiencing a serious inflation, it was not in a full-blown economic collapse. The coup was supported by US leaders Nixon and Kissinger, who saw themselves preventing the emergence of pro-Soviet regime resembling Castro's Cuba. Thousands were killed, and a sweeping set of laisssez faire policies were imposed with the active participation of "Chicago Boys" associated with Milton Friedman. In fact, aside from bringing down inflation these rreforms did not initially improve economic performance, even as foreign capital flowed in, especially into the copper industry, although the core of that industry remained nationalized. After several years the Chicago Boys were sent away and more moderate policies, including a reimposition of controls on foreign capital flows, the economy did grow quite rapidly. But this left a deeply unequal income distribution in place, which would largely remain the case even after Pinochet was removed from power and parliamentary democracy returned.

This scenario was argued to happen in many other narions, especially those in the former Sovit bloc as the soviet Union disintegrated and its successor states and the former members of the Soviet bloc in the CMEA and Warsaw Pact also moved to some sort of market capitalism imposed from outside with policies funded by the IMF and following the Washington Consensus. Although he has since expressed regret for this role in this, a key player linking what was done in several Latin American nations and what went down after 1989 in Eastern and Central Europe was Jeffrey Sachs. Klein's discussion especially of what went down in Russia also looks pretty sound by and large, wtthout dragging through the details, although in these cases the political shift was from dictatorships run by Communist parties dominated out of Moscow to at least somewhat more democratic governments, although not in all of the former Soviet republics such as in Central Asia and with many of these later backsliding towards more authoritarian governments later. In Russia and in many oothers large numbers of people were thrown into poverty from which they have not recovered. Klein has also extended this argument to other nations, including South Africa after the end of apartheid.

likbez

The level of the naivety of Barkley Rosser is astounding.

Poland was a political project, the showcase for the neoliberal project in Eastern Europe and the USSR. EU was pressed to provide large subsidies, and that marionette complied. The commenter ilpalazzo (above) is right that there has been " a tremendous development in real estate and infrastructure mostly funded by the EU that has been a serious engine of growth." Like in Baltics and Ukraine, German, French, Swedish and other Western buyers were most interested in opening market for their products and getting rid of local and xUSSR competitors (and this supported and promoted Russophobia). With very few exceptions. University education system also was partially destroyed, but still fared better than most manufacturing industries.

I remember talking to one of the Polish professors of economics when I was in Poland around 1992. He said that no matter how things will develop, the Polish economy will never be allowed to fail as the USA is interested in propelling it at all costs. That means that there was no CIA activity to undermine the financial system, deindustrialize the country, and possibly to partition the county like it was in Russia with Harvard mafia (Summers, Shleifer, etc.)

Still, they lost quite a bit of manufacturing: for example all shipbuilding, which is ironic as Lech Wałęsa and Solidarity emerged in this industry.

Eventually, Poland emerged as the major US agent of influence within the EU (along with GB) with the adamant anti-Russian stance. Which taking into account the real state of Polish manufacturing deprived of the major market is very questionable. Later by joining sanctions, they lost Russian agricultural market (including all apple market in which they have a prominent position).

But they have a large gas pipeline on their territory, so I suspect that like Ukraine they make a lot of money via transit fees simply due to geographic. So they parochially live off rent -- that why they bark so much at North Stream 2.

Polish elite is a real horror show, almost beyond redemption, and not only in economics. I do not remember, but I think it was Churchill who said " Poland is a greedy hyena of Europe." This is as true now as it was before WWII.

Now they are propelled by cheap labor from Ukraine, which they helped to destroy (along with Sweden and Germany)

ilpalazzo , , January 10, 2019 at 3:04 pm

My post seem to have vanished into oblivion so I'm pasting from the clipboard.

I am a Pole and have been a daily reader here since 2008. I hope a better versed compatriot will come out of the closet and give a better picture (I know there are a few).

Let's just say the shock was pretty bad. In terms of amount of human suffering the worst was dissolving state owned farms. Hundreds of thousands of people were just let go without any help, although many farms were profitable and others could be restructured or converted into collectives etc. I live in a small town where there was a huge state farm and I can see former employees started to recover and get by just recently judging by the looks of their dwellings.

Most of the manufacturing and heavy industry was sold off and extinguished. We used to have pretty decent capital producing capabilities like tooling etc. Not a trace of that now. There is a lot being manufactured now here but mostly simple components for german industry to assemble.

Pension system was thoroughly looted by you know who and is a ticking time bomb. Most of it was quasi privatized – that is managed by western companies but still part of the state system. There were supposed to be individual saving accounts managed by sophisticated investment specialists but the money ended up invested in state bonds, issued to subsidize it. Managing fee 7 – 10 percent charge on every payment into the system, regardless of performance, anyone? It was a heist of the century.

The ticking time bomb is because a large part of young people working now are working on non – permanent contracts that don't pay benefits. These people won't have any pension at all and there are a lot of them.

Healthcare is single payer fund but heavily underfunded. Private practice and hospitals are allowed and skim most profitable procedures leaving the rest to public fund. There are unrealistic limits on number of procedures so if you need to see a specialist in July or later prepare to pay cash or wait till January.

Municipal service companies, at least the most lucrative ones have ben sold off to foreign investment funds. A few of our cities' municipal companies, like central heating or energy have been sold off to german municipal companies (!). State telecom has been sold off to french state telecom (and one of the biggest and most famous fortunes made).

Local printed press is 90% german corps owned.

This is a map of state rail company railways in 1988 and 2009 . It has been a meme here for some time. It is true. Cancelled lines are the subsidized ones workers relied on to get to job. I closely know a thousand years old town that had rail built in 1860 by germans and liquidated right in 1990. The populace is now halved, all young emigrated, businesses dead. There have been a huge investment in freeways and other kind of roads so every one has to own a car to get to her job. Most cars are used 10+ year old german imports. Polish car mechanic and body shops are the best in the world specialists of german automotive produce.

I live in a small contry town that was a home to a wealthy aristocrat. There is a beautiful baroque palace and huge park, the complex is literally a third part of town. After the war it was nationalized, there were sporting facilities built in the park for locals and school pupils to use. The palace was re-purposed as medical facility and office complex for state farm management. In the nineties the whole thing was given back to aristocrat descendants – a shady bunch hiding in Argentina AFAIR. They couldn't afford to keep it so they sold it to a nouveau – riche real estate developer. He fenced the whole thing off and refurbished into a sort of conference complex – it is underway and still not clear what's gonna happen with it. The effect is that a third of my town that used to be public space is fenced off and off limits now.

To conclude, there has been a tremendous development in real estate and infrastructure mostly funded by the EU that has been a serious engine of growth. Lot of people got mortgage and financed homes or flats and there has been a whole industry created around it. A few crown jewel companies (copper mining, petroleum and other chemistry) are state owned. But most of the sophisticated furnishings used in real estate are german made (there is german made nat gas furnace in 95% of newly built homes) etc. Two million young people emigrated to work mostly to UK and Ireland. I'd lived in Dublin for a year in 2003 and there were Chinese people as salespersons in groceries and seven – elevens everywhere, now there are Poles instead.

Recommended reading about the transformation years dealing is this book:

https://monthlyreview.org/product/from_solidarity_to_sellout/

The author is Kalecki's pupil.

Darthbobber , , January 10, 2019 at 5:21 pm

Thanks for this. Gowan's book, Global Gamble, is also good on the details of shock therapy in the former Warsaw Pact nations. One key problem was that shock therapy partly rested on he assumption that western European buyers would want to invest in modernizing plant and equipment in industries they acquired, but it quickly turned out that the German and other western buyers were really interested only in acquiring new MARKETS for their own products.

And in agriculture, they both insisted on the elimination of subsidies within the eastern nations, and proceeded to use the area as a dumping ground for their own (often subsidized) agricultural surpluses.

JTMcPhee , , January 10, 2019 at 6:51 pm

All this gets back, in my minuscule view, to failure to have a decent answer to one little question:

What kind of political economy do "we, the mopes" want to live within?

And related to that, what steps can and must "we, the mopes" take to get to that hopefully wiser, more decent, more homeostatic and sustainable, political economy?

And it likely doesn't matter for us old folks (obligatory blast at Boomers as cause of all problems and distresses, dismissing the roots and branches of "civilization," current patterns of consumption, and millennia of Progress), given what is "baked in" and the current distribution of weatlhandpower. But maybe "we, the mopes" can at least go down fighting. Gilets Jaunes, 150 million Indians, all that

But without an answer to the first question, though, not much chance of "better," is there? Except maybe locally, for the tiny set of us mopes who know how to do community and commensalism and some other "C" words

"We, the mopes" could make some important and effective changes. Enough of us, and soon enough, to avoid or mitigate the Jackpot?

Unna , , January 10, 2019 at 4:09 pm

Thanks very much for this. Very graphic. So, if you would, could you explain who the Law and Justice Party is, and why they won the election, and what exactly are they doing to make themselves popular? Are they in fact enacting certain social programs that we can read about or are they primarily relying on something else, like mainly Catholic traditionalism, for their political power?

disc_writes , , January 10, 2019 at 4:33 pm

I remember a couple of paragraphs about Poland in my Economics 101 course, some 20 years ago. Was it in in Mankiw's book? or Lipsey-Chrystal? I do not remember anymore. One of those vicious neoliberal propaganda mouthpieces, anyway. The textbook pitched Poland's success story against Russia's abject failure, claiming that the former had dismantled and shut down all its inefficient state-run companies, while the latter still kept its unprofitable heavy industry on life support.

It is unsurprising to read that Poland followed a more nuanced approach. Somehow neoclassical economists always distort history into a cartoonish parody that confirms their models.

That was in the early 2000s. The university was then brand new and was still filling the shelves of the library. If you looked carefully, you could still find older books, barely touched, that touted Albania as a neoliberal success story along the same lines as Poland. Albania almost collapsed in civil war in 1998.

todde , , January 10, 2019 at 5:08 pm

Yellow Vests knock out 60% of traffic cameras

smart move. Or at least I would say so.

Darthbobber , , January 10, 2019 at 5:08 pm

Klein at least provided footnotes, and sources for her claims. Which are conspicuously absent from this piece.

The World Bank, (World Development Indicators, 2006), one of Klein's sources, has a nationwide poverty rate only for 1993, and has it at 23% at that point, or between 2.3 times and more than 4 time the most common estimate he cites under the ancient regime.

The same source has unemployment averaging 19.9% in 1990-92, and 19% in 2000-2004.

As to the later poverty rate, Klein's source is Przemyslaw Wielgosz, then editor of the Polish edition of le Monde Diplomatique, who gives this: " Poles living below the 'social minimum' (defined as a living standard of £130 (192,4 EUR) per person and £297 (440,4 EUR) for a three person family per month) affecting 15% of the population in 1989 to 47% in 1996, and 59% in 2003." but whence he obtains these figures he does not say. Given that it falls in a period when unemployment was pushing 20% for a prolonged period, and that both the EU's subsidies and outmigration to the EU as an escape valve only start to kick in in 2003, the figure seems not wildly implausible.

The author's criticism doesn't really address Klein's central points at all, which would be that the crisis was used as leverage to ram through otherwise politically unpalatable change, and that a great deal of the constraint forcing that was provided by actors both undemocratic and external. He seems to be of the school that regards such niceties as beside the point, as long as various macroaggregates eventually rose.

The contrast between what was done, and what Solidarnosc had claimed to be all about when in opposition is incredibly striking, basically the difference between libertarian Communism and uber Dirigisme style capitalism.

Darthbobber , January 10, 2019 at 10:27 am

https://en.m.wikipedia.org/wiki/Migrations_from_Poland_since_EU_accession

Any discussion of the Polish economy that completely ignores this massive level of economic outmigration, and it's continued rise among the young, misses a great deal. In a vibrant economy, it seems unlikely that so many educated Poles would find, for example, lower tier jobs in Britain to be their best path forward.

Yes, your unemployment and poverty rates are lower if a significant fraction of the population works elsewhere in the EU, and reatriates the money. Though the pattern may cause a few other problems. (while many nations like to export their unemployment, not everybody wants to import it.)

upstater , January 10, 2019 at 11:28 am

You beat me to the punch

Out-migration is a huge factor in eastern and central Europe and without it, the picture would look entirely different. The Baltics, Bulgaria and Romania are even more affected.

vlade , January 10, 2019 at 2:01 pm

The migration from Poland does not have only economic reasons. A lot of Poles migrate because they find the polish society (especially small towns and rural) very stiffling.

A friend of mine left Poland the moment she got her MSc – literally, the same day she was on a bus to Germany. She's now a sucessfull woman, director level at a large consultancy. Yet her father calls her "old spinster" (this is the polite version), as she wasn't maried by 30, and she basically avoids going to Poland.

She says she could never be as sucessfull in Poland, being a woman, and not being keen on marrying. I've heard similar stories from young Poles, not just women.

Inter-war Poland is celebrated a lot in Poland these days, conveniently ignoring the facts it was really a totalitarian state – when Czechoslovakia was Muniched in 1938, Poles (and Hugarians) were quick to grab bits of territory right after that.

Kasia, January 10, 2019 at 5:17 pm

Poland has taken around a million Ukrainians over the past ten years so while many Poles are emigrating to Europe, they are being replaced by Ukrainians, who are ethnically and linguistically fairly similar to Poles.

So Poland is proof that nationalist, populist policies can indeed work. Poland has had to taken rough measures with our judicial system and media to ensure globalist forces do not undermine our successes. No one, I mean no one, in Poland mouths the words, "diversity is our strength". Internationalist, liberal minded people who are so susceptible to globalist propaganda, are generally the ones leaving the nation. Indigenous Western Europeans who are suffering the joys of cultural enrichment and vibrant diversity are starting to buy property in Eastern Europe - more Hungary than Poland - but as the globalists push even more multiculturalism and continue to impoverish indigenous Europeans, Eastern Europe will become a shining beacon on the hill free of many of the evils of globalisation.

[Nov 25, 2018] Let s recap what Obama s coup in Ukraine has led to shall we?

Highly recommended!
CIA democrats of which Obama is a prominent example (and Hillary is another one) are are Werewolfs, very dangerous political beasts, probably more dangerous to the world then Republicans like George W Bush. But in case of Ukraine, it was easily pushed into Baltic orbit, because it has all the preconditions for that. So Nuland has an relatively easy, albeit dirty task. Also all this probably that "in five years we will be living like French" was pretty effective. Now the population faces consequences of its own stupidity. This is just neoliberal business as usual or neocolonialism.
Notable quotes:
"... populists on the right ..."
"... hired members of Ukraine's two racist-fascist, or nazi, political parties ..."
"... Disclaimer: No Russian, living or dead, had anything to do with the posting of this proudly home-grown comment ..."
"... @snoopydawg ..."
"... @snoopydawg ..."
"... @gulfgal98 ..."
"... @gulfgal98 ..."
Nov 25, 2018 | caucus99percent.com

Let's recap what Obama's coup in Ukraine has led to shall we? Maybe installing and blatantly backing Neo Nazis in Ukraine might have something to do with the rise of " populists on the right " that is spreading through Europe and this country, Hillary.

America's criminal 'news' media never even reported the coup, nor that in 2011 the Obama regime began planning for a coup in Ukraine . And that by 1 March 2013 they started organizing it inside the U.S. Embassy there . And that they hired members of Ukraine's two racist-fascist, or nazi, political parties , Right Sector and Svoboda (which latter had been called the Social Nationalist Party of Ukraine until the CIA advised them to change it to Freedom Party, or "Svoboda" instead). And that in February 2014 they did it (and here's the 4 February 2014 phone call instructing the U.S. Ambassador whom to place in charge of the new regime when the coup will be completed), under the cover of authentic anti-corruption demonstrations that the Embassy organized on the Maidan Square in Kiev, demonstrations that the criminal U.S. 'news' media misrepresented as 'democracy demonstrations ,' though Ukraine already had democracy (but still lots of corruption, even more than today's U.S. does, and the pontificating Obama said he was trying to end Ukraine's corruption -- which instead actually soared after his coup there).

But wait there's more .... Remember that caravan of refugees making their way through Mexico? Guess where a number of them came from? Honduras. Yep. Another coup that happened during Obama's and Hillary's tenure.

Hard choices: Hillary Clinton admits role in Honduran coup aftermath

In a recent op-ed in The Washington Post, former Secretary of State Hillary Clinton used a review of Henry Kissinger's latest book, "World Order ," to lay out her vision for "sustaining America's leadership in the world." In the midst of numerous global crises, she called for return to a foreign policy with purpose, strategy and pragmatism. She also highlighted some of these policy choices in her memoir "Hard Choices" and how they contributed to the challenges that Barack Obama's administration now faces.
**
The chapter on Latin America, particularly the section on Honduras, a major source of the child migrants currently pouring into the United States, has gone largely unnoticed. In letters to Clinton and her successor, John Kerry, more than 100 members of Congress have repeatedly warned about the deteriorating security situation in Honduras, especially since the 2009 military coup that ousted the country's democratically elected President Manuel Zelaya. As Honduran scholar Dana Frank points out in Foreign Affairs, the U.S.-backed post-coup government "rewarded coup loyalists with top ministries," opening the door for further "violence and anarchy."

The homicide rate in Honduras, already the highest in the world, increased by 50 percent from 2008 to 2011; political repression, the murder of opposition political candidates, peasant organizers and LGBT activists increased and continue to this day. Femicides skyrocketed. The violence and insecurity were exacerbated by a generalized institutional collapse. Drug-related violence has worsened amid allegations of rampant corruption in Honduras' police and government. While the gangs are responsible for much of the violence, Honduran security forces have engaged in a wave of killings and other human rights crimes with impunity.

Despite this, however, both under Clinton and Kerry, the State Department's response to the violence and military and police impunity has largely been silence, along with continued U.S. aid to Honduran security forces. In "Hard Choices," Clinton describes her role in the aftermath of the coup that brought about this dire situation. Her firsthand account is significant both for the confession of an important truth and for a crucial false testimony.

First, the confession: Clinton admits that she used the power of her office to make sure that Zelaya would not return to office. "In the subsequent days [after the coup] I spoke with my counterparts around the hemisphere, including Secretary [Patricia] Espinosa in Mexico," Clinton writes. "We strategized on a plan to restore order in Honduras and ensure that free and fair elections could be held quickly and legitimately, which would render the question of Zelaya moot."

Clinton's position on Latin America in her bid for the presidency is another example of how the far right exerts disproportionate influence on US foreign policy in the hemisphere. up 24 users have voted. --

Disclaimer: No Russian, living or dead, had anything to do with the posting of this proudly home-grown comment


aliasalias on Fri, 11/23/2018 - 6:16pm

Count on Wikileaks for the unvarnished truth

@snoopydawg @snoopydawg Obama, Hillary and the rest of that administration knew it was a coup because that was the goal.

"..4. (C) In our view, none of the above arguments has any substantive validity under the Honduran constitution. Some are outright false. Others are mere supposition or ex-post rationalizations of a patently illegal act. Essentially: --
the military had no authority to remove Zelaya from the country;
-- Congress has no constitutional authority to remove a Honduran president;
-- Congress and the judiciary removed Zelaya on the basis of a hasty, ad-hoc, extralegal, secret, 48-hour process;
-- the purported "resignation" letter was a fabrication and was not even the basis for Congress's action of June 28; and
-- Zelaya's arrest and forced removal from the country violated multiple constitutional guarantees, including the prohibition on expatriation, presumption of innocence and right to due process. "
https://www.wikileaks.org/plusd/cables/09TEGUCIGALPA645_a.html

gulfgal98 on Fri, 11/23/2018 - 5:45am
How un-self aware is Hillary?

That evil woman thinks she has the right to preach to others about how to handle the very fallout from the horrific disasters that she HERself created? Hillary, look in the mirror, you evil woman.

From the Guardian article that snoopy linked above comes this not so shocking but arrogant statement by the evil queen herself.

Clinton said rightwing populists in the west met "a psychological as much as political yearning to be told what to do, and where to go, and how to live and have their press basically stifled and so be given one version of reality.

" The whole American system was designed so that you would eliminate the threat from a strong, authoritarian king or other leader and maybe people are just tired of it. They don't want that much responsibility and freedom. They want to be told what to do and where to go and how to live and only given one version of reality.

"I don't know why at this moment that is so attractive to people, but it's a serious threat to our freedom and our democratic institutions, and it goes very deep and very far and we've got to do a better job of shining a light on it and trying to combat it."

This arrogance of looking down on the populace is very part and parcel of the neoliberal attitude of the ruling class takes to the rest of us peons. They created this unreality for the American people and have suppressed our right to know what is really happening in the world. Obama destroyed the Occupy Movement with violent police attacks and kettling. And then disgustingly, Clinton comes out with her hubristic victim blaming.

The Clintons are nearly single handedly responsible for much of the destruction of the American middle class and the repression of poor and black people under Bill and the violent destruction of many countries under Hillary. And yet neither Clinton is willing to own up for all the human misery that they have caused wherever they go. Unfortunately, the one place they refuse to go is just away forever.

gulfgal98 on Fri, 11/23/2018 - 6:26am
Twitter is not too kind to Hillary, just a sampling

@gulfgal98

Apparently Hillary Clinton's 2020 platform will consist of two things:

1. We need to stop all these fucking brown people who sneak into our countries and ruin things for the nice, white population.

2. Bernie Sanders is a racist.

Well, that's one more than last time. #Progress https://t.co/H5jb5l5ZNK

-- "Angry Jon Snow" Graziano (@jvgraz) November 22, 2018

The belief that HRC & her circle are principled & progressive is just as fictitious as the belief that they lost to a reality TV host because of stolen emails, social media trolls, & a (fictitious) conspiracy between the reality TV host & the Kremlin: https://t.co/iyTC1M6uws

-- Aaron Maté (@aaronjmate) November 22, 2018

Bombing a nation into smithereens like a real neocon, then refusing to help its people fleeing from the terror she created -like a real neocon.

Hillary Clinton, a progressive who gets things done -you know, like the neocon she really is. https://t.co/IQWFy4Rn3O

-- Amir (@AmirAminiMD) November 22, 2018

Clinton says Europe should make clear that "we are not going to be able to continue provide refuge & support." Isn't this the attitude we denounce Trump for? Speaking of irony, Clinton's regime wars in Libya & Syria (& Iraq, indirectly) fueled the migration she wants to stop. https://t.co/CIkkGRRKNd

-- Aaron Maté (@aaronjmate) November 22, 2018

This ego-maniac sees the world's problems - which she had a huge hand in creating - only through the lens of her electability. Apparently, the only problems the world has are the one's that keep her from sitting in the Oval Office. Everything else is fine. She is deplorable.

-- Tom Hillgardner (@Tom4CongressNY6) November 22, 2018

Ah yes, Trump only won because the Democrats weren't harsh enough on immigration https://t.co/0ULBP23O4S

-- Abby Martin (@AbbyMartin) November 22, 2018

Hillary Clinton & Tony Blair now say migration issues "lit the flame" of RW populism in Europe and they must crack down.

Neither admits THEIR disastrous war & destabilization policy, neoliberal economics (incl sanctions) drive millions to flee https://t.co/8HUY2i25Sy pic.twitter.com/MaRiRkPjRM

-- Joanne Leon (@joanneleon) November 22, 2018

That evil woman thinks she has the right to preach to others about how to handle the very fallout from the horrific disasters that she HERself created? Hillary, look in the mirror, you evil woman.

From the Guardian article that snoopy linked above comes this not so shocking but arrogant statement by the evil queen herself.

Clinton said rightwing populists in the west met "a psychological as much as political yearning to be told what to do, and where to go, and how to live and have their press basically stifled and so be given one version of reality.

" The whole American system was designed so that you would eliminate the threat from a strong, authoritarian king or other leader and maybe people are just tired of it. They don't want that much responsibility and freedom. They want to be told what to do and where to go and how to live and only given one version of reality.

"I don't know why at this moment that is so attractive to people, but it's a serious threat to our freedom and our democratic institutions, and it goes very deep and very far and we've got to do a better job of shining a light on it and trying to combat it."

This arrogance of looking down on the populace is very part and parcel of the neoliberal attitude of the ruling class takes to the rest of us peons. They created this unreality for the American people and have suppressed our right to know what is really happening in the world. Obama destroyed the Occupy Movement with violent police attacks and kettling. And then disgustingly, Clinton comes out with her hubristic victim blaming.

The Clintons are nearly single handedly responsible for much of the destruction of the American middle class and the repression of poor and black people under Bill and the violent destruction of many countries under Hillary. And yet neither Clinton is willing to own up for all the human misery that they have caused wherever they go. Unfortunately, the one place they refuse to go is just away forever.

The Aspie Corner on Fri, 11/23/2018 - 6:46am
And amazingly, should she run, the 'left' will back her anyway.

@gulfgal98 Because they just HAVE to get a rich, far-right, patriarchal white woman elected at any cost for the sake of 'making history'. If these idiots really wanted to make history, they'd work like hell to put someone in charge who actually had the balls to hang the pigs and their collaborators for their crimes.

#5

Apparently Hillary Clinton's 2020 platform will consist of two things:

1. We need to stop all these fucking brown people who sneak into our countries and ruin things for the nice, white population.

2. Bernie Sanders is a racist.

Well, that's one more than last time. #Progress https://t.co/H5jb5l5ZNK

-- "Angry Jon Snow" Graziano (@jvgraz) November 22, 2018

The belief that HRC & her circle are principled & progressive is just as fictitious as the belief that they lost to a reality TV host because of stolen emails, social media trolls, & a (fictitious) conspiracy between the reality TV host & the Kremlin: https://t.co/iyTC1M6uws

-- Aaron Maté (@aaronjmate) November 22, 2018

Bombing a nation into smithereens like a real neocon, then refusing to help its people fleeing from the terror she created -like a real neocon.

Hillary Clinton, a progressive who gets things done -you know, like the neocon she really is. https://t.co/IQWFy4Rn3O

-- Amir (@AmirAminiMD) November 22, 2018

Clinton says Europe should make clear that "we are not going to be able to continue provide refuge & support." Isn't this the attitude we denounce Trump for? Speaking of irony, Clinton's regime wars in Libya & Syria (& Iraq, indirectly) fueled the migration she wants to stop. https://t.co/CIkkGRRKNd

-- Aaron Maté (@aaronjmate) November 22, 2018

This ego-maniac sees the world's problems - which she had a huge hand in creating - only through the lens of her electability. Apparently, the only problems the world has are the one's that keep her from sitting in the Oval Office. Everything else is fine. She is deplorable.

-- Tom Hillgardner (@Tom4CongressNY6) November 22, 2018

Ah yes, Trump only won because the Democrats weren't harsh enough on immigration https://t.co/0ULBP23O4S

-- Abby Martin (@AbbyMartin) November 22, 2018

Hillary Clinton & Tony Blair now say migration issues "lit the flame" of RW populism in Europe and they must crack down.

Neither admits THEIR disastrous war & destabilization policy, neoliberal economics (incl sanctions) drive millions to flee https://t.co/8HUY2i25Sy pic.twitter.com/MaRiRkPjRM

-- Joanne Leon (@joanneleon) November 22, 2018

[Nov 25, 2018] >How the US Creates 'Shthole' Countries

Notable quotes:
"... Essays on Palestine. ..."
Nov 25, 2018 | consortiumnews.com

November 19, 2018 • 104 Comments

A new collection of essays, edited by former Congresswoman Cynthia McKinney, clearly shows that it is the U.S. that is largely responsible for the poverty and suffering in these very nations, says Robert Fantina.

By Robert Fantina

In two years, the world has become accustomed to being shocked by the words and actions of United States President Donald Trump. In January of this year, he again showed his lack of diplomacy, tack and common decency, when he referred to many poorer countries as "sh*ithole countries", asking, "Why do we want all these people from sh*thole countries coming here?" Former member of the House of Representatives Cynthia McKinney, in the new book she has edited, How the US Creates 'Sh*thole' Countries , (Clarity Press) has gathered a collection of essays, including one of her own, that clearly shows that it is the U.S. that is largely responsible for the poverty and suffering in these very nations.

The first series of essays describes U.S. foreign policy, and its true motives. In the essay, The End of Washington's 'Wars on the Cheap' , The Saker sums up U.S. foreign policy as follows: "Here's the template for typical Empire action: find some weak country, subvert it, accuse it of human right violations, slap economic sanctions, trigger riots and intervene militarily in 'defense' of 'democracy', 'freedom' and 'self-determination' (or some other combo of equally pious and meaningless concepts)." The hypocrisy of such a policy is obvious. A weak and vulnerable nation is victimized by a far more powerful one. The U.S. has done this countless times in its history, and there appears to be no appetite in the government to change.

This introduction and explanation of U.S. foreign policy is followed by essays on some, but certainly not all, of the countries that have been victimized by the United States, usually following this template. As McKinney says in her essay, Somalia: Is Somalia the U.S. Template for All of Africa , " while mouthing freedom, democracy, and liberty, the United States has denied these very aspirations to others, especially when it inconvenienced the US or its allies. In Mozambique and Angola, the US stood with Portugal until it was the Portuguese people, themselves, who threw off their government and voted in a socialist government that vowed to free Portugal of its colonies."

In the essay, How the U.S. Perpetuates the Palestinian Tragedy', Sami Al-Arian writes:

" It might be understandable, if detestable, for Israel and its Zionist defenders to circulate false characterizations of history and myths to advance their political agenda. But it is incomprehensible, indeed reprehensible, for those who claim to advocate the rule of law, believe in the principle of self-determination, and call for freedom and justice to fall for this propaganda or to become its willing accomplices. In following much of American political leaders' rhetoric or media coverage of the conflict, one is struck by the lack of historical context, the deliberate disregard of empirical facts, and the contempt for established legal constructs and precedents."

The U.S. leads in these distortions, with its officials proclaiming, each time that Israel bombs Gaza, that "Israel has a right to defend itself". There is hardly mention of the brutal, illegal occupation and blockade; never a discussion of the fact that Palestine has no army, navy or air force, and Israel's military is one of the world's most powerful thanks to the U.S. It is never stated that international law allows an occupied people to resist the occupation in any way possible, including armed struggle. The countless United Nations resolutions condemning Israeli actions in Palestine are ignored by U.S. officials.

Once again, U.S. hypocrisy is on very public display.

The third section of this informative book describes the United States' mostly-successful efforts to camouflage its vile intentions and international crimes. Christopher Black, in his essay Western Imperialism and the Use of Propaganda", clearly articulates how this is done:

" The primary concern they [U.S. government officials] have, in order to preserve their control, is for the preservation of the new feudal mythology that they have created: that the world is a dangerous place, that they are the protectors, that the danger is omnipresent, eternal, and omnidirectional, comes from without, and comes from within. The mythology is constructed and presented through all media; journals, films, television, radio, music, advertising, books, the internet in all its variety. All available information systems are used to create and maintain scenarios and dramas to convince the people that they, the protectors, are the good and all others are the bad. We are bombarded with this message incessantly."

Our memories are short, indeed, if we have forgotten both President George W. Bush and his Secretary of State, Colin Powell, telling the world from the United Nations the blatant lie that Iraq had weapons of mass destruction, threatening civilization. We are not paying attention if we are unaware of the many innuendos given of the 'dangers' of all Muslims. Yes, the government fosters fear, proclaiming subtly and not so subtly that there is danger everywhere, and it is the role of the mighty United States to protect the world, whether or not such protection is wanted or needed.

Lastly, the U.S. Itself can be described as a 'sh*thole' country. Its many violations of international law, and crimes against humanity, are summarized by Richard Falk, in his essay The Sh*thole Phenomenon at Home and Abroad:

" This kind of nationalist pride covered up and blindsided crimes of the greatest severity that were being committed from the time of the earliest settlements: genocide against native Americans, reliance on the barbarism of slavery to facilitate profitable cotton production and the supposedly genteel life style of the Southern plantations. This unflattering national picture should be enlarged to include the exploitation of the resources and good will of peoples throughout Latin America, who, once freed from Spanish colonial rule, quickly found themselves victimized by American gunboat diplomacy that paved the way for American investors or joined in crushing those bold and brave enough to engage in national resistance against the abuse of their homelands."

The final essay is the Report of the Special Rapporteur on Extreme Poverty and Human Rights on his Mission to the United States of America, authored by Philip Alston. While Trump decries "sh*thole" countries, the conditions that the U.S. put those countries in are not unknown in the U.S. A few facts from Alston's report will suffice:

The U.S.'s " immense wealth and expertise stand in shocking contrast with the conditions in which vast numbers of its citizens live. About 40 million live in poverty, 18.5 million in extreme poverty, and 5.3 million live in Third World conditions of absolute poverty. It has the highest youth poverty rate in the Organization for Economic Cooperation and Development (OECD), and the highest infant mortality rates among comparable OECD States. Its citizens live shorter and sicker lives compared to those living in all other rich democracies, eradicable tropical diseases are increasingly prevalent, and it has the world's highest incarceration rate, one of the lowest levels of voter registrations in among OECD countries and the highest obesity levels in the developed world." " The United States has the highest rate of income inequality among Western countries. The $1.5 trillion in tax cuts in December 2017 overwhelmingly benefited the wealthy and worsened inequality." " For almost five decades the overall policy response has been neglectful at best, but the policies pursued over the past year seem deliberately designed to remove basic protections from the poorest, punish those who are not in employment and make even basic health care into a privilege to be earned rather than a right of citizenship."

The information in these essays is all rigorously documented with extensive footnotes. The writing is clear and the facts are presented in a concise manner that is highly beneficial for the average reader or academic.

For anyone who questions U.S. policies, at home or abroad, and who has perhaps become more aware of such issues since Trump's election,

How the US Creates 'Sh*thole' Countries is an indispensable read.

Robert Fantina is a journalist and the author of Essays on Palestine.

[Sep 16, 2018] Ending the Secrecy of the Student Debt Crisis

Pervasive racketeering rules because we allow it to, especially in education and medicine. Both are self-destructing under the weight of their own money-grubbing schemes.
Notable quotes:
"... Because of the loans' disgracefully high interest rates, my family and I have paid more or less the equivalent of my debt itself in the years since I graduated, making monthly payments in good faith -- even in times of unemployment and extreme duress -- to lenders like Citigroup, a bank that was among the largest recipients of federal bailout money in 2008 and that eventually sold off my debt to other lenders. This ruinous struggle has been essentially meaningless: I now owe more than what I started out owing, not unlike my parents with their mortgage . ..."
"... By Daniela Senderowicz. Originally published in Yes! Magazine ..."
"... Activists are building meaningful connections among borrowers to counter the taboo of admitting they can't pay their bills. ..."
"... Gamblers and reality TV stars can claim bankruptcy protections when in financial trouble, but 44 million student loan borrowers can't. Unemployed, underpaid, destitute, sick, or struggling borrowers simply aren't able to start anew. ..."
"... With a default rate approaching 40 percent , one would expect armies of distressed borrowers marching in the streets demanding relief from a system that has singled out their financial anguish. Distressed student debtors, however, seem to be terror-struck about coming forward to a society that, they say, ostracizes them for their inability to keep up with their finances. ..."
"... When we spoke to several student borrowers, almost none were willing to share their names. "I can't tell anyone how much I'm struggling," says a 39-year-old Oregon physician who went into student loan default after his wife's illness drained their finances. He is terrified of losing his patients and reputation if he speaks out about his financial problems. ..."
"... Debtors are isolated, anxious, and in the worst cases have taken their own lives . Simone confirms that she has "worked with debtors who were suicidal or had psychological breakdowns requiring psychiatric hospitalization." ..."
"... "Alienation impacts mental health issues," says New York mental health counselor Harriet Fraad. "As long as they blame themselves within the system, they're lost." ..."
"... A recent manifesto by activist and recent graduate Eli Campbell calls for radical unity among borrowers. "Young people live in constant fear that they'll never be able to pay off their debt. We're not buying houses or able to afford the hallmarks of the American dream," he explains. ..."
"... Do a little research on car selling and you will see the pressures on the dealer sales force to suck the vast majority of buyers into long term debt. Car loans are now five or six years, routinely. ..."
Sep 16, 2018 | www.nakedcapitalism.com
Yves here. This article describes how the stigma of struggling to pay student debt is a burden in and of itself. I wish this article had explained how little it take to trigger an escalation into default interest rates and how punitive they are. The piece also stresses the value of activism as a form of psychological relief, by connecting stressed student debt borrowers with people similarly afflicted.

But the bigger issue is the way indebtedness is demonized in a society that makes it pretty much impossible to avoid borrowing. One reader recounted how many (as in how few) weeks of after tax wages it took to buy a car in the 1960s versus now. Dealers don't want to talk to buyers who want to pay in full at the time of purchase. And if you don't have installment credit or a mortgage, the consumer credit agencies ding you!

It goes without saying that the sense of shame is harder to endure due to how shallow most people's social networks are, which is another product of neoliberalism.

In keeping, the New York Times today ran an op-ed by one of its editors on how student debtors are also victims of the crisis, reprinted from a longer piece in The Baffler (hat tip Dan K). Key sections :

Because of the loans' disgracefully high interest rates, my family and I have paid more or less the equivalent of my debt itself in the years since I graduated, making monthly payments in good faith -- even in times of unemployment and extreme duress -- to lenders like Citigroup, a bank that was among the largest recipients of federal bailout money in 2008 and that eventually sold off my debt to other lenders. This ruinous struggle has been essentially meaningless: I now owe more than what I started out owing, not unlike my parents with their mortgage .

Many people have and will continue to condemn me personally for my tremendous but unexceptional student debt, and the ways in which it has made the recession's effects linger for my family. I've spent quite a lot of time in the past decade accepting this blame. The recession may have compounded my family's economic insecurity, but I also made the conscious decision to take out loans for a college I couldn't afford in order to become a journalist, a profession with minimal financial returns. The amount of debt I owe in student loans -- about $100,000 -- is more than I make in a given year. I am ashamed and embarrassed by this, but as I grow older, I think it is time that those profiting from this country's broken economic system share some of my guilt

[At my commencement in 2009] Mrs. Clinton then echoed a fantasy of boundless opportunity that had helped guide the country into economic collapse, deceiving many of the parents in attendance, including my own, into borrowing toward a future that they couldn't work hard enough to afford. "There is no problem we face here in America or around the world that will not yield to human effort," she said. "Our challenges are ones that summon the best of us, and we will make the world better tomorrow than it is today." At the time, I wondered if this was accurate. I now know how wrong she was.

By Daniela Senderowicz. Originally published in Yes! Magazine

Activists are building meaningful connections among borrowers to counter the taboo of admitting they can't pay their bills.

Gamblers and reality TV stars can claim bankruptcy protections when in financial trouble, but 44 million student loan borrowers can't. Unemployed, underpaid, destitute, sick, or struggling borrowers simply aren't able to start anew.

With a default rate approaching 40 percent , one would expect armies of distressed borrowers marching in the streets demanding relief from a system that has singled out their financial anguish. Distressed student debtors, however, seem to be terror-struck about coming forward to a society that, they say, ostracizes them for their inability to keep up with their finances.

When we spoke to several student borrowers, almost none were willing to share their names. "I can't tell anyone how much I'm struggling," says a 39-year-old Oregon physician who went into student loan default after his wife's illness drained their finances. He is terrified of losing his patients and reputation if he speaks out about his financial problems.

"If I shared this with anyone they will look down upon me as some kind of fool," explains a North Carolina psychologist who is now beyond retirement age. He explains that his student debt balance soared after losing a well-paying position during the financial crisis, and that he is struggling to pay it back.

Financial shame alienates struggling borrowers. Debtors blame themselves and self-loathe when they can't make their payments, explains Colette Simone, a Michigan psychologist. "There is so much fear of sharing the reality of their financial situation and the devastation it is causing in every facet of their lives," she says. "The consequences of coming forward can result in social pushback and possible job -- related complications, which only deepen their suffering."

Debtors are isolated, anxious, and in the worst cases have taken their own lives . Simone confirms that she has "worked with debtors who were suicidal or had psychological breakdowns requiring psychiatric hospitalization."

With an average debt of just over $37,000 per borrower for the class of 2016 , and given that incomes have been flat since the 1970s , it's not surprising that borrowers are struggling to pay. Student loans have a squeaky-clean reputation, and society tends to view them as a noble symbol of the taxpayers' generosity to the working poor. Fear of facing society's ostracism for failure to pay them back has left borrowers alienated and trapped in a lending system that is engulfing them in debt bondage.

"Alienation impacts mental health issues," says New York mental health counselor Harriet Fraad. "As long as they blame themselves within the system, they're lost."

Student debtors can counter despair by fighting back through activism and political engagement, she says. "Connection is the antidote to alienation, and engaging in activism, along with therapy, is a way to recovery."

Despite the fear of coming forward, some activists are building a social movement in which meaningful connections among borrowers can counter the taboo of openly admitting financial ruin.

Student Loan Justice, a national grassroots lobby group, is attempting to build this movement by pushing for robust legislation to return bankruptcy protections to borrowers. The group has active chapters in almost every state, with members directly lobbying their local representatives to sign on as co-sponsors to HR 2366. Activists are building a supportive community for struggling borrowers through political agitation, local engagement, storytelling, and by spreading a courageous message of hope that may embolden traumatized borrowers to come forward and unite.

Julie Margetaa Morgan , a fellow at The Roosevelt Institute, recently noted that student debt servicers like Navient have a powerful influence on lawmakers. "Student loan borrowers may not have millions to spend on lobbying, but they have something equally, if not more, powerful: millions of voices," she says.

A recent manifesto by activist and recent graduate Eli Campbell calls for radical unity among borrowers. "Young people live in constant fear that they'll never be able to pay off their debt. We're not buying houses or able to afford the hallmarks of the American dream," he explains.

In his call for a unified national boycott of student loan payments, inevitably leading to a mass default on this debt, Campbell hopes to expose this crisis and instigate radical change. In a recent interview he explained that the conditions for borrowers are so bad already that debtors may not join the boycott willingly. Instead, participation may simply happen by default given the lack of proper work opportunities that lead to borrowers' inability to pay.

While a large-scale default may not happen through willful and supportive collective action, ending the secrecy of the crisis through massive national attention may destigmatize the shame of financial defeat and finally bring debtors out of the isolation that causes them so much despair.

Activists are calling for a significant conversation about the commodification of educating our youth, shifting our focus toward investing into the promise of the young and able, rather than the guarantee of their perpetual debt bondage. In calling for collective action they soothe the hurt of so many alienated debtors, breaking the taboos that allow them to say, "Me, too" and admit openly that in this financial climate we all need each other to move forward.


Jane , September 16, 2018 at 4:15 am

How much are the interest rates on student loans there in the USA? Here in India its 11.5% if you want to finance studies abroad. 8.5 for some select institutions.

JVR , September 16, 2018 at 5:36 am

I wonder if the media's obsession with "millenials" isn't primarily a way to try to divide people with shared interests, above all around the topics of student debt and the job market and to make the problems seem like they have shallower roots than they really do. The individuals mentioned here are older than that 24-37 age cohort, one of them much older.

Epistrophy , September 16, 2018 at 6:42 am

Dealers don't want to talk to buyers who want to pay in full at the time of purchase.

Yes Yes. Car manufacturers are actually finance houses selling products manufactured by subcontractors – such is the state of American industry – but their dream is to move to a SaaS model where ownership, of anything, becomes a relic of the past (except for the overlords and oligarchs).

This could not be possible without government corruption and revolving-door regulation. Maybe these PAYG vehicles will contain built-in body scanners too; for our own security, of course.

In his call for a unified national boycott of student loan payments, inevitably leading to a mass default on this debt, Campbell hopes to expose this crisis and instigate radical change.

Default, or radical change, would bring the economy to it's knees. But when there is another economic downturn, this is going to happen anyway. Terrible situation; negative real interest rates destroying the pensions of the elderly, student loan servitude destroying the youth and the middle class being squeezed to oblivion. What can be done to fix it, I ask?

Yet they are doing God's work, are they? Well, this is not a God I choose to worship.

JTMcPhee , September 16, 2018 at 8:33 am

Well good for you. How many cars, of what age, have you bought, for your anecdote to rate as anything vaguely resembling the wide reality, and how does your personal financial situation let you just write checks for $30 or $70,000?

Do a little research on car selling and you will see the pressures on the dealer sales force to suck the vast majority of buyers into long term debt. Car loans are now five or six years, routinely.

And one wonders what the investment is in trying to impeach the points of this report, wth such an unlikely and atypical claim.

UserFriendly , September 16, 2018 at 6:57 am

NYT ran the same story , interesting they edited out his total debt and major though.

JTMcPhee , September 16, 2018 at 8:39 am

Maybe a little traction, then, for the notion, and increasingly the inescapable reality, of #juststoppaying on those "remember Joe Biden" virtually non-dischargeable, often fraudulently induced, "student loan" debt shackles?

[Sep 03, 2018] Michael Hudson: Argentina's New $50 Billion IMF Loan Is Designed to Replay its 2001 Crisis

Notable quotes:
"... Alberto Nisman and Argentina's History of Assassinations and Suspicious Suicides ..."
"... Whether the crusading prosecutor's death is found to be a suicide or homicide, many Argentines probably won't believe it. The past has taught them to always look for the sinister explanation. ..."
"... Decades after the military murdered thousands, Mothers of Plaza de Mayo warn that the current era of alternative facts poses a new threat ..."
"... They'll gain the world but lose their souls They'll gain the world but lose their souls ..."
"... Don't believe politicians and thieves They want our people on their bended knees Pirates and robbers, liars and thieves You come like the wolf but dressed like the sheep ..."
"... If you go to Lagos what you find, vampires If you go to Kinshasa what you find, vampires If you go to Darfur what you find, vampires If you go to Malabo what you find, vampires ..."
"... Lies and theft Guns and debt Life and death IMF ..."
"... When the bank man comes to your door Better know you'll always be poor Bank loans and policies They can't make our people free ..."
"... You live on the blood of my people Everyone knows you've come to steal You come like the thieves in the night The whole world is ready to fight ..."
Jul 25, 2018 | www.nakedcapitalism.com

Posted on July 25, 2018 by Yves Smith

Yves here. In this Real News Network interview, Micheal Hudson explains why IMF "programs" inevitably hurt workers.

https://www.youtube-nocookie.com/embed/N5ZHD9-zdkQ?rel=0&showinfo=0

SHARMINI PERIES: It's The Real News Network. I'm Sharmini Peries, coming to you from Baltimore.

For several months now. Argentines have been taking to the streets to protest against neoliberal austerity measures of President Mauricio Macri. The most recent such protest took place on July 9 on Argentine's Independence Day. There has also been three general strikes thus far. In the two years since he took office, President Macri has laid off as many as 76,000 public sector workers, and slashed gas and water and electricity subsidies, leading to a tenfold increase in prices, in some cases.

Now, the government argues that all of this is necessary in order to stem inflation, and the decline of the currency's value. Last month, Macri received the backing of the International Monetary Fund. The IMF agreed to provide Argentina with a $50 billion loan, one of the largest in IMF history. In exchange, the Macri government will deepen the austerity measures already in place.

Joining me now to analyze Argentina's economic situation and its new IMF loan is Michael Hudson. Michael is a distinguished research professor of economics at the University of Missouri Kansas City. Welcome back, Michael.

MICHAEL HUDSON: Good to be back, Sharmini.

SHARMINI PERIES: Michael, why is it that Argentina needs such a huge credit line from the IMF?

MICHAEL HUDSON: For precisely the reason that you explained. The neoliberal policy has its aim rolling back any of the wage increases in employment that Mrs. Kirschner, the former president, implied, as part of the class war. So in order to shrink the economy, you have to basically cut back business, cut back employment. And so the purpose of the IMF loan was to enable the wealthy Argentinians, the oligarchy that's run the country for a century, to get all its money out and run. So like almost all IMF loans, the purpose is to subsidize capital flight out of Argentina so that the wealthy Argentinians can take their money and run before the currency collapses.

The aim of the loan is to indebt Argentina so much that its currency will continue to go down and down and down, essentially wrecking the economy. That's what the IMF does. That's its business plan. It makes a loan to subsidize capital flight, emptying out the economy of cash, leading the currency to collapse, as it is recently collapsed. As soon as the $50 billion was expended, or wasted, in letting wealthy Argentinians take their pesos, convert them into dollars, move them offshore to the United States, to England, to the Dutch West Indies, and offshore banking centers. Then they let the currency collapse so that the IMF model, which it's announced for the last 50 years, the model is if you can depreciate a currency what you're really lowering is the price of labor. Because raw materials and capital have an international price. But when a currency goes down it makes imports much more expensive, and that causes a price umbrella over the cost of living; that labor has to pay the equivalent international price for grain, for food, for oil and gas, for everything else.

And so what Macri has done is they agree with the IMF to wage class war with a vengeance, devaluation, leaving Argentina so hopelessly indebted that it can't possibly repay the IMF loan. So what we're seeing is a replay of what happened in 2001.

SHARMINI PERIES: Exactly. I was going to ask you, now, that was only 17 years ago, Michael. Argentinians do have memory here. They know what happened. They experienced it as well. Now, that was back in 2001 during the economic crisis when unemployment had increased so dramatically. That country went through a series of presidents and went through a series of crises. And we saw images of, you know, very similar to what we had seen in, in Greece not too long ago. Now, tell us more about that history. What exactly happened during that crisis, and then eventually how did Nestor Kirschner relieve the economy and come out of that crisis?

MICHAEL HUDSON: Well, the IMF staff said, don't make the loan. There's no possible way Argentina can pay the loan. It's all going to be made to the oligarchy for capital flight. You're giving the IMF money for crooks, and you're expecting the Argentine people to have to pay. So Argentina very quickly was left totally broke, as the IMF intended it to be. And so although it was 17 years ago, for the last 17 years the IMF has had a slogan: No more Argentinas. In other words, they said, we're never going to make the loan that is only given to oligarchs for capital flight to steal. It's as if you make a loan to the Ukraine, or to the Russian kleptocrats, or to the Greek banks to move offshore.

And yet here, here again, we're having a replay of what happened was, after Mrs. Kirschner came in, it was obvious to the [inaudible] to everybody, as it had been to the IMF staff, many of whom had resigned, that Argentina couldn't pay. So about 80 percent of Argentines' bondholders agreed to write down the debt to something that could be paid. They said, OK, you know, either it's a total default because they can't pay anything, or we'll write it down very substantially to what could be paid. Because the IMF really made a completely incompetent- not incompetent, directly corrupt insider deal. Well, unfortunately, the oligarchy had a fatal clause put in the original bond issue, saying they would agree to U.S. arbitration and to U.S. law if there was any dispute.

Well, after the old Argentine bonds depreciated in price, the bonds that were not renegotiated as part of the 80 percent, you had vulture funds buy them out. Especially Paul Singer, the Republican campaign donor who tends to buy politicians, along with foreign government bonds. And sued, and said, we want 100 percent on the dollar, not, you know, the 40 cents on the dollar or whatever they'd settled. And the case went to a senile, dying judge, Griesa in New York City, who said, well, there was something that's about a clause that said investors have to be treated separately. And Argentina said, well, that's fine, we'll pay the other 20 percent [inaudible] the 80 percent of all agreed to. The majority rules. And Griesa said, no, no, you have to pay the 80 percent all the money that the 20 percent demands. That's symmetry, because only if you let the hedge funds win can you go bankrupt again, wreck the government, and bring in oligarchy.

And so that ruling caused absolute turmoil. The United States State Department set out to support the oligarchy by doing everything it could to destabilize Argentina. And the Argentine people said, well, we'd better vote in a government that's supported by the United States. Maybe it will be nice to us. I don't know why foreign countries think that way, but they thought maybe if they voted the neoliberal that the United States would agree to forgive some of its debt. Well, that's not what neoliberals do. The neoliberal did just what you said at the beginning of the program; announced that he was going to cut employment, lower, stop inflation by making the working class bail, bear all of the costs, and would borrow- actually, it was the largest loan in IMF history, the $50 billion to enable the Argentine wealthy class to move its money offshore, leaving the economy a bankrupt shell. That's what the IMF does.

SHARMINI PERIES: Right. So let's imagine you are given the opportunity to resolve this issue. How would you be advising the Argentine government in terms of what can they do to stabilize the economy, given the circumstances they're facing right now?

MICHAEL HUDSON: Very simple. I'd say this debt is an odious debt. There is no way that Argentina can pay. The clause that bankrupted us was put in as a result of tens of thousands of professors, labor leaders, [land] people being assassinated. The United States financed an assassination team throughout Latin America after Pinochet in Chile to have basically a proxy government, and the Argentine loan that said we will, we will follow U.S. rules, not Argentine rules, basically should disqualify that debt from having to be paid. And it should say the IMF debt is an odious debt. It was given under fraudulent purposes solely for purposes of capital flight. We will not pay.

SHARMINI PERIES: Now, Michael, just one last question. Did you want to add something to what you were saying?

MICHAEL HUDSON: Well, once it doesn't pay the foreign debt, its balance of payments will be, will be there. The problem is that the creditors have always used violence in order to get their way. I don't see how the Argentina situation can be solved without violence, because the creditors are using police force, covert assassination. They're just as bad as the dirty war that had that mass assassination period in the late, into the early '90s. There's obviously going to be not only the demonstrations that you showed, but an outright war, because it's broken out in Argentina more drastically than anywhere else right now in Latin America, except in Venezuela.

SHARMINI PERIES: Michael, at the moment, the Fed is gradually increasing interest rates and the dollar is gaining in value. This is sucking the financial capital not only in Argentina but in many places around the world. Also, you know, they're going to be soon in crisis as well. What is, what can the developing economies do?

MICHAEL HUDSON: Here's the problem. When the United States raises interest rates, that causes foreign money to flow, flow into the dollar, because the rest of the world, Europe and other areas, are keeping low interest rates. So as money goes into the dollar, to take advantage of the rising interest rates, the dollar rises. Now, that makes it necessary for Argentina or any other country, third world country, to pay more and more pesos in order to buy the dollars to pay that foreign debt. Because Argentina and third world countries have violated the prime rule of credit. And that is never to denominate a debt in another currency that you can't pay. And all of a sudden, the dollar debts become much more expensive in peso terms, and as a result, all throughout the world right now you're having a collapse of bond prices of third world debt. Argentine bonds, Chilean bonds, African bonds, near Eastern bonds. Third world debt bonds are plunging, because the investors realize that the countries can't pay. The game looks like it may be over.

The good side of this is that Argentina now can join with other third world countries and say we are going to redenominate the debts in our own currency, or we just won't pay, or we will do what the world did in 1931 and announce a moratorium on intergovernmental debts. Now, that was done on German reparations and the World War I inter-ally debts. Something like that. Some international conference to declare a moratorium and say, what is the amount that actually can be paid? And to write down third world debts to the amount that should be paid.

Because the principle that countries have to say is that no country should be obliged to sacrifice its own economy, its own employment, and its own independence to pay foreign creditors. Every country has a right to put its own citizens first and its own economy first before foreign creditors, especially when the loans are made under false pretenses, as the IMF has made pretending to stabilize the currency instead of subsidizing capital flight to destabilize the currency.

SHARMINI PERIES: All right, Michael. I thank you so much. And we'll continue this conversation. There's so much more to discuss, and so many countries here in this situation for that discussion as well. I thank you so much for joining us today.

MICHAEL HUDSON: Thanks. I think it's going to get worse, so we'll have a lot to discuss.

SHARMINI PERIES: And thank you for joining us here on The Real News Network.


tawal , July 25, 2018 at 3:12 am

Why does the IMF have a US dollar credit line at the US FED, and Argentina does not; countries like Canada do, as do companies like Harley Davidson. Why the discrimination?

vlade , July 25, 2018 at 3:26 am

I'd really like your source on HD having a line with Fed .

tawal , July 25, 2018 at 10:05 am

Here's one: http://www.motorcycle-usa.com/2010/12/article/harley-davidson-loaned-2-3-billion-from-fed/

I recall Bloomberg doing quite an expose, when the FED databases were forced to be released.

Disturbed Voter , July 25, 2018 at 7:00 am

"The IMF was originally laid out as a part of the Bretton Woods system exchange agreement in 1944. During the Great Depression, countries sharply raised barriers to trade in an attempt to improve their failing economies. This led to the devaluation of national currencies and a decline in world trade."

IMF is an anachronism, a perpetual organization seeking new reasons for its continued existence.

And like all Western post WW II institutions, is part of the Cold War. Of course any actions by US connected entities in Latin America/Caribbean are part of the Monroe Doctrine ;-(

Thuto , July 25, 2018 at 7:55 am

Gas prices in Egypt have just been raised by 75% as part of the austerity measures attached to the $12bn loan granted by the IMF. Regular folk barely have two pennies to rub together and have been battered by this and other measures ostensibly designed to "lift the economy and lure back investors (as per the IMF rationale behind these crushing loan conditions). I wonder if the same sleight of hand outlined by Prof Hudson applies here (I.e. whether this is an IMF subsidised capital flight scheme designed to aid the Egyptian oligarchy in repatriating its loot) and whether we should cast a suspicious eye towards the oligarchs in any country the IMF extends a loan to.

michael hudson , July 25, 2018 at 8:33 am

That's my point, of course.

The Rev Kev , July 25, 2018 at 9:02 am

This puts me in mind of a blog that I came across sometime ago at http://ferfal.blogspot.com/ which has relevance here. Yeah, he tries to flog a lot of survival gear and the like but this site came out of his experiences in the first crash in Argentina in 2001. If you are prepared to dig deep into his files you will find all sorts of stories about what life was like in Argentina and it was awful and desperate. Probably the best place to start is at http://ferfal.blogspot.com/search/label/Argentine%20Collapse

Alejandro , July 25, 2018 at 10:52 am

From your link, this jumped out, as agnotological apologetics:

" Right now with President Mauricio Macri there's hope, but the change the country needs will take decades "

He didn't make much of an effort to clarify, who holds this "hope" nor what "change the country needs". OTOH Michael Hudson, in his last two interviews on NC, did. He (Feral) also seems oblivious to the neoliberal projects role in Latin America, and in Argentina's 2001 crises.

And this:

"Anyway, that's what happened in Argentina and this is why in spite of the good president we now have we need another 10 or 20 years for an entire generation of people to know something other than populism and corruption as a way of life."

Again, oblivious to the neoliberal projects role in Latin America, and in Argentina's 2001 crises. Who benefits from austerity, and how?

Bud-in PA , July 25, 2018 at 9:48 am

"As soon as the $50 billion was expended, or wasted, in letting wealthy Argentinians take their pesos, convert them into dollars, move them offshore to the United States, to England, to the Dutch West Indies, and offshore banking centers"

Not sure I understand this. Who is converting the Oligarch pesos to dollars? Crooks in the Argentine government?

Synoia , July 25, 2018 at 10:35 am

The Argentinian Banks, and their US correspondent Banks. The US is one of the largest safe havens for foreign "hot money" in the world.

"Free flow" of Capital is a key feature of "Free Trade."

Mel , July 25, 2018 at 10:39 am

As I understand it, it's the Oligarchs' butlers and footmen in the Argentine government that do it. If the Argentine government has a policy of pegging the peso at some set number of pesos per dollar, then the government is obliged to hand over this many dollars in exchange for that many pesos. That's what a peg is. One way to get the dollars would be through a loan which the IMF would "reluctantly" give them, conditional on a few crushing social policies.
Like I said before, this so much resembles a leveraged buy-out.

Ba Wang Long , July 25, 2018 at 11:51 am

Could someone please explain the mechanisms by which the $50B loan leaves the country. Exactly how do the elites get their hands on this money and then get it out of the country?

Mel , July 25, 2018 at 1:10 pm

If you haven't already read it, check Prof. Hudson's previous article . It describes more about the methods.
Of course, if you have, then I'm not helping.

HotFlash , July 25, 2018 at 1:14 pm

Ah yes! As they taught us back in accounting classes, it is easy to cook the books, the hard part is getting the cash out.

I heard this excellent podcast from Democracy at Work earlier this week wherein Michael Hudson explains it very clearly.

Synoia , July 25, 2018 at 5:59 pm

They convert their liquid cash into Dollars. Then wire it to Banks outside the Argentine, and invest, (typically buy property). In addition, they take out loans against their Argentinian assets or property, and convert those pesos into dollars, and export those dollars as well.

All legal and above board.

When the peso collapses, they repatriate some of their dollars, and pay of the now deflated loans.

Jim Haygood , July 25, 2018 at 12:42 pm

'The Argentine loan that said we will, we will follow U.S. rules, not Argentine rules, basically should disqualify that debt from having to be paid.'

Most foreign currency bonds floated by developing economies specify New York or London legal jurisdiction because of (1) well-developed case law; (2) creditors don't trust the objectivity of courts in borrower countries.

If all developing country debt were considered "odious" merely because of New York or English legal jurisdiction, lending to developing countries would stop cold.

'I don't see how the Argentina situation can be solved without violence, because the creditors are using police force, covert assassination.'

Cite one -- just one -- link showing "covert assassination" occurring in Argentina. The Dirty War of the 1970s and early 1980s doesn't count. You can't keep waving the bloody shirt of military dictatorship in South America more than thirty years after it ended.

JTMcPhee , July 25, 2018 at 1:33 pm

I'm sure there is a nice polite clear unassailable explanation for what happened in this instance:

" Alberto Nisman and Argentina's History of Assassinations and Suspicious Suicides

Whether the crusading prosecutor's death is found to be a suicide or homicide, many Argentines probably won't believe it. The past has taught them to always look for the sinister explanation. "

https://www.propublica.org/article/alberto-nisman-argentinas-history-of-assassinations-and-suspicious-suicides

And maybe creditors like to have their loan docs choose US/NY courts and law as the basis for dispute resolution because both are stacked in favor of creditors? Home court "white shoe lawyer" advantage? No history of support for the great creditor scams of the past? the word "jackal" has no meaning? There was no reason for that guy to write a sequel to "Confessions of an Economic Hit Man"?

Really, there's no need for the "bloody shirt," now is there, given current right-wing dictators supported by "us," what the Empire and Banksters and the rest are doing in and to central and South America, now is there? But it's a great distraction, I'll grant, and might even work as impeachment for some folks

Plenue , July 25, 2018 at 7:09 pm

I'm shocked that Haygood would confidently talk about something he doesn't understand. Shocked!

Roberto , July 25, 2018 at 6:18 pm

Further, from a previous MH article here

"No country should be obliged to pay its bondholders if the price of paying means austerity, unemployment, shrinking population, emigration, rising suicide rates, abolition of public health standards, and selloffs of the public domain to monopolists."

These sorts of rules would put a dead stop to foreign loans.

JTMcPhee , July 25, 2018 at 7:59 pm

Something always bothers me about the "bondholder" sanctity meme. Bonds are "investments," right? And there are RISKS associated with investments, right? And there's supposed to be a "risk premium" built into the "price" of the bond, right?

At least Investopedia and other sources say so, basically that these are NOT God-sanctioned absolute-right deals where the bondholder takes priority over everyone else in the world, right? https://www.investopedia.com/ask/answers/05/bondrisks.asp

And bonds are sort of contracts, subject to the rules and defenses that apply in contract disputes, albeit specialized rules, right? Impossibility and stuff? Fraud?

So why are the rest of us, like where "the government" is dumb or corrupt (CalPERS?)enough to "obligate" the wealth and future of a country by "selling bonds" to "investors," as security for "loans" that get siphoned off by corruption and stupidity, dumb enough to usually just roll over and accept that we have to live like serfs to "pay off the bonds?" Especially when the same scam has been pulled by the same set of Banksters over and over?

And yes, in the financialized westernized world, we mopes are tied to the "paying for progress [some definition of same] by borrowing," aren't we?

Interesting that the hated Sharia Law, the banking and investment part of it, kind of makes those allegedly risk-free kinds of fee- and profit- and reacketeer-generating "deals" not only unlawful, but against the will of G_D? https://shariabanking.com/

We could do better, couldn't we?

knowbuddhau , July 25, 2018 at 7:03 pm

Who are you to say when?

How telling. Was only 7 years ago that the torture-murderer of mothers and nuns, the Blonde Angel of Death himself, Alfredo Ignacio Astiz, was sentenced to life in prison. Per Wikipedia:

Astiz, a specialist in the infiltration of human rights organizations, was implicated in the December 1977 kidnapping of twelve human rights activists, including Azucena Villaflor and two other founders of the Mothers of the Plaza de Mayo, and two French nationals, Léonie Duquet and Alice Domon, who were Catholic nuns. None of the twelve was seen alive again outside detention and all were believed killed, rumored to be among the bodies washed up on beaches south of Buenos Aires in late 1977.

To this day, torturers and murderers hold public offices. But I'm sure that's all in the past. Anyone who still talks about the US-sponsored 16 years of Dirty War, from 1967-1983, is a bloody shirt-waving fool, amirite Jim?

BUENOS AIRES, Argentina (CNN) [2 March 1998] -- Argentina's "dirty war" ended 15 years ago, but it is an ugly episode that cannot be buried and refuses to be silenced.

Aging mothers and grandmothers march each week as the Mothers of Plaza de Mayo, carrying banners and chanting, "We will not be stopped. We will not be broken. We have held on for 20 years."

They demand to know the whereabouts of sons and daughters and husbands and wives who were detained by the ruling military junta between 1976 and 1983, and then disappeared.

The junta seized power in Argentina in March 1976 and began a systematic campaign to wipe out left-wing terrorism. But the terror it spread exceeded anything the leftists ever dreamed of, claiming the lives of dissidents as well as innocent civilians.

More than 9,000 people disappeared during the dirty war, and some human rights groups say as many as 30,000 may have been tortured and killed.

"We only want to know where our sons and daughters are -- alive or dead," says one woman. "We are anguished because we don't know whether they are sick or hungry or cold. We don't know anything. We are desperate, desperate because we don't know who to turn to.

"Consulates, embassies, government ministries, churches. Every place is closed to us. Everywhere they shut us out. We beg you to help us. We beg you."

40 years later, the mothers of Argentina's 'disappeared' refuse to be silent [Guardian 28 April 2017]

Decades after the military murdered thousands, Mothers of Plaza de Mayo warn that the current era of alternative facts poses a new threat

Torturers and murderers hold public office, thanks to an amnesty. But I'm sure no one today, in the whole of Argentina, would ever consider what well, actually has long been standard operating procedure in Argentina.

ChrisAtRU , July 25, 2018 at 3:12 pm

Nation State Debtor's Prison the beatings will continue

Chauncey Gardiner , July 25, 2018 at 4:55 pm

While not precisely on point, reminds me of a monologue to music titled "FMI", the Portuguese abbreviation for IMF, by Portuguese poet Mario Branco. Salient lyrics (English translation) of IMF:

"It's 'Monetary Internationalism' The IMF doesn't exist The IMF is a mask."

"There can't exist a reason for so much suffering."

ChrisAtRU , July 25, 2018 at 5:37 pm

Thievery Corporation were far more brutal in their Fela-Kuti-inspired "Vampires"

Lyrics (abridged):

They'll gain the world but lose their souls
They'll gain the world but lose their souls

Don't believe politicians and thieves
They want our people on their bended knees
Pirates and robbers, liars and thieves
You come like the wolf but dressed like the sheep

If you go to Lagos what you find, vampires
If you go to Kinshasa what you find, vampires
If you go to Darfur what you find, vampires
If you go to Malabo what you find, vampires

Lies and theft
Guns and debt
Life and death
IMF

When the bank man comes to your door
Better know you'll always be poor
Bank loans and policies
They can't make our people free

You live on the blood of my people
Everyone knows you've come to steal
You come like the thieves in the night
The whole world is ready to fight

knowbuddhau , July 25, 2018 at 5:44 pm

This:

The clause that bankrupted us was put in as a result of tens of thousands of professors, labor leaders, [land] people being assassinated. The United States financed an assassination team throughout Latin America after Pinochet in Chile to have basically a proxy government, and the Argentine loan that said we will, we will follow U.S. rules, not Argentine rules, basically should disqualify that debt from having to be paid. And it should say the IMF debt is an odious debt. It was given under fraudulent purposes solely for purposes of capital flight. We will not pay.

And this:

The problem is that the creditors have always used violence in order to get their way.

Are why I so love Michael Hudson. There's the blood so studiously avoided in the desanguinated language of "economics." Its absence is the tell-tale of the kind of disembodiment described by Nancy Krieger (h/t Lambert ).

Embodiment, in other words, is literal. The
ecosocial premise is that clues to current and
changing population patterns of health, includ-
ing social disparities in health, are to be found
chiefly in the dynamic social, material, and
ecological contexts into which we are born,
develop, interact, and endeavour to live mean-
ingful lives. The contrast is to pervasive aetiolo-
gical hypotheses concerned mainly with
decontextualised and disembodied ''behaviours''
and ''exposures'' interacting with equally decon-
textualised and disembodied ''genes.'' The dis-
tinction is more than simply between
''determinants'' and ''mechanisms.'' Consider,
for example, contending -- and longstanding --
claims about racism compared with ''race'' as
causes of racial/ethnic disparities in health.

An embodied approach promotes testing hypoth-
eses to ascertain if the observed disparities are a
biological expression of racial discrimination,
past and present; by contrast, a disembodied
and decontextualised approach promulgates
research focused on detrimental genes and/or
''lifestyles.'' The vastly different implications
of these approaches for generating epidemiolo-
gical knowledge and informing policy underscore
the utility of clarifying the significance of
''embodiment'' for epidemiological inquiry.
[Footnotes omitted, emphasis added.]

Ah yes, but talking about our ideas about the problem, or talking about the talking about the problem, is so much better for catapulting the propaganda.

Also, if it looks, walks, and bankrupts Argentina over and over exactly like an Economic Hit Job aka mass murder and looting under the color of law by the Suits in broad g.d. daylight, then yes. Yes it is.

Scott1 , July 25, 2018 at 9:30 pm

In the '70s at the best universities Ecology Classes were instituted and the young well off students were told first, that the climate was being altered as a result of human activities.
Nixon was told by the CIA that overpopulation was the main treat to future US Security.

The Vatican quashed that way of looking at it. Gopsay policies are all the same as Vatican policies.
Loyalty to the nation of their birth for a rich person & their wealthy families was thrown out the window.
The jetsetter class now buys the best deal far as taxes and protections.

Their goal is to eliminate any harm to them or their families from "Forces beyond their control." If the leaders of the world are going to co-operate with them, those leaders will be paid. For the majority who are born to labor and become labor those things done by bankers and their leaders become for them "Forces beyond their control."

The rich know that overpopulation is already the fact at 7.5 billion. They will bond together on the tarmacs hanging around their jets for little talks as took place between Bill Clinton and Lauretta Lynch.
"All those people that don't like how we get rich, who are taking up space we want, well, let them starve. The science says there are too many of them anyway."
(Wasn't a discussion of how to engineer revolts wonderful to crush, but is used as illustrative of how jet setters get around to meetings that lead to this or that policy of the day.)

This is the essence of "Scientific Socialism". Current Trump Administration policies will cause the withdrawal of US lands devoted to agriculture. What was for Stalin destruction of the Kulaks and collectivization starvation of Armenians, or Peasants, or the Intellogemtsia, or all those ambivalent about who is in power and are therefore Counter-Revolutionaries, starving them all leaves only the ignorant, cowed, or lucky alive.

Creating the conditions for civil wars is a great thing for the banks and their loyal patrons, the war materiel`s industries. The people rebel and oligarchs at the top have them killed.

Trotsky made the point that the weapons in the arsenals are the peoples. Somehow soldiers and police in nation after nation don't see it that way. In the US the police are made soldiers in the drug war. Keeping the peace is not their primary job. No pot smoking peaceniks are to be hired so the ranks are securely filled by thugs and incompetents made special by law. They shoot Black people at the drop of a hat. They shoot the poor driven crazy pretty often as well.

Somebody wondered why in the US Blues & Reds or Democrats, the Leftists silo and don't talk civilly to each other. Trump supporters show and shoot guns or as in Charlottesville Virginia run as many people as possible over and are obviously willing to kill other Americans. In Weimar Germany the "Scientific Socialists" had their uniformed enforcers.

Dictators have their own organizations exultant at the opportunity to be rewarded for beating and killing the people who object to the destruction of civilization. Spectaculars in stadiums, like Trump's to come Military Parade become more common as if such is civilization when it is more indicative of a break down of civilization itself.

I have no means to remove myself and my wife from the roiling clouds of more murder in the streets. I'll be "collapsing in place" as described by Lambert Strether. These things and the ideologies behind them happening are not accidental of "Forces Beyond My Control".

Thanks

Chauncey Gardiner , July 25, 2018 at 10:18 pm

The true purposes of the IMF loan are questionable to me.

1.) Over the past few years, we have seen market rigging by large transnational banks in both the LIBOR and foreign exchange markets. This raises the question of whether there was covert market manipulation to rapidly drop the Argentine peso and coerce the Argentine government to borrow funds from the IMF to defend the peso in order to assure that nation was able to pay for necessary imports?

2.) Was this debt undertaken to facilitate capital flight for a small, wealthy segment of the Argentine population without the consent of or benefit to the people of Argentina, or for some other unstated reason?

If either of these is true, this debt can legitimately be considered as "odious debt" by the people of Argentina and potentially repudiated.

It also appears to me that there is a high probability that the austerity measures likely to be imposed under this $50 billion loan to Argentina by the IMF could violate the International Covenant on Economic, Social and Cultural Rights.

Not an attorney, nor knowledgeable about international law. Just my opinion as an ordinary citizen based on my reading of the post and Wikipedia.

[Aug 26, 2018] "Creating Wealth" through debt- the West's Finance-Capitalist road by Michael Hudson

Notable quotes:
"... This financial dynamic has hijacked industrial capitalism. It is leading economies to polarize and ultimately collapse under the weight of their debt burden. That is the inherent dynamic of finance capitalism. The debt overhead leads to a financial crisis that becomes an opportunity to impose emergency rule to replace democratic lawmaking. So contrary to Hayek's anti-government "free enterprise" warnings, "slippery slope" to totalitarianism is not by socialist reforms limiting the rentier class's extraction of economic rent and interest, but just the opposite: the failure of society to check the rentier extraction of income vesting a hereditary autocracy whose financial and rent-seeking business plan impoverishes the economy at large. ..."
May 05, 2018 | www.newcoldwar.org

Originally appeared in Counterpunch

Text of Michael Hudson's speech on debt and the world economy, presented at Peking University's School of Marxist Studies, May 5-6, 2018.


Volumes II and III of Marx's Capital describe how debt grows exponentially, burdening the economy with carrying charges. This overhead is subjecting today's Western finance-capitalist economies to austerity, shrinking living standards and capital investment while increasing their cost of living and doing business. That is the main reason why they are losing their export markets and becoming de-industrialized.

What policies are best suited for China to avoid this neo-rentier disease while raising living standards in a fair and efficient low-cost economy? The most pressing policy challenge is to keep down the cost of housing. Rising housing prices mean larger and larger debts extracting interest out of the economy. The strongest way to prevent this is to tax away the rise in land prices, collecting the rental value for the government instead of letting it be pledged to the banks as mortgage interest.

The same logic applies to public collection of natural resource and monopoly rents. Failure to tax them away will enable banks to create debt against these rents, building financial and other rentier charges into the pricing of basic needs.

U.S. and European business schools are part of the problem, not part of the solution. They teach the tactics of asset stripping and how to replace industrial engineering with financial engineering, as if financialization creates wealth faster than the debt burden. Having rapidly pulled ahead over the past three decades, China must remain free of rentier ideology that imagines wealth to be created by debt-leveraged inflation of real-estate and financial asset prices.

Western capitalism has not turned out the way that Marx expected. He was optimistic in forecasting that industrial capitalists would gain control of government to free economies from unnecessary costs of production in the form of rent and interest that increase the cost of living (and hence, the break-even wage level). Along with most other economists of his day, he expected rentier income and the ownership of land, natural resources and banking to be taken out of the hands of the hereditary aristocracies that had held them since Europe's feudal epoch. Socialism was seen as the logical extension of classical political economy, whose main policy was to abolish rent paid to landlords and interest paid to banks and bondholders.

A century ago there was an almost universal belief in mixed economies. Governments were expected to tax away land rent and natural resource rent, regulate monopolies to bring prices in line with actual cost value, and create basic infrastructure with money created by their own treasury or central bank. Socializing land rent was the core of Physiocracy and the economics of Adam Smith, whose logic was refined by Alfred Marshall, Simon Patten and other bourgeois economists of the late 19th century. That was the path that European and American capitalism seemed to be following in the decades leading up to World War I. That logic sought to use the government to support industry instead of the landlord and financial classes.

China is progressing along this "mixed economy" road to socialism, but Western economies are suffering from a resurgence of the pre-capitalist rentier classes. Their slogan of "small government" means a shift in planning to finance, real estate and monopolies. This economic philosophy is reversing the logic of industrial capitalism, replacing public investment and subsidy with privatization and rent extraction. The Western economies' tax shift favoring finance and real estate is a case in point. It reverses John Stuart Mill's "Ricardian socialism" based on public collection of the land's rental value and the "unearned increment" of rising land prices.

Defining economic rent as the unnecessary margin of prices over intrinsic cost value, classical economists through Marx described rentiers as being economically parasitic, not productive. Rentiers do not "earn" their land rent, interest or monopoly rent, because it has no basis in real cost-value (ultimately reducible to labor costs). The political, fiscal and regulatory reforms that followed from this value and rent theory were an important factor leading to Marx's value theory and historical materialism. The political thrust of this theory explains why it is no longer being taught.

By the late 19th century the rentiers fought back, sponsoring reaction against the socialist implications of classical value and rent theory. In America, John Bates Clark denied that economic rent was unearned. He redefined it as payment for the landlords' labor and enterprise, not as accruing "in their sleep," as J. S. Mill had characterized it. Interest was depicted as payment for the "service" of lending productively, not as exploitation. Everyone's income and wealth was held to represent payment for their contribution to production. The thrust of this approach was epitomized by Milton Friedman's Chicago School claim that "there is no such thing as a free lunch" – in contrast to classical economics saying that feudalism's legacy of privatized land ownership, bank credit and monopolies was all about how to get a free lunch, by exploitation.

The other major reaction against classical and Marxist theory was English and Austrian "utility" theory. Focusing on consumer psychology instead of production costs, it claimed that there is no difference between value and price. A price is whatever consumers "choose" to pay for commodities, based on the "utility" that these provide – defined by circular reasoning as being equal to the price they pay. Producers are assumed to invest and produce goods to "satisfy consumer demand," as if consumers are the driving force of economies, not capitalists, property owners or financial managers.

Using junk-psychology, interest was portrayed as what bankers or bondholders "abstain" from consuming, lending their self-denial of spending to "impatient" consumers and "credit-worthy" entrepreneurs. This view opposed the idea of interest as a predatory charge levied by hereditary wealth and the privatized monopoly right to create bank credit. Marx quipped that in this view, the Rothschilds must be Europe's most self-depriving and abstaining family, not as suffering from wealth-addiction.

These theories that all income is earned and that consumers (the bourgeois term for wage-earners) instead of capitalists determine economic policy were a reaction against the classical value and rent theory that paved the way for Marx's analysis. After analyzing industrial business cycles in terms of under-consumption or over-production in Volume I of Capital, Volume III dealt with the precapitalist financial problem inherited from feudalism and the earlier "ancient" mode of production: the tendency of an economy's debts to grow by the "purely mathematical law" of compound interest.

Any rate of interest may be thought of as a doubling time. What doubles is not real growth, but the parasitic financial burden on this growth. The more the debt burden grows, the less income is left for spending on goods and services. More than any of his contemporaries, Marx emphasized the tendency for debt to grow exponentially, at compound interest, extracting more and more income from the economy at large as debts double and redouble, beyond the ability of debtors to pay. This slows investment in new means of production, because it shrinks domestic markets for output.

Marx explained that the credit system is external to the means of production. It existed in ancient times, feudal Europe, and has survived industrial capitalism to exist even in socialist economies. At issue in all these economic systems is how to prevent the growth of debt and its interest charge from shrinking economies. Marx believed that the natural thrust of industrial capitalism was to replace private banking and money creation with public money and credit. He distinguished interest-bearing debt under industrial capitalism as, for the first time, a means of financing capital investment. It thus was potentially productive by funding capital to produce a profit that was sufficient to pay off the debt.

Industrial banking was expected to finance industrial capital formation, as was occurring in Germany in Marx's day. Marx's examples of industrial balance sheets accordingly assumed debt. In contrast to Ricardo's analysis of capitalism's Armageddon resulting from rising land-rent, Marx expected capitalism to free itself from political dominance by the landlord class, as well as from the precapitalist legacy of usury.

This kind of classical free market viewed capitalism's historical role as being to free the economy from the overhead of unproductive "usury" debt, along with the problem of absentee landownership and private ownership of monopolies – what Lenin called the economy's "commanding heights" in the form of basic infrastructure. Governments would make industries competitive by providing basic needs freely or at least at much lower public prices than privatized economies could match.

This reform program of industrial capitalism was beginning to occur in Germany and the United States, but Marx recognized that such evolution would not be smooth and automatic. Managing economies in the interest of the wage earners who formed the majority of the population would require revolution where reactionary interests fought to prevent society from going beyond the "bourgeois socialism" that stopped short of nationalizing the land, monopolies and banking.

World War I untracked even this path of "bourgeois socialism." Rentier forces fought to prevent reform, and banks focused on lending against collateral already in place, not on financing new means of production. The result of this return to pre-industrial bank credit is that some 80 percent of bank lending in the United States and Britain now takes the form of real estate mortgages. The effect is to turn the land's rental yield into interest.

That rent-into-interest transformation gives bankers a strong motive to oppose taxing land rent, knowing that they will end up with whatever the tax collector relinquishes. Most of the remaining bank lending is concentrated in loans for corporate takeovers, mergers and acquisitions, and consumer loans. Corporate capital investment in today's West is not financed by bank credit, but almost entirely out of retained corporate earnings, and secondarily out of stock issues.

The stock market itself has become extractive. Corporate earnings are used for stock buybacks and higher dividend payouts, not for new tangible investment. This financial strategy was made explicit by Harvard Business School Professor Michael Jensen, who advocated that salaries and bonuses for corporate managers should be based on how much they can increase the price of their companies' stock, not on how much they increased or production and/or business size. Some 92 percent of corporate profits in recent years have been spent on stock buyback programs and dividend payouts. That leaves only about 8 percent available to be re-invested in new means of production and hiring. Corporate America's financial managers are turning financialized companies into debt-ridden corporate shells.

A major advantage of a government as chief banker and credit creator is that when debts come to outstrip the means to pay, the government can write down the debt. That is how China's banks have operated. It is a prerequisite for saving companies from bankruptcy and preventing their ownership from being transferred to foreigners, raiders or vultures.

Classical tax and banking policies were expected to streamline industrial economies, lowering their cost structures as governments replaced landlords as owner of the land and natural resources (as in China today) and creating their own money and credit. But despite Marx's understanding that this would have been the most logical way for industrial capitalism to evolve, finance capitalism has failed to fund capital formation. Finance capitalism has hijacked industrial capitalism, and neoliberalism is its anti-classical ideology.

The result of today's alliance of the Finance, Insurance and Real Estate (FIRE) sector with natural resource and infrastructure monopolies has been to reverse that the 20th century's reforms promoting progressive taxation of wealth and income. Industrial capitalism in the West has been detoured along the road to rent-extracting privatization, austerity and debt serfdom.

The result is a double-crisis: austerity stemming from debt deflation, while public health, communications, information technology, transportation and other basic infrastructure are privatized by corporate monopolies that raise prices charged to labor and industry. The debt crisis spans government debt (state and local as well as national), corporate debt, real estate mortgage debt and personal debt, causing austerity that shrinks the "real" economy as its assets and income are stripped away to service the exponentially growing debt overhead. The economy polarizes as income and wealth ownership are shifted to the neo-rentier alliance headed by the financial sector.

This veritable counter-revolution has inverted the classical concept of free markets. Instead of advocating a public role to lower the cost structure of business and labor, the neoliberal ideal excludes public infrastructure and government ownership of natural monopolies, not to speak of industrial production. Led by bank lobbyists, neoliberalism even opposes public regulation of finance and monopolies to keep their prices in line with socially necessary cost of production.

To defend this economic counter-revolution, the National Income and Product Accounts (NIPA) and Gross Domestic Product (GDP) measures now used throughout the world were inspired by opposition to progressive taxation and public ownership of land and banks. These statistical measures depicting finance, insurance and real estate as the leaders of wealth creation, not the creators merely of debt and rentier overhead.

What is China's "Real" GDP and "real wealth creation"?

Rejection of classical value theory's focus on economic rent – the excess of market price over intrinsic labor cost – underlies the post-classical concept of GDP. Classical rent theory warned against the FIRE sector siphoning off nominal growth in wealth and income. The economics of Adam Smith, David Ricardo, J.S. Mill and Marx share in common the view that this rentier revenue should be treated as an overhead charge and, as such, subtracted from national income and product because it is not production-related. Being extraneous to the production process, this rentier overhead is responsible for today's debt deflation and economically extractive privatization that is imposing austerity and shrinking markets from North America to Europe.

The West's debt crisis is aggravated by privatizing monopolies (on credit) that historically have belonged to the public sector. Instead of recognizing the virtues of a mixed economy, Frederick Hayek and his followers from Ayn Rand to Margaret Thatcher, Ronald Reagan, the Chicago School and libertarian Republicans have claimed that any public ownership or regulation is, ipso facto, a step toward totalitarian politics.

Following this ideology, Alan Greenspan aborted economic regulation and decriminalized financial fraud. He believed that in principle, the massive bank fraud, junk-mortgage lending and corporate raiding that led up to the 2008 crisis was more efficient than regulating such activities or prosecuting fraudsters.

This is the neoliberal ideology taught in U.S. and European business schools. It assumes that whatever increases financial wealth most quickly is the most efficient for society as a whole. It also assumes that bankers will find honest dealing to be more in their economic self-interest than fraud, because customers would shun fraudulent bankers. But along with the mathematics of compound interest, the inherent dynamic of finance capitalism is to establish a monopoly and capture government regulatory agencies, the justice system, central bank and Treasury to prevent any alternative policy and the prosecution of fraud.

The aim is to get rich by purely financial means – by increasing stock-market prices, not by tangible capital formation. That is the opposite of the industrial logic of expanding the economy and its markets. Instead of creating a more productive economy and raising living standards, finance capitalism is imposing austerity by diverting wage income and also corporate income to pay rising debt service, health insurance and payments to privatized monopolies. Progressive income and wealth taxation has been reversed, siphoning off wages to subsidize privatization by the rentier class.

This combination of debt overgrowth and regressive fiscal policy has produced two results. First, combining debt deflation with fiscal deflation leaves only about a third of wage income available to be spent on the products of labor. Paying interest, rents and taxes – and monopoly prices – shrinks the domestic market for goods and services.

Second, adding debt service, monopoly prices and a tax shift to the cost of living and doing business renders neo-rentier economies high-cost. That is why the U.S. economy has been deindustrialized and its Midwest turned into a Rust Belt.

How Marx's economic schema explains the West's neo-rentier problem

In Volume I of Capital, Marx described the dynamics and "law of motion" of industrial capitalism and its periodic crises. The basic internal contradiction that capitalism has to solve is the inability of wage earners to be paid enough to buy the commodities they produce. This has been called overproduction or underconsumption, but Marx believed that the problem was in principle only temporary, not permanent.

Volumes II and III of Marx's Capital described a pre-capitalist form of crisis, independent of the industrial economy: Debt grows exponentially, burdening the economy and finally bringing its expansion to an end with a financial crash. That descent into bankruptcy, foreclosure and the transfer of property from debtors to creditors is the dynamic of Western finance capitalism. Subjecting economies to austerity, economic shrinkage, emigration, shorter life spans and hence depopulation, it is at the root of the 2008 debt legacy and the fate of the Baltic states, Ireland, Greece and the rest of southern Europe, as it was earlier the financial dynamic of Third World countries in the 1960s through 1990s under IMF austerity programs. When public policy is turned over to creditors, they use their power for is asset stripping, insisting that all debts must be paid without regard for how this destroys the economy at large.

China has managed to avoid this dynamic. But to the extent that it sends its students to study in U.S. and European business schools, they are taught the tactics of asset stripping instead of capital formation – how to be extractive, not productive. They are taught that privatization is more desirable than public ownership, and that financialization creates wealth faster than it creates a debt burden. The product of such education therefore is not knowledge but ignorance and a distortion of good policy analysis. Baltic austerity is applauded as the "Baltic Miracle," not as demographic collapse and economic shrinkage.

The experience of post-Soviet economies when neoliberals were given a free hand after 1991 provides an object lesson. Much the same fate has befallen Greece, along with the rising indebtedness of other economies to foreign bondholders and to their own rentier class operating out of capital-flight centers. Economies are obliged to suspend democratic government policy in favor of emergency creditor control.

The slow economic crash and debt deflation of these economies is depicted as a result of "market choice." It turns out to be a "choice" for economic stagnation. All this is rationalized by the economic theory taught in Western economics departments and business schools. Such education is an indoctrination in stupidity – the kind of tunnel vision that Thorstein Veblen called the "trained incapacity" to understand how economies really work.

Most private fortunes in the West have stemmed from housing and other real estate financed by debt. Until the 2008 crisis the magnitude of this property wealth was expanded largely by asset-price inflation, aggravated by the reluctance of governments to do what Adams Smith, John Stuart Mill, Alfred Marshall and nearly all 19th-century classical economists recommended: to keep land rent out of private hands, and to make the rise in land's rental value serve as the tax base.

Failure to tax the land leaves its rental value "free" to be pledged as interest to banks – which make larger and larger loans by lending against rising debt ratios. This "easy credit" raises the price of obtaining home ownership. Sellers celebrate the result as "wealth creation," and the mainstream media depict the middle class as growing richer by higher prices for the homes its members have bought. But the debt-financed rise in housing prices ultimately creates wealth mainly for banks and their bondholders.

Americans now have to pay up to 43 percent of their income for mortgage debt service, federally guaranteed. This imposes such high costs for home ownership that it is pricing the products of U.S. labor out of world markets. The pretense is that using bank credit (that is, homebuyers' mortgage debt) to inflate the price of housing makes U.S. workers and the middle class prosperous by enabling them to sell their homes to a new generation of buyers at higher and higher prices each generation. This certainly does not make the buyers more prosperous. It diverts their income away from buying the products of labor to pay interest to banks for housing prices inflated on bank credit.

Consumer spending throughout most of the world aims above all at achieving status. In the West this status rests largely on one's home and neighborhood, its schools, transportation and other public investment. Land-price gains resulting from public investment in transportation, parks and schools, other urban amenities and infrastructure, and from re-zoning land use. In the West this rising rental value is turned into a cost, falling on homebuyers, who must borrow more from the banks. The result is that public spending ultimately enriches the banks – at the tax collector's expense.

Debt is the great threat to modern China's development. Burdening economies with a rentier overhead imposes the quasi-feudal charges from which classical 19th-century economists hoped to free industrial capitalism. The best protection against this rentier burden is simple: first, tax away the land's rising rental valuation to prevent it from being paid out for bank loans; and second, keep control of banks in public hands. Credit is necessary, but should be directed productively and debts written down when paying them threatens to create financial Armageddon.

Marx's views on the broad dynamics of economic history

Plato and Aristotle described a grand pattern of history. In their minds, this pattern was eternally recurrent. Looking over three centuries of Greek experience, Aristotle found a perpetual triangular sequence of democracy turning into oligarchy, whose members made themselves into a hereditary aristocracy – and then some families sought to take the demos into their own camp by sponsoring democracy, which in turn led to wealthy families replacing it with an oligarchy, and so on.

The medieval Islamic philosopher Ibn Khaldun saw history as a rise and fall. Societies rose to prosperity and power when leaders mobilized the ethic of mutual aid to gain broad support as a communal spirit raised all members. But prosperity tended to breed selfishness, especially in ruling dynasties, which Ibn Khaldun thought had a life cycle of only about 120 years. By the 19th century, Scottish Enlightenment philosophers elaborated this rise-and-fall theory, applying it to regimes whose success bred arrogance and oligarchy.

Marx saw the long sweep of history as following a steady upward secular trend, from the ancient slavery-and-usury mode of production through feudalism to industrial capitalism. And not only Marx but nearly all 19th-century classical economists assumed that socialism in one form or another would be the stage following industrial capitalism in this upward technological and economic trajectory.

Instead, Western industrial capitalism turned into finance capitalism. In Aristotelian terms the shift was from proto-democracy to oligarchy. Instead of freeing industrial capitalism from landlords, natural resource owners and monopolists, Western banks and bondholders joined forces with them, seeing them as major customers for as much interest-bearing credit as would absorb the economic rent that governments would refrain from taxing. Their success has enabled banks and bondholders to replace landlords as the major rentier class. Antithetical to socialism, this retrogression towards feudal rentier privilege let real estate, financial interests and monopolists exploit the economy by creating an expanding debt wedge.

Marx's Theories of Surplus Value (German Mehrwert), his history of classical political economy, poked fun at David Ricardo's warning of economic Armageddon if economies let landlords siphon off of all industrial profits to pay land rent. Profits and hence capital investment would grind to a halt. But as matters have turned out, Ricardo's rentier Armageddon is being created by his own banking class. Corporate profits are being devoured by interest payments for corporate takeover debts and related financial charges to reward bondholders and raiders, and by financial engineering using stock buybacks and higher dividend payouts to create "capital" gains at the expense of tangible capital formation. Profits also are reduced by firms having to pay higher wages to cover the cost of debt-financed housing, education and other basic expenses for workers.

This financial dynamic has hijacked industrial capitalism. It is leading economies to polarize and ultimately collapse under the weight of their debt burden. That is the inherent dynamic of finance capitalism. The debt overhead leads to a financial crisis that becomes an opportunity to impose emergency rule to replace democratic lawmaking. So contrary to Hayek's anti-government "free enterprise" warnings, "slippery slope" to totalitarianism is not by socialist reforms limiting the rentier class's extraction of economic rent and interest, but just the opposite: the failure of society to check the rentier extraction of income vesting a hereditary autocracy whose financial and rent-seeking business plan impoverishes the economy at large.

Greece's debt crisis has all but abolished its democracy as foreign creditors have taken control, superseding the authority of elected officials. From New York City's bankruptcy to Puerto Rico's insolvency and Third World debtors subjected to IMF "austerity programs," national bankruptcies shift control to centralized financial planners in what Naomi Klein has called Crisis Capitalism. Planning ends up centralized not in the hands of elected government but in financial centers, which become the de facto government.

England and America set their economic path on this road under Margaret Thatcher and Ronald Reagan by 1980. They were followed by even more pro-financial privatization leaders in Tony Blair's New Labour Party and Bill Clinton's New Democrats seeking to roll back a century of classical reforms and policies that gradually were moving capitalism toward socialism. Instead, these countries are suffering a rollback to neofeudalism, whose neo-rentiereconomic and political ideology has become mainstream throughout the West. Despite seeing that this policy has led to North America and Europe losing their former economic lead, the financial power elite is simply taking its money and running.

So we are brought back to the question of what this means for China's educational policy and also how it depicts economic statistics to distinguish between wealth and overhead. The great advantage of such a distinction is to help steer economic growth along productive lines favoring tangible capital formation instead of policies to get rich by taking on more and more debt and by prying property away from the public domain.

If China's main social objective is to increase real output to raise living standards for its population – while minimizing unproductive overhead and economic inequality – then it is time to consider developing its own accounting format to trace its progress (or shortcomings) along these lines. Measuring how its income and wealth are being obtained would track how the economy is moving closer toward what Marx called socialism.

Of special importance, such an accounting format would revive Marx's classical distinction between earned and unearned income. Its statistics would show how much of the rise in wealth (and expenditure) in China – or any other nation – is a result of new tangible capital formation as compared to higher rents, lending and interest, or the stock market.

These statistics would isolate income and fortunes obtained by zero-sum transfer payments such as the rising rental value of land sites, natural resources and basic infrastructure monopolies. National accounts also would trace overhead charges for interest and related financial charges, as well as the economy's evolving credit and debt structure. That would enable China to measure the economic effects of the banking privileges and other property rights given to some people.

That is not the aim of Western national income statistics. In fact, applying the accounting structure described above would track how Western economies are polarizing as a result of their higher economic rent and interest payments crowding out spending on actual goods and services. This kind of contrast would help explain global trends in pricing and competitiveness. Distinguishing the FIRE sector from the rest of the economy would enable China to compare its economic cost trends and overhead relative to those of other nations. I believe that these statistics would show that its progress toward socialism also will explain the remarkable economic advantage it has obtained. If China does indeed make this change, it will help people both in and out of China see even more clearly what your government is doing on behalf of the majority of its people. This may help other governments – including my own – learn from your example and praise it instead of fearing it.

[Aug 19, 2018] New Interests Join The Clash About North-East Syria

Notable quotes:
"... Turkey fell into the same deep state bankers financial trap, that Spain Greece Italy fell for. Bail out a vunrable country then pull the rug out ! You own them ! So I would slightly disagree with it being entirely of there own making. I blame the Rothchild family. ..."
Aug 19, 2018 | www.moonofalabama.org

... ... ...

At the beginning of the year one U.S. dollar cost 3.5 lira. At the beginning of August it cost 4.80 lira. It then went up to 7.00 lira/$ and at Friday's closing it was down again at 6.00 TL/$. But Monday morning lira will again lose more of its value:

Turkey's credit rating was cut further into junk Friday by S&P Global Ratings and Moody's Investors Service, which said the volatile lira and wide current-account deficit may undermine the Middle East's largest economy.

S&P reduced Turkey's foreign-currency rating to four notches below investment grade at B+ from BB-, on par with Argentina, Greece and Fiji. Moody's lowered its grade to Ba3 from Ba2, three notches below investment grade. The ratings companies said the weak currency, runaway inflation and current-account deficit are Turkey's key vulnerabilities .

Turkey's crisis is homemade . The current spat with the United States only exaggerates it. For years Turkey borrowed large amounts of money from abroad and invested it into local infrastructure instead of producing exportable products. Its current account deficit this year will again be some $50 to $60 billion. International banks and other foreign lenders now demand interests rates above 20% from Turkish lenders because the chance of losing the lent money is high.

After the 17% crash on August 13 down to 7 TL/$ the Turkish Central Bank used some one-time measures to support the currency without raising its interest rate. The Turkish president Erdogan is ideologically adverse to interests and keeps the bank from doing what it must do to cool the Turkish economy and to stabilize the currency.

Erdogan asked Russia for help but received nothing but good advice. He also called in favors. When in June 2017 Saudi Arabia's clown prince Mohammed bin Salman (MbS) tried to take over Qatar and to steal its juicy $350 billion sovereign wealth fund, the emir of Qatar called on Turkey for help. Erdogan sent the Turkish army and air force. His troops protected Qatar from a Saudi invasion.

With the lira in trouble the emir flew to Ankara and promised a new $15 billion investment into Turkey. Additionally some mysterious cargo was unloaded from his plane. That saved the lira for a few days. But Turkey's structural problems are unsolved. Erdogan is no longer trusted and his son in law, who he made finance minister, lacks the necessary qualification for the job. Thus :

"We forecast a recession next year," S&P said. "Inflation will peak at 22 percent over the next four months, before subsiding to below 20 percent by mid-2019."

The Qatari move came a few days before its arch enemy Saudi Arabia also moved into the area. On Friday the U.S. announced that Saudi Arabia would support the U.S. occupied north-east Syria with 100 million dollar . The Wahhabi Saudis are now financing the secular Kurdish terror organization PKK/YPG, the local U.S. proxy in north-east Syria.

If the Saudi clown prince MbS wants to take revenge on Turkey's Erdogan for messing up his plans for Qatar, he now has his chance.

Posted by b on August 18, 2018 at 03:56 PM | Permalink


Mark2 , Aug 18, 2018 5:12:42 PM | 4

One refinement to add to 'b's outstanding post (how the hell does he do it, miraculous !) as far as I can see Turkey fell into the same deep state bankers financial trap, that Spain Greece Italy fell for. Bail out a vunrable country then pull the rug out ! You own them ! So I would slightly disagree with it being entirely of there own making. I blame the Rothchild family.
Fastfreddy , Aug 18, 2018 5:32:52 PM | 5
Moody's and S&P ratings agencies are fraudulent institutions. For having AAA rated billions worth of junk mortgages, they should have been indicted and prosecuted.
Lochearn , Aug 18, 2018 5:44:06 PM | 6
Excellent analysis again, b. You surpass yourself. There is something you talk about that has always intrigued me

"For years Turkey borrowed large amounts of money from abroad and invested it into local infrastructure instead of producing exportable products."

There is a parallel here with Spain. From entry into the Euro in 1999 the floodgates of credit opened. Bankers, politicians and builders were involved in creating vast swathes of speculative urbanization; two airports were built which now stand empty, a formula 1 track hosted five races before closing, a phantom theme park; huge, almost empty accommodation complexes, and the list goes on. The ghost airport in Ciudad Real, which cost £1.2 million euros, was sold off to Chinese buyers for a mere 10,000 euros. The "Cajas", the regional banks, were all bailed out by the government.

Apart from local corruption, which is nothing new, I think there must have been a deliberate strategy on the part of EU elites not to finance industrial projects that would generate export currency, and hence compete with EU industrial powers such as Germany (I once read Spanish academic paper arguing this but have not managed to track it down). When the same happens in Turkey, obviously not an EU country, you have to wonder whether is it part of a transatlantic banker strategy: corrupt national elites finance corrupt local elites to build ghost infrastructures as cheap and shoddy as you can get, the banks that financed it get bailed out if it all crashes. What's not to like?

telescope , Aug 18, 2018 5:50:52 PM | 7
Turks can't avoid Greek-style crisis now. The solution calls for a violent swing in trade balance from huge deficit to sizable surplus, somewhere in a range of $100B. That can't happen unless people of Turkey are warehoused in slave-labor-condition factories that can be competitive enough to displace Asian players. That entails bone-crushing fall in living standards.
All in all, 20 percent decline in GDP is now all but certainty. The longer Erdogan tries to avoid the harsh medicine, the deeper this cancer goes. He should either bow to IMF, or to exit NATO, join BRICS and ask for loans from that grouping.
Of course, Turkish military can say bye-bye to its present size. It's unsustainable. Financial crunch will reduce Turkish armed forces to less than half of their present size.
And if Erdogan wants to keep his soldiers well-equipped for half the price - which he should - he'll have to switch to much more reasonably priced Russian weaponry. Once he does that, even Russia may contribute $10B to his bailout kitty.
Otherwise, Erdogan is a dead man. The economic hurricane barreling his way is only gathering strength with every passing day. And all he is doing is unfurling umbrellas and increasing the volume of music.
Mark2 , Aug 18, 2018 6:29:19 PM | 12
That list of infrastructure @ Lochern mentions looks geared toward the holiday industry which in the past has been a major income for Turkey ! Worth at the time perhaps investing in. Very popular with Eurapians but very popular with Russians. My wild guess would be---- some dodgey ploy by the west to drive a wedge between Russia and Turky, devideding and ruling both! By meens of conflict and bank debt .The gains would be numerous long term and short term. But as already mentioned may back fire and bring Russia and Turkey closer. I hope so.
Pft , Aug 18, 2018 6:30:54 PM | 13
Much of Turkeys external debt is private and not government . Their BIS controlled central bank kept interest rates high. This forced Turkish banks to take out loans in USD or Euro which had lower interest rates to meet loan demands in the private corporate sector , which they made at higher interest rates after exchanging for Lira. More profitable. The assumption was there would be a relatively stable exchange rate. So there was risk.

That risk made them vulnerable fx attack by the globalist banking cartel. When Erdogan took over more control from the TCB last month to reduce interest rates and reduce demand for foreign loans this was seen as an act of war. The independence of the central bank must be defended. Trumps additional tarrif increases, mild as they were were simply a symbolic barking of orders to take Turkey down

Looking at the broader picture. Since the 2008 financial blowout there has been "carry trade" fueled by zero-cost liquidity pumped into the global system by quantitative easing, which was then shipped to high-interest emerging markets such as Brazil, Turkey and other countries.

With the beginning of the Fed's "tapering" of QE and rising interest rates since 2015, the whole financial system has triggered a "reverse carry trade" where dollars flow out of emerging markets back to safer havens. This is what you are seeing in Turkey, Argentina, Russia, Brazil, etc.

The last 10 years are a replay of the decade running up to the 1997/1998 crisis. While the 1985 'Plaza Accord' dollar devaluation was not exactly QE, it had the same intent and results – a flood of cheap money and dollar debt, and therefore growing global dependence on the dollar and vulnerability to US monetary and economic policy

Some say countries like Turkey should know better, but countries have little control over their monetary policy under the global and independent central banking system forced on them. Go against this system and you will be hit with sanctions , subject to regime change or will be invaded

So call it a homegrown crisis if thats the reality you choose to live in. Who am I to say otherwise?

CDWaller , Aug 18, 2018 6:52:06 PM | 15
These rating agencies are the same ones that rated junk mortgage bonds AA. They are for sale to highest bidder or since they haven't been prosecuted for their criminal behavior, vulnerable to threats from the same political machine that turned a blind eye in 2008.
Turkey may have homegrown economic problems as you have pointed out but they certainly have even more problems with a vindictive and extremely corrupt Uncle Sam who ruthlessly punish any and all independent actions.
dh-mtl , Aug 18, 2018 7:26:48 PM | 17
Another excellent blog B. I agree with many of the above commenters that the breadth and depth of the analysis on MOA is truly amazing.

Pft@13. Good analysis as well.

However, I would expect that Turkey will not be another Greece. Rather I expect Turkey to get help from its friends to stabilize its economic position, resist U.S. sanctions and avoid an IMF bail-out.

With the support of Qatar, and I would expect China as well, I would expect Turkey to protect its banks. However, it is also possible that they will let some private Turkish companies, with dollar denominated debts, default. Such defaults, combined with the pressure that declining dollar liquidity is already putting on other emerging markets and Italy, would be destabilizing for the Western financial system. Sooner or later, and I suspect sooner, the FED will be required to start printing money again, which will reverse the dollar's recent strength and relieve the pressure on Turkey.

At the end of the day, however, I expect that this episode will be another step in the direction of de-dollarization and will further reduce the ability of the U.S. to use economic sanctions to bully its adversaries.

Mark2 , Aug 18, 2018 8:03:33 PM | 18
A strange paradox of life !
Owe your bank 1000 the bank manager will make you bankrupt, owe the bank a million and he'll invite you home for dinner ! More to lose !
By this token I'd like to think, the more country's that refuse there debt, the less power the west will have ! The less credibility and the less fear and influence they can inflict .
If the west wants to weaponise banking so be it ! Bring it on. Let's pull the rug out from under the banks/Rothchilds.
Feet ! Natural justice !
ben , Aug 18, 2018 8:19:12 PM | 19
Pft @ 13 said:"Some say countries like Turkey should know better, but countries have little control over their monetary policy under the global and independent central banking system forced on them. Go against this system and you will be hit with sanctions , subject to regime change or will be invaded."

CDWaller @ 15 said:"These rating agencies are the same ones that rated junk mortgage bonds AA. They are for sale to highest bidder or since they haven't been prosecuted for their criminal behavior, vulnerable to threats from the same political machine that turned a blind eye in 2008."


The usual suspects described perfectly.

[Aug 15, 2018] Talking Turkey: In essence this is an emerging market financial crisis, much like the 1997-98 Asian Financial Crisis

Notable quotes:
"... So why should you care? Why does that matter to you or me? Well, like most emerging market financial crisis there is the danger of contagion . ..."
"... Turkey's economy is four times the size of Greece, and roughly equal in size to Lehman Brothers circa 2008. ..."
"... Turkey's other borders face six nations: Georgia, Iran, Iraq, Syria, Armenia, and Nakhchivan, a territory affiliated with Azerbaijan. Five of those are involved in ongoing armed conflicts or outright war. ..."
"... NATO has long outlived its' usefulness. Cancel its' stipend and bring our soldiers, marines, sailors and airmen and women home! Put them to work here. Fighting fires. ..."
"... NATO only seems to be useful to the hegemony that supports it. Peace is not it's mission. ..."
Aug 15, 2018 | caucus99percent.com

gjohnsit on Tue, 08/14/2018 - 3:46pm

By now you've probably heard that Turkey is having a financial crisis, and Trump appears to be pouring gasoline on it.
But you may not understand what is happening, or you may not know why it's important.
So let's do a quick recap .

Turkey's currency fell to a new record low today. Year to date it's lost almost half its value, leading some investors and lenders inside and outside of Turkey to lose confidence in the Turkish economy.
...
"Ninety percent of external public and private sector debt is denominated in foreign currencies," he said.

Here's the problem. Because of the country's falling currency, that debt just got a lot more expensive.
A Turkish business now effectively owes twice as much as it did at the beginning of the year. "You are indebted in the U.S. dollar or euro, but your revenue is in your local currency," explained Lale Akoner, a market strategist with Bank of New York Mellon's Asset Management business. She said Turkey's private sector currently owes around $240 billion in foreign debt.

In essence this is an emerging market financial crisis, much like the 1997-98 Asian Financial Crisis.

This is all about hot money that has been washing around in a world of artificially low interest rates, and now, finally, an external shock happened. As it always happens .

The bid-ask spread, or the difference between the price dealers are willing to buy and sell the lira at, has widened beyond the gap seen at the depth of the global financial crisis in 2008, following Lehman Brothers Holdings Inc.'s collapse.

So why should you care? Why does that matter to you or me? Well, like most emerging market financial crisis there is the danger of contagion .

The turmoil follows a similar currency crash in Argentina that led to a rescue by the International Monetary Fund. In recent days, the Russian ruble, Indian rupee and South African rand have also tumbled dramatically.

Investors are waiting for the next domino to fall. They're on the lookout for signs of a repeat of the 1997-1998 Asian financial crisis that began when the Thai baht imploded.

A minor currency devaluation of the Thai baht in 1997 eventually led to 20% of the world's population being thrust into poverty. It led to Russia defaulting in 1998, LTCM requiring a Federal Reserve bailout, and eventually Argentina defaulting in 2001.

Turkey's economy is four times the size of Greece, and roughly equal in size to Lehman Brothers circa 2008.

The markets want Turkey to run to the IMF for a loan, but that would require a huge interest rate hike and austerity measures that would thrust Turkey into a long depression. However, that isn't the biggest obstacle .

The second is that Erdogan would have to bury his hatchet with the United States, which remains the IMF's largest shareholder. Without U.S. support, Turkey has no chance of securing an IMF bailout program.

There is another danger, a political one and not so much an economic one, that could have dramatic implications.
If Erdogan isn't overthrown, or humbled, then there is an ironclad certainty that Turkey will leave NATO and the West.

Turkey, unlike Argentina, does not seem poised to turn to the International Monetary Fund in order to stave off financial collapse, nor to mend relations with Washington.

If anything, the Turkish President looks to be doubling down in challenging the US and the global financial markets -- two formidable opponents.
...
Turkey would probably no longer view the US as a reliable partner and strategic ally. Whoever ends up leading the country, a wounded Turkey would most likely seek to shift the center of gravity away from the West and toward Russia, Iran and Eurasia.

It would make Turkey less in tune with US and European objectives in the Middle East, meaning Turkey would seek to assert a more independent security and defense policy.

Erdogan has warned Trump that Turkey would "seek new friends" , although Russia and China haven't yet stepped up to the plate to bat for him.
Russia, Iran and China do have a common interest when in comes to undermining the petrodollar . Pulling Turkey into their sphere of influence would be a coup.

Turkey lies at a historic, strategic crossroad. The bridge between the peaceful West and the war-ridden dictatorships of the East that the West likes to bomb.

On its Western flank, Turkey borders Greece and Bulgaria, Western-facing members of the European Union. A few years ago, Turkey -- a member of NATO -- was preparing the join Europe as a full member.

Turkey's other borders face six nations: Georgia, Iran, Iraq, Syria, Armenia, and Nakhchivan, a territory affiliated with Azerbaijan. Five of those are involved in ongoing armed conflicts or outright war.

Losing Turkey would be a huge setback for NATO, the MIC, and the permanent war machine.

QMS on Tue, 08/14/2018 - 4:59pm

IMF = Poison

more struggling economies are starting to get it. Trade wealth for the rulers (IMF supporters) to be paid by the rest of us. Fight back. Squeeze the bankers balls. Can't have our resources, now way, no how, without a fight.

enhydra lutris on Tue, 08/14/2018 - 6:26pm
Can the BRICS get by without Brazil, perhaps by pulling

in a flailing Turkey? Weren't there some outside potential takers encouraging China when it floated its currency proposal?

Nastarana on Tue, 08/14/2018 - 8:41pm
NATO has long outlived its' usefulness. Cancel its' stipend and bring our soldiers, marines, sailors and airmen and women home! Put them to work here. Fighting fires.

Patrolling our shores for drug running and toxic dumping. Teaching school, 10 kids per class maximum. Refurbishing buildings and housing stock. Post Cold War, an military alliance with Turkey makes no sense.

QMS on Tue, 08/14/2018 - 9:22pm
NATO only seems to be useful to the hegemony that supports it. Peace is not it's mission.

[Jul 23, 2018] Christianity was formed after Jesus was executed to protect the money lenders as a protest against debt slavery

Jul 23, 2018 | www.moonofalabama.org

Pft , Jul 23, 2018 1:27:18 AM | 43

So most folks never heard of a guy named Hillel. He was a Baghdad Jew who moved to Judea about 60 years before Christ was born.

His great influence on Judaism was a novel invention to get around the Jubilee which many civilizations employed snd was part of Judaism Mosaic Law. Basically every 7 years debts were cancelled to prevent the elites from accumulating all the land and wealth and enslaving the bottom 99% and causing rebellion. Much of the debt forgiven was owed to the state in the form of taxes but individuals and business also were indebted to money lenders . Debt of individuals acquired to pay taxes, farm, etc was forgiven by the Jubilee. Business /Merchant debts had to be repaid

https://www.counterpunch.org/2018/01/19/could-should-jubilee-debt-cancellations-be-reintroduced-today/

The rabbiis of the Pharisees under the suggestion of Hillel the Elder, created a loophole in Jewish law, in which a legal document would accompany the interest-free loans (charging interest to fellow Jews was forbidden in the Torah) issued by individuals that stated that the loans were to be transferred to the courts as the law of remission does not apply In this case.
It was called a Prosbul.

This led to great unrest among Jews and non Jews alike. This unrest led to a Jewish activist named Jesus leading a protest against the Pharisees and the money lenders. Michael Hudson has a theory backed up by historical documents in the original Aramaic,Hebrew and Greek that Mosaic Law is mostly about the prohibitions of the sins related to debt and the sinful practices of creditors to secure repayment. Translations into English and other languages have obscured this.

Christianity was formed after Jesus was executed to protect the money lenders . Unfortunately the Romans were pro creditor and then Constantine hijacked the religion a couple of centuries later , and aside from a prohibition on usury by the Roman Church the Jubilee was no more. When the Roman Empire fell the Byzantine Emperor reinstated the Jubilee from 7th-10th Century and abandoned this . I imagine this wad due to the Islamic Wars that required external loans to finance at interest.

Judaism still use the prosbul today , at least in Orthodox , to escape the Jubilee called for in Mosaic Law . That applied only for loans to Jews in any event. Prohibitions of usury in the Christian world ended pretty much with the Reformation and Calvinism. Even so in the US their were limits on usury in many US states until early 1980's when neoliberalism crushed that. Now the poor get charged as much as 30% on credit card debt while earning 2% on savings and they cant even declare bankruptcy like Trump did 6 times

Islamic banking is interest free though under Sharia Law. "Loans are equity-based, asset-backed. In lieu of interest the banks rely on cost-plus financing (murabaha), profit-sharing (mudaraba), leasing (ijara), partnership (musharaka) and forward sale (bay'salam).

"This prohibition is based on arguments of social justice, equality, and property rights. Islam encourages the earning of profits but forbids the charging of interest because profits, determined ex post, symbolize successful entrepreneurship and creation of additional wealth whereas interest, determined ex ante, is a cost that is accrued irrespective of the outcome of business operations and may not create wealth if there are business losses. Social justice demands that borrowers and lenders share rewards as well as losses in an equitable fashion and that the process of wealth accumulation and distribution in the economy be fair and representative of true productivity.


"Risk sharing. Because interest is prohibited, suppliers of funds become investors instead of creditors. The provider of financial capital and the entrepreneur share business risks in return for shares of the profits."

"Money as "potential" capital. Money is treated as "potential" capital -- that is, it becomes actual capital only when it joins hands with other resources to undertake a productive activity. Islam recognizes the time value of money, but only when it acts as capital, not when it is "potential" capital."

"Prohibition of speculative behavior. An Islamic financial system discourages hoarding and prohibits transactions featuring extreme uncertainties, gambling, and risks."

So maybe the war against Islam has another component?

Getting back to Jesus. Hudson says the Pharisees decided that Jesus' growing popularity was a threat to their authority and wealth.

http://michael-hudson.com/2017/12/he-died-for-our-debt-not-our-sins/

"They said 'we've got to get rid of this guy and rewrite Judaism and make it about sex instead of a class war', which is really what the whole Old Testament is about,"


"That was that was where Christianity got perverted. Christianity turned so anti-Jesus, it was the equivalent of the American Tea Party, applauding wealth and even greed, Ayn-Rand style."


"Over the last 1000 years the Catholic Church has been saying it's noble to be poor. But Jesus never said it was good to be poor. What he said was that rich people are greedy and corrupt. That's what Socrates was saying, as well as Aristotle and the Stoic Roman philosophers, the biblical prophets in Isaiah."


"Neither did Jesus say that it was good to be poor because it made you noble.

"What Jesus did say is that say if you have money, you should share it with other people."


"American Fundamentalist Christians say don't share a penny. King Jesus is going to make you rich. Don't tax millionaires. Jesus may help me win the lottery. Tax poor people whom the Lord has left behind – no doubt for their sins. There's nothing about the Jubilee Year here."

Hudson has a book coming out next week on the subject

.

Guerrero , Jul 23, 2018 2:32:12 AM | 44
Pft, I am interested in your discourse; are their grounds for a scientific gifting economy?

What I mean is: does a model exist for a human society that has followed Christ's teaching

I know that after he was gone, his mother Mary said "my son never touched a single penny"

Is this credible? Is there an archeological reading of any society not based on greed?

I think there may be. They didn't have to do bookkeeping, a source of constant happiness,

but it's is the loss of posterity since we can wonder and speculate about gift economics.

This isn't a joke, nor is it irony. Dear Pft, ¿Can you say more about biblical etc. utopia?

[Jul 06, 2018] The IMF is back in Argentina an economic and social crisis, even more serious than the present one, looms large on the horizon by Eric Toussaint , Sergio Ferrari

Jun 27, 2018 | www.defenddemocracy.press

The second neoliberalization of Argentina turned into second financial crash. Brazil is probably next. And Argentina and Brazil were two contires in which neoliberal staged a counterrevolution after financial crisi of 2008.

The IMF is back in Argentina: "an economic and social crisis, even more serious than the present one, looms large on the horizon"

1. The vicious circle of illegitimate debt grapples the Argentine people once again
2. IMF's $ 50 billion loan surpasses Greece's previous record

Sergio Ferrari from Berne, Switzerland interviewed Eric Toussaint, international debt specialist

After more than a decade of Argentina's official "distance" from the International Monetary Fund (IMF), Mauricio Macri's government has just knocked on the doors of the world's financial police. The $ 50 billion credit granted by the organization during the first week of June sets an international record and will directly impact the economic and social situation of this South American country. Eric Toussaint, Belgian historian and economist, an eminent specialist in this field and spokesperson for the Committee for the Abolition of Illegitimate Debt (CADTM), based in Brussels, pointed this out. Interview follows. Q: Why did the Argentine government turn to the IMF , in full view of Argentina's relations with this international organization in the late 1990s and their dire political consequences? Is the financial top brass of the Macri team despairing?

Eric Toussaint (ET): Since the Mauricio Macri government assumed office in December 2015, its policies have led to a critical situation. Sharp reduction in export taxes have brought down tax revenues, the debt servicing expenditure has been significantly increased (100% higher in 2018 than in 2017). The country is running out of dollars. Currency reserves fell by $ 8 billion earlier this year. Macri needs this IMF loan to continue debt servicing. Private international lenders require such a loan as a prerequisite for continued credit to Argentina. A very large chunk of the IMF loan will be used directly to repay foreign creditors in dollars.


Q: If we look at the Argentine history of the 1990s, this seems to be a scheme of playing with fire

Read also: What Kissinger did in Chile, Cyprus, Turkey, the Middle East and ... his own country

ET: Yes, of course. But I would like to further explore the background of this appeal to the IMF

Q- Please go ahead!

ET: This shows that the government's policy is an abject failure: with a peso that devalued fast; with the interest rate set at a high 40% by the Argentine Republic's Central Bank ; with the $ 8 billion reduction in international reserves that keep declining. And with a debt service that has increased by 100% compared to 2017. Faced with a balance sheet of such a nature, undoubtedly it is a total failure. Macri claimed that a high growth level and a viable debt would be ensured by paying the debt – between end-2015 and early-2016 – and by compensating the vulture funds , in keeping with Judge Thomas Griesa's verdict. He knelt before the vulture funds (see: http://www.cadtm.org/Reject-the-Imminent-Agreement-with ). But the facts confirm that this plan did not work. Debt rose at a whirling pace and it's startling to see how fast it snowballed. As a result, it became impossible to convince the creditors that Argentina could repay its debt in the future. That's why Macri is asking for this $ 50 billion credit. We must remember that when Greece received $ 30 billion from the IMF in 2010 in the backdrop of a dramatic situation, it was a record amount!

Q: Some analysts say that President Macri is trying to breathe in some fresh air with the help of this loan, before commanding a comfortable position in the October 2019 elections.

ET: I would not like to engage in farfetched political speculations. I prefer facts. I have read the contents of the agreement signed with the IMF and it has imposed a severe reduction in general social benefits and wages of the public servants. Public investment will be almost wiped out and it will lead to an economic depression. Debt repayment will increase and the IMF charges high interest rates . The government will impose taxes with elevated rates on the public to repay the debt, while continuing to hand out fiscal perks to the capitalists. The government will encourage the export of the maximum number of agricultural products and raw materials to the global market by reinforcing the extractivist-exporting model. IMF's policy will lead the country to an economic and social crisis even more serious than what it suffered before this loan was sanctioned. Let's go back to your question. It is very likely that, politically, Macri will claim that what he is doing is not his project, but what the IMF demands from him.

Read also: USA - In praise of Riotous Assembly

Q: This brings us back to a not-so-distant past and I would like to highlight that: the decade of indebtedness and the IMF's role in the 1990s that eventually led to the social outburst of 2001. Can history repeat itself without tragedy?

ET: History is repeating itself in a country that is a serial debt payer. It started with the illegitimate and odious debt inherited from the military dictatorship of the 1970s. IMF's support was crucial for this dictatorship to continue until the early 1980s. The vicious circle of illegitimate debts persisted during the 1990s with President Carlos Menem followed by Fernando De la Rúa. Their allegiance to the IMF's recommendations led to the great social crisis of late 2001. President Rodríguez Saá, in his few days or Presidency at end-2001, announced the suspension of debt repayment to allay popular anger. The debt was restructured in 2005, then re-negotiated with creditors who had not participated before. It caused a crisis in the government and evoked sharp criticism from the people (see the section on Argentina here http://www.cadtm.org/Restructuration-Audit-Suspension,11723 ). Former minister Roberto Lavagna, who had negotiated the 2005 restructuring, objected to negotiations with outsider creditors. The Argentine authorities never wanted to do what Ecuador did in 2007-2008: to carry out a debt audit with citizens' participation, which could have defined the odious and illegitimate part of the debt (see: http://www.cadtm.org/Video-The-Ecuador-debt-audit-a and http://www.cadtm.org/Vulture-funds-are-the-vanguard ). This, along with the inconsistency of the Cristina Fernandez government's national sovereignty discourse, frustrated people. This partly explains Macri's electoral victory in 2015.

Q: A course over several decades where illegitimate debts condition government policies without ever finding structural solutions

Read also: Two-Thirds of Human Rights Defenders Killed in 2017 Were From Latin America

ET: Yes. And that led today to this new mega-loan from the IMF. From now on, it can be included in the category of odious and illegitimate debts. An odious debt is a debt contracted against the people's interests, and the creditors know that it is illegitimate. Evidently a new illegitimate and odious debt is taking shape.

Q: What about future prospects?

ET: I have already spoken about the deteriorating economic and social crisis. I hope for a strong popular reaction in the coming months. I also hope that the popular forces will not take too long to consolidate their strength to oppose even more vigorously the Macri government and the pressures of the IMF and other international creditors.

Translated by Suchandra De Sarkar

[Jul 04, 2018] Pathology of Debt

Jul 04, 2018 | www.henryckliu.com

Pathology of Debt

By
Henry C.K. Liu

Part I: Commercial Paper Market Seizure turns Banks into their own Vulture Investors

This article appeared in AToL on November 27, 2007

Vulture restructuring is a purging cure for a malignant debt cancer. The reckoning of systemic debt presents regulators with a choice of facing the cancer frontally and honestly by excising the invasive malignancy immediately or let it metastasize over the entire financial system over the painful course of several quarters or even years and decades by feeding it with more dilapidating debt.

But the strategy of being your own vulture started with Goldman Sachs, the star Wall Street firm known for its prowess in alternative asset management, producing spectacular profits by manipulating debt coming and going amid unfathomable market anomalies and contradictions during years of liquidity boom. The alternative asset management industry deals with active, dynamic investments in derivative asset classes other than standard equity or fixed income products. Alternative investments can include hedge funds, private equity, special purpose vehicles, managed futures, currency arbitrage and other structured finance products. Counterbalancing opposite risks in mutually canceling paired speculative positions to achieve gains from neutralized risk exposure is the basic logic for hedged fund investments.

Hedge Funds

The wide spread in return on investment between hedge funds and mutual funds is primarily due to differences in trading strategies. One fundamental difference is that hedge funds deploy dynamic trading strategies to profit from arbitraging price anomalies caused by market inefficiencies independent of market movements whereas mutual funds employ a static buy-and-hold strategy to profit from economic growth. An important operational difference is the use of leverage. Hedge funds typically leverage their informed stakes by margining their positions and hedging their risk exposure through the use of short sales, or counter-positions in convergence or divergent pairs. In contrast, the use of leverage is often limited if not entirely restricted for mutual funds.

The classic model of hedge funds developed by Alfred Winslow Jones (1910-1989) takes long and short positions in equities simultaneously to limit exposures to volatility in the stock market. Jones, Australian-born, Harvard and Columbia educated sociologist turned financial journalist, came upon a key insight that one could combine two opposing investment positions: buying stocks and selling short paired stocks, each position by itself being risky and speculative, but when properly combined would result in a conservative portfolio that could yield market-neutral outsized gains with leverage. The realization that one could couple opposing speculative plays to achieve conservative ends was the most important step in the development of hedged funds.

The Credit Guns of August

Yet the credit guns of August 2007 did not spare Goldman's high-flying hedge funds. Goldman, the biggest US investment bank by market value, saw its Global Equity Opportunities Fund suffer a 28% decline with assets dropping by $1.4 billion to $3.6 billion in the first week of August as the fund's computerized quantitative investment strategies fumbled over sudden sharp declines in stock prices worldwide.

The Standard & Poor's 500 Index, a measure of large-capitalization stocks, fell 44.4 points or 2.96% on August 9. On August 14, the S&P 500 fell another 26.38 points or 1.83%, followed by another fall of 19.84 points to 1,370.50 or 1.39% on August 15, totaling 9.4% from its record high reached on July 19, but still substantially higher than its low of 801 reached on March 11, 2003 .

Goldman explained the setback in Global Equity Opportunities in a statement: "Across most sectors, there has been an increase in overlapping trades, a surge in volatility and an increase in correlations. These factors have combined to challenge many of the trading algorithms used in quantitative strategies. We believe the current values that the market is assigning to the assets underlying various funds represent a discount that is not supported by the fundamentals." The statement is a conceptual stretch of the meaning of "fundamentals" which Goldman defines as value marked to model based on a liquidity boom rather than marked to market, even as the model has been rendered dysfunctional by the reality of a liquidity bust.

The market value in mid August of two other Goldman funds: Global Alpha and North American Equity Opportunities also suffered big losses. Global Alpha fell 27% in the year-to-date period, with half of the decline occurring in the first week of August. North American Equity Opportunities, which started the year with about $767 million in assets, was down more than 15% through July 27. The losses had been magnified by high leverage employed by the funds' trading strategies. Goldman said both risk-taking and leverage in these two funds had since been reduced by 75% to cut future losses. Similarly, leverage employed by Global Equity Opportunities had been reduced to 3.5 times equity from 6 times. The three funds together normally managed about $10 billion of assets.

Feeding on One's Own Death Flesh

Facing pending losses, Goldman Chairman Lloyd Blankfein was reported to have posed a question to his distraught fund managers: if a similar distress opportunity such as Goldman's own Global Equity Opportunities presented itself in the open market outside of Goldman, would Goldman invest in it as a vulture deal. The answer was a resounding yes. Thus the strategy of feeding on one's own dead flesh to survive, if not to profit, took form.

Goldman would moderate its pending losses by profiting as vulture investor in its own distressed funds. The loss from one pocket would flow into another pocket as gains that, with a bit of luck, could produce spectacular net profit in the long run if the abnormally high valuations could be manipulated to hold, or the staying power from new capital injection could allow the fund to ride out the temporary sharp fall in market value. It was the ultimate hedge: profiting from one's own distress. The success of the strategy depends on whether the losses are in fact caused by temporary anomalies rather than fundamental adjustment. Otherwise, it would be throwing good money after bad.

The Fed Held Firm on Inflation Bias

The Fed, in its Tuesday, August 7 Fed Open Market Committee (FOMC) meeting, defied market expectation and decided against lowering interest rates with a bias against growth and focused instead on inflation threats. In response, the S&P 500 index, with profit margin at 9% against a historical average of 6%, fell 44.4 points or 2.96% to 1,427 on August 9. The Dow Jones Industrial Average (DJIA) dropped 387 points to 13,504 on the same day, even as the Federal Reserve pumped $62 billion of new liquidity into the banking system to help relieve seizure in the debt market.

On the following Monday, August 13, Goldman announced it would injected $2 billion of new equity from its own funds into its floundering Global Equity Opportunities fund, along with another $1 billion from big-ticket investors, including CV Starr & Co., controlled by former American International Group (AIG) chairman Maurice "Hank" Greenberg, California real estate developer Eli Broad who helped found SunAmerica and later sold it to AIG, and hedge fund Perry Capital LLC, which is run by Richard Perry, a former Goldman Sachs equity trader.

The new equity injection was intended to help shore up the long/short equity fund, which was down almost 30% in the previous week, to keep the fund from forced sales of assets at drastic discount long enough for markets to stabilize and for the fund to get out of the tricky leveraged bets it took before the credit markets went haywire in mid August. Global Equity "suffered significantly" as global markets sold off on worries about debt defaults credit draught, dragging the perceived value of its assets down to $3.6 billion, from about $5 billion.

Goldman chief financial officer David Viniair on a conference call with analysts was emphatic that the move was not a rescue but to capture "a good opportunity". After more than a week of panic over the disorderly state of global capital markets, Goldman Sachs pulled a kicking live rabbit magically out of its distressed asset hat.

On a conference call to discuss the additional equity investment in the $3.6 billion Global Equity Opportunities fund, Goldman executives insisted the move would not add to moral hazard (encouraging expectations that lead investors to take more risk than they otherwise might because they expect to be bailed out), but would merely reflect the firm's belief that the value of the fund's underlying assets was out of whack with "fundamentals" and that sooner or later the losses would be recouped when an orderly market returns.

"We believe the current values that the market is assigning to the assets underlying various funds represent a discount that is not supported by the fundamentals," Goldman explained in a statement. A day later, on August 14, the S&P 500 fell another 26.38 points or 1.83%, followed by another fall of 19.84 points or 1.39% on August 15, notwithstanding that a chorus of respected voices were assuring the public that the sub-prime mortgage crisis had been contained and would not spread to the entire financial system.

But Goldman did not inject more equity into two of its other funds: Global Alpha and North American Equity Opportunities that had also suffered sharp losses. Goldman said it was reducing leverage in the funds, a process that was mostly complete, but added that it was not unwinding Global Alpha, down 27% this year through August 13, about half of that in the previous week alone. Unlike Global Equity Opportunities, Goldman did not bolster its Global Alpha quantitative fund. Investors had reportedly asked to withdraw $1.6 billion, leaving Global Alpha with about $6.8 billion in assets after forced liquidation to pay the withdrawals.

Ireland registered Global Alpha, originally seeded in 1995 with just $10 million and returned 140% in its first full year of operation, was started by Mark Carhart and Raymond Iwanowski, young students of finance professor Eugene Fama of the University of Chicago . Fama's concept of efficient markets is based on his portfolio theory which states that rational investors will use diversification to optimize their portfolios based on precise pricing of risky assets.

Global Alpha soon became the Rolls Royce of a fleet of alternative investment vehicles that returned over 48% before fees annually. Hedge funds usually charge management fees of up to 2% of assets under management and 20% of investment gains as incentive fees. Global Alpha fees soared to $739 million in first quarter of 2006, from $131 million just a year earlier and boosted earnings rise at the blue-chip Goldman Sachs by 64% to $2.48 billion, the biggest 2006 first-quarter gain of any major Wall Street firm. Goldman is one of the world's largest hedge fund managers, with $29.5 billion in assets under management in an industry that oversees $2.7 trillion globally. Goldman reported in October 2006 that its asset management and securities services division produced $485 million, or 21% of its $2.36 billion in pretax profit for the fiscal third quarter.

For 2006, Global Alpha dropped 11.6% through the end of November and end up dropping 9% for the year yet still generating over $700 million in fees from earlier quarters. That was the first annual decline in seven years and followed an almost 40% gain for all of 2005. The fund took a hit misjudging the direction of global stock and currency markets, specifically that the Norwegian krone and Japanese yen would decline against the dollar. Global Alpha lost money partly on wrong-way bets that equities in Japan would rise, stocks in the rest of Asia and the US would fall and the dollar would strengthen. Before August 2007, the fund had lost almost 10% on wrong bet in global bond markets.

Goldman's smaller $600 million North American Equity Opportunities fund had also hit rough waters, losing 15% this year. There was real danger of a rush of redemptions from nervous investors that would force the funds to sell securities in a market that had all but seized up, forcing down asset prices to fire sale levels. Global Equity Opportunities investors were entitled to pull their money monthly with a 15-day warning, meaning notices for Aug. 31 were due on August 16. Global Alpha investors could redeem quarterly, and certain share classes also must notify the fund by the week of August 13.

Hedge funds are private, largely unregulated pools of capital whose managers command largely unrestricted authority to buy or sell any assets within the bounds of their disclosed strategies and participate in gains but not losses from investment. The industry has been growing over 20% annually due to its above-market performance. Still, Carhart and Iwanowski, both in their early forties, had not been able to take any of their 20% incentive fees since Global Alpha fell from its 2006 peak. They would have to make good about 60% of their previous incentive fees from profit, if any, in future quarters before they could resume taking a cut of the fund's future gains.

The Fed Wavered

By August 16, the DJIA fell way below 13,000 to an intraday low of 12,445, losing 1,212 points from its 13,657 close on August 8. The next day, August 17, the Fed while keeping the Fed Funds rate target unchanged at 5.25%, lowered the Discount Rate by 50 basis points to 5.75%, reducing the gap from the conventional 100 basis points by half to 50 basis points and changed the rules for access by banks to the Fed discount window.

In an accompanying statement, the Fed said: "To promote the restoration of orderly conditions in financial markets, the Federal Reserve Board approved temporary changes to its primary credit discount window facility. The Board approved a 50 basis point reduction in the primary credit rate to 5-3/4 percent, to narrow the spread between the primary credit rate and the Federal Open Market Committee's target federal funds rate to 50 basis points. The Board is also announcing a change to the Reserve Banks' usual practices to allow the provision of term financing for as long as 30 days, renewable by the borrower. These changes will remain in place until the Federal Reserve determines that market liquidity has improved materially. These changes are designed to provide depositories with greater assurance about the cost and availability of funding. The Federal Reserve will continue to accept a broad range of collateral for discount window loans, including home mortgages and related assets. Existing collateral margins will be maintained. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York and San Francisco ."

The Fed Panicked

A month later, on September 18, brushing aside a DJIA closing at a respectable 13,403 the day before even in the face of poor employment data for August, the Fed panicked over the unemployment data and lowered both the Fed Funds rate target and the Discount Rate each by 50 basis points to 4.75% and 5.25% respectively. The rate cuts gave the DJIA a continuous rally for 9 consecutive days that ended on October 1 at 14,087. Obviously, the Fed knew something ominous about the credit market that was not reflected in the DJIA index.

The Global Equity Opportunities fund, now with about $6.6 billion in asset value, was using six times leverage before the capital infusion. Like many other managers, Goldman was experiencing the same problems with its so-called quantitative funds. Quant funds use computerized models to make opportunistic investment decisions on minute statistic disparities in asset prices caused by market inefficiency. When the short-term credit market seized up, the quant models turned dysfunctional.

Funds caught with significant losses in credit and bond investments had to sell stock holdings to lower the risks profile of their overall portfolios, and the herd selling in the stock market magnified the price shift in a downward spiral. Stocks that were held long fell in price, and stocks that were held short rose, exacerbating losses.

Opacity Fueled Market Rumors

As required, quant fund managers have been disclosing losses to investors but they are not required to disclose to the market. The opacity fueled the rumor mill. Renaissance Technology's $26 billion institutional equities fund was reportedly down 7% for the year. Some of the funds Applied Quantitative Research (AQR) managed were down as well, as were quant funds at Tykhe Capital, Highbridge Capital and D.E. Shaw (of which Lehman now owns 20%).

Vulture Opportunities in Distressed Funds

At Goldman, quant funds made up half of the $151 billion of alternative investments under management, and half of which was the sort of long-short equity quant funds that had been having trouble. But Goldman executives began to see opportunities in distressed funds. The highly respected AQR was raking in new funds to invest in distressed situations, as were other astute fund managers. AQR is an investment management firm employing a disciplined multi-asset, global research process, with investment products provided through a limited set of collective investment vehicles and separate accounts that deploy all or a subset of AQR's investment strategies. These investment products span from aggressive high volatility market-neutral hedge funds, to low volatility benchmark-driven traditional products. AQR's founder is Clifford S. Asness, a Goldman alumni where he was Director of Quantitative Research for the Asset Management Division responsible for building quantitative models to add value in global equity, fixed income and currency markets. H e was another of Fama's students at the University of Chicago .

Goldman was putting its own money down alongside that of select outside investors, an expression of its faith in the fund's ability to recoup. The situation differed from that of Bear Stearns which had to loan $1.6 billion to bail out one of two internal hedge funds that had big problems with exposure to mortgage-related securities.

The First Wave of Warnings

Goldman, one of the world's premiere financial companies, had joined Bear Stearns and France 's BNP Paribas in revealing that its hedge funds had been hit by the credit market crisis. Bear Stearns earlier in the summer disclosed that two of its multibillion dollar hedge funds were wiped out because of wrong bets on mortgage-backed securities. BNP Paribas announced a few weeks later it would freeze three funds invested in US asset-backed securities.

The assets of the two troubled Bear Stearns hedge funds had been battered by turmoil in the credit market linked to sub-prime mortgage securities. On Jun 20, 2007 , $850 million of the funds' assets held as collateral was sold at greatly discounted prices by their creditor, Merrill Lynch & Co. The assets sold included mortgage-backed securities (MBS), collateralized debt obligations (CDO) and credit default swaps (CDS). JP Morgan, another Bear Stearns creditor, had also planned an auction for some of the collateralized assets of the Bear Stearns funds, but cancelled the auction to negotiate directly with the Bear Stearns funds to unwind positions via private transactions to avoid setting a market price occasioned by market seizure.

The two Bear Stearns funds: High-Grade Structured Credit Strategies Enhanced Leverage Fund and High-Grade Structured Credit Strategies Fund, run by mortgage veteran Ralph Cioffi, were facing shut-down as the rescue plans fell apart. The funds had slumped in the first four months of 2007 as the subprime mortgage market went against their positions and investors began asking for their money back. The High-Grade Structured Credit Strategies Enhanced Leverage Fund sold roughly $4 billion of subprime mortgage-backed securities in mid June, selling its highest-rated and most heavily traded securities first to raise cash to meet redemption requests from investors and margin calls from creditors, leaving the riskier, lower-rated assets in its portfolio that had difficulty finding buyers.

Collateral Debt Obligation Crisis

CDOs are illiquid assets that normally trade only infrequently as institutional investor had not intended to trade such securities. Demand for them is not strong even in normal times. In a credit crunch, demand became extremely weak. Sellers typically give investors one or two days to price the assets and bid in order to get the best price. Bid lists were now sent out for execution within roughly an hour, which was unusual and suggested that sellers were keen to sell the assets quickly at any price.

Bear Stearns' High-Grade Structured Credit Strategies Enhanced Leverage Fund sold close to $4 billion worth of AAA and AA rated securities. The fund was started less than a year ago with $600 million in assets, but used leverage to expand its holdings to more than $6 billion. But subprime mortgage trades that went wrong left the fund down 23% in the first four months of 2007. The fund was selling its highest-rated and most tradable securities first to raise cash to meet expected redemption requests and margin calls. Buyers were found for the bonds but the fund still had to retain lower-rated subprime mortgage-based securities which had triggered its losses earlier in the year.

Bear Stearns was highly leveraged in an illiquid market and was faced with the prospect that its funds were going to start getting margin calls so it tried to sell ahead of being in the worst spot possible. Subprime mortgages were offered at low initial rates to home buyers with blemished credit ratings who could not carry the adjusted payments if and when rates rise. This was not a problem as long as prices for houses continued to rise, allowing the lenders to shift loan repayment assurance from the borrower's income to the rising value of the collateral. Thus subprime mortgages lenders were not particularly concerned about borrower income for they were merely using home buyers as needed intermediaries to profit from the debt–driven housing boom. This strategy worked until the debt balloon burst. Rising delinquencies and defaults in this once-booming part of the mortgage market had triggered a credit crunch earlier in the year that left several lenders bankrupt. Many hedge funds had generated big gains for several years on this unstainable liquidity boom. The premature bears who shorted the market repeated lost money as the Fed continued to feed the debt balloon to sustain the unsustainable.

As delinquencies and foreclosures rose finally, losses first hit the riskiest tranches of subprime mortgage-backed securities (MBS). The losses were subsequently transmitted to collateralized debt obligations (CDOs) which invested in the higher-rated tranches of subprime MBS that did not have an active market since they were bought by institutions with the intention to hold until maturity. Such securities were super safe as long as their ratings remain high.

Hedge funds have become big credit-market players in recent years, and many firms trade the riskiest tranches of subprime MBS and higher-rated CDOs tranches to profit from the return spread. While some funds, such those managed by Cheyne Capital and Cambridge Place Investment Management, had suffered sudden losses, some hedge funds made handsome gains in February 2007 betting that a subprime mortgage crisis would hit.

As the number of market participants increased and the packaging of the CDO became more exoteric over the liquidity boom years, it became impossible to know who were holding the "toxic" tranches and how precisely the losses would spread, since the risk profile of each tranche would be affected by the default rates of other tranches. The difficulty in identifying the precise locations of risk exposure caused a sharp rise in perceived risk exposure system wide. This sudden risk aversion led to rating downgrades of the high-rated tranches, forcing their holders to sell into a market with few buyers.

The Federal Deposit Insurance Corporation, which monitors risk in the banking system, tracks bank holdings of MBS, but not specific tranches of CDOs. It has no information on which bank holds CDOs and how much, since such instruments are held by the finance subsidiaries of bank holding companies, off the balance sheets of banks. Asian investors, particularly those in Japan , had been eager to seek off-shore assets yielding more than the near zero or even negative interest rates offered at home. Many Japanese as well as foreign investors participated in currency "carry trade" to arbitrage interest rate spreads between the Japanese yen and other higher interest rate currencies and assets denominated in dollars, fueling a liquidity boom in US markets. The US trade deficit fed the US capital account surplus as the surplus trade partners found that they could not convert the dollars they earned from export to the US into local currencies without suffering undesirable rise in money supply. The trade surplus dollars went into the US credit market.

The growth of CDOs has been explosive during the past decade. In 1995, there were hardly any. By 2006, more than $500 billion worth was issued. About 40% of CDO collateral was residential MBS, with three quarters in subprime and home-equity loans, and the rest in high-rated prime home loans. CDOs became an important part of the mortgage market because their issuers also bought the riskier tranches of MBS that others investors shunned. The high-rated tranches of MBS were sold easily to pension funds and insurers. But the ultra-high rated tranches paid such low returns because of their perceived safety that few buyers were interested, forcing the banks which structured them to hold them themselves. The issuers often hold the more riskier tranches to sell at later dates for profit when the value of the collateral rose with rising home prices. But when the riskier tranches could not be sold as home prices fell and mortgage default rose, the higher rating tranches suffered rating drops and institutional buyers were prevented by regulation to hold the ones they had bought and from buying new ones. When the ultra safe tranches held by banks are downgraded, banks are forced to writedown their value. With CDOs withdrawing from the residential MBS market, mortgage lenders were unable to sell the loans they had originated for new funds to finance new mortgages.

The chain of derivative structures that turns home loans into CDOs begins when a mortgage is packaged together with other mortgages into an MBS. The MBS is then sliced up into different CDO tranches that pay on a range of interest rates tied to risk levels. Mortgage payments go first to the highest-rated tranches with the lowest interest rates. The remaining funds then flows down to the next risky tranches until all are paid. The riskiest CDO tranches get paid last, but they offer the highest interest rates to attract investor with strong risk appetite.

In theory, all trenches have the same risk/return ratio. As the liquidity boom has gone on for years with the help of the Fed, historical data would suggest that risks of default should be minimal. Yet when losses actually occurred from unanticipated mortgage defaults and foreclosures, the riskiest tranches were hit first, while the top-rated tranches were hit last. But until losses occurred, the riskier tranches got the higher returns. Over the years, the riskier tranches generated big profit for hedge funds when the risks did not materialize to overwhelm the high returns. The problem was that the profitability drove new issues of MBS at a faster pace than maturing MBS, with the number and amount of outstanding securities getting bigger with each passing year, exposing investors to aggregate risk higher than the accumulated gains. Because of the complexity and opacity of the CDO market, institutional investors were not alerted by rating agencies of the fact that their individual safety actually caused a sharp rise in systemic risk. They felt comfortable as long as assets they acquired were rated AAA and deemed bankruptcy-remote, not realizing the system might seize up some Wednesday morning. That Wednesday came on August 15, 2007 .

CDOs, a cross between an investment fund and an asset-backed security (ABS), perform this slicing process of risk/reward unbundling repeatedly to keep money recycling and money supply growing in the mortgage market. While CDOs lubricate the credit market to make more home financing affordable to more home buyers, it raises the price of home and its financing cost beyond the carrying capability of almost all home buyers when the bursting of the debt bubble resets interest rates to normal levels, making a rising default rate inevitable.

Hedge funds are attracted by the high returns offered by the lowest-rated tranches of subprime MBS undbubled by CDOs, the so-called equity tranches which sink underwater as home prices fall. Many hedge funds arbitrage the wide return spread with low-cost funds borrowed in the commercial paper market and magnify the return with high leverage through bank loans. They often hedge against risk by holding derivatives that are expected to rise in value when housing prices fall, such as interest rate swaps. They also hedge against defaults with credit default swaps. These hedges failed when risk was re-priced by the market at rollover time for short-term securities which could be every 30 days.

CDOs and Commercial Paper

Much of the money used to buy CDOs come form the commercial paper market. Commercial paper consists of short-term, unsecured promissary notes issued primarily by financial and non-financial corporations. Maturities range up to 270 days but average about 30 days. Many companies use commercial paper to raise cash needed for current transactions, and many find it to be a lower-cost alternative to bank loans. Financial companies use high-rated CDO tranches as collateral to back their commercial paper issues.

Because commercial paper maturities do not exceed nine months and proceeds typically are used only for current transactions, the notes are exempt from registration as securities with the United States Securities and Exchange Commission.

Large institutions have long managed their short-term cash needs by buying and selling securities in the money market since the early 1970's. Today, a broad array of domestic and foreign investors uses these versatile, short-term securities to help to make the money market the largest, most efficient credit market in the world driving assets from $4 billion in 1975 to more than $1.8 trillion today. This money market is a fixed income market, similar to the bond market. The major difference being that the money market specializes in very short term debt securities.

The money market is a securities market dealing in short-term debt and monetary instruments. Money market instruments are forms of debt that mature in less than one year and are very liquid but traded only high denominations. The easiest way for individual investor to gain access is through money market mutual funds, or sometimes through a money market bank account. These accounts and funds pool together the assets of thousands of investors and buy the money market securities on their behalf.

Borrowing short-term money from banks is often a labored and uneasy situation for many corporations. Their desire to avoid banks as much as they can has led to the popularity of commercial paper. For the most part, commercial paper is a very safe investment because the financial situation of a large company can easily be predicted over a few months. Furthermore, typically only companies with high credit ratings and credit worthiness issue commercial paper and over the past 35 years there have only been a handful of cases where corporations defaulted on their commercial paper repayment.

ABCP Conduits

Asset backed commercial paper (ABCP) is a device used by banks to get operating assets, such as trade receivables, funded by the issuance of securities. Traditionally, banks devised ABCP conduits as a device to put their current asset credits off their balance sheets and yet provide liquidity support to their clients. Conduits raise money by selling short-term debt and using the proceeds to invest in assets with longer maturities, like mortgage-backed bonds. Conduits typically have guarantees from banks, which promise to lend them money up to the amount of the SIVs the banks structure.

A bank with a client whose working capital needs are funded by the bank can release the regulatory capital that is locked in this credit asset by setting up a conduit, essentially a special purpose vehicle (SPV) that issues commercial paper, such as the ones used by Enron that led to its downfall. The conduit will buy the receivables of the client and get the same funded by issuance of commercial paper. The bank will be required to provide some liquidity support to the conduit, as it is practically impossible to match the maturities of the commercial paper to the realization of trade receivables. Thus, the credit asset is moved off the balance sheet giving the bank a regulatory relief. Depending upon whether the bank provides full or partial liquidity support to the conduit, ABCP can be either fully supported or partly supported.

ABCP conduits are virtual subsets of the parent bank. If the bank provides full liquidity support to the conduit, for regulatory purposes, the liquidity support given by the bank may be treated as a direct credit substitute in which case the assets held by the conduit are aggregated with those of the bank. ABCP conduits are also set up large issuers that are not banks.

The key weakness in the entire credit superstructure lies in the practice by intermediaries of credit to borrow short term to finance long term. This term carry is magical in an expanding economy when the gap between short term and long term credit is narrower than gains from long term asset appreciation. But in a contracting economy, it can be a fatal scenario, particularly if falls in short term rates raise the credit rating requirement of the short term borrower, putting previously qualified loans in technical default. Securities that face difficulty in rolling over at maturity are known as "toxic" in the trade.

Lethal Derivatives

The credit default swap market is a microcosm of investor confidence. Credit default swaps are insurance for bad debt. Insured creditors are compensated by the seller of the insurance if a debtor defaults on a loan. When the threat of default rises in the market, the insurance premium rises, just as Katrina boosted hurricane insurance premium. This is known in the business as re-pricing of risk. The cost of credit default swaps written on investment banks such as Bear Stearns and Goldman Sachs and on commercial banks such as Citibank have soared in the past few months amid worries that troubles in the subprime-mortgage market and the leveraged-buyout market could leave them with massive loan defaults. The financial industry tracks mortgage-linked securities via the ABX index, which calculates the prices of a basket of assets backed by subprime loans.

The ongoing crisis in the US housing market has pushed the ABX, a key mortgage-linked derivatives index, to new lows, threatening to unleash a further bout of credit market upheaval. Price swing in the ABX can reduce the value of ultra-safe credit instruments that carried high credit ratings, forcing banks and other regulated investors to make further large write-downs on their credit market holdings, on top of the huge losses several major US and foreign banks suffered from credit turmoil that began in August.

As the US mortgages market deteriorates, financial sector losses will accumulate. Secondary market price movements indicate that losses on mortgage inventory are likely to be larger in coming quarters. Before July, the part of the ABX index that tracks AAA debt was trading almost at face value. However, in the last three weeks in October, it has fallen sharply due to downgrades by credit rating agencies and continuing bad data from the housing sector.

As a result, the so-called ABX 07-1 index – which tracks AAA mortgage bonds originated in the first half of this year – fell to a record low close of 79 on October 30, meaning that traders reckon these bonds are worth only 79 cents on the dollar. The ABX "BBB" 07-1 index measures the performance of loans made during the second half of 2006, when many home purchase loans were made to buyers with shaky credit standings. The index traded around 44, or 44 cents on a dollar, nearly its weakest level ever.

The swing is creating real pain for investors, since in recent years numerous firms have created trading strategies which have loaded large debt levels onto these "safe" securities, precisely because these instruments were not expected to fluctuate in price. Investors normally hold such "safe" securities to maturity thus there is no demand for a ready market for them. But as the credit rating of these securities falls, investor cannot find buyer for them at any reasonable price. The last week in October saw the worst falls in the ABX market this year, especially higher up the capital structure with highly rated debt.

Pension funds and insurance companies hold the less risky, senior CDO tranches because regulatory rules restrict them from investing in lower-rated securities. When the low-rated tranches default in large numbers, the high-rated tranches lose rating and these regulated institutions are forced to sell their non-conforming holdings into a market with few buyers.

Pension funds, insurance companies and university endowment funds have also invested in hedge funds that hold the riskier CDO tranches to get higher returns. In recent years, CDO issuance has exploded and many hedge funds have been buying the riskiest tranches of MBS that are backed by subprime loans. Mortgages closed by 4 pm New York time were sent electronically to back-office locations in India to be packaged into CDO tranches and resent electronically to New York at 9:30 am the next day to be sold in the credit market, generating huge fees and profits for Wall Street firms every day.

Rating Agencies Under Pressure

Moody's Investors Services, an influential rating agency, warned in late July that defaults and downgrades of subprime MBS could have "severe" consequences for CDOs that invested heavily in the sector. CDOs that Moody's rated from 2003 to 2006 had 45% exposure to subprime MBS on average. But that varied widely from almost zero to 90% with recent CDOs having the high concentrations of such collateral, the potential downgrade for which could be 10 or more notches in rating. The secondary market for CDOs responded to these heightened risks, pushing prices down and widening spreads - the difference between interest rates on riskier debt and measures of short-term borrowing costs such as the London Interbank Offered Rate (LIBOR) or commercial paper rates. Spreads on BBB-rated asset-backed securities (ABS) CDOs over LIBOR have widened by roughly 125 basis points to 657 basis points since the end of 2006.

Structured investment vehicles (SIVs)

Although the first structured investment vehicles (SIVs) appeared in the structured finance world some 15 years ago, and the growth of SIVs had been somewhat limited, (there are fewer than 20 vehicles globally), there is no doubt that these sophisticated bankruptcy-remote structures have strongly influenced other funding vehicles and asset management businesses. Since 2002, there has been renewed interest by different types of financial institutions in starting up SIVs or SIV-like structures with evolved capital structures embracing new classes of financial instruments.

The first SIVs were founded in the mid-1980s as bankruptcy-remote entities and were sponsored by large banks or investment managers for the purpose of generating leveraged returns by exploiting the differences in yields between the longer-dated assets managed and the short-term liabilities issued. The balance sheet of a structured investment vehicle typically contains assets such as asset-backed securities (ABS) and other high-grade securities that are funded through issued liabilities in the form of commercial paper (CP) and medium-term note (MTN) and subordinate capital notes. SIVs typically hedge out all interest and currency risks using swaps and other derivative instruments.

Overall, CP and MTN issuance shot up dramatically in 2004, up US$25.7 billion to US$133.1 billion at year-end, with capital investments at an all-time high. In general, advances in capital structures and asset portfolio management have invigorated interest from investors and prospective sponsors.

SIVs, Conduits and Asset-Backed Commercial Paper (ABCP)

SIVs are typically funded in the low interest short-term asset-backed commercial paper (ABCP) market to invest in high-return long-term securities for profit. The viability of the stratagem depends on the ability to roll over the short-term commercial paper when they mature in typically less than 120 days. To keep the liquidity risk at a minimum, issuers stagger the maturity so that only a small portion of the loan needs to be refunded in any one week. The credit market crisis in mid 2007 created a break in short-term debt rollovers to cause a funding mismatch in long-term assets positions because investors have stopped buying new ABCP issued by some SIVs and conduits.

What separates a SIV from other investment vehicles is the nature of its ongoing relationship with rating agencies – from the originating qualification process to the continuous monitoring of its asset diversification, risk management and funding practices. These guidelines include frequent reporting of operating parameters such as portfolio credit quality, portfolio diversification, asset and liability maturity, market risk limitations, leverage and capital adequacy requirements, and liquidity requirements.

The rigorous monitoring allows SIVs to be highly capital efficient, enabling them to be leveraged on an average of 12 times the capital base, with exceptions. Unlike related traditional asset backed commercial paper (ABCP) conduits, SIVs do not require 100% liquidity support and credit enhancement.

Many SIVs faced trouble in the summer of 2007 as they were hit by both sharp falls in the value of their investments, mainly financial debt and asset-backed bonds, and a lack of access to new refinancing as investors shunned short-term commercial paper debt linked to asset-backed securities (ABCP).

Most CDOs are cash flow transactions not directly sensitive to the market value of their underlying assets as long as the cash flow is undisturbed. But if a CDO manager needs to sell an asset quickly even at a loss because of ratings agency downgrade, the CDO manager will be forced to carry the remaining assets at a lower value, upsetting both collateral for the agreed cash flow and the balance sheet of the participants.

While some hedge funds have profited from the sublime mortgage meltdown, other funds have been hit hard, resulting in a deteriorating financial sector as asset values plummeted faster than potential gains by vultures.

Other big lenders that raised warning flags earlier about bad-performing debt portfolios included Washington Mutual, New Century Financial and Marshall & IIsley Corporation. Foreclosures jumped 35% in December 2006 versus a year earlier. For the fifth straight month, more than 100,000 properties entered foreclosure because the owner couldn't keep up with their loan payments. In January 2007, Washington Mutual disclosed that its mortgage business lost $122 million in the fourth quarter, highlighting the weak sub-prime market.

New York Attorney General Sues Appraisal Company

New York Attorney General Andrew Cuomo, a potential Democrat gubernatorial candidate for New York, has filed suit against eAppraiseIT (EA), a real estate appraisal management subsidiary of First American Corporation, for having "caved to pressure from Washington Mutual" to inflate property values of homes. Washington Mutual allegedly complained to EA that "its appraisals weren't high enough." Cuomo said in a statement that "consumers are harmed because they are misled as to the value of their homes, increasing the risk of foreclosure and hindering their ability to make sound economic decisions. Investors are hurt by such fraud because it skews the value and risk of loans that are sold in financial markets." The bank is also facing a number of class action suits from irate borrowers.

Shares of government sponsored mortgage lenders Fannie Mae and Freddie Mac tumbled after receiving subpoenas seeking information on loans they bought from Washington Mutual and other banks. Cuomo said he uncovered a "pattern of collusion" between lenders and appraisers, and is seeking documents that may prove the lenders inflated appraisal values. The subpoenas also seek information on Fannie and Freddie's due diligence practices. If decided that they own or guarantee mortgages with inflated appraisals, company policy dictates that the lenders buy back the loans. "In order to fulfill their duty to consumers and investors, Fannie Mae and Freddie Mac must ensure that Washington Mutual's mortgages have not been corrupted by inflated appraisals," Cuomo said. In 2007, WaMu is Fannie Mae's third-largest loan provider, selling it $24.7 billion and Freddie Mac's fourteenth largest at $7.8 billion. Washingtom Mutual share fell 17% after it announced it would set aside $1.3 billion fourth quarter 2007 for credit losses, up from $967 million in the third quarter.

Mortgage Lenders Fell Like Flies

The handwriting had been clearly on the wall. Back on February 6, New Century Financial shares plunged 29% after the mortgage services provider slashed its forecast for loan production for 2007 because early-payment defaults and loan repurchases had led to tighter underwriting guidelines. A week later, Pasadena, Calif.-based IndyMac Bancorp Inc. which sold Alt-A mortgages for borrowers who were not required to submit conforming income and financial documents necessary to quality for conventional conforming mortgages, warned that its quarterly earnings would come in well short of analyst expectations because of increased loan losses and delinquencies. Other lenders were also squeezed by deteriorating credit. Marshall & IIsley reported a jump in non-performing assets in the quarter, while Bank of the Ozarks reported a 69% increase in problem loans. US Bancorp predicted an increase in retail loan charge-offs and commercial loan losses in coming quarters. Wells Fargo warned it expected net credit losses from wholesale banking to increase in 2007.

Britain 's Barclays PLC, in the midst of an unsuccessful takeover battle for ABN Amro, was reported as among the banks that were having trouble with bad loans and its hedge funds. Barclays Global Investors was one of the world's biggest fund managers, with some $2 trillion in assets under management.

The Case of Countrywide Financial

Non-conforming mortgages securities packaged by Countrywide Financial needed to be sold in the private, secondary market to alternative investors, instead of the agency market. On August 3, 2007 , this secondary market collapsed and essentially stopped the sales of most non-conforming securities. Alt-A mortgages (loans given to self-declared creditworthy borrowers without supporting documentation) completely stopped trading and the seizure extended to even AAA-rated mortgage-backed securities. Only securities with conforming mortgages were trading. Unfazed, Countrywide Financial issued a reassuring statement that its mortgage business had access to a nearly $50 billion funding cushion.

In reality, the sub-prime mortgage meltdown put Countrywide Financial, along with many other mortgage lenders, in a crisis situation of holding drastically devalued loan portfolios that could not be sold at any price. Amid rising defaults, investors have fled from mortgage-related investments, drying up market demand. The ongoing credit crunch threatened Countrywide's normal access to cash.

After the collapse of American Home Mortgage on August 6, the market's attention returned to Countrywide Financial which at the time had issued about 17% of all mortgages in the United States . Days later, Countrywide Financial disclosed to the SEC that disruptions in the secondary mortgage markets could adversely affect it financially. The news raised speculation that Countrywide was a potential bankruptcy risk. On August 10, a run on the Countrywide Bank began as the secondary mortgage market shutdown, curtailing new mortgage funding.

The perceived risk of Countrywide bonds rose sharply. Credit ratings agencies downgraded Countrywide to near junk status. The cost of insuring its bonds rose 22% overnight. This development limited Countrywide access to the short-term commercial paper debt market which normally provides cheaper money than bank loans. Institutional investors were trying desperately to unload outstanding Countrywide paper held in their portfolios. Some 50 other mortgage lenders had already filed for Chapter 11 bankruptcy, and Countrywide Financial was cited as a possible bankruptcy risk by Merrill Lynch and others on August 15. This combined with news that its ability to issue new commercial paper might be severely hampered put severe pressure on the stock. Countrywide shares fell $3.17 to $21.29, which was its biggest fall in a single day since the crash of 1987 when the shares fell 50% for the year. The 52-week low to date was $12.07 per share.

On Thursday, August 16, having expressed concerns over liquidity because of the decline of the secondary market for securitized mortgage obligations, Countrywide also announced its intention to draw on the entire $11.5 billion credit line from a group of 40 banks. On Friday August 17, many depositors sought to withdraw their bank accounts from Countrywide. It also planned to make 90% of its loans conforming. By this point stock shares had lost about 75% of their peak value and speculation of bankruptcy broadened.

The Fed Discount Window Accepts Toxic Collateral from Banks

At the same time the Federal Reserve lowered the discount rate 50 basis points in a last-minute, early morning conference call. The Fed also accepted $17.2 billion in repurchase agreements for mortgage backed securities to provide liquidity in the credit market. This helped calm the stock market and investors promptly responded positively with the Dow posting temporary gains.

Additionally, Countrywide was forced to restate income it had claimed from accrued but unpaid interest on "exotic" mortgages in which the initial pay rate was less than the amortization rate. By mid 2007, it became apparent much of this accrued interest had become uncollectible. In a letter dated August 20, Federal Reserve agreed to waive banking regulations at the request of Citigroup and Bank of America to exempt both banks from rules that limited the amount that federally-insured banks can lend to related brokerage companies to 10% of bank capital, by increasing the limit to 30%. Until then, banking regulations restricted banks with federally insured deposits from putting themselves at risk by brokerage subsidiaries' activities. On August 23, Citibank and Bank of America said that they and two other banks accessed $500 million in 30-day financing at the Fed's discount window at the new low rate of 5.25%.

On the next day, Countrywide Financial obtained $2 billion of new capital from Bank of America Corp, the banking holding parent. In exchange, the Bank of America brokerage arm would get convertible preferred stock yielding 7.3%, a profitable spread over its Fed discount rate of 5.25% and the Fed funds rate of 4.75%. The preferred stocks can be converted into common stock at $18 per share (trading around $12 on October 25). This gave the distressed mortgage lender a much-needed cash infusion amid a crippling credit crunch. Countrywide shares soared 20.01%, or $4.37, to $26.19 after hours on the news. Bank of America shares rose 1.9%, or 98 cents, to $52.63 (trading around $46.75 on October 25 after announcing third quarter earning dropping 32%).

SEC to Scrutinize Security Valuation

The Securities and Exchange Commission (SEC) is reportedly looking into the accounting and securities valuation practices at Wall Street investment banks to ensure consistency and clarity for investors. Meanwhile, major financial institutions were lining up to announce write-downs on their sub-prime mortgage exposures. Merrill Lynch wrote down $5.5 billion which was later revised to $8 billion; Citigroup $3.3 billion which was later revised to $11 billion; Goldman Sachs $1.7 billion, Lehman Brothers $1 billion, Morgan Stanley $0.9 billion and Bear Sterns $0.7 billion. Many in the market expect further write downs in coming quarters. Already Merrill Lynch write down is widely put at more than $14 billion and few believe that Citigroup's loss could be kept to $11 billion in coming quarters. The heads of Merrill, UBS and Citigroup all resigned.

Wachovia, the fourth-largest US bank by assets, estimated on Friday, November 9 that the value of its subprime mortgage-related securities had fallen $1.1 billion in October. It said loan-loss provisions would be increased by as much as $600 million in the fourth quarter due to "dramatic declines" in home values. The announcement came three weeks after Wachovia reported writedowns of $1.3 billion in the third quarter and posted its first earnings drop in six years.

Morgan Stanley, the second-biggest U.S. securities firm, said on November 7 its subprime mortgages and related securities lost $3.7 billion in the past two months, after prices sank further than the firm's traders anticipated. The decline may cut fourth-quarter earnings by $2.5 billion. Colm Kelleher, Morgan Stanley chief financial officer to the Financial Times in an interview: "You need to see some of these long positions reduced, you need to see buyers coming in, you need to see an easing of liquidity in the market." Kelleher said credit markets would take three or four quarters to recover, instead of the one or two he estimated when the firm reported third-quarter results on September 19.

Concerns about potential writedowns at Morgan Stanley have pushed the stock lower this week, bringing the year-to-date decline to 24 percent. The stock fell $3.32, or 6.9%, to $51.19 in New York Stock Exchange composite trading on November 8. Analysts estimate the firm would lose about $4 billion on asset- backed securities and collateralized debt obligations and expected the remaining losses to be booked on residual mortgage interest and on credit lines to structured investment vehicles.

Being Right Can lead to Losses through Aggressive Hedging

Part of the losses Morgan Stanley incurred stemmed from derivative contracts the firm's proprietary trading unit wrote earlier in the year. The traders anticipated correctly a decline in the value of subprime securities and took up short positions and the contracts made money for the firm in the second quarter. But the contracts started losing money when prices fell below the level the traders had anticipated. As markets continued to decline, the firm's risk exposure swung from short, to flat to long because the structure of the book had big negative convexity. For any given bond, a graph of the relationship between price and yield is a convex curve rather than a linear straight-line. As a bond's price goes up, its yield goes down, and vice versa. The degree to which the graph is curved shows how much a bond's yield changes in response to a change in price. Negative convexity gives the investor a greater loss in the event of a 50 basis points drop in yields than his gain in the event of a 50 basis points rise in yields. For any given move in interest rates, the downside is bigger than the upside to give a built-in loss for a short position with negative convexity. Sophisticated traders can create instruments which have so much negative convexity that the price might start off moving in one direction as yields start moving, and then eventually start moving in the opposite direction beyond a given range. The hedge then begins to cannibalize profitability.For any given move in interest rates, the downside is bigger than the upside to give a built-in loss for a short position with negative convexity, thus producing losses. For positive convexity, the upside is bigger than the down side, thus giving short positions an advantage. Morgan Stanley's short positions allegedly turned against them by negative convexity; at least that was how they explained the loss. Some analysts think there must be more than meets the eye, assuming Morgan management itself even know. The people who put on the bad trades were fired and not there to answer questions.

It is one thing to lose money, but it is quite another to lose money without knowing why and how. Morgan Stanley, Citibank, and the rest still have difficulty figuring out how they lost money last quarter and how much loss is waiting in future quarters. They only know the numbers came in very bad.

SEC Concern over Accuracy of Writedowns

US market regulators have been working with investment banks and accounting firms over the past few months to keep tabs on how they are dealing with changes to the accounting treatment of securities that were introduced this year by the US Financial Accounting Standards Board (FASB). The SEC has been particularly concerned during the third quarter earnings season, which resulted in billions of dollars in write-downs at investment banks after problems in the sub-prime mortgage markets that triggered a wider credit crisis. At issue is whether these write-downs accurately reflect the total financial impact of the credit crisis on the banks and their investors.

The SMELEC Super Fund Proposal

Citigroup, Bank of America and JP Morgan/Chase announced on Monday, October 15, plans for a super fund to buy mortgage-linked securities in an attempt to allay fears of a downward price-spiral that would hit the balance sheets of big banks. US banks collectively would put up credit guarantees up to $100 billion for the fund, named the Single-Master Liquidity Enhancement Conduit (SMLEC).

The concept of an SMLEC first emerged three weeks earlier when the US Treasury summoned leading bankers to discuss ways to revive the mortgage-linked securities market and to deal with the threat to the credit market posed by structured investment vehicles (SIVs) and conduits. The Treasury said it acted as a "neutral third party" in the discussions, but Henry Paulson, Treasury secretary, was reportedly strongly in support of the initiative.

Robert Steel, under-secretary for domestic finance, led the US Treasury side of the discussions, with the day-to-day work handled by Anthony Ryan, assistant secretary. The plan is an attempt to address concerns about SIVs and conduits, vehicles that are off-balance sheet but closely affiliated to banks.

Fears emerged that some SIVs might be pushed into forced sales of assets, prompting further declines in the market price of mortgage-linked securities as a class that could hurt the balance sheets of all lending institutions. SMLEC, designed as a superfund to preserve the theoretical value of the high-rated tranches by creating a ready buyer for them, is likely to be unpopular with some banks and non-bank institutions which have already started trading in distressed low-rated subprime securities at knockdown prices.

SMLEC as proposed is intended as a restructuring vehicle, repackaging credit securities to make them more transparent than existing SIV commercial paper and less risky to investors. It would only deal in "highly-rated" assets. Although it is envisaged that the scheme will initially focus on vehicles in the dollar market held by US banks, it is expected to extend to non-US banks as well, and may even be extended to the euro market. The US Treasury declined to provide official comment on the reported proposal.

In October, Citigroup Inc. posted a 57% slump in third-quarter net income at $2.38 billion, or 47 cents a share, from $5.51 billion, or $1.10 a share, a year earlier. The latest quarterly results included $1.35 billion of pretax write-down in the value of loans that helped finance the leveraged-buyout boom and $1.56 billion of pretax losses tied to loans and sub-prime mortgages. A couple of weeks after the SMLEC proposal, Citigroup announced a write down of $3.3 billion which was later revised to $11 billion and that its Chairman resigned after an emergency board meeting on the first Saturday of November.

SMLEC is in essence a big bet that a consortium of banking giants, at the prodding of the US Treasury, can persuade investors to pour new money into the troubled credit market to buy the assets of troubled SIVs to prevent the pending loss faced by the sponsoring institutions.

Alan Greenspan, former Fed chairman, immediately raised serious doubts over SMLEC, warning that it could prevent the market from establishing true clearing prices for asset-backed securities. "It is not clear to me that the benefits exceed the risks," Greenspan told Emerging Markets , adding, "The experience I have had with that sort of intervention is very mixed." As the person most responsible for a macro liquidity boom that had prevented "the market from establishing true clearing prices for assets of all types", Greenspan is critical of the effort of the Treasury to do the same thing on a micro level to save the banking system.

Greenspan explained: "What creates strong markets is a belief in the investment community that everybody has been scared out of the market, pressed prices too low and there are wildly attractive bargaining prices out there." He added: "if you intervene in the system, the vultures stay away. The vultures are sometimes very useful." Goldman Sachs must have heard the message loud and clear and decided to act as its own home-grown vulture.

Greenspan's remarks came amid growing speculation on Wall Street that the current Federal Reserve sees potential benefits in the SMLEC proposal in terms of preventing a possible fire sale of assets, and does not think it has been designed to allow financial institutions to avoid recognizing losses. But the Fed is concern that the superfund plan could exacerbate growing investor anxiety, and thinks markets might normalize faster if at least some troubled SIV assets were sold in the market to allow prices to find a floor. Fed officials have been officially silent on the superfund plan, leading to the impression that the Fed wants to keep its distance. The Treasury regards the Fed's silence as simply reflecting the separation of powers and responsibilities between the institutions. In reality, the Treasury leads the Fed on issues of national economic security, notwithstanding the Fed's claim of independence.

Greenspan defended the 1998 Fed-sponsored rescue of Long-Term Capital Management (LTCM) by a group of creditor banks, saying it worked because it took a set of assets that would otherwise have been dumped at fire-sale prices off the market, allowing prices of the remaining assets to find a true equilibrium. But he said today "we are dealing with a much larger market." To those who still have reliable memory, the justification for the Fed managed rescue of LTCM was to prevent the total collapse of the financial market because of the dominant size and high leverage of LTCM. Other distressed hedge funds would also have survived with a Fed managed bailout, but they did not qualify as being "too big to fail".

Frederic Mishkin, a Federal Reserve governor, admitted to the Financial Times that although the central bank could use monetary policy to offset the macroeconomic risk arising from the credit squeeze, it was "powerless" to deal with "valuation risk" – the difficulty assessing the value of complex or opaque securities.

Robert J Shiller, Yale economist of " Irrational Exuberance " fame (2000), writing in the October 14 edition of the New York Times: Sniffles That Precede a Recession : "While it may seem as though these private banks could have met by themselves and agreed to create a fund without pressure from Treasury to do so, apparently there are times when the private sector cannot take care of itself and it needs the government to intervene and prod it in the right direction, at least that appears to be the attitude at Treasury (and I wonder if there will be government guarantees of any sort as part of the bargain, a situation that rules out the private sector doing it on its own, but also a situation that more explicitly recognizes the existence of market failure and the need for government intervention to overcome it). It would be refreshing to see this same attitude extended by the administration to other markets that cannot coordinate properly or that suffer from significant market failures of other types, markets that produce outcomes where, say, children are left without health coverage. But don't get your hopes up."

Warren Buffett, the Pied Piper of other awed investors, told Fox Business Network that "pooling a bunch of mortgages, changing the ownership" would not change the viability of the mortgage instrument itself. "It would be better to have them on the balance sheets so everyone would know what's going on." Bill Gross, chief investment officer of Pimco, the giant bond fund manager, called the superfund idea "pretty lame". Investors need to know what their portfolio is really worth at any moment in time, not merely constructed value if conditions should hold.

Next: The Commercial Paper Market and SIVs

[Jul 03, 2018] When you see some really successful financial speculator like Soros or (or much smaller scale) Browder, search for links with intelligence services to explain the success or at least a part of it related to xUSSR space , LA and similar regions

Highly recommended!
Jul 03, 2018 | www.moonofalabama.org

Recently came across the following article written by F. William Engdahl in 1996 which might be of interest to some here:

The secret financial network behind "wizard" George Soros

The last page of the above article can be found here:

Soros's looting of Ibero-America

Posted by: integer | Jul 2, 2018 4:49:45 AM | 35

[Jun 13, 2018] The Roots of Argentina's Surprise Crisis

The root is neoliberal government that came to power in 2015
Notable quotes:
"... Why is any of this still "surprising" ..."
"... Economist Ha Joon Chang popularized the term "ladder kicking" to describe the way in which most developed countries used tariffs and trade restrictions to ascent to the top but are all for "free trade" now. ..."
"... Once again, so long as "Original Sin" is a reality, there is little hope. Keynes' BANCOR was the idea to begin to fix this, but short of some other global currency initiative, we're left to the International Finance Vultures as the primary arbiters of what's possible. ..."
Jun 13, 2018 | www.nakedcapitalism.com

Synoia , June 13, 2018 at 10:25 am

Early measures included the removal of exchange-rate and capital controls

How does a county manage what it does not control?

ChrisAtRU , June 13, 2018 at 1:28 pm

Exactly see Trilemma .

Scott1 , June 13, 2018 at 6:34 pm

Thanks for the link. I will be spending some time thinking of what Argentina would best employ as best practices from where it is.
Would they be best off if they stopped issuing such high paying bonds? Should they pay them all off and stop with it. It does appear to me that issuing bond after bond is one of the single most dangerous things you can do.
It would appear to me to be a superior practice to sell what you produce for the best price you can get on the open markets and dictate the value of your currency.
I'll have to do some more study here.
Again, thanks for the link.

Lorenzo , June 13, 2018 at 6:31 pm

You're uttering the discourse of the most recalcitrant neo-liberal cum austerity-fundamentalists around.

The US doesn't tax soybean exports. Argentina needs to maximize its exports to earn foreign exchange.'

it's misleading to say the least to draw a comparison between how the US handles soybean exports and Argentina does it. They're around a quarter of the latter's exports, barely a hundredth of the latter's.

The US will never have forex issues, Argentina does have them, and they are very serious. You make it as if simply exporting commodities will fill the country's economy with USD, while in truth those dollars will be neatly parked in tax heavens. Eliminating tax and controls over Argentina's biggest exports -agricultural commodities- is in practice as if these commodities were produced not in this country but in some foreign territory over which only the very few who hold most of the land are sovereign. Which is what the current administration has been doing for the past two years.

You also make it as if the current situation where the value of the peso is given over completely to whatever short-term speculators feel like doing with it whenever LEBACs are due is more desirable than the capital controls imposed by the previous government. These prevented the hurtful rapid rise we're seeing in the exchange rate and reduced the negative consequences of the fiscal deficit thus allowing significant investment in and expansion of the real economy.

Addressing the fiscal deficit through increased value added and income tax is something that clearly benefits the owner over the working class and depresses private consumption. I can only sarcastically wonder who would want such a thing.

I don't feel the need or the duty to defend the previous government, but victimization of the Sociedad Rural is something I just lack the words to condemn strongly enough

ChrisAtRU , June 13, 2018 at 9:15 pm

NP. You're welcome. See my comment below. Unfortunately, the only way to win this game is not to play (by the vulture established rules).

Mickey Hickey , June 13, 2018 at 4:24 pm

Argentina is probably the most self sufficient country on earth. It has everything, fertile land that produces an abundance of wheat, barley, oats, rye, wine grapes. As well as oil, gas. uranium, silver, gold, lead, copper, zinc. Foreigners are well aware of the wealth in Argentina and are more than willing to lend to Argentinian governments and companies. This is why Cristina Kirchner refused to give in to the US vulture funds as it dissuaded foreigners from believing that reckless lending would always be rewarded. Macri ponied up, restarting the old familiar economic doom cycle. As always its the old dog for the long road and the pup for the puddle. Macri is now in a place that he chose, the puddle. As long as foreig lenders remain reckless Argentina will remain mired in the mud, well short of its potential. I was last there in 2008 when the country was booming. When I heard of Macri's plan to pay the vulture funds I knew they were headed for disaster. This is just the beginning.

JTMcPhee , June 13, 2018 at 5:39 pm

Those "foreign lenders" can't be called "reckless." Some, maybe most among them always seem to profit from the looting, whether by "bailouts" or "backstops" from governments like the US that for "geopolitical reasons" facilitate that lending, or by extortion after the first-round lenders (who know the risks, of course -- they are big boys and girls after all) have been forestalled.

Call them "wreckers," maybe. Like early denizens of the Florida Keys, and other places, who set fires or put up lamps that resembled lighthouses to lure passing ships onto the sands and rocks where their cargoes and the valuables of their drowned passengers and crews could be stripped.

Wayne Harris , June 13, 2018 at 4:54 pm

"so-called vulture funds"?

ChrisAtRU , June 13, 2018 at 8:33 pm

"so-called" Laughable

ChrisAtRU , June 13, 2018 at 6:37 pm

Why is any of this still "surprising" to anyone?! Most countries in the world (non G7/G8) are forced to go into foreign debt in order to pursue their "development" initiatives. They are told they can export themselves out of trouble but the "free trade" (more like unfair trade!) mantra puts them at a distinct disadvantage – "unequal exchange" was the term Marx used for it.

Economist Ha Joon Chang popularized the term "ladder kicking" to describe the way in which most developed countries used tariffs and trade restrictions to ascent to the top but are all for "free trade" now.

Once again, so long as "Original Sin" is a reality, there is little hope. Keynes' BANCOR was the idea to begin to fix this, but short of some other global currency initiative, we're left to the International Finance Vultures as the primary arbiters of what's possible.

[Feb 25, 2018] The neoliberal "methodology" for "showing economic success" is propaganda masquerading as "science". So they sell Latvia as a poster child of austerity, true neoliberal market miracle. In reality it is a hot bed of curruption and deindustrialization

Latvia now is a typical neoliberal debt slave and flourishing sex trafficking market. Not that different from other Baltic states, Ukraine, Moldavia and generally all xUSSR space.
Feb 25, 2018 | www.nakedcapitalism.com

YankeeFrank , February 25, 2018 at 7:38 am

Bill mentions the brain drain from Latvia, but I seem to recall a quite massive general emigration from the country during austerity, which also helped to "reduce unemployment" as well. The neoliberal "methodology" for "showing economic success" is moral and economic bankruptcy masquerading as "science". And wow. So we have Latvia to thank for the coming nuclear holocaust as well. A true neoliberal market miracle.

Lambert's two principles of neoliberalism are once again brought to mind:

#1 Because markets.

#2 Go die.

Skip Intro , February 25, 2018 at 11:03 am

All those 'excess' workers who left were helping keep wages low in the EU
In the sense that Latvia's future productivity is sacrificed for short-term benefits on the books, it starts to look like another asset-stripping scheme, and the costs are borne by workers in the EU.

The Rev Kev , February 25, 2018 at 8:40 am

This is not the first time that Latvia has appeared on NC ( https://www.nakedcapitalism.com/2013/01/latvias-economic-disaster-as-a-neoliberal-success-story-a-model-for-europe-and-the-us.html ) and probably won't be the last. What is it about neoliberalism that that seems to have corruption as part of its DNA?

Latvia already has one of the highest levels of poverty and income inequality in the EU and its population has dropped by about a fifth in the past 18 years which is a bit of a record considering that there was no war, that is, unless you count the neoliberal war on people. Some moved to the capital Riga but most bailed out of the country altogether and are not coming back. You can find whole blocks of empty buildings in some towns.
But don't worry. The Latvians are on the case. The head of the Latvian Central Bank detained for extortion and the Latvian Ministry of Defense both blame, you guessed it, Russia!

Lambert's two principles of neoliberalism may have to be updated. He already has
#1 Because markets.
#2 Go die.

He may have to modify the second one to say
#2 Go die or get the hell outta Dodge.

DJG , February 25, 2018 at 9:11 am

Now I may be prejudiced because the Gs came from deepest darkest Lithuania–and we're talking out in the endless woods in a village along a lake.

When people talk about population decline in Latvia, you are talking about part of the corruption. The native Latvians wanted a way of getting rid of the Russian population, many of whom are considered immigrants. So dropping 20 percent of the population means throwing out the Russians. When your "population policy " is based on something like that, you can image what the country's economic policies are like.

In contrast–although Lithuania, too, has lost some 10 – 15 percent of its population since restored independence–the Lithuanians came to terms, imperfect terms, with their smaller Polish and Russian minorities. Nevertheless, the Lithuanians didn't go whole-hog free-market fundamentalism. And when a recent president was found to be corrupt, they impeached him and threw him out.

So you have different models for how to survive as a Baltic State. Latvia has made a mess of its "model."

edmondo , February 25, 2018 at 10:53 am

"Now of course that's still in a land where they had really severely repressed wages for the working class and for middle class, and continued to tolerate a fair degree of unemployment and underemployment for folks, as well. So, yeah it works really well for the oligarchs. And they do employ people. The unemployment rate drops, but the country invariably becomes extremely corrupt."

Was he still talking about Latvia or did he switch over to the USA?

Altandmain , February 25, 2018 at 12:15 pm

There is a strong correlation between inequality and corruption.

Furthermore, in the medium term there is a causal relationship:
http://www.tandfonline.com/doi/full/10.1080/1331677X.2016.1169701

This would suggest that inflicting austerity on a population, which worsens inequality, will set the precedent for corruption in the future.

Massinissa , February 25, 2018 at 12:27 pm

Half a decade ago when Latvia was considered a success story for neoliberal austerity, one animator made this great satire video making fun of how farcical it was to consider it such.

https://www.youtube.com/watch?v=3IRUBJ8qraY

Eustache De Saint Pierre , February 25, 2018 at 12:42 pm

Latvia also being part of that running sore which involves according to the US state department's last global estimate, about 800,000 to a million victims per annum of people trafficking. Of which around 80% are female, with a not stated amount being children, used for both labour & sexual purposes.

I suppose that it comes as little surprise that the 2 main flows of these commodities is from East to West & South to North.

[Feb 17, 2018] Imperialism with a human face International Socialist Review

Notable quotes:
"... Wall Street Journal ..."
"... The 700 Club ..."
"... Last Resorts: The Cost of Tourism in the Caribbean ..."
"... The Bottom Billion ..."
"... The Shock Doctrine ..."
"... Huffington Post, ..."
"... Wall Street Journal ..."
"... New York Daily News ..."
"... International Socialist Review (ISR) ..."
"... Damming the Flood: Haiti, Aristide, and the Politicsw of Containment ..."
"... The Forging of the American Empire ..."
"... The Uses of Haiti ..."
"... Haiti in the New World Order ..."
"... The Prophet and the Power ..."
"... Socialist Worker ..."
"... Haiti in the New World Order ..."
"... The Rainy Season ..."
"... Haiti's Predatory Republic ..."
"... Damming the Flood ..."
"... Dollars and Sense ..."
"... Damming the Flood ..."
"... Socialist Worker ..."
"... Last Resorts: The Cost of Tourism in the Caribbean ..."
"... Haiti Analysis ..."
"... Socialist Worker ..."
"... The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It ..."
"... Huffington Post ..."
"... New York Times ..."
"... Democracy Now! ..."
"... Socialist Worker ..."
"... Socialist Worker, ..."
"... New York Times ..."
"... Los Angeles Times ..."
"... Washington Times ..."
"... Washington Examiner ..."
"... Washington Times ..."
"... To See the Dawn ..."
Feb 17, 2018 | isreview.org

Haiti after the quake

By Ashley Smith Issue #70 : Features

THE EARTHQUAKE that shook Haiti's capital Port-au-Prince on January 12 is one of the worst disasters in human history. The quake flattened houses, hotels, and government buildings, including the National Palace and UN headquarters. By some estimates, 60 percent of Port-au-Prince's buildings collapsed. Even more damage struck some of the smaller towns near the capital like Leogane and Jacmel. At least 230,000 people were left dead, 300,000 in need of medical attention, 1.5 million homeless, and over 2 million bereft of food and water.

The Obama administration reacted immediately. "I have directed my administration to respond with a swift, coordinated, and aggressive effort to save lives," Obama told the nation in a speech he delivered the day after the quake. "The people of Haiti will have the full support of the United States in the urgent effort to rescue those trapped beneath the rubble, and to deliver the humanitarian relief -- the food, water, and medicine -- that Haitians will need in the coming days. In that effort, our government, especially USAID and the Departments of State and Defense are working closely together and with our partners in Haiti, the region, and around the world." 1

This seemed a far cry from the reaction of the Bush administration to Hurricane Katrina, where tens of thousands of the city's poor, mostly Black, residents were left stranded and without help as Bush sent troops and Blackwater paramilitaries to police the city. The lack of a prompt humanitarian response prompted rap artist Kanye West to famously state, "George Bush doesn't care about Black people."

Yet while Obama said all the right things, the gap between his words and deeds has been immense. When all is said and done, the Haitian relief effort looks eerily like a replay of Katrina, only on a larger scale. A month into the disaster, the U.S. and UN were managing to feed only 1 million people, leaving more than a million people without relief aid. 2 Instead of mobilizing to provide water, food, and housing for the victims, the U.S. focused on occupying the country with 20,000 U.S. troops and surrounding it with a flotilla of U.S. Navy and Coast Guard ships.

This military effort actually impeded the delivery of urgent aid. In an op-ed piece in the Wall Street Journal entitled "Haiti: Obama's Katrina," three doctors who volunteered to provide emergency services wrote, "Four years ago the initial medical response to Hurricane Katrina was ill equipped, understaffed, poorly coordinated and delayed. Criticism of the paltry federal efforts was immediate and fierce. Unfortunately, the response to the latest international disaster in Haiti has been no better, compounding the catastrophe." After they describe the horrific conditions in Haiti's hospitals, the doctors continue, "The U.S. response to the earthquake should be considered an embarrassment. Our operation received virtually no support from any branch of the U.S. government, including the State Department . Later, as we were leaving Haiti, we were appalled to see warehouse-size quantities of unused medicines, food and other supplies at the airport, surrounded by hundreds of U.S. and international soldiers standing around aimlessly." 3

The U.S. government and media have covered up these realities with puff pieces about the supposed success of U.S. relief efforts. They have also wrongly portrayed this catastrophe as simply a natural disaster, ignoring the historical and social causes of Haiti's poverty -- principally the imperialist stranglehold over the nation -- that exacerbated the impact of the earthquake.

If the military flotilla is not there to deliver aid, why is it there? The Obama administration has used the cover of humanitarian aid to occupy the country in pursuit of several goals. First and foremost, after disastrous wars that have discredited U.S. interventionism, Obama hopes through the operation in Haiti to win back domestic support for military intervention. What better means to do that than to present a military invasion and occupation as a humanitarian relief effort?

With a flotilla of ships surrounding the country, the U.S. also aims to repatriate desperate Haitians and prevent a wave of refugees reaching Florida. Through this assertion of power, the U.S. aims also to reassert its dominance in the Caribbean and Latin America over regional rivals like Venezuela and international ones like China. Finally, the U.S. intends to impose a traditional neoliberal economic program on Haiti itself in the interest of U.S. multinational corporations and the Haitian ruling class.

Not just a natural disaster
Most of the media reported the earthquake as a natural disaster. While this is no doubt true, that is only part of the story. Certainly, there was talk of Haiti being the poorest country in the Western Hemisphere, with over 80 percent of its population making about $2 a day. Media acknowledged that the Haitian state was completely unprepared and unable to respond to the crisis not only in Port-au-Prince, but throughout the country. However, the reason for these conditions -- the historical context -- is left out. The story of Haiti's poverty is merely an excuse to further justify why Haiti needs help from the United States, even though the "help" Haiti has received from the U.S. and other world powers is precisely the reason for Haiti's extreme poverty.

Some conservative commentators blamed Haitians for their situation. Pat Robertson on The 700 Club claimed that the disaster was the result of a pact that Haitians made with the devil during their revolution from 1791 to 1804. The devil was merely taking his revenge on Haitians more than 200 years later. 4 In a more polite, but no less racist manner, David Brooks argued that the root cause of the social problems in Haiti was their "progress-resistant" culture. He claimed,

There is the influence of the voodoo religion, which spreads the message that life is capricious and planning futile. There are high levels of social mistrust. Responsibility is often not internalized. Child-rearing practices often involve neglect in the early years and harsh retribution when kids hit 9 or 10. We're all supposed to politely respect each other's cultures. But some cultures are more progress-resistant than others, and a horrible tragedy was just exacerbated by one of them. 5

These are extreme versions of a dominant media story that essentially blames the victims of the earthquake. None of this answers the real questions. Why are the majority of Haitians so poor? Why according to the mayor of Port-au-Prince, were 60 percent of the buildings unsafe in normal conditions? Why is there no building regulation in a city that sits on a fault line? Why was the Haitian state so weak and disorganized before and after the earthquake? To answer these questions, we must delve into Haiti's history.

European slavery, revolution, and U.S. domination
The answer lies in Haiti's history of European conquest, slavery, resistance, and U.S. imperial domination. At every step, instead of aiding the Haitian majority, the U.S. has manipulated the country's politics and exploited its poverty in pursuit of profit, and used it as a pawn in its competition with regional and international rivals. In doing so the U.S. has reduced Haiti to abject poverty and incapacitated its government to manage the society and the current crisis. This history, a second and unnatural fault line, interacted with the natural one to make the earthquake so devastating.

Columbus set off the first tremors when he landed on the island he called Hispaniola in 1492. He proceeded to enslave the Taino natives, whose population was estimated to be more than half a million. The combination of European disease, massacre, and brutal exploitation led to the genocide of the native population. Spain ceded the western section of the island in 1697 to France, which renamed it San Domingue. Spain remained in control of the eastern section of the island, Santo Domingo, which would become the Dominican Republic. French merchants and planters turned their colony into a vast slave plantation and slaves from Africa replaced Indians and white indentured servants. The colony was a killing field where slaves were literally worked to death -- half the African slaves who arrived died within a few years. But it was an enormously profitable one. San Domingue was the richest colony in the new world; the slave plantations produced half of the world's coffee, 40 percent of its sugar, as well as a host of other commodities. 6

In 1791, Toussaint L'Ouverture, a literate freed slave, led the world's first successful slave revolution. Toussaint defeated the three great empires of the age -- France, Spain, and England -- which all attempted to defeat the great slave army. During the struggle, the French managed to kidnap Toussaint and jail him in France, where he died. His second-in-command, Jean-Jacques Dessalines, led the final victory and established the new nation of Haiti in 1804.

Haiti's very existence was a threat to all the empires and their colonies. They all lived off profits from plantation slavery. So the great powers quarantined the country, attempting to prevent the spread of slave revolution. France finally recognized Haiti in 1824, but on the condition that it pay reparations to France for the loss of its property -- its slaves. In today's terms this sum amounted to $21 billion. Thus France shackled Haiti with debt at its birth that it did not finish repaying until 1947, fundamentally distorting the nation's development. 7

Under the eagle
The U.S. was one of the last powers to recognize Haiti, finally doing so in 1862. It became interested in Haiti not to help it, but instead to plunder it. In the late nineteenth century the U.S. became an imperialist power, extending its talons to snatch control of the Caribbean, Latin America, and the Pacific from potential rivals like Spain, Britain, and Germany. The U.S. launched its imperial conquest under the guise of liberating Cuba, Puerto Rico, and the Philippines from Spain. Puerto Rico and the Philippines became U.S. colonies -- U.S. marines killed hundreds of thousands of Filipinos to conquer the island -- while Cuba became a colony in all but name. The U.S. then policed the Caribbean as if it were an American lake. The number of occupations and invasions over the following decades is too many to list.

A leader of this conquest was Major General Smedley Butler, who became one of the most decorated marines in history. After he turned against U.S. imperialism later in life, he summed up his experience:

I spent thirty-three years and four months in active military service as a member of this country's most agile military force, the Marine Corps . And during that period, I spent most of my time being a high-class muscle-man for Big Business, for Wall Street and for the Bankers. In short, I was a racketeer, a gangster for capitalism . I helped make Mexico, especially Tampico, safe for American oil interests in 1914. I helped make Haiti and Cuba a decent place for the National City Bank boys to collect revenues in. I helped in the raping of half a dozen Central American republics for the benefits of Wall Street. The record of racketeering is long. I helped purify Nicaragua for the international banking house of Brown Brothers in 1909–1912 . I brought light to the Dominican Republic for American sugar interests in 1916. In China I helped to see to it that Standard Oil went its way unmolested. During those years, I had, as the boys in the back room would say, a swell racket. Looking back on it, I feel that I could have given Al Capone a few hints. The best he could do was to operate his racket in three districts. I operated on three continents. 8

The U.S. saw Haiti as one of the key sites to establish client governments to protect U.S. interests in the Caribbean. 9 In 1915 the U.S. used the pretext of political turmoil in Haiti to invade the country and occupy it until 1934. The U.S. plundered the island, forced it to repay its debts to the U.S., and established involuntary corvee gang labor to build roads. United States corporations, hoping to take advantage of Haiti's cheap labor, gained control of 266,000 acres of Haitian land, displacing thousands of Haitian peasants. Haitians rose up against this exploitation in a mass liberation movement, the Cacos Rebellion, led by Charlemagne Peralte. The U.S. slaughtered thousands of resistance fighters, crucifying Peralte in Port-au-Prince.

The U.S. also established one of the most reactionary institutions in Haitian society, the Haitian National Army. The U.S. designed that army not to fight foreign wars but to repress the country's peasant masses.

The neoliberal "plan of death"
While the U.S. ended its occupation of Haiti -- prompted in part by a renewed wave of protests and strikes by workers and students -- it continued to intervene in the country's politics and economics with devastating consequences. From 1957 to 1986, the U.S. supported the father-son dictatorship of Francois "Papa Doc" Duvalier and Jean-Claude "Baby Doc" Duvalier. The Duvaliers' dictatorship maintained power through the army and a vast network of death squads called the Tonton Macoutes. The U.S. backed them as a counterweight to Fidel Castro who had aligned Cuba with Russia in the Cold War struggle for Latin America and the Caribbean. Most observers believe that Papa Doc Duvalier's Macoutes killed tens of thousands. 10 The Duvaliers' economic vision for Haiti -- one that has continued to motivate U.S. plans for Haiti -- was to establish Haiti as low-tax, low-wage, non-union offshore assembly site for U.S. corporations.

Though half of Haitians lived in dire poverty, Haiti until the mid–1980s was self-sufficient in the production of rice, its most important staple. All this changed with the imposition of neoliberal policies, pushed by the United States, that required Haiti to slash tariffs, privatize state-owned industries, and cut the state's agricultural budget. Haitian activists would come to call it a "plan of death."

President Reagan pushed this plan as part of his Caribbean Basin Initiative that aimed to open up the area to U.S. corporations and U.S. agricultural products. Baby Doc opened up the Haitian market to a wave of U.S. agribusiness exports like rice and wheat, which are heavily subsidized. The Haitian peasants were simply unable to compete with these cheap, subsidized imports, and Haiti's rural economy gradually collapsed. Hundreds of thousands of peasants abandoned the countryside for the cities to seek some kind of employment. Deprived of their livelihood, peasants turned to cutting down trees to make charcoal for cooking fuel, leading to the massive deforestation of the country, and the further destruction of Haiti's already depleted soil. 11 As a result, Port-au-Prince, which had been a small town of 50,000 in the 1950s, exploded in size to nearly 800,000 in the 1980s and well over 2 million today. 12

Reagan and Baby Doc claimed that they would absorb these dislocated peasants into an enlarged sweatshop industry. But the various factories in the export processing zones only created about 60,000 jobs. As a result, the masses in Port-au-Prince gathered in slums, left to survive on remittances from relatives who had fled abroad and income scraped together in a highly unstable informal economy.

Finally, the U.S. tried to subject Haiti to the same tourist industry that swept the rest of the Caribbean. Baby Doc cut deals with Club Med and various hotel chains to offer the country's beaches for tourism. Bill Clinton and Hillary Clinton first came to Haiti on their honeymoon as part of the jet set that Baby Doc welcomed into the swank resorts on the island. It would not be the last time the Clintons played around in Haiti.

Baby Doc took out $1.9 billion in loans from the U.S., other powers, and international financial institutions to bankroll this neoliberal "reform" of the country. 13 Meanwhile, Haitians suffered a calamitous drop in their standard of living; during the 1980s, absolute poverty increased by 60 percent -- from 50 to 80 percent of the population. 14 The dictator and his family joined the American and Haitian ruling class to party and profit at the expense of Haitian peasants, workers, and the urban poor.

Killing social reform
Peasants, workers, and the urban poor rose up against Baby Doc in opposition to this social catastrophe in a tremendous social movement called Lavalas (the Creole word for a cleansing flood). A young Catholic priest and advocate of liberation theology, Jean-Bertrand Aristide, became the spokesperson of the struggle. In 1986, Lavalas succeeded in driving Baby Doc from power. The U.S. whisked him away into exile in France along with $505 million stolen from the country. 15 Duvalier left behind a shattered country, shackled again with the odious debt accrued by a dictator to finance the neoliberal disaster.

Under pressure from the movement -- but also to stem the tide of impoverished Haitian refugees pouring out of the country -- the U.S. and Haitian governments finally agreed to hold elections in 1990. The U.S. spent $36 million to try to get their candidate, a former World Bank employee, elected. He received only 14 percent of the vote. Aristide defeated fourteen rivals, winning two-thirds of the vote, on a platform of extensive popular social reforms. The U.S. and the Haitian ruling class literally saw red. They thought that, in the words of a U.S. embassy official in Port-au-Prince, a "Marxist maniac" had been elected to the Haitian government. 16 President George Bush Sr. backed a military coup against Aristide in 1991 and tacitly backed the brutal regime that ruled Haiti from 1991 to 1994.

The military massacred thousands of Lavalas activists and drove 38,000 more out of the country. Bush Sr. and his successor President Bill Clinton repatriated most of these refugees and jailed others in Krome Detention Center in Florida and Guantánamo in Cuba. After an international outcry, the U.S. opted for a face-saving intervention to restore Aristide to power in 1994, but on the condition that he agree to the neoliberal plan of death. Aristide signed on to the deal but resisted its full implementation during his remaining two years in office. He did abolish the Haitian military in 1995 -- a great victory for the movement -- and implemented some reforms, but it was far from what he had promised during the struggle against Duvalier. "The author of a text entitled 'Capitalism is a Mortal Sin,'" wrote Paul Farmer at the time,

now meets regularly with representatives of the World Bank, the International Monetary Fund (IMF) and AID [U.S. Agency for International Development]. He was once the priest of the poor; now he's president of a beleaguered nation, run into the ground by a vicious military and business elite and by their friends abroad. Aristide finds himself most indebted to the very people and institutions he once denounced from the pulpit. 17

Aristide's Lavalas ally and successor, René Préval, implemented much of the U.S. neoliberal agenda during his term from 1996 to 2000. 18

Aristide would again run for and win the presidency in 2000, to the great irritation of Clinton and then-President George W. Bush. In his second term, Aristide implemented reforms such as raising the minimum wage and building schools. He also began to demand that France refund the $21 billion that it forced Haiti to pay from 1824 to 1947. 19 At the same time, however, Aristide backed new sweatshop developments in Ounaminthe and agreed to other neoliberal measures. 20 But the U.S. was not appeased and France was outraged.

Another coup and U.S. occupation
The U.S., France, and Canada used the pretext of charges that Aristide manipulated the parliamentary elections, something they usually tolerate with their own allies, to justify a destabilization campaign against Aristide and yet another coup. Bush, of course, had no ground to stand on as he himself had stolen the 2000 U.S. presidential election. Nevertheless, the U.S., Canada, and France imposed economic sanctions, mounted a vast propaganda campaign against Aristide, backed the ruling-class political opposition in the Group of 184, and aided the right-wing death squads. Finally, in 2004, as the death squads swept through the country, the U.S. kidnapped Aristide, whisked him out of the country to temporary exile in the Central African Republic and to final exile in South Africa. Thus, on the two hundredth anniversary of its declaration of independence, Haiti was occupied by the U.S., yet again.

Soon the U.S. delegated the occupation to the UN and its 9,000 mostly Brazilian troops, who continue to patrol the country to this day. This UN force, MINUSTAH, protected the U.S.-installed puppet regime headed up Gérard Latortue who they brought out of retirement from Boca Raton, Florida. The coup regime was utterly corrupt and brutal. With its death squad allies, the regime conducted a terror against the remnants of the social movements and Aristide's party, Fanmi Lavalas. The combination of death squad and UN repression killed an estimated 3,000 people. 21 The UN troops either joined the slaughter or stood aside while repression swept the island. 22

While the U.S. and UN allowed elections in 2006, they banned Aristide's party, the most popular party in the country. Aristide's former ally, René Préval, again won the presidency, but by this time he had become a servant for the U.S. political and economic agenda in Haiti. For example, Préval banned Fanmi Lavalas from running in elections and refused to sign a bill passed in the parliament to raise the minimum wage. 23 In fact, the real power was no longer in the hands of the Haitian government. The U.S.- backed UN occupation rules the country in colonial style, dictating policy to the Haitian government.

The occupation has completely failed to develop the country. It has done nothing to improve living conditions for Haitians, to rebuild the country's ravaged infrastructure, or to reforest the countryside. Before the earthquake, two rounds of natural disasters swept Haiti and exposed the U.S. and UN's callous neglect of the country. Hurricanes hit in 2004 and 2008, killing thousands. 24 The pattern of impoverishment, deforestation, and degradation of the country's infrastructure, which has accelerated in recent years, has rendered natural disasters in Haiti far more devastating than anywhere else. In what is perhaps the worst exposure of the result of U.S. and UN refusal to improve conditions in Haiti, the food crisis in Haiti spiraled out of control on their watch. Even before the food crisis in 2008, the urban poor were reduced to eating mud cakes flavored with salt as a regular meal. When capitalists speculated on the international food market, they drove up the prices of Haiti's imported staples, especially rice. In response Haitians rioted, only to be repressed by the UN troops. 25

Imposing a new plan of death on Haiti
During the UN occupation, the U.S. imposed the same neoliberal economic plan on Haiti in the interests of multinational capital and the Haitian ruling class. UN Secretary-General Ban Ki-moon appointed Bill Clinton as special envoy to Haiti in 2009 and tasked him with revitalizing the country's economy. Clinton developed a new version of the plan of death along with Oxford economics professor and former research director for the World Bank, Paul Collier. Collier outlined their program in his paper, "Haiti: From natural catastrophe to economic security." 26 It advocated investment in the tourist industry, redevelopment of the sweatshop industry in cities, export-oriented mango plantations in the countryside, and construction of infrastructure to service that development.

As Polly Pattullo documents in Last Resorts: The Cost of Tourism in the Caribbean , the tourist industry is largely controlled by U.S. multinational corporations. She quotes one critic of the tourist industry who argues, "When a third world economy uses tourism as a development strategy, it becomes enmeshed in a global system over which it has little control. The international tourism industry is a product of metropolitan capitalist enterprise. The superior entrepreneurial skills, resources and commercial power of metropolitan companies enable them to dominate many third world tourist destinations." 27

Clinton has orchestrated a plan for turning the north of Haiti into a tourist playground, as far away as possible from the teeming slums of Port-au-Prince. He lured Royal Caribbean Cruise Lines into investing $55 million to build a pier along the coastline of Labadee, which it has leased until 2050. From there, Haiti's tourist industry hopes to lead expeditions to the mountaintop fortress Citadelle and the Palace of Sans-Souci, both built by Henri Christophe, one of the leaders of Haiti's slave revolution. 28

For the cities, Collier promotes sweatshop development. Without a hint of shame, he notes, "Due to its poverty and relatively unregulated labor market, Haiti has labor costs that are fully competitive with China, which is the global benchmark. Haitian labor is not only cheap it is of good quality. Indeed, because the garments industry used to be much larger than it is currently, there is a substantial pool of experienced labor." 29 Given the abolition of tariffs on many Haitian exports to the U.S., Haiti is primed, according to Collier, for a new sweatshop boom.

But this is no sustainable development plan in the interests of Haitian workers. At best, Collier promises 150,000 or so jobs. As anthropologist Mark Shuller argues, "subcontracted, low-wage factory work does not contribute much to the economy besides jobs. Being exempt from taxes, it does not contribute to the financing of Haiti's social services." 30 Moreover these jobs themselves do not even pay enough to support life -- they pay for transport and lunch at about $1.60 a day. The U.S. will want to keep these wages low, since that is the profitable basis for the investment.

For the peasant majority in the country, Clinton and Collier advocate the construction of vast new mango plantations. According to them, such new plantations will both create an export crop and aid the reforestation of the country. While it may create jobs for poor peasants, such plantations will not rebuild the agricultural infrastructure of the country so that it can return to the self-sufficient food system it had before the 1980s. As TransAfrica founder Randall Robinson told Democracy Now! , "That isn't the kind of investment that Haiti needs. It needs capital investment. It needs investment so that it can be self-sufficient. It needs investment so that it can feed itself." 31 Such self-sufficiency runs against the grain of U.S. policy to control the international food market with its subsidized crops.

Collier finally argues for investment in infrastructure -- airports, seaports, and roads -- not so much to meet people's needs as to service these new investments in tourism, sweatshops, and plantations. As a result, Collier's plan will actually increase infrastructural inequities; businesses will get what they need to export their products, while the Haitian masses' infrastructural needs, like navigable roads, will be left unaddressed. Even worse, Collier advocates increased privatization of Haiti's infrastructure, especially the port and the electrical system.

It is not incidental that Collier is also the author of The Bottom Billion , 32 a book that calls for outside intervention by wealthy nations such as the United States into what he calls "post-conflict" poor nations, combining targeted aid and economic restructuring under long-term military occupation. In a modern recasting of the old colonialist "civilizing mission," this is meant to lift these nations out of a vicious cycle of violence and poverty.

On his whirlwind tour of the country in 2009, Bill Clinton promised investors that Haiti was open for business with Aristide and Lavalas out of the way and the U.S. and UN in effective control of the country. "Your political risk in Haiti" he declared at a press conference "is lower than it has ever been in my lifetime." 33

Failing to deliver relief to victims
In the aftermath of the earthquake, the press has cooperated with the Obama administration in giving the impression that the U.S. military has been busy delivering aid to desperate Haitians. The facts don't bear this out. To begin with, Obama's promise of $100 million in aid to the country is a pittance -- less than the winnings of a Kentucky couple in a recent Powerball lottery. 34 It is a paltry amount compared to the hundreds of billions that the U.S. shelled out to American banks and the $3 trillion the U.S. will have expended on the Iraq War alone.

There were early warning signs that this humanitarian mission was not all it was cracked up to be. Obama's decision to appoint former presidents George W. Bush and Bill Clinton to oversee the collection of donations through the Clinton Bush Haiti Fund displays incredible callousness toward the Haitian masses. Clinton imposed the plan of death on Lavalas. Bush let New Orleans get washed out to sea and backed the 2004 coup that overthrew Aristide. Appointing Bush is like putting Nero in charge of the fire department.

Aid was slow to arrive, and what did turn up was inadequate. Amid a crisis where the first forty-eight hours are decisive in saving people's lives, the U.S. and UN failed to come anywhere near addressing the needs of the 3 million people impacted by the earthquake. Every minute that aid was delayed meant more people died from starvation, dehydration, injury, and disease. It also meant that the hospitals and doctors desperately trying to help the victims were left stranded without the basics to heal the injured.

As Dr. Evan Lyon of Partners in Health, speaking from Port-au-Prince's main hospital just as heavily-armed U.S. troops were arriving, told Democracy Now! ,

In terms of supplies, in terms of surgeons, in terms of aid relief, the response has been incredibly slow. There are teams of surgeons that have been sent to places that were, quote, "more secure," that have ten or twenty doctors and ten patients. We have a thousand people on this campus that are triaged and ready for surgery, but we only have four working ORs without anesthesia and without pain medications. And we're still struggling to get ourselves up to twenty-four-hour care. 35

In the week after the quake, Partners in Health estimated as many as 20,000 Haitians were dying daily from lack of surgery. 36

The U.S. and UN used all sorts of technical alibis to justify the delay in meeting people's needs. They complained that the damage done to Haiti's airport, seaport, and roads impeded delivery of doctors, nurses, food, water, and rescue teams. Such claims are unconvincing. Clearly the means exist to deliver aid quickly to a country only 700 miles away from Miami, Florida, and only 156 miles from a fully functional international airport in the Dominican Republic. Other countries had no difficulty sending planes of aid and volunteers. China, from half way around the world, got a plane of aid to Haiti earlier than the United States. Iceland sent a rescue team within forty-eight hours of the quake. Cuba sent dozens of doctors to join the several hundred doctors already working the country.

This failure of the U.S. to respond produced a chorus of denunciations from relief experts. One official from the Italian government, Guido Bertolaso, who was acclaimed for his successful handling of the April 2009 earthquake in Italy, denounced the U.S. effort as a "pathetic failure." He declared, "The Americans are extraordinary but when you are facing a situation in chaos they tend to confuse military intervention with emergency aid, which cannot be entrusted to armed forces. It's truly a powerful show of force but it's completely out of touch with reality." 37

Guns over aid
As with Katrina, Obama prioritized the deployment of the U.S. military over provision of aid. He sent Secretary of State Hillary Clinton to Haiti right away to get President Préval to secure emergency powers. "The decree would give the government an enormous amount of authority, which in practice they would delegate to us," she stated. 38 The U.S. has taken effective control of Haiti. It has secured control of the airport and seaport and deployed 20,000 U.S. troops to bolster the enlarged UN force of 12,500 already in the country. Thus, for the fourth time since 1915, Haiti is under a U.S. occupation.

How did the U.S. justify the fact that six days into the relief effort only a trickle of aid had gotten through to those who needed it? The U.S. government claimed that aid could not be delivered properly until security was first established. When asked why the U.S. hadn't used its C-130 transport planes to drop supplies in Port-au-Prince, Secretary of Defense Robert Gates said, "Air drops will simply lead to riots." 39 However, precisely the opposite is the case; people will riot because they lack food and water.

In lockstep, the corporate media's coverage shifted from its initial sympathy with victims of the disaster to churning out scare stories. "Marauding looters emptied wrecked shops and tens of thousands of survivors waited desperately for food and medical care," Reuters claimed. "Hundreds of scavengers and looters swarmed over wrecked stores in downtown Port-au-Prince, seizing goods and fighting among themselves." 40

These scare stories in turn became an excuse for not delivering aid. Writer Nelson Valdes reported,

The United Nations and the U.S. authorities on the ground are telling those who directly want to deliver help not to do so because they might be attacked by "hungry mobs." Two cargo planes from Doctors Without Borders have been forced to land in the Dominican Republic because the shipments have to be accompanied within Port-au-Prince by U.S. military escorts, according to the U.S. command. 41
The scare stories led relief workers and military personnel to treat Haitians in a dehumanizing fashion. Democracy Now!'s Amy Goodman reported an incident where an aid helicopter refused to distribute food on the ground and instead dropped it on people. An angry Haitian compared the incident to "throwing bones to dogs." 42

Many non-governmental organizations (NGOs), because of their close relation with the U.S., have adopted a paranoid obsession with security to the detriment of providing relief. Ecologist and human rights activist Sasha Kramer reported on Counterpunch,

One friend showed me the map used by all of the larger NGOs where Port-au-Prince is divided into security zones, yellow, orange, red. Red zones are restricted, in the orange zones all of the car windows must be rolled up and they cannot be visited past certain times of the day. Even in the yellow zone aid workers are often not permitted to walk through the streets and spend much of their time riding through the city from one office to another in organizational vehicles. The creation of these security zones has been like the building of a wall, a wall reinforced by language barriers and fear rather than iron rods, a wall that, unlike many of the buildings in Port-au-Prince, did not crumble during the earthquake. Fear, much like violence, is self-perpetuating. When aid workers enter communities radiating fear it is offensive, the perceived disinterest in communicating with the poor majority is offensive, driving through impoverished communities with windows rolled up and armed security guards is offensive . Despite the good intentions of the many aid workers swarming around the UN base, much of the aid coming through the larger organizations is still blocked in storage, waiting for the required UN and U.S. military escorts that are seen as essential for distribution, meanwhile people in the camps are suffering and their tolerance is waning. 43

Yet this disastrous "beware of the Haitian people" line is simply not borne out by reports coming from Haiti. "There are no security issues," argues Dr. Lyon:

I've been with my Haitian colleagues. I'm staying at a friend's house in Port-au-Prince. We're working for the Ministry of Public Health for the direction of this hospital as volunteers. But I'm living and moving with friends. We've been circulating throughout the city until 2:00 and 3:00 in the morning every night, evacuating patients, moving materials. There's no UN guards. There's no U.S. military presence. There's no Haitian police presence. And there's also no violence. There is no insecurity. 44

As the real nature of the U.S. operation became clear, an array of forces criticized the U.S. for imposing an occupation, not supplying relief. Venezuelan president Hugo Chávez rightly declared on his weekly television show, "Marines armed as if they were going to war. There is not a shortage of guns there, my God. Doctors, medicine, fuel, field hospitals -- that's what the United States should send. They are occupying Haiti undercover." 45

Impeding relief
The U.S. occupation actually prevented relief efforts. Once the U.S. was in charge of the airport it prioritized military flights over relief flights. Jarry Emmanuel, the air logistics officer for the World Food Program, complained, "There are 200 flights going in and out every day, which is an incredible amount for a country like Haiti. But most of those flights are for the United States military. Their priorities are to secure the country." 46

Hillary Clinton herself brought relief missions to a halt when she flew into Port-au-Prince to seize emergency powers from Préval. The U.S. military shut the airport down for three hours, preventing the desperately needed delivery of aid. Outraged, Alain Joyandet, the French Cooperation Minister, called on the UN to investigate America's dominant role in the relief effort and protested: "This is about helping Haiti, not occupying it." 47

The chorus of complaints further escalated not only from governments but also from aid organizations. Richard Seymour reports that,

Since the arrival of the troops, however, several aid missions have been prevented from arriving at the airport in Port-au-Prince that the U.S. has commandeered. France and the Caribbean Community have both made their complaints public, as has Médecins Sans Frontières [MSF] on five separate occasions. UN World Food Program flights were also turned away on two consecutive days. Benoit Leduc, MSF's operations manager in Port-au-Prince, complained that U.S. military flights were being prioritized over aid flights. 48

The U.S. military has even turned back masses of health care workers who wanted to volunteer to provide needed medical care in Haiti. The National Nurses Union organized an emergency conference call to mobilize thousands of nurses to go to Haiti. More than 1,800 nurses called in and they proceeded to recruit 11,000 others to the project. Initially the U.S. military said that it would accept them, but then, inexplicably, they reversed themselves and told them that the U.S. had plenty of military personnel to address the health care disaster in Haiti. Nothing could be further from the truth. 49

The U.S. military, Florida's state government, and the Obama administration also colluded in one of the worst examples of the callous treatment of Haitian victims. They refused to allow landing of planes loaded with injured people in desperate need of medical treatment. The Obama administration and Florida's governor were locked in a battle over who would pay for the cost of the medical care. So for five days, the U.S. let injured people suffer in Haiti because budget battles mattered more than people's lives. 50

Al Jazeera captured the nature of the U.S. and UN military occupation in a January 17 report:

Most Haitians here have seen little humanitarian aid so far. What they have seen is guns, and lots of them. Armored personnel carriers cruise the streets. UN soldiers aren't here to help pull people out of the rubble. They're here, they say, to enforce the law. This is what much of the UN presence actually looks like on the streets of Port-au-Prince: men in uniform, racing around in vehicles, carrying guns. At the entrance to the city's airport where most of the aid is coming in, there is anger and frustration. Much-needed supplies of water and food are inside, and Haitians are locked out. "These weapons they bring," [an unidentified Haitian says], "they are instruments of death. We don't want them; we don't need them. We are a traumatized people. What we want from the international community is technical help. Action, not words." 51

Problems with the NGOs
Haiti has approximately 10,000 NGOs operating within its borders, one of the highest numbers per capita in the world. The international NGOs are unaccountable to either the Haitian state or Haitian population. So the aid funneled through them further weakens what little hold Haitians have on their own society. These NGOs have taken deep hold in Haiti at the very same time that the conditions in the country have gone from bad to apocalyptic.

Amid this crisis, some of the NGOs and their employees have tried valiantly to fill the vacuum left by the U.S. and UN. But most of them did not have real forces inside the country to respond to the disaster. The Red Cross, for example, only had 15 employees on the ground, but has received the bulk of donated money -- more than $200 million -- from people around the world. Add to this the reluctance of the big NGOs to act without "security," as mentioned above.

Moreover, as the British medical journal The Lancet argues, many of the international NGOs are engaged in a fierce battle for funds and have allowed that competition to distort their provision of food, water, medical aid, and services amidst the crisis. After calling aid an "industry in its own right," the Lancet noted that NGOs are

jostling for position, each claiming that they are doing the most for earthquake survivors. Some agencies even claim that they are "spearheading" the relief effort. In fact, as we only too clearly see, the situation in Haiti is chaotic, devastating, and anything but coordinated. Polluted by the internal power politics and the unsavory characteristics seen in many big corporations, large aid agencies can be obsessed with raising money through their own appeal efforts. Media coverage as an end in itself is too often an aim of their activities. Marketing and branding have too high a profile. Perhaps worst of all, relief efforts in the field are sometimes competitive with little collaboration between agencies, including smaller, grass-roots charities that may have better networks in affected countries and so are well placed to immediately implement emergency relief. 52

Repatriating and jailing refugees
As Haitians' needs continued unmet, the U.S. occupation devolved into policing the disaster, including preventing the flight of refugees from Haiti. It is true that activists finally compelled Obama to grant Haitians Temporary Protected Status (TPS). Obama's decision delayed the deportation of 30,000 Haitians and will make TPS available to 100,000 to 200,000 more. These provisions, however, have strict limitations.

First of all, the U.S. plans to exclude victims of the earthquake, offering TPS only to those who arrived in the U.S. without legal documents before January 12. Those who quality must prove they are indigent and at the very same time pay $470 in application fees. 53 Those Haitians who are granted TPS will only be allowed to stay in the U.S. for eighteen months before they must return to Haiti. If they do qualify for the program they will become known to the authorities and thus make themselves more vulnerable to repatriation. Moreover, given the scale of destruction in Port-au-Prince, there is no way that the city or country will be in better condition in a year and a half. So if the U.S. enforces this eighteen-month limitation, it will return Haitians to an ongoing disaster area.

To enforce the bar on Haitians coming to the U.S., a flotilla of military vessels has surrounded the country. Homeland Security Secretary Janet Napolitano tried to spin this in humanitarian terms. "At this moment of tragedy in Haiti," she lectured, "it is tempting for people suffering in the aftermath of the earthquake to seek refuge elsewhere, but attempting to leave Haiti now will only bring more hardship to the Haitian people and nation." 54 In a far more blunt statement of the actual policy, Coast Guard Lieutenant Commander Chris O'Neil, in charge of Operation Vigilant Sentry declared, "The goal is to interdict them at sea and repatriate them." 55

The U.S. made sure to broadcast this threat to Haitians. A U.S. Air Force transport plane spends hours in the air above Haiti every day, not ferrying food and water, but broadcasting a radio statement in Creole from Haiti's ambassador to the U.S., Raymond Joseph. "I'll be honest with you," Joseph says, according to a transcript on the State Department's Web site. "If you think you will reach the U.S. and all the doors will be wide open to you, that's not at all the case. And they will intercept you right on the water, and send you back home where you came from." 56

To prepare for the eventuality that some Haitians may get through the military cordon around Haiti, Obama, like Bush and Clinton before him, has prepared jail space to incarcerate refugees at Krome Detention Center in Florida and at the U.S. military base in Guantánamo, Cuba. 57

Asserting who's boss in Latin America
Days after the quake, the conservative think tank Heritage Foundation posted an article detailing what it considered should be Washington's aims in occupying Haiti. The U.S. military presence, they argued, in addition to preventing "any large scale movements by Haitians to take to the sea to try to enter the U.S. illegally," also "offers opportunities to re-shape Haiti's long-dysfunctional government and economy as well as to improve the public image of the United States in the region." At the same time, it argues, the U.S. military presence could "interrupt the nightly flights of cocaine to Haiti and the Dominican Republic from the Venezuelan coast and counter the ongoing efforts of Venezuelan President Hugo Chávez to destabilize the island of Hispaniola." There is no evidence of Venezuelan cocaine flights or efforts to "destabilize" Haiti, but the point is clear: The U.S. sees Haiti as part of an effort to assert more control over the region and contain "unfriendly" regimes. 58

The military response to Haiti's crisis cannot be separated from Washington's regional interests. As Greg Gandin writes in the Nation ,

In recent years, Washington has experienced a fast erosion of its influence in South America, driven by the rise of Brazil, the region's left turn, the growing influence of China and Venezuela's use of oil revenue to promote a multipolar diplomacy. Broad social movements have challenged efforts by US- and Canadian-based companies to expand extractive industries like mining, biofuels, petroleum and logging. 59

Faced with such regional and international competition, the U.S. under Bush and now Obama is angling to launch a counteroffensive. The U.S. tried to topple Chávez in 2002, it succeeded in overthrowing Aristide in 2004, and last year backed the coup against President Zelaya in Honduras. As Grandin reports, the U.S. is actively promoting the right-wing opposition to the various reform socialist governments in the region. It is backing up this political initiative with an expansion of its military bases in the region, particularly in Colombia. "In late October," Grandin writes, "the United States and Colombia signed an agreement granting the Pentagon use of seven military bases, along with an unlimited number of as yet unspecified 'facilities and locations.' They add to Washington's already considerable military presence in Colombia, as well as Central America and the Caribbean." 60 Haiti is thus a stepping-stone for further U.S. interventions in the region.

"Shock doctrine" for Haiti
For Haiti itself, the U.S. is preparing to impose its old neoliberal plan at gunpoint. In The Shock Doctrine , Naomi Klein documents how the U.S. and other imperial powers take advantage of natural and economic disasters to impose free-market plans for the benefit of the American and native capitalists. The U.S., other powers, the IMF, and World Bank had their shock doctrine for Haiti immediately on hand. Hillary Clinton declared, "We have a plan. It was a legitimate plan, it was done in conjunction with other international donors, with the United Nations." 61 This is the Collier Plan, the same old plan of sweatshops, plantations, and tourism.

The U.S., a few other imperial powers, a few lesser countries, and the UN convened a meeting on January 26 in Montreal to profess their concern and promises to aid Haiti. The fourteen so-called "Friends of Haiti" made sure to include the Haitian prime minister, Jean-Max Bellerive, to at least give the illusion of respect for the country's sovereignty. But outside a protest organized by Haiti Action Montreal opposed the meeting with signs demanding "medical relief not guns," "grants not loans," and "reconstruction for people not profit."

In the Guardian , Gary Younge criticized the summit for failing to produce any solutions to the crisis in Haiti. "Even as corpses remained under the earthquake's rubble," he wrote, "and the government operated out of a police station, the assembled 'friends' would not commit to canceling Haiti's $1 billion debt. Instead they agreed to a 10-year plan with no details, and a commitment to meet again -- when the bodies have been buried along with coverage of the country -- sometime in the future." 62

By contrast, Venezuela's Hugo Chávez and his Latin American and Caribbean allies assembled in the Bolivarian Alternative for the Americas (ALBA) announced their opposition to America's shock doctrine. They denounced Washington's neoliberal plans, called for relief not troops and for the cancellation of Haiti's debt. Venezuela itself immediately cancelled Haiti's debt and began sending shiploads of relief offering over $100 million in humanitarian aid with no strings attached. 63

No such humanitarian motives animate the U.S., its capitalist corporations, and the international financial institutions. These vultures began circling above Haiti almost immediately. The Street, an investment Web site, published an article misleadingly entitled, "An opportunity to heal Haiti," that lays out how U.S. corporations can cash in on the catastrophe. "Here are some companies," they write, "that could potentially benefit: General Electric (GE), Caterpillar (CAT), Deere (DE), Fluor (FLR), Jacobs Engineering (JEC)." 64 The Rand Corporation's James Dobbins wrote in the New York Times, "This disaster is an opportunity to accelerate oft-delayed reforms." 65

Over the last few years, the U.S. has been trying to give a facelift to the international financial institution that it uses to impose its plans in Haiti. As Jim Lobe reports,

Last June, 1.2 billion dollars in Haiti's external debt, including that owed to the Washington-based International Monetary Fund (IMF), World Bank, and Inter-American Development Bank (IDB), was cancelled after the Préval government completed a three-year Heavily Indebted Poor Countries (HIPC) program. Over half of that debt had been incurred by Haiti's dictatorships, notably the Duvalier dynasty that ruled the country from 1957 to 1986. But the cancellation covered debt incurred by Haiti only through 2004. In the last five years, the country has received new loans -- some of them to help it recover from the floods and other hurricane damage -- totaling another 1.05 billion dollars. 66

In other words, the U.S. and the financial institutions exchanged the old debts for new so-called "legitimate loans," trapping Haiti yet again in debt. Eric Toussaint and Sophie Perchellet call this "a typical odious debt-laundering maneuver." 67

In the wake of the crisis, the bankers were at Haiti's door yet again, ready, incredibly, to loan Haiti money with the usual conditions. The IMF offered Haiti a new loan of $100 million with the usual strings attached. As the Nation 's Richard Kim writes,

The new loan was made through the IMF's extended credit facility, to which Haiti already has $165 million in debt. Debt relief activists tell me that these loans came with conditions, including raising prices for electricity, refusing pay increases to all public employees except those making minimum wage, and keeping inflation low. They say that the new loans would impose these same conditions. In other words, in the face of this latest tragedy, the IMF is still using crisis and debt as leverage to compel neoliberal reforms. 68

Debt cancellation activists like Jubilee pushed back against the IMF and scored a victory over it. "On Jan. 21," Lobe reports,

the World Bank announced a waiver of Haiti's pending debt payment for five years and said it would explore ways that the remaining debt could be cancelled. The IDB [Inter-American Development Bank] has said it is engaged in a similar effort and will present alternatives for reducing or canceling the debt to its board of governors. On Jan. 27, the IMF, which lacks the authority to provide outright grants, announced that it would give Haiti a 102 million-dollar loan at zero-percent interest and that would not be subject to any of the Fund's usual performance conditions. 69

The pressure even forced the U.S. to call for all new monies extended to Haiti to be in the form of grants, and U.S. Treasury Secretary Timothy Geithner called for debt relief in the run up to the G-7 conference in February. 70

While activists can claim these concessions by the U.S. and the international financial institutions as victories that open up the possibility for even more progress in demanding full cancellation of Haiti's debt and all third world debt, no one should look at this situation through rose-colored glasses. The U.S. is using this promise -- and it is just a promise at this point -- to cover up its determination to implement the Collier Plan for tourism, sweatshops, and mango plantations to exploit Haiti's desperately poor workers and peasants. In fact, the U.S. does not need to use the leverage of debt to force Haiti to agree to the plan; it has secured colonial rule over the country and can impose its plans directly at gunpoint.

Resistance and solidarity
The left has a responsibility to cut through the propaganda of the Obama administration and the mainstream media. The U.S. is not engaged in humanitarian relief, but old-fashioned imperialism in Haiti. Humanitarianism has long been one of the means the U.S. uses to provide a cover story for its military actions abroad. But whether it was saving the Cuban people from Spanish brutality, sending the marines into Mogadishu in 1993 to feed starving Somalis, or overthrowing the Taliban to "liberate women," the real aims and practical results of these interventions diverged radically from their alleged noble intentions.

Humanitarian military intervention was heavily promoted in the 1990s during the latter part of the first Bush administration and the Clinton administration -- in particular during the wars in the former Yugoslavia. Its purpose was to reestablish the legitimacy of U.S. military intervention in the wake of the U.S. defeat in Vietnam, as part of a policy intended to erase what was known as the "Vietnam syndrome." It is being revived again in the wake of the unpopularity of the occupations of Iraq and Afghanistan and weariness toward the "war on terror," for similar reasons. The U.S. hopes that it can re-legitimize its military as a force for good so that it can lay the groundwork for more U.S. interventions in the region and around the world.

Even if the U.S. gets away with its new plans for Haiti, it will inevitably breed resistance in the population and throughout the region where through bitter experience workers and peasants have learned to oppose U.S. designs on their countries. In Haiti, workers and peasants will find their way to organize in the countryside on the plantations, in the sweatshops, and in the shantytowns.

Already Haitian organizations have come out against the U.S. agenda. A statement issued on January 27 from the Coordinating Committee of Progressive Organizations announced:

We must declare our anger and indignation at the exploitation of the situation in Haiti to justify a new invasion by 20,000 U.S. Marines. We condemn what threatens to become a new military occupation by U.S. troops, the third in our history. It is clearly part of a strategy to remilitarize the Caribbean Basin in the context of the imperialist response to the growing rebellion of the peoples of our continent against neo-liberal globalization. And it exists also within a framework of pre-emptive warfare designed to confront the eventual social explosion of a people crushed by poverty and facing despair. We condemn the model imposed by the U.S. government and the military response to a tragic humanitarian crisis. The occupation of the Toussaint L'Ouverture international airport and other elements of the national infrastructure have deprived the Haitian people of part of the contribution made by Caricom, by Venezuela, and by some European countries. We condemn this conduct, and refuse absolutely to allow our country to become another military base. 71

The Haitian left has thus already started building opposition to the U.S. occupation and the Collier Plan. Every year since the U.S. coup in 2004, activists have marched on February 28 in Port-au-Prince against the UN occupation and to demand the end of Aristide's exile. Workers' organizations just last year protested in the thousands for an increase in the minimum wage that Préval opposed. Lavalas activists had protested before the earthquake against their exclusion from the scheduled parliamentary elections. Now amid crisis and occupation, Préval, who has proved to be a puppet for the U.S. agenda, thus losing what little political support he had, has cancelled those elections. No doubt Préval's behavior will provoke political opposition from below against his government's collaboration with the United States.
Outside Haiti, the left must build solidarity with that struggle and make several demands on the Obama administration. First, Obama must immediately end the military occupation of Haiti, and instead flood the country with doctors, nurses, food, water, and construction machinery. Second, the U.S. must also stop its enforcement of Jean-Bertrand Aristide's exile and the ban on his party, Fanmi Lavalas, from participating in elections. Haitians, not the U.S., should have the right to determine their government.

Third, the left must demand that the U.S., other countries, and international financial institutions cancel Haiti's debt, so that the aid money headed to Haiti will go to food and reconstruction, not debt repayment. More than that -- France, the U.S., and Canada, the three countries that have most interfered with Haiti's sovereignty -- should pay reparations for the damage they have done. France can start by repaying the $21 billion dollars that it extracted from Haiti from 1824 to 1947. Fourth, leftists must agitate for Obama to indefinitely extend Temporary Protected Status to Haitians in the U.S. -- and open the borders to any Haitians who flee the country. Finally, the left must direct all its funds to Haitian grass-roots organizations to provide relief and help rebuild resistance to the U.S. plan for Haiti.

Only through agitating for these demands can we stop the U.S. from imposing at gunpoint its shock doctrine for Haiti. In this struggle, the left must educate wider and wider layers of people, already suspicious of U.S. motives after Hurricane Katrina, and the Iraq and Afghanistan wars, that the U.S. state never engages in military actions for humanitarian motives. As the great American revolutionary journalist John Reed declared, "Uncle Sam never gives anybody something for nothing. He comes along with a sack stuffed with hay in one hand and a whip in the other. Anyone who accepts Uncle Sam's promises at their face value will find that they must be paid for in sweat and blood." 72


  1. "President Obama on U.S. rescue efforts in Haiti, www.America.gov .
  2. Bill Quigley, "Haiti: still starving 23 days later," Huffington Post, posted February 4, 2010.
  3. Soumitra Eachempati, Dean Lorich, and David Helfet, "Haiti: Obama's Katrina," Wall Street Journal , January 26, 2010.
  4. Rich Schapiro, "Rev. Pat Robertson says ancient Haitians' 'pact with the devil' caused earthquake," New York Daily News , January 13, 2010.
  5. David Brooks, "The underlying tragedy," New York Times , January 14, 2010.
  6. For an overview of the French colony and the slave revolution see Ashley Smith, "The Black Jacobins," International Socialist Review (ISR) 63, January–February 2009.
  7. Peter Hallward, Damming the Flood: Haiti, Aristide, and the Politicsw of Containment (New York: Verso Books, 2007), 12.
  8. Quoted in Sidney Lens, The Forging of the American Empire (Chicago: Haymarket Books, 2003), 270.
  9. For an overview of the history of U.S. imperialism in Haiti see Helen Scott, "Haiti under siege," ISR 35, May-June 2004.
  10. Paul Farmer, The Uses of Haiti (Monroe, Maine: Common Courage Press, 1994), 108.
  11. Alex Dupuy, Haiti in the New World Order (New York: Westview Press, 1996), 37.
  12. For an analysis of Baby Doc's neoliberal plans see chapter 2 of Alex Dupuy, The Prophet and the Power (New York: Rowman and Littlefield, 2007).
  13. Eric Toussaint and Sophie Perchellet, "Debt is Haiti's real curse," Socialist Worker , January 20, 2010.
  14. Regan Boychuck, "The vultures circle Haiti at every opportunity, natural or man-made," Znet, February 3, 2010.
  15. Dupuy, Haiti in the New World Order , 31.
  16. Quoted in Amy Wilentz, The Rainy Season (New York: Simon and Schuster, 1989), 137.
  17. Quoted in Ashley Smith, "The new occupation of Haiti: Aristide's rise and fall," ISR 35, May–June, 2004.
  18. For an analysis of Lavalas after Aristide's restoration see chapter 5 of Robert Fatton, Haiti's Predatory Republic (Boulder: Lynne Reiner Publishers, 2002).
  19. For a perhaps overly generous portrait of Aristide in his second term see chapters 6 and 7 of Peter Hallward, Damming the Flood .
  20. Clara James, "Haiti free trade zone," Dollars and Sense , November/December 2002.
  21. Hallward, Damming the Flood , 155.
  22. See Bill Quigley, "Haiti human rights report," www.ijdh.org/pdf/QuigleyReport.pdf .
  23. Mo Woong, "Haiti's minimum wage battle," Caribbean News Net, August 25, 2009.
  24. See Ashley Smith "Natural and unnatural disasters," Socialist Worker , September 23, 2008.
  25. Mark Shuller, "Haiti's food riots," ISR 59, May–June 2008.
  26. Paul Collier, "Haiti: From natural catastrophe to economic security," FOCALPoint, Volume 8, Issue 2, March 2009.
  27. Quoted in Polly Pattullo, Last Resorts: The Cost of Tourism in the Caribbean (New York: Monthly Review Press, 2005), 20.
  28. Jacqueline Charles, "Royal Caribbean boosts Haiti tourism push," Miami Herald , September 26, 2009.
  29. Collier, "Haiti from natural catastrophe to economic security."
  30. Mark Shuller, "Haiti needs new development approaches, not more of the same," Haiti Analysis , June 18, 2009.
  31. Quoted in Ashley Smith "Catastrophe in Haiti," Socialist Worker , January 14, 2010.
  32. Jacqueline Charles, "Bill Clinton on trade mission on Haiti," Miami Herald , October 1, 2009.
  33. Paul Collier, The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It (New York: Oxford University Press, 2008).
  34. Bill Quigley, "Too little too late for Haiti? Six sobering points," Huffington Post , January 15, 2010.
  35. "With foreign aid still at a trickle," Democracy Now! , January 20, 2010.
  36. Marc Lacey "The nightmare in Haiti: untreated illness and injury," New York Times , January 21, 2010.
  37. Quoted in Nick Allen "West urged to write off Haiti's $1 billion debt," Telegraph.co.uk , January 25, 2010.
  38. Mark Lander, "In show of support, Clinton goes to Haiti," New York Times , January 17, 2010.
  39. "U.S. military begins aid drops in Haiti," CBS News, January 18, 2010.
  40. Andrew Cawthorne and Catherine Bremer, "U.S., U.N. boost Haiti aid security as looters swarm," Reuters, January 19, 2010.
  41. Nelson P. Valdés, "Class and race fear: The rescue operation's priorities in Haiti," Counterpunch, January 18, 2010.
  42. Quoted in Lenora Daniels, "We are Haitians. We are like people like anybody else," Common Dreams, January 31, 2010.
  43. Sasha Kramer, "Fear slows aid efforts in Haiti: Letter from Port-au-Prince," Counterpunch, January 27, 2010.
  44. "Doctor: Misinformation and racism have slowed the recovery effort," Democracy Now! , January 19, 2010.
  45. "Chávez says U.S. occupying Haiti in name of aid," Reuters, January 17, 2010.
  46. Rory Carroll, "U.S. accused of annexing airport," Guardian (UK), January 17, 2010.
  47. Quoted in Giles Whittell, Martin Fletcher, and Jacqui Goddard, "Haiti has a leader in charge, but not in control," The Times (UK), January 19, 2010.
  48. Richard Seymour, "The humanitarian myth," Socialist Worker , January 25, 2010.
  49. "Union nurses respond to Haiti," Socialist Worker, January 27, 2010.
  50. Shaila Dewan, "U.S. suspends Haitian airlift in cost dispute," New York Times , January 30, 2010.
  51. The Al Jazeera report is available at www.youtube.com/watch?v=0F5TwEK24sA .
  52. "The growth of aid and the decline of humanitarianism," Lancet , Volume 375, Issue 9711, January 23, 2010; 253.
  53. James C. McKinley Jr., "Vows to move fast for Haitian immigrants in the U.S.," New York Times , January 21, 2010.
  54. Richard Fausset, "U.S. to change illegal immigrants status," Los Angeles Times , January 16, 2010.
  55. "U.S. to repatriate most Haitian refugees, Washington Times , January 19, 2010.
  56. Curt Anderson, "U.S. prepares for Haitian refugees," Washington Examiner , January 19, 2010.
  57. Tom Eley, "Washington shuts door to Haitian refugees" Global Research, February 8, 2010.
  58. Jim Roberts, " Things to remember while helping Haiti ," The Foundry .
  59. Greg Grandin, "Muscling Latin America," Nation, January 21, 2010.
  60. Ibid.
  61. Nicholas Kralev, "Clinton says plan exists for Haiti," Washington Times , January 26, 2010.
  62. Gary Younge, "The West owes Haiti a big bailout," Guardian (UK), January 31, 2010.
  63. Magbana, "Venezuela cancels Haiti's debt," January 26, 2010.
  64. Quoted in Isabel McDonald, "New Haiti: Same old corporate interests," Nation, January 29, 2010.
  65. James Dobbins, "Skip the graft," New York Times , January 17, 2010.
  66. Jim Lobe, "Haiti: U.S. lawmakers call for debt cancellation," IPS, February 4, 2010.
  67. Eric Toussaint and Sophie Perchellet, "Debt is Haiti's real curse."
  68. Richard Kim, "IMF to Haiti: freeze public wages," Nation , January 15, 2010.
  69. Lobe, "Haiti: U.S. lawmakers call for debt cancellation."
  70. Ibid.
  71. Haiti After the Catastrophe, " What Are the Perspectives? Statement by the Coordinating Committee of the Progressive Organizations ."
  72. Quoted in John Riddell ed., To See the Dawn (New York: Pathfinder, 1993), 136.

[Jan 22, 2018] German Imperialism as a tool of the "Kingdom of Money" by Thomas Fazi

Ukraine after EuroMaydan is a de-facto EU colony.
Notable quotes:
"... By Thomas Fazi 4 December 2017 ..."
"... For Germany, the idea of Europeanism has provided the country's elites with the perfect alibi to conceal their hegemonic project behind the ideological veil of 'European integration' ..."
"... "That may sound absurd given that today's Germany is a successful democracy without a trace of national-socialism – and that no one would actually associate Merkel with Nazism. But further reflection on the word 'Reich', or empire, may not be entirely out of place. The term refers to a dominion, with a central power exerting control over many different peoples. According to this definition, would it be wrong to speak of a German Reich in the economic realm?" ..."
"... More recently, an article in Politico Europe ..."
"... Even though the power exercised by Europe's 'colonial masters' is now openly acknowledged by the mainstream press, it is however commonplace to ascribe Germany's dominant position as an accident of history: according to this narrative, we are in the presence of an 'accidental empire', one that is not the result of a general plan but that emerged almost by chance – even against ..."
"... Germany (and France) have been the main beneficiaries of the sovereign bailouts of periphery countries , which essentially amounted to a covert bailout of German (and French) banks, as most of the funds were channelled back to the creditor countries' banks, which were heavily exposed to the banks (and to a lesser degree the governments) of periphery countries. German policy, Helen Thompson wrote , overwhelmingly 'served the interests of the German banks'. ..."
"... This is a telling example of how Germany's policies (and the EU's policies more in general), while nominally ordoliberal – i.e., based upon minimal government intervention and a strict rules-based regime – are in reality based on extensive state intervention on behalf of German capital, at both the domestic and European level. ..."
"... German authorities have also been more than happy to go along with – or to encourage – the European institutions' 'exercise of unrestrained executive power and the more or less complete abandonment of strict, rules-based frameworks' – Storey is here referring in particular to the ECB's use of its currency-issuing monopoly to force member states to follows its precepts – 'to maintain the profitability of German banks, German hegemony within the Eurozone, or even the survival of the Eurozone itself'. ..."
"... Germany (and France) are also the main beneficiaries of the ongoing process of 'mezzogiornification' of periphery countries – often compounded by troika -forced privatisations –, which in recent years has allowed German and French firms to take over a huge number of businesses (or stakes therewithin) in periphery countries, often at bargain prices. A well-publicised case is that of the 14 Greek regional airports taken over by the German airport operator Fraport. ..."
"... France's corporate offensive in Italy is another good example: in the last five years, French companies have engaged in 177 Italian takeovers, for a total value of $41.8 billion, six times Italy's purchases in France over the same period. This is leading to an increased 'centralisation' of European capital, characterised by a gradual concentration of capital and production in Germany and other core countries – in the logistical and distribution sectors, for example – and more in general to an increasingly imbalanced relationship between the stronger and weaker countries of the union. ..."
"... In short, the European Union should indeed be viewed a transnational capitalist project, but one that is subordinated to a clear state-centred hierarchy of power, with Germany in the dominant position. In this sense, the national elites in periphery countries that have supported Germany's hegemonic project (and continue to do so, first and foremost through their support to European integration) can thus be likened to the comprador bourgeoisie ..."
"... Exportnationalismus' ..."
"... Modell Deutschland ..."
"... Even more worryingly, Germany is not simply aiming at expanding its economic control over the European continent; it is also taking steps for greater European military 'cooperation' – under the German aegis, of course. As a recent article in Foreign Policy ..."
"... In other words, Germany already effectively controls the armies of four countries. And the initiative, Foreign Policy ..."
Jan 21, 2018 | www.defenddemocracy.press
Originally from: Germany's dystopian plans for Europe: from fantasy to reality? By Thomas Fazi 4 December 2017

For Germany, the idea of Europeanism has provided the country's elites with the perfect alibi to conceal their hegemonic project behind the ideological veil of 'European integration'

After Emmanuel Macron's election in France, many (including myself) claimed that this signalled a revival of the Franco-German alliance and a renewed impetus for Europe's process of top-down economic and political integration – a fact that was claimed by most commentators and politicians, beholden as they are to the Europeanist narrative, to be an unambiguously positive development.

Among the allegedly 'overdue' reforms that were said to be on the table was the creation of a pseudo-'fiscal union' backed by a (meagre) 'euro budget', along with the creation of a 'European finance minister', the centre-points of Macron's plans to 're-found the EU' – a proposal that raises a number of very worrying issues from both political and economic standpoints, which I have discussed at length elsewhere .

The integrationists' (unwarranted) optimism, however, was short-lived. The result of the German elections, which saw the surge of two rabidly anti-integrationist parties, the right-wing FDP and extreme right AfD; the recent collapse of coalition talks between Merkel's CDU, the FDP and the Greens, which most likely means an interim government for weeks if not months, possibly leading to new elections (which polls show would bring roughly the same result as the September election); and the growing restlessness in Germany towards the 13-year-long rule of Macron's partner in reform Angela Merkel, means that any plans that Merkel and Macron may have sketched out behind the scenes to further integrate policies at the European level are now, almost certainly, dead in the water. Thus, even the sorry excuse for a fiscal union proposed by Macron is now off the table, according to most commentators.

At this point, the German government's most likely course in terms of European policy – the one that has the best chance of garnering cross-party support, regardless of the outcome of the coalition talks (or of new elections) – is the 'minimalist' approach set in stone by the country's infamous and now-former finance minister, Wolfgang Schäuble, in a 'non-paper' published shortly before his resignation.

The main pillar of Schäuble's proposal – a long-time obsession of his – consists in giving the European Stability Mechanism (ESM), which would go on to become a 'European Monetary Fund', the power to monitor (and, ideally, enforce) compliance with the Fiscal Compact. This echoes Schäuble's previous calls for the creation of a European budget commissioner with the power to reject national budgets – a supranational fiscal enforcer.

The aim is all too clear: to further erode what little sovereignty and autonomy member states have left, particularly in the area of fiscal policy, and to facilitate the imposition of neoliberal 'structural reforms' – flexibilisation of labour markets, reduction of collective bargaining rights, etc. – on reluctant countries.

To this end, the German authorities even want to make the receipt of EU cohesion funds conditional on the implementation of such reforms , tightening the existing arrangements even further. Moreover, as noted by Simon Wren-Lewis , the political conflict of interest of having an institution lending within the eurozone would end up imposing severe austerity bias on the recovering country.

Until recently, these proposals failed to materialise due, among other reasons, to France's opposition to any further overt reductions of national sovereignty in the area of budgetary policy; Macron, however, staunchly rejects France's traditional souverainiste stance, embracing instead what he calls 'European sovereignty', and thus represents the perfect ally for Germany's plans.

Another proposal that goes in the same direction is the German Council for Economic Experts' plan to curtail banks' sovereign bond holdings. Ostensibly aimed at 'severing the link between banks and government' and 'ensuring long-term debt sustainability', it calls for: (i) removing the exemption from risk-weighting for sovereign exposures, which essentially means that government bonds would no longer be considered a risk-free asset for banks (as they are now under Basel rules), but would be 'weighted' according to the 'sovereign default risk' of the country in question (as determined by credit rating agencies); (ii) putting a cap on the overall risk-weighted sovereign exposure of banks; and (iii) introducing an automatic 'sovereign insolvency mechanism' that would essentially extend to sovereigns the bail-in rule introduced for banks by the banking union, meaning that if a country requires financial assistance from the ESM, for whichever reason, it will have to lengthen its sovereign bond maturities (reducing the market value of those bonds and causing severe losses for all bondholders) and, if necessary, impose a nominal 'haircut' on private creditors.

As noted by the German economist Peter Bofinger , the only member of the German Council of Economic Experts to vote against the sovereign bail-in plan, this would almost certainly ignite a 2012-style self-fulfilling sovereign debt crisis, as periphery countries' bond yields would quickly rise to unsustainable levels, making it increasingly hard for governments to roll over maturing debt at reasonable prices and eventually forcing them to turn to the ESM for help, which would entail even heavier losses for their banks and an even heavier dose of austerity.

It would essentially amount to a return to the pre-2012 status quo, with governments once again subject to the supposed 'discipline' of the markets, particularly in the context of a likely tapering of the ECB's quantitative easing (QE) program. The aim of this proposal is the same as that of Schäuble's 'European Monetary Fund': to force member states to implement permanent austerity.

Read also: Lack of Credible Leftist Alternatives is fueling national movements. Catalonia wants independence from the small Madrid Empire, but inside Brussels Great Empire

Of course, national sovereignty in a number of areas – most notably fiscal policy – has already been severely eroded by the complex system of new laws, rules and agreements introduced in recent years, including but not limited to the six-pack, two-pack, Fiscal Compact, European Semester and Macroeconomic Imbalances Procedure (MIP).

As a result of this new post-Maastricht system of European economic governance, the European Union has effectively become a sovereign power with the authority to impose budgetary rules and structural reforms on member states outside democratic procedures and without democratic control.

The EU's embedded quasi-constitutionalism and inherent (structural) democratic deficit has thus evolved into an even more anti-democratic form of 'authoritarian constitutionalism' that is breaking away with elements of formal democracy as well, leading some observers to suggest that the EU 'may easily become the postdemocratic prototype and even a pre-dictatorial governance structure against national sovereignty and democracies'.

To give an example, with the launch of the European Semester, the EU's key tool for economic policy guidance and surveillance, an area that has historically been a bastion of national sovereignty – old-age pensions – has now fallen under the purview of supranational monitoring as well. Countries are now expected to (and face sanctions if they don't): (i) increase the retirement age and link it with life expectancy; (ii) reduce early retirement schemes, improve the employability of older workers and promote lifelong learning; (iii) support complementary private savings to enhance retirement incomes; and (iv) avoid adopting pension-related measures that undermine the long term sustainability and adequacy of public finances.

This has led to the introduction in various countries of several types of automatic stabilizing mechanisms (ASMs) in pension systems, which change the policy default so that benefits or contributions adjust automatically to adverse demographic and economic conditions without direct intervention by politicians. Similar 'automatic correction mechanisms' in relation to fiscal policy can be found in the Fiscal Compact.

The aim of all these 'automatic mechanisms' is clearly to put the economy on 'autopilot', thus removing any element of democratic discussion and/or decision-making at either the European or national level. These changes have already transformed European states into 'semi-sovereign' entities, at best. In this sense, the proposals currently under discussion would mark the definitive transformation of European states from semi-sovereign to de facto (and increasingly de jure ) non-sovereign entities.

Regardless of the lip service paid by national and European officials to the need for further reductions of national sovereignty to go hand in hand with a greater 'democratisation' of the euro area, the reforms currently on the table can, in fact, be considered the final stage in the thirty-year-long war on democracy and national sovereignty waged by the European elites, aimed at constraining the ability of popular-democratic powers to influence economic policy, thus enabling the imposition of neoliberal policies that would not have otherwise been politically feasible.

In this sense, the European economic and monetary integration process should be viewed, to a large degree, as a class-based and inherently neoliberal project pursued by all national capitals as well as transnational (financial) capital. However, to grasp the processes of restructuring under way in Europe, we need to go beyond the simplistic capital/labour dichotomy that underlies many critical analyses of the EU and eurozone, which view EU/EMU policies as the expression of a unitary and coherent transnational (post-national) European capitalist class.

The process underway can only be understood through the lens of the geopolitical-economic tensions and conflicts between leading capitalist states and regional blocs, and the conflicting interests between the different financial/industrial capital fractions located in those states, which have always characterised the European economy. In particular, it means looking at Germany's historic struggle for economic hegemony over the European continent.

It is no secret that Germany is today the leading economic and political power in Europe, just as it is no secret that nothing gets done in Europe without Germany's seal of approval. In fact, it is commonplace to come across references to Germany's 'new empire'. A controversial Der Spiegel editorial from a few years back event went as far as arguing that it is not out place to talk of the rise of a 'Fourth Reich':

"That may sound absurd given that today's Germany is a successful democracy without a trace of national-socialism – and that no one would actually associate Merkel with Nazism. But further reflection on the word 'Reich', or empire, may not be entirely out of place. The term refers to a dominion, with a central power exerting control over many different peoples. According to this definition, would it be wrong to speak of a German Reich in the economic realm?"

More recently, an article in Politico Europe – co-owned by the German media magnate Axel Springer AG – candidly explained why 'Greece is de facto a German colony'. It noted how, despite Tsipras' pleas for debt relief, the Greek leader 'has little choice but to heed the wishes of his "colonial" masters', i.e., the Germans.

This is because public debt in the eurozone is used as a political tool – a disciplining tool – to get governments to implement socially harmful policies (and to get citizens to accept these policies by portraying them as inevitable), which explains why Germany continues to refuse to seriously consider any form of debt relief for Greece, despite the various commitments and promises to that end made in recent years: debt is the chain that keeps Greece (and other member states) from straying 'off course'.

Read also: Boris Johnson: Why not a preemptive strike on Korea?

Even though the power exercised by Europe's 'colonial masters' is now openly acknowledged by the mainstream press, it is however commonplace to ascribe Germany's dominant position as an accident of history: according to this narrative, we are in the presence of an 'accidental empire', one that is not the result of a general plan but that emerged almost by chance – even against Germany's wishes – as a result of the euro's design faults, which have allowed Germany and its satellites to pursue a neo-mercantilist strategy and thus accumulate huge current account surpluses.

Now, it is certainly true that the euro's design – strongly influenced by Germany – inevitably benefits export-led economies such as Germany over more internal demand-oriented economies, such as those of southern Europe. However, there is ample evidence to support the argument that Germany, far from having accidently stumbled upon European dominance, has been actively and consciously pursuing an expansionary and imperialist strategy in – and through – the European Union for decades.

Even if we limit our analysis to Germany's post-crisis policies (though there is much that could be said about Germany's post-reunification policies and subsequent offshoring of production to Eastern Europe in the 1990s), it would be very naïve to view Germany's inflexibility – on austerity, for example – as a simple case of ideological stubbornness, considering the extent to which the policies in question have benefited Germany (and to a lesser extent France).

Germany (and France) have been the main beneficiaries of the sovereign bailouts of periphery countries , which essentially amounted to a covert bailout of German (and French) banks, as most of the funds were channelled back to the creditor countries' banks, which were heavily exposed to the banks (and to a lesser degree the governments) of periphery countries. German policy, Helen Thompson wrote , overwhelmingly 'served the interests of the German banks'.

This is a telling example of how Germany's policies (and the EU's policies more in general), while nominally ordoliberal – i.e., based upon minimal government intervention and a strict rules-based regime – are in reality based on extensive state intervention on behalf of German capital, at both the domestic and European level.

As Andy Storey notes, not only did the German government, throughout the crisis, show a blatant disregard for ordoliberalism's non-interference of public institutions in the workings of the market, by engaging in a massive Keynesian-style programme in the aftermath of the financial crisis and pushing through bailout programmes that largely absolved German banks from their responsibility for reckless lending to Greece and other countries; German authorities have also been more than happy to go along with – or to encourage – the European institutions' 'exercise of unrestrained executive power and the more or less complete abandonment of strict, rules-based frameworks' – Storey is here referring in particular to the ECB's use of its currency-issuing monopoly to force member states to follows its precepts – 'to maintain the profitability of German banks, German hegemony within the Eurozone, or even the survival of the Eurozone itself'.

Germany (and France) are also the main beneficiaries of the ongoing process of 'mezzogiornification' of periphery countries – often compounded by troika -forced privatisations –, which in recent years has allowed German and French firms to take over a huge number of businesses (or stakes therewithin) in periphery countries, often at bargain prices. A well-publicised case is that of the 14 Greek regional airports taken over by the German airport operator Fraport.

France's corporate offensive in Italy is another good example: in the last five years, French companies have engaged in 177 Italian takeovers, for a total value of $41.8 billion, six times Italy's purchases in France over the same period. This is leading to an increased 'centralisation' of European capital, characterised by a gradual concentration of capital and production in Germany and other core countries – in the logistical and distribution sectors, for example – and more in general to an increasingly imbalanced relationship between the stronger and weaker countries of the union.

These transformations cannot simply be described as processes without a subject: while there are undoubtedly structural reasons involved – countries with better developed economies of scale, such as Germany and France, were bound to benefit more than others from the reduction in tariffs and barriers associated with the introduction of the single currency – we also have to acknowledge that there are loci of economic-politic power that are actively driving and shaping these imperialist processes, which must be viewed through the lens of the unresolved inter-capitalist struggle between core-based and periphery-based capital.

From this perspective, the dichotomy that is often raised in European public discourse between nationalism and Europeanism is deeply flawed. The two, in fact, often go hand in hand. In Germany's case, for example, Europeanism has provided the country's elites with the perfect alibi to conceal their hegemonic project behind the ideological veil of 'European integration'. Ironically, the European Union – allegedly created as an antidote to the vicious nationalisms of the twentieth century – has been the tool through which Germany has been able to achieve the 'new European order' that Nazi ideologues had theorised in the 1930s and early 1940s.

In short, the European Union should indeed be viewed a transnational capitalist project, but one that is subordinated to a clear state-centred hierarchy of power, with Germany in the dominant position. In this sense, the national elites in periphery countries that have supported Germany's hegemonic project (and continue to do so, first and foremost through their support to European integration) can thus be likened to the comprador bourgeoisie of the old colonial system – sections of a country's elite and middle class allied with foreign interests in exchange for a subordinated role within the dominant hierarchy of power.

From this point of view, the likely revival of the Franco-German bloc is a very worrying development, since it heralds a consolidation of the German-led European imperialist bloc – and a further 'Germanification' of the continent. This development cannot be understood independently of the momentous shifts that are taking place in global political economy – namely the organic crisis of neoliberal globalisation, which is leading to increased tensions between the various fractions of international capital, most notably between the US and Germany.

Trump's repeated criticisms of Germany's beggar-thy-neighbour mercantilist policies should be understood in this light. The same goes for Angela Merkel's recent call – much celebrated by the mainstream press – for a stronger Europe to counter Trump's unilateralism. Merkel's aim is not, of course, that of making 'Europe' stronger, but rather of strengthening Germany's dominant position vis-à-vis the other world powers (the US but also China) through the consolidation of Germany's control of the European continental economy, in the context of an intensification of global inter-capitalist competition.

This has now become an imperative for Germany, especially since Trump has dared to openly challenge the self-justifying ideology which sustains Germany's mercantilism – a particular form of economic nationalism that Hans Kundnani has dubbed ' Exportnationalismus' , founded upon the belief that Germany's massive trade surplus is uniquely the result of Germany's manufacturing excellence ( Modell Deutschland ) rather than, in fact, the result of unfair trade practices.

This is why, if Germany wants to maintain its hegemonic position on the continent, it must break with the US and tighten the bolts of the European workhouse. To this end, it needs to seize control of the most coveted institution of them all – the ECB –, which hitherto has never been under direct German control (though the Bundesbank exercises considerable influence over it, as is well known). Indeed, many commentators openly acknowledge that Merkel now has her eyes on the ECB's presidency. This would effectively put Germany directly at the helm of European economic policy.

Even more worryingly, Germany is not simply aiming at expanding its economic control over the European continent; it is also taking steps for greater European military 'cooperation' – under the German aegis, of course. As a recent article in Foreign Policy revealed , 'Germany is quietly building a European army under its command'.

This year Germany and two of its European allies, the Czech Republic and Romania, announced the integration of their armed forces, under the control of the Bundeswehr. In doing so, the will follow in the footsteps of two Dutch brigades, one of which has already joined the Bundeswehr's Rapid Response Forces Division and another that has been integrated into the Bundeswehr's 1st Armored Division.

In other words, Germany already effectively controls the armies of four countries. And the initiative, Foreign Policy notes, 'is likely to grow'. This is not surprising: if Germany ('the EU') wants to become truly autonomous from the US, it needs to acquire military sovereignty, which it currently lacks.

Europe is thus at a crossroads: the choice that left-wing and popular forces, and periphery countries more generally, face is between (a) accepting Europe's transition to a fully post-democratic, hyper-competitive, German-led continental system, in which member states (except for those at the helm of the project) will be deprived of all sovereignty and autonomy, in exchange for a formal democratic façade at the supranational level, and its workers subject to ever-growing levels of exploitation; or (b) regaining national sovereignty and autonomy at the national level, with all the short-term risks that such a strategy entails, as the only way to restore democracy, popular sovereignty and socioeconomic dignity. In short, the choice is between European post-democracy or post-European democracy.

There is no third way. Especially in view of the growing tensions between Germany, the US and China, periphery countries should ask themselves if they want to be simple pawns in this 'New Great Game' or if they want to take their destinies into their own hands.

-- -

Some portions of this article previously appeared in this article published by Green European Journal. Thomas Fazi is the co-author (with William Mitchell) of Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto, 2017).

[Jan 06, 2018] Selling Out Argentina's Future -- Again by lan Cibils

Notable quotes:
"... desendeudamiento ..."
"... desendedudamiento ..."
"... Source: Ministry of Finance, Argentina. ..."
"... World Economic Outlook ..."
"... The grand history of Latin America: borrow billions of $$$ from U.S. banks, hand the money to the wealthy who immediately deposit it right back in American banks, and let the poor pay back the principal and interest. Hmmm . seems more and more the way this country is going. ..."
"... The fixed exchange rate under Kirchner was totally unsustainable. One difference between Macri's neoliberalism and his predecessors is Macri is allowing much more of a floating currency than in the pre 2001 time period (We can debate how much it is actually is floating and clearly a lot of this debt issuance is for currency stabilization that I personally don't approve of). ..."
"... Brazil's recent neoliberal turn was frustrating for a variety of reasons, but being a big, diverse economy, they've got more sovereignty than their neighbors. However, the business and political elites in Brazil decided to hammer through austerity (spending cuts and interest rate hikes) because they WANTED to, not because external forces made them do it. ..."
Jan 05, 2018 | www.nakedcapitalism.com

by lan Cibils and Mariano Arana, Political Economy Department, Universidad Nacional de General Sarmiento, Buenos Aires, Argentina. Originally published at Triple Crisis

In Argentina's 2015 presidential run-off election, the neoliberal right-wing coalition "Cambiemos" (literally, "lets change"), headed by Mauricio Macri, defeated the populist Kirchnerista candidate by just two percentage points. Macri's triumph heralded a return to the neoliberal policies of the 1990s and ended twelve years of heterodox economic policies that prioritized income redistribution and the internal market. The ruling coalition also performed well in the October 2017 mid-term elections and has since begun implementing a draconian set of fiscal, labor, and social security reforms.

One of the hallmarks of the Cambiemos government so far has been a fast and furious return to international credit markets and a very substantial increase in new public debt. Indeed, since Macri came to power in 2015, Argentina has issued debt worth more than $100 billion. This marks a clear contrast to the Kirchner administrations, during which the emphasis was debt reduction.

The Kirchner Years: Debt Reduction?

Both Néstor and Cristina Kirchner pointed to desendeudamiento -- debt reduction -- as one of the great successes of their administrations. To what extent was debt reduced during the twelve years of Kirchnerismo?

Figure 1 shows the evolution of Argentina's public debt stock and the debt/GDP ratio between 2004-2017. One can see that there was a substantial reduction in the debt to GDP ratio between 2004-2011 -- the first two Kirchner terms -- due primarily to: a) the 2005 and 2010 debt restructuring offers, b) a deliberate policy of desendedudamiento (debt cancellation), and c) high growth rates. Indeed, debt/GDP dropped from 118.1% in 2004 to 38.9% in 2011. One can also see that the actual stock of public debt fell after the 2005 debt restructuring process, and then remained relatively stable until 2010. In 2011, it began a slow upward trend, due to the re-appearance of the foreign exchange constraint once the commodity bubble burst and capital flight increased.

Figure 1: Public Debt Stock (millions of dollars) and Debt/GDP ratio

Source: Ministry of Finance, Argentina.

An additional, fundamental change occurred during the first two Kirchner administrations: the change in currency composition of Argentina's public debt. Indeed, as Figure 2 shows, peso-denominated public debt reached 41% of total debt after the 2005 debt-restructuring process. Between 2005 and 2012 it remained relatively stable, and then, after 2012, dollar-denominated public debt began to grow again although never reaching pre-2005 debt-restructuring levels. The currency composition change is key, since it reduces considerably the pressure on the external accounts.

Figure 2: Currency Composition of Argentina's Public Debt (as a % GDP)

Source: Ministry of Finance, Argentina.

Fast and Furious

Since Macri became president in December 2015, there has been a dramatic change in official public debt strategy, radically reversing the process of debt reduction of the previous decade. As shown in Figure 1, there was a substantial jump in the stock of public debt in 2016, and it has continued to grow in 2017.The result to date has been a substantial increase in the stock of Argentina's dollar-denominated public debt, as well as an increase of the debt service to GDP ratio. New debt has been used to cover the trade deficit, pay off the vulture funds, finance capital flight, and meet debt service payments. All of this has resulted in growing concerns about Argentina's future economic sustainability, not to mention any possibility of promoting economic development objectives.

Upon taking office, the Macri Administration rapidly implemented a series of policies to liberalize financial flows and imports, and a 40% devaluation of the Argentine peso. [1] In this context, it also went on a debt rampage, increasing dollar denominated debt considerably. Between December 2015 and September 2017, Argentina's new debt amounts to the equivalent of $103.59 billion. [2] This includes new debt issued by the Treasury (80%), provincial governments (11%), and the private sector (9%). While Argentina's debt had been increasing slowly since 2011, the jump experienced in 2016 was unlike any other in Argentina's history.

If the increase in debt is alarming, the destination of those funds is also cause of concern. Data from Argentina's Central Bank (Banco Central de la República Argentina or BCRA) show that during the first eight months of 2017, net foreign asset accumulation of the private non-banking sector totaled $13.32 million, 33% more than all of 2016, which itself was 17% more than all of 2015. This means that since December 2015, Argentina has dollarized assets by approximately $25.29 billion.

According to the BCRA, during the same period there was a net outflow of capital due to debt interest payments, profits and dividends of $8.231 billion. Additionally, the net outflow due to tourism and travel is calculated at roughly $13.43 billion between December 2015 and August 2017.

In sum, the dramatic increase in dollar-denominated debt during the two first Macri years served to finance capital flight, tourism, profit remittances, and debt service, all to the tune of roughly $50 billion.

Where is This Headed?

Argentina's experience since the 1976 military coup until the crash of 2001 has shown how damaging is the combination of unfavorable external conditions and the destruction of the local productive structure. The post-crisis policies of the successive Kirchner administrations reversed the debt-dependent and deindustrializing policies of the preceding decades. However, since Macri took office in December 2015, Argentina has once again turned to debt-dependent framework of the 1990s. Not only has public debt grown in absolute terms, but the weight of dollar-denominated debt in total debt has also increased. Despite significant doubts regarding the sustainability of the current situation, the government has expressed intentions of continuing to issue new debt until 2020.

What are the main factors that call debt-sustainability into question? First, capital flight, which, as we have said above, is increasing, is compensated with new dollar-denominated public debt. Second, Argentina's trade balance turned negative in 2015 and has remained so since, with a total accumulated trade deficit between 2015 and the second quarter of 2017 of $6.53 billion. Import dynamics proved impervious to the 2016 recession, therefore it is expected that the deficit will either persist as is or increase if there are no drastic changes. Furthermore, in the 2018 national budget bill sent to Congress, Treasury Secretary Nicolás Dujovne projects that the growth rate of imports will exceed that of exports until at least 2021, increasing the current trade deficit by 68%.

Finally, according to the IMF's World Economic Outlook (October 2017), growth rate projections for industrialized countries increase prospects of a US Federal Reserve interest rate increase. This would make Argentina's new debt issues more expensive, increasing the burden of future debt service and increasing capital flight from Argentina (in what is generally referred to as the "flight to safety").

The factors outlined above generate credible and troublesome doubts about the sustainability of the economic policies implemented by the Macri administration. While there are no signs of a major crisis in the short term (that is, before the 2019 presidential elections), there are good reasons to doubt that the current level of debt accumulation can be sustained to the end of a potential second Macri term (2023). In other words, there are good reasons to believe that Argentines will once again have to exercise their well-developed ability to navigate through yet another profound debt crisis. This is not solely the authors' opinion. In early November 2017 Standard & Poor's placed Argentina in a list of the five most fragile economies. [3] It looks like, once again, storm clouds are on the horizon.

Jim Haygood , January 5, 2018 at 11:02 am

'What are the main factors that call debt sustainability into question? First, capital flight.'

Capital flees Argentina whenever the opportunity arises because successive governments -- whether leftist or conservative -- refuse to control inflation and maintain a stable currency.

Since 2001, the Argentine peso has slid from one-to-one with the US dollar to about 19 to the dollar today. With Argentine inflation running in the low to mid twenties (according to INDEC and Price Stats), the peso can be expected to carry on weakening against the dollar indefinitely.

A hundred years during which the peso has lopped off thirteen (13) zeros owing to chronic inflation shows that Argentina is politically and culturally incapable of responsibly managing its own currency.

Argentines know this. Unfortunately, only the richer ones have assets they can move to safety outside the country. The hand-to-mouth poor will continue being ravaged by inflation, not to mention the large quantities of counterfeit pesos in circulation.

Letting Argentines play with fiat currency is like handing out loaded pistols to rowdy 5-year-olds. In both these sad cases, adult supervision is urgently needed.

Jon S , January 5, 2018 at 11:21 am

The grand history of Latin America: borrow billions of $$$ from U.S. banks, hand the money to the wealthy who immediately deposit it right back in American banks, and let the poor pay back the principal and interest. Hmmm . seems more and more the way this country is going.

Tim Smyth , January 5, 2018 at 11:53 am

The fixed exchange rate under Kirchner was totally unsustainable. One difference between Macri's neoliberalism and his predecessors is Macri is allowing much more of a floating currency than in the pre 2001 time period (We can debate how much it is actually is floating and clearly a lot of this debt issuance is for currency stabilization that I personally don't approve of).

Anonimo2 , January 5, 2018 at 1:05 pm

And who are the adults? Let me guess, bankers and bondholders?

Joel , January 5, 2018 at 2:12 pm

I'm not an expert in this at all, but in Peru, you could hold bank accounts in either national currency or dollars. The national currency accounts spared you currency exchange fees and also had higher interest rates. Most people who could hedged their bets by putting money in both accounts.

It seems like a happy medium between abandoning national currencies and letting savers get ravaged? No?

Wukchumni , January 5, 2018 at 11:14 am

While not as spectacular of a return as Bitcoin, but impressive nonetheless, the escape route for an Argentinean @ the turn of the century was the golden rule, an ounce of all that glitters was 300 pesos then and now around 25,000 pesos, a most excellent 'troy' horse.

MisterMr , January 5, 2018 at 11:31 am

So, is austerity good or is austerity bad? And in what conditions?

I'm for expansionary government expense (and direct government ownership of some industries, such as with an NHS) balanced by taxes on high incomes.

So in my view the problem happens when the government lowers taxes on the rich, as seems likely in this case.
On the other hand taxes on the rich are likely to cause capital flight.

a different chris , January 5, 2018 at 12:41 pm

So why did Macri get elected to do this? Yeah he didn't win by much, but he won.

>The hand-to-mouth poor will continue being ravaged by inflation

Which is freaking weird. Argentina has cropland. They have energy sources (and I won't bore everybody ok, I will with the observation that the Industrial Age is generously a 300/8000 year ratio part of human history).

And doesn't the below need some unpacking?:

>only the richer ones have assets they can move to safety outside the country

What are these assets? Why are said assets mobile? How did they come to "own" them? What percentage of the population is encompassed by "the richer ones" phrasing?

nonsense factory , January 5, 2018 at 5:07 pm

Question: why doesn't MMT thinking work for countries like Argentina?

As wikipedia notes:

"The key insight of MMT is that "monetarily sovereign government is the monopoly supplier of its currency and can issue currency of any denomination in physical or non-physical forms. As such the government has an unlimited capacity to pay for the things it wishes to purchase and to fulfill promised future payments, and has an unlimited ability to provide funds to the other sectors. Thus, insolvency and bankruptcy of this government is not possible. It can always pay."

Is this a general flaw in MMT? Does MMT only apply to dominant nation-states like the U.S., who can use foreign military and financial pressures to protect the currency, aka the petrodollar? Is the petrodollar a true 'fiat currency' or is it somehow based on control of commodities (especially oil)? Is there something peculiar about Argentina and other countries facing currency devaluation that MMT doesn't handle well? Any ideas on this?

JohnnyGL , January 5, 2018 at 6:21 pm

That wikipedia write up isn't wrong, but it could be better. Probably need to hammer home the point that the sovereign can always pay IN THE CURRENCY THAT IT ISSUES.

Most of the MMT related conversations on this site, and the posts that are written up on the subject are mostly about explaining how there are constraints that many people THINK exist in the USA, but don't actually exist, at least in economic terms (political constraints notwithstanding). A country cannot be forced to default on a currency it issues. If the USA had significant debts in EUR or JPY, then it'd be a very different conversation.

External constraints are a big deal for most countries, especially developing countries that depend on exports of primary commodities. Chile, for instance, is constrained by balance of payments problems when the price of copper declines. Also, developed countries that are relatively smaller have much more limited sovereignty. The Swiss Central Bank has to follow what the ECB does, to a large degree.

On the other hand, there's episodes where some countries have found room for maneuver when they give up their sovereign currency. I didn't expect that Ecuador's economy would perform quite as well as it has in recent years. But, they've shown that you can find ways to get creative to compensate for loss of monetary sovereignty. Of course, the fiscal constraints are real since Ecuador can't print USD.

Brazil's recent neoliberal turn was frustrating for a variety of reasons, but being a big, diverse economy, they've got more sovereignty than their neighbors. However, the business and political elites in Brazil decided to hammer through austerity (spending cuts and interest rate hikes) because they WANTED to, not because external forces made them do it.

No doubt an MMT prescription for Argentina would advice them to lay off the $ denominated debt and stick to pesos as much as possible. I'd imagine Stephanie Kelton or any of the UMKC crew would advise curtailing imports or doing some import substitution in order to take pressure off balance of payments issues. They'd also take a look at what was driving inflation domestically and try to find ways to relieve it with a targeted approach, instead of risking recession and unemployment. Neoliberal/Washington Consensus type economists would say hike interest rates, cut government spending in order to curtail demand. They'd argue that the private sector will make the best decisions about where to reign in spending to reduce inflation.

[Dec 23, 2017] He Died for Our Debt, Not Our Sins by Michael Hudson

Notable quotes:
"... Interview with Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is J is for Junk Economics . Cross-posted from Hudson's site . ..."
"... And Forgive them their Debts: Credit and Redemption ..."
"... And Forgive them their Debts: Credit and Redemption ..."
"... the Dems are now doing the age-old distraction of diverting the discussion to sex rather than economics. I thought just the political right does that ..."
"... I am highly skeptical of the tune Amazing Grace ..."
Dec 23, 2017 | www.nakedcapitalism.com

December 23, 2017 Interview with Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is J is for Junk Economics . Cross-posted from Hudson's site .

As many people turn towards their Christian and Jewish faiths this Christmas and Hanukkah in an attempt to make sense of the year that was, at least one economist says we have been reading the bible in an anachronistic way.


In fact he has written an entire book on the topic. In And Forgive them their Debts: Credit and Redemption (available this spring on Amazon), Professor Michael Hudson makes the argument that far from being about sex, the bible is actually about economics, and debt in particular.

The Ten Commandments Were About Debt

People tend to think of the Commandment 'do not covet your neighbour's wife' in purely sexual terms but actually, the economist says it refers specifically to creditors who would force the wives and daughters of debtors into sex slavery as collateral for unpaid debt.

"This goes all the way back to Sumer in the third millennium," he said.

Similarly, the Commandment 'thou shalt not steal' refers to usury and exploitation by threat for debts owing.

But the rulers of classical antiquity who cancelled their subjects' debts tended to be overthrown with disturbing frequency – from the Greek 'tyrants' of the 7th century BC who overthrew the aristocracies of Sparta and Corinth, to Sparta's Kings Agis and Cleomenes in the 3rd century BC who sought to cancel Spartan debts, to Roman politicians advocating debt relief and land redistribution, Julius Caesar among them.

Jesus Died for Our Debt

Professor Hudson says Jesus Christ paid the ultimate price for his activism.

What Would Jesus Do?

To understand how to fix today's economy, Hudson says that the Bible's answers were practical for their time.

And Forgive them their Debts: Credit and Redemption will be available for purchase just in time for Easter on Amazon.

Patrick Donnelly , December 23, 2017 at 6:32 am

Reckless lending is a valid concept and has been put into law by Judges and almost unbelievably, lawmakers as well, in some jurisdictions.

The debt is void.

Tricking a borrower into overcommittment is worse and that is what happened in Ireland during the 80s onwards. The Prime ministers of different parties over that time had unlimited overdrafts with several banks, most notably the AIB. A conspiracy that meant only a very few were fully aware of the final result: bondholders would be reimbursed, with the scam being paid for by those who made money and also those who lost money in the asset Ponzi that was always the end.

Emigration was also the intended end, which worked quite well.

Steven , December 23, 2017 at 8:35 am

With you right up to that last sentence. Why couldn't the simple banker theft, the 'free lunch', have been "the intended end"? Critics of the status quo IMHO often attribute way too much intelligence and foresight to the powers that be. There is such a thing as intelligent self-interest (greed). Germany's Bismark and Hudson's ancient rulers understood it. The West's ruling class apparently doesn't.

AbateMagicThinking but Not money , December 23, 2017 at 9:21 am

No more IMHOs please! It starts to read like Uriah Heap. No more humility. Just state your case.

Pip Pip

flora , December 23, 2017 at 10:48 am

an aside: It's important to distinguish sentences of opinion from sentences of claimed fact, imo. ;) Opinion is just that, and can't be called out for malice or falsity. Incorrect statements of fact can be so called out. This is an important distinction in written comments. It's important for the reputation of the publication itself, and why LTEs insist on this distinction being made in the letters.

Uriah Heep's "umbleness" was a mask covering his scheming; a very different thing from making a simple written distinction between opinion and fact.

flora , December 23, 2017 at 11:09 am

adding:
There's always 'IMNSHO', but that's more typing. :)

St Jacques , December 23, 2017 at 3:33 pm

I only ever make true statements, OK !!!

Trouble is that the next day I have a headache and everything looks yellow.

Blue Pilgrim , December 23, 2017 at 9:57 am

'Lead us not into temptation' -- odious debt and liar loans, sounds like.

Robert McGregor , December 23, 2017 at 11:56 am

> "Reckless lending is a valid concept and has been put into law by Judges and almost unbelievably, lawmakers as well, in some jurisdictions.

The debt is void.

Tricking a borrower into overcommittment . . ."

Take your average 21 year-old today or 40 years ago! Put him in the US and . . .

1) Expose him through the MSM to relentless advertising and propaganda that he should spend, spend, spend!
2) Don't teach him in school about personal finance and debt.
3) Give him a credit card.

What do you expect will happen? Through trickery the bankers have rigged a very profitable system for themselves. It is not a good system where a young person has to have way-above-knowledge-and-discipline in order to protect themselves from credit racketeers. That's why there is the ancient wisdom of the "Debt Jubilee"

Kurtismayfield , December 23, 2017 at 12:32 pm

I blame credit card debt on the banks themselves.. they should know when to cut someone off, they are tracking your every move these days.

nilavar , December 23, 2017 at 1:59 pm

Right on!

if only, all the LENDERS and the Banks (Banksters!) had followed the the cardinal rules(of Finance) of FIDUCIARY DUTY & DUE DILIGENCE, we wouldn't have 2008 crisis.

Banksters were bailed out and the 'DEBT' became the new money, world wise!

Now we have 2008 x10 (Mother of all Bubbles!) crisis at our door step!

Happy Holidays!

OpenThePodBayDoorsHAL , December 23, 2017 at 3:55 pm

The article doesn't distinguish "whose debts?"

When Citi takes too much debt they get Jubilee, when John Q. Public does, they get bankruptcy.

So let's not say "we should bring back Jubliee", we already have it, to the tune of tens of trillions of dollars. Jubliee for billionaires and bankers, just not for you and me.

It's similar to the debate over "Socialism", Bernie gets trashed for even daring to mention the word. But if "socialism" is loosely defined as direct transfers of assets from the State, we have massive socialism in this country already. For Big Wall St, Big Pharma, Big Oil, Big Military, Big Incarceration, Big Surveillance. But propose it for Big Citizen and you will get shouted down and shamed as some kind of pinko.

Alopex , December 23, 2017 at 2:20 pm

At a major bank in the late 80s, I heard the Controller describe the ideal credit card customer: the one with account just below the credit limit who makes the minimum monthly payment a few days late.

Kathleen Smith , December 23, 2017 at 8:07 am

I agree with all that Michael Hudson has to say -- only problem is that the bankers have been so effective in dividing and conquering the genernal public that they can't see who the real enemy is. We have middle class people hating those that have been set up and abused by a corrupt banking establishment that many in this country actually blame the victims. Question is how is this all going to end? and what can we do to stop the world take over by a corrupt banking elite?

JEHR , December 23, 2017 at 11:57 am

I have come to believe (from my reading) that the bankers have successfully used algorithms to speed up computing in order to make a profit no matter what the markets are doing. The AI of their machines does not have an ethical basis or empathy for those who lose money. The financialization of the economy is part of the role that AI performs in the profiteering of the bankers and other financial institutions. That I suppose is the first step to using AI algorithms to achieve the goal of the banker: to always and forever make a profit. Watch AI move into other areas for the same profitable purpose.

OpenThePodBayDoorsHAL , December 23, 2017 at 3:43 pm

It's much bigger, and much worse, than you describe:
https://thebaffler.com/salvos/oculus-grift-shivani

Arizona Slim , December 23, 2017 at 8:12 am

How is this all going to end? Well, it's going to end because of people like us. We're questioning the current way of the world, and that's the first step in changing it.

nilavar , December 23, 2017 at 2:04 pm

Any DEBT which cannot be paid, will NEVER get paid (Hello Greece!) will be resolved by default and or Bankptcy as shown in history!

2008 was just a walk in the park!

Sam Adams , December 23, 2017 at 8:25 am

I love the irony: "And Forgive them their Debts: Credit and Redemption will be available for purchase just in time for Easter on Amazon."
Bravo

Carla , December 23, 2017 at 2:28 pm

If only Michael Hudson would decline to feed the Amazon beast!

Karen , December 23, 2017 at 9:09 am

What a fascinating analysis, thank you!

Henry Moon Pie , December 23, 2017 at 9:13 am

It's best to be cautious when making any kind of assertion about "the Bible says " or "Jesus believed ." The Hebrew bible is an amalgam of many different, often conflicting theological and moral points of view. The Gospels reflect that diversity of thought with some non-Semitic strains added as well.

The Ten Commandments provide a good example of this. The reason given for honoring the Sabbath in Exodus 20:

for in six days the Lord made heaven and earth, the sea, and all that is in them, and rested the seventh day

but in Deuteronomy (i.e. the "Second Law" in Deuteronomy 5), it's

You shall remember that you were a servant in the land of Egypt, and the Lord your God brought you out thence with a mighty hand and an outstretched arm

.

The Exodus version's rationale is drawn completely from awe for YHWH and his creation, but the Deuteronomist asks the Sabbath observers to think empathetically by remembering their ancestors' (mythical) enslavement.

Another example is the Deuteronomist's amendment of the law of debt slavery. The Exodus version did limit debt slavery to 7 years (Exodus 21:2), but D goes further:

And when you send a male slave[b] out from you a free person, you shall not send him out empty-handed. Provide liberally out of your flock, your threshing floor, and your wine press, thus giving to him some of the bounty with which the Lord your God has blessed you. Remember that you were a slave in the land of Egypt, and the Lord your God redeemed you; for this reason I lay this command upon you today.

Prophets like Micah and Amos took the D point of view even further, issuing prophecies of condemnation for the rich and compassion for the poor, but the compiler of Proverbs, while extolling moderation, offers a perspective respectful toward the rich and powerful as long as they behave decently.

These differences persist into the time when the Gospels were written. Luke-Acts clearly reflects the D/Prophetic strain. While Matthew's Sermon on the Mount (Matthew 5) contains only blessings, Luke 6 includes curses:

But woe to you that are rich, for you have received your consolation.

25 "Woe to you that are full now, for you shall hunger.

"Woe to you that laugh now, for you shall mourn and weep.

26 "Woe to you, when all men speak well of you, for so their fathers did to the false prophets.

Where did the historical Jesus line up in this millennia-old debate? There's not that much firm evidence either way. Dominic Crossan, relying on gospels outside the canon, tries to make a case for a revolutionary Jesus, but a strong argument can also be made that Jesus didn't care much about earthly politics and socio-economic issues because he believed the end of the world was near.

Jim Haygood , December 23, 2017 at 9:26 am

After the next recession (which I have penciled in for 2019-2020), US fiscal deficits will rise to the $1.5 to 2 trillion level and stay there. Should Trump serve two terms, federal debt will reach $30 trillion, and by then will constitute 130 to 150% of GDP.

At this point Amerisclerosis sets in, growth being impossible as debt service paralyzes any former dynamism in the corrupt and petrified imperial empire.

The Washington DC regime has two ways of defaulting: outright (hard) default, or soft default via inflating away the principal. Naturally politicians will prefer the latter, as it may permit milking a few more years out of their hollowed-out Potemkin economy.

WWJD -- what would Jesus do? Long gold, short bitcoin ought to be a pretty good "set and forget" trade whilst awaiting the Second Coming, though it may be a bit early yet.

nilavar , December 23, 2017 at 2:09 pm

Japan's DEBT to GDP ratio is over 300% but it is still here!

'Japanification' to the rescue!

DEBT and QEs to infinity! There are over 8-9 Trillions of Global Sovereign bonds with NRP!

The Rev Kev , December 23, 2017 at 6:43 pm

What would Jesus do? We know exactly what Jesus would do! Remember him clearing out the money-lenders from the temple? There is your answer right there. Today he would go into the central banks, kick a** and take names after clearing them out. The big banks would then find themselves under the gun without federal backup which mean that they could be shrunk small enough to drown in a bath tub.

ChiGal in Carolina , December 23, 2017 at 9:30 am

I seem to recall in one of the mainstream Protestant churches I went to as a child, when we recited the Lord's prayer we DID say " and forgive us our debts as we forgive our debtors".

In another, we said, "forgive us our trespasses, as we forgive those who trespassed against us". That might've been the Winnetka Congregational Church–oh, that property owning legacy of our founding fathers!

Not really up on my biblical exegesis this morning (it's B.C. here: Before Coffee), but don't we "sin" against God? As opposed to our fellow mortals, I mean.

marieann , December 23, 2017 at 1:26 pm

Yes, I remember it was said that way also, not in the catholic church I went to but Protestant ones.
I just googled it and there are versions that speak about debt.

I find this article very interesting.
Being non religious now I could get behind a Socialist religious figure

Dan Lynch , December 23, 2017 at 9:43 am

I like Hudson and agree with much of his philosophy, but I don't think his book will change many minds because religion has nothing to do with logic.
.
If you want to make a moral or economic case for debt forgiveness, fine, but if you start talking about what Jesus really believed then you're wading into religion and most religious people's minds are already made up on that subject, so I don't think this tactic is a useful approach.
.
As one of my right wing friends said in response to Hudson's article, "liberation theology has already been debunked." Well, in my friend's mind it has been debunked so that's all that matters.
.
In my mind all religion is bunk so I am not going to defend Hudson's theology.
.
Ditto with the recent debate over Steve Keen's "theses." Just leave religion out of economics, OK?

jsn , December 23, 2017 at 10:10 am

We are all born in ignorance, religion is what we call earlier concatenations of human perception and memory that sustained societies across generations. The current religion, the one we call science, has exploded the human population to a mass the ecosphere cannot long support. Science, for all its knowledge has failed to provide anything remotely approaching a sustainable society or the politics that might create one. Science provides no wisdom, only knowledge.

It's a long game: minds that are are made up; minds yet to be will form around the ideas presented them.

An argument can be made we no longer have enough time.

mpalomar , December 23, 2017 at 10:55 am

Interesting points. Yet if science provides knowledge how can it be possible that it does not lead to wisdom. Philosophy, wisdom, religion and science are all bundled or linked, science being the latest iteration. Is it possible that there is such a clear, distinct division between wisdom and knowledge? Wisdom must be a product of knowledge as it is hard to imagine wisdom that does not conform to knowledge.

It is a long game but our individual lives are played out on a different time reference. Keynes of course famously acknowledged this, regarding the useless task of economists if they do not recognize the human time frame in their theories and calculations.

Civilization's tragic but expedient go-to-move is the ever prevalent dismissive shrug of complicity elite consensus employs to excuse the generational destruction visited by poverty and war because the march of history must proceed at a desultory stroll in relation to the span of a human life.

It does appear we no longer have time and probably never have.

jsn , December 23, 2017 at 1:02 pm

For some time I've wondered if life itself isn't just an exhilarating acceleration of entropy with consciousness being a kind of waste heat.

It denies us free will, but when you look at how we treat one another at scale and the curves for population and energy use it's hard to avoid the comparison to bacteria in a petri dish.

But I still cling to free will understanding it might be an illusion!

Jamie , December 23, 2017 at 11:27 am

Who is the "we" you refer to? Religion is simply codified superstition. It is a parasitic excrescence of stable societies, not the cause of their stability. Without the science you deplore you would not be able to criticize science for not achieving the sustainability you claim to value. Sustainability was not a thing until the science of ecology made it so. If you think you can make an argument that we don't have enough time to be rational, go ahead and make it. But "hurry up and abandon science because we only have time for superstition before the world ends" does not sound like a promising argument to me. By the way, if you attempt the argument I suggest you start by distinguishing science from technology and the ability and knowledge to do something from the political decisions to do (or not do) what science tells us is in our power. The same science that gave us the green revolution and the ability to support a huge global population has also given us birth control and the ability to adjust the size of our population to any value we choose. It is not science's fault if we make poor choices.

jsn , December 23, 2017 at 12:45 pm

What did you know when you were born? There are embedded assumptions about me in almost every line you wrote.

I don't deplore science, I'm just humble about what it can achieve. It has no agency, only people do. People made science so science can hardly be better than people, which gets us back to the problem of how to get people to sustain the ecology necessary for the species.

Why are you proposing to abandon science? I didn't. I simply said that it will not cause us to change our collective agency, it can't, it only has agency through us.

Additionally, there is decent science on cognitive bias that suggests, as the reader I was responding to did, that rational arguments don't change minds. I accept that science. Ipso facto, as you finished "It's not science's fault we make poor choices", with which I completely agree. It won't be science's success on the outside chance we make some good ones. That is my point: it is a political issue not a scientific one.

The religions you call superstition, while incorporating a great deal about the material world that science has proven (within a certain tolerance) false, also include a great deal about human psychology integrated into time scales significantly longer than any individual human life.

I chose a poor metaphor in "the current religion, the one we call science" that sidetracked my intent, but science can no more solve our problems for us than god.

jsn , December 23, 2017 at 1:14 pm

Second to last para should have read:

The religions you call superstition, while incorporating a great deal about the material world that science has proven (within a certain tolerance) false, also include a great deal about human psychology integrated into time scales and societies significantly larger than any individual human life that are both true and wise.

mpalomar , December 23, 2017 at 12:53 pm

Perhaps scientific hypothesis is codified superstition. An indefatigable and self perfecting method for discerning the universe, here on earth employed by a cognitively limited and imperfect biological organism.

As an atheist of sorts, the definition that religion, "is a parasitic excrescence of stable societies" strikes me more a definition of economics, particularly the capitalist incantation and that science operating without parameters of elements of religion and philosophy, would be useless, impossible or possibly fatally employed, without the admittedly meager ethical constraints applied currently.

jsn , December 23, 2017 at 1:05 pm

It has for a long time seemed to me that only "true believers" could have the confidence to throw out the entire body of something as ancient, vast and polyvalent as "religion".

jrs , December 23, 2017 at 12:23 pm

Maybe socialism really truly was the best shot at an belief system for how humans should live in the modern world.

While science is part of our knowledge of the world and it is necessary for this level of biosphere destruction, and certainly it's technologies are part of our life, I don't think it really informs the current VALUE system that much. I think the current value system is informed almost entirely by brutal capitalism, the ideology of mammon and wealth makes right period.

makedoanmend , December 23, 2017 at 2:25 pm

Science and religion are not equivalent, and I have yet to come across a scientist who claimed it to be so.

Religion is a belief system and has been useful system of inquiry to many people in present and past history. There may be some scientists who promote some sort of technophilia future but they are in the company with many non-scientists.

Many people often conflate those who hype Technological fixes for all social ills with strictly scientific enquiry. Technological fantasies and science are not equivalent.

Science is, at its basis, a method of inquiry based upon continual observations, collection of data and the experimental method. Scientific inquiry does not rest upon predicated truths but rather that ultimate truths are not known. Every law or theory, after rigorous testing, becomes the basic dogma for future hypotheses and new experimental endeavours. The scientific method is itself tested by using laws and theories to predict future events; Newtonian physics being a case in point. When theories lose their ability to predict future events with accuracy they are either modified or discarded. Sometimes, we just have to live with seeming contradictory conditions as between differences in Newtonian and quantum physics; yet Newtonian physics theories and practices are still valid at the scales in which we Homo sapiens operate. They are not based upon belief but upon practice.

Nor does science try and engineer social structures – such as controlling populations. That is not the role of science or scientists. Science merely records the data and tries to predict the consequences of changing weather patterns, farming practices or population dynamics. However, these models are very complex. The job of scientist is to try and convey the information but scientists, like all the rest of us, operate in a political world.

And for those who are believers in a religion, I wish you a most happy holiday and success in your spiritual endeavours.

Thuto , December 23, 2017 at 6:36 pm

"And for those who are believers in a religion " Thank you for this statement, it's representative of true humility at work. While you do not state your religious belief system (or if indeed you have any), you're not dismissive of beliefs that others might hold as "codified superstition" (as one commentor does above). Deriding those who may believe that there's some intelligent consciousness that underpins life in the universe as superstitious is to suffer from a type of hubris. Live and let live, and this applies as well to religious fundamentalists of all stripes who've made it their mission in life to "save" others. In matters of faith (or lack thereof), one must always keep their own counsel in my view.

jrs , December 23, 2017 at 12:13 pm

I don't know if it's going to convince anyone, but it's not just a religious question but a historical one, only people spend their whole lives studying this stuff (how to interpret the Bible based on the culture and language of the time etc.), so while I like Hudson I think he may be out of his depth here.

Davidh J. , December 23, 2017 at 1:35 pm

Hudson's been studying this for a long time.

Lol. Fat fingers: spelled my name wrong: David J.

nilavar , December 23, 2017 at 2:17 pm

What about DEBT in far Easter religions – Hinduism. Buddhism, Janism, Shinto etc?

Hinduism (1. 3Billions+) is at least 4-5 thousand years old!

Norb , December 23, 2017 at 12:34 pm

What is the nature of Political Power? In order to rule society, public sentiment must be controlled and directed in a certain trajectory. Political and Spiritual power are dependent and cannot be separated. When they are, failure ensues.

The contemporary world is in the midst of a spiritual/religious crisis. The human mind and soul need an anchor in order to deal with the chaos inherent in the universe. What is human history other than one long chain of events illustrating humanities efforts to deal with this predicament.

Belief in a righteous cause, rooted in actual experience of daily life is what all religions are based on. Humanity is characterized by being builders and myth makers. When the myths fail to provide plausible explanations for life's struggles, societal collapse or new possibilities- new myths- must be undertaken. At the very least, a reinterpretation. Building cannot occur without a viable supporting myth.

It seems to me that humanity needs to reexamine spirituality more than ever- not abandon it. The world cannot be left to fools and charlatans.

freedeomny , December 23, 2017 at 9:44 am

Jesus as social activist .I like it!

Karen , December 23, 2017 at 9:55 am

I credit the Catholic church with developing my social conscience–back in the 1970s, when most pastors were old white men. It was a message delivered clearly and repeatedly.

Despite all of the other disappointments and hypocrisies we have seen in the years since, I do think that the church leaders I knew were sincere in this regard. In fact, I have always viewed this as the important contrast vis a vis Protestantism.

Though I am no theologian, so probably don't know what I'm talking about

diptherio , December 23, 2017 at 10:40 am

My mother attends a United Methodist church whose minister is an ex-Catholic nun, who decided she wanted to deliver sermons rather than receive them. While not real big on organized religion myself, I have been impressed by how much work they put into actually helping people. They built a whole facility in their basement for homeless people to come in a couple times a week, take a shower, shave, and get re-upped on toothpaste and whatnot. They definitely seem to take the "whatsoever you do unto the least of these, you do to me" line much more seriously than the congregations and leadership of other United Methodist churches Mom's attended, so maybe there is something to your thoughts on Catholic/Protestant differences in this area although, I have a feeling that things might be way different in, for instance, AME churches down South.

cnchal , December 23, 2017 at 9:58 am

. . . the attempt of society to cope with the fact that debts grow faster than the ability to pay ," . . .

Debt is the ultimate self licking ice cream cone. To pay off a debt and the interest implies that society as a whole is required to take on ever greater debt. From the ephor's (thank you knowbuddhau) perspective a perfect system.

knowbuddhau , December 23, 2017 at 12:45 pm

You're welcome. Still a bit mindblown by that.

ISTM a SLICC is a perpetual motion machine. Creditors can turn people into them with debt + interest. It's like some kind of special purpose vessel you can get in, but can't disembark, and it never gets you to the yonder shore like they promised. All you can do is row yourself to death.

I kinda think Jesus was working on more than one level. I think he had an insight that threatened the PTB of his time with disintermediation from between people and the divine.

The way I see it, the Gospel as I've understood it never got out. The most threatening idea was safely encapsulated in the personage and later cult of Jesus the Superfreak. I've always understood it to be the breaking of this taboo that made him such a threat to the PTB.

If we're all related to divinity as offspring to parent, then we all share in divinity. No one is any more divine than anyone else. A lot hinges on the article in a specific phrase.

Did he say, "I am *a* son of god," or did he say "I am THE son of god?" According to Alan Watts, the Greek article is indefinite. The whole idea of a special lineage exceptionally favored by the cosmic PTB (and of course innocently promulgated by its beneficiaries) obviously comes straight outta our primate past. As applied to modern human affairs, it's absurd.

No, I think he said, we're all worthy.

Before this, the only way I thought of Jesus in relation to money was, of course, overturning the tables in the temples. I am in all ya'll's virtual debt. ;-)

Help Me , December 23, 2017 at 10:03 am

End games, potential outcomes, so many possibilities.
Questions many would like to see answered:
What do the accumulators do with all that wealth?
When they acquire more than they can possibly spend, why acquire?
How much acquisition is to seek power over others?
What has happened in the past to acquirors and other power-seekers?
Will this current phantasm end in a Jubilee?

jrs , December 23, 2017 at 12:40 pm

I believe at a certain point wealth acquisition is all about power over others, if only more people clearly saw it that way.

One wants money to meet: basic needs, then a few consumer toys and a tiny bit of security, a little more security (get a 401k), then leisure and autonomy (win the lottery and quit your job!). Normal non-rich people can relate to these impulses, as they are basic human drives from survival to self-actualization. Though normal non-rich people's best collective shot at them would be socialism where there would be more economic security, and more autonomy, and more leisure FOR ALL.

But beyond a certain point money is ultimately about a sadistic drive for power over others. People need to see rich people for the sadistic f's they are and their hoarding of money proves it. They won't give it up because they have a sadistic drive to rule over others.

Carolinian , December 23, 2017 at 10:04 am

Great stuff. We lapsed Baptists remember one Biblical precept–apparently not mistranslated–from our Sunday school lessons: "money is the root of all evil." Per Hudson it might be interesting to speculate how many other of the world's historic sins boil down to money–slavery, racism (competition between underclass groups), antisemitism. In A Distant Mirror Barbara Tuchman wrote that the French medieval kings would declare a personal debt jubilee from war debts by encouraging the masses to launch a pogrom. No more creditors meant no more debt. During the pre WW 2 Nazi period Hitler said that the Jews were free to leave as long as they left their possessions behind.

Of course in current times autocrats no longer have to reconcile their behavior with traditional religion since it is widely in decline. Instead they invent new religious beliefs, based on failed economic theories.

JEHR , December 23, 2017 at 12:03 pm

See here .

Carolinian , December 23, 2017 at 12:59 pm

Yes, I know. In fact that's the standard comebacker for defenders of the Prosperity Gospel .they don't love money. Rather they, like Lucy in Peanuts, just want what's coming to them.

I'd say the short form versus the long form is a distinction without a difference. See Michael Hudson above.

lyman alpha blob , December 23, 2017 at 10:22 am

Never much enjoyed going to church as a kid but I did have to go frequently and absorbed a lot whether I liked it or not. Every so often we would go to a service out of town and they would recite the lord's prayer with 'forgive us our trespasses as we forgive those who trespass against us'. It always sounded off to me and didn't exactly roll of the tongue. Our church used 'debt' and 'debtors' which in retrospect I'm quite grateful for.

diptherio , December 23, 2017 at 10:44 am

We always used the "trespass" version, growing up, so I thought for a long time that this was all to do with how to handle people in your front yard, or hunting on your acreage without permission.

EyeRound , December 23, 2017 at 11:35 am

Yes, indeed. This made me think:

If the (older) European cultures confounded "debt" with some notion of "sin" as with the German word "Schuld," then the newer American version is to confound "debt" with "real estate."

Hudson also has plenty of insights regarding the reciprocity between banks and land ownership.

So here's another question, the upshot of these 2 thoughts: could it be that Americans know, subliminally, that owning land is sinful?

jrs , December 23, 2017 at 12:53 pm

perhaps it is, or perhaps merely owning land more than meets one's own needs is sinful (being a landlord – ie a rentier), but certainly humans lived most of their time on earth without land ownership at all.

Darius , December 23, 2017 at 10:59 am

Debts is the King James Version Lord's Prayer. We say "debts" in my church.

Hudson's approach is appealing. It would be more useful if he cited chapter and verse. Perhaps the book does.

Synoia , December 23, 2017 at 6:33 pm

Debts is most certainly NOT in the King James version of the Lord's prayer.

It is "trespass." We recited the Laord's prayer at school once a day from age 5 to 18. It sort of sticks after a few recitations.

I can also go to a Church of England service, and automatically say the refrains after the Vicar start them.

The programming is both interesting and a little frightening.

Steven Bailey , December 23, 2017 at 10:54 am

Puerto Rico really needs a "debt jubilee"! for Christmas.

flora , December 23, 2017 at 11:00 am

Great post. Thank you.

To file in the category of "the more things change ":

Last year's prez primaries were very much about the current neoliberal economic system enriching the .01% and the growing indebtedness and despair of the 99%, imo. And now we see the Dem estab pushing, imo, a sex hysteria as the greatest destructive force that needs to be addressed, while ignoring the destructive force of neoliberal economics and debt and deaths from despair. The notion of sin is again transferred from economics to sex.

Robert McGregor , December 23, 2017 at 12:13 pm

> @flora "And now we see the Dem estab pushing, imo, a sex hysteria as the greatest destructive force that needs to be addressed, while ignoring the destructive force of neoliberal economics . . . "

Amazing the Dems are now doing the age-old distraction of diverting the discussion to sex rather than economics. I thought just the political right does that! Ancient creditors changed the discussion from "economic unfairness" to "sexual sins." Modern US Republicans changed it from "economic unfairness" to social issues like abortion, and sexuality. So why are the Dems doing the same? Yves Smith has talked about the #METOO hysteria being a rich women's movement. The news is about movie star women being wronged. Maybe it's just a "Maslow hierarchy" sort of thing. When you are a millionaire movie star–or an affluent pundit–then you can worry about being sexually harassed in your past. If you're a waitress, your economic survival is foremost in your thinking. Economic class determines taste and worry.

Mark P. , December 23, 2017 at 1:18 pm

the Dems are now doing the age-old distraction of diverting the discussion to sex rather than economics. I thought just the political right does that

The Dems are the political right. The Reps are the far right.

Rates , December 23, 2017 at 11:05 am

I don't think the rich has any objection to debt forgiveness. They already own almost everything anyway. Heck, once debt forgiveness happens, they'll take more debt and then ask for another round of forgiveness. A couple of rounds like that and they'll really own everything. Hurrah!!!

Foreclosure though for everyone will I think wipe out the rich as well since they sure have debts up the wazoo.

Ian , December 23, 2017 at 12:13 pm

This is the key. Debt forgiveness for the right people, the rich.

jrs , December 23, 2017 at 12:56 pm

well it might not be sufficient, probably also need wealth re-distribution from a tiny minority to the great majority.

lyle , December 23, 2017 at 12:11 pm

BTW what is the reading in the oldest greek gospels, and for comparison if avaiable the Syriac gospels of the Nestorian churches (Syriac was a much closer language to Aramaic than greek)
Likewise the reading in the Hebrew language version versus the Septuigant? I maintain that even if you belive god inspired the original texts sinful humans translated it and in the old days copied it. So the version we have today may or may not be close to the original.

DJG , December 23, 2017 at 12:26 pm

I realize that this is an excerpt from the book, but the idea that sin and debt are equated in the Bible is off. There is no mention here of hamartia, a Greek term that was used for sin.

To quote Wikipedia:
"Hamartia is also used in Christian theology because of its use in the Septuagint and New Testament. The Hebrew (chatá) and its Greek equivalent (àµaρtίa/hamartia) both mean "missing the mark" or "off the mark".[9][10][11]"

So rather than sin as a kind of status, the Bible defines sin as not hitting standards of good behavior. This is a long way from debt, and the word hamartia isn't uncommon in the Bible.

Also, the article brushes up against the idea of poverty in Catholicism, which leads inevitably to il Poverello, Saint Francis, the "Poor Guy" from Assisi. In Catholicism, poverty doesn't ennoble. Poverty clarifies, because it removes possessions as a distraction. There is a famous legend of the "conversion" of Saint Francis, which was a long time coming. He took off his clothes in church and gave them away. That isn't nobility. It's a clarification. In return for being un-distracted, Saint Francis claimed a whole enchanted / sacred cosmos, Brother Sun, Sister Moon, the famous birds, Brother Wolf of Gubbio.

The central issue that Hudson mentions here (and likely much more so in his book) is the deterioriation of religion in the U S of A into "American Religion," which brays about being saved, is uncharitable, doesn't know the bible or church history, has no environmental ethic (unlike the Franciscans), and is now being degraded further by U.S. free-market fundamentalism. As a bad Catholic and a bad Buddhist, I am highly skeptical of the tune Amazing Grace and its many claims on the godhead.

Mark P. , December 23, 2017 at 1:08 pm

I am highly skeptical of the tune Amazing Grace

But are you aware that the song's author, John Newton (1725-1807), was originally a slave ship captain, then experienced spiritual conversion and eventually renounced the trade, finally becoming an abolitionist and an Anglican priest? Earlier, he'd been press-ganged in the Royal Navy, during which time he received eight dozen lashes and then later was marooned in Sierra Leone, and was himself made a slave of a slaving tribe there.

https://en.wikipedia.org/wiki/John_Newton

Make of all that what you will, but there was probably something real there originally.

Rick , December 23, 2017 at 12:40 pm

"banning absentee ownership" – this would be a great idea for intellectual property. The creator gets protection for some set period (like patents), but it is non-transferrable. Creators get compensated, and society benefits after the set period expires.

I'm not holding my breath .

Jfree , December 23, 2017 at 1:01 pm

I've always read the Bible in economic terms too so there's stuff to chew on here. But I've interpreted the Jesus story more narrowly. It is about the Tyrian shekel (the temple tax). Not legal tender at the time for anything but the temple tax – so the Sadducees basically had monopoly ownership. Distributed out to people to pay their temple tax via a raucous appearance of showy but fake competition (the moneychangers) – but the terms (exchange rate basically) are really controlled by the monopolists behind the curtain. And like any Monopoly101, they presumably screw people over time (but need to know more about prices of stuff then – were currencies being debased?). All justified/rationalized intellectually by the Pharisees then.

The problem is – the Tyrian shekel has the image of Baal on it. When Jesus overturns the money tables and then gets shown a coin – the coin he is actually commenting on is the shekel (render unto Baal what is Baals and unto God what is Gods) not the denarius (render unto Caesar what is Caesars and unto God what is Gods)

Read it that way – and he is cleverly accusing the entire establishment of serious blasphemy and exploitation of the Jewish people and directly threatening their business model. Easy to understand why it later gets written down as 'denarius' after the temple is destroyed and the message is no longer in Judaea (or even within Jewish community in diaspora) – but the real message also gets lost with that

Juliania , December 23, 2017 at 2:17 pm

Not true unless you discount the text and archeological facts completely, which I guess you do. The common coinage of the time would be of the empire, which was of Rome.

Juliania , December 23, 2017 at 2:03 pm

I love Michael Hudson, but he is not quite correct here about Jesus, at least as far as this article presents his argument. We know Jesus best through the writings of his followers, mainly the four evangelists, Matthew, Mark, Luke John.

The two who give us an explanation of what we call the Lord's prayer are Matthew and Luke, and the earliest texts are written in koine greek, not hebrew. Indeed, Matthew first uses "debt" but follows his account of the prayer immediately with an explanation that doesn't use that term, thusly:

" for if you forgive men the tresspasses (paraptomata) of them, your heavenly father will also forgive you, but if you do not forgive men, neither will your father forgive your trespasses ( paraptomata) "

My big dictionary translates the above greek word as "false step" or "falling from the right way."

Professor Hudson has an economist's point of view, as does this forum, and that's perfectly fine – Matthew was a tax collector after all. But Jesus was not. The term "debt" in this instance can be likened to the use of the word "seed" in the parables. The prayer uses a narrow focus that ought to be understood in a larger sense.

Luke's version of the prayer makes this expanded meaning very clear, and that is why I prefer the word "trespasses". ( Also it sounds better and can be dwelled upon longer when one prays or sings it.)

"

Keynesian , December 23, 2017 at 5:50 pm

I appreciate Dr. Hudson referencing the Christian Old and New Testament about money and debt. Christianity has become so perverted in our modern times that it now represents the opposite of its original principles. And Dr. Hudson is in good company as an economist alluding to the New Testament about economic issues.

In the second chapter, sixth paragraph, of Capital Vol. I , Karl Marx's very first introduction of the concept of money is followed by a quote from the New Testament book of Revelations.

The social action therefore of all other commodities, sets apart the particular commodity in which they all represent their values. Thereby the bodily form of this commodity becomes the form of the socially recognised universal equivalent. To be the universal equivalent, becomes, by this social process, the specific function of the commodity thus excluded by the rest. Thus it becomes –money. ―Illi unum consilium habent et virtutem et potestatem suam bestiae tradunt. Et ne quis possit emere aut vendere, nisi qui habet characterem aut nomen bestiae aut numerum nominis ejus.‖ [―These have one mind, and shall give their power and strength unto the beast.‖ Revelations, 17:13; And that no man might buy or sell, save he that had the mark, or the name of the beast, or the number of his name.‖ Revelations, 13:17.](Apocalypse.)

Marx is suggesting that money is analogous to the Christian belief in Revelation's "Mark of the Beast." Of all the criticisms of Marx, one would never believe that he would sometimes point to the New Testament while discussing economics. This is because hardly anyone reads Marx, or the Bible for that matter. Ironically, modern American Right-wing Christianity is corrupted by the "Prosperity Gospel" cult and views money as the ultimate good, or at least its possession a sign of godliness, when everything in its own dogma says something else. Could a Christian today proclaim with conviction, "Money is the Mark of the Beast!"?

Synoia , December 23, 2017 at 6:23 pm

"Right Wing Christianity" is surely an oxymoron?

I refer to the "eye of the needle" and "rich men" quote in the Gospels."

Quoting Revelations to prove any point about Christ's teachings is specious at best. The Revelations of St John the Device appear as the stick of the Church to be used when the Carrot of Christ's teaching is unsuccessful.

"If you don't do what we tell you you will burn in Hell!!!"

I'd also point out that Christianity as practiced appears mostly as a peasant suppression system:

Priest: (beholden to the local Lord) "You will get you reward after you die"

Unruly peasant: "How do I know that?"

Priest "We've never had a complaint!"

financial matters , December 23, 2017 at 6:56 pm

A powerful statement by Marx. He recognizes the importance of a 'money of account' to give 'value' to items but at the same time questions the validity of this value.

We have definitely gotten to the point of too much monetization and lost the social values of collaboration and compassion.

[Dec 14, 2017] Tech Giants Trying to Use WTO to Colonize Emerging Economies

Notable quotes:
"... The initiative described in this article reminds me of how the World Bank pushed hard for emerging economies to develop capital markets, for the greater good of America's investment bankers. ..."
"... By Burcu Kilic, an expert on legal, economic and political issues. Originally published at openDemocracy ..."
"... Today, the big tech race is for data extractivism from those yet to be 'connected' in the world – tech companies will use all their power to achieve a global regime in which small nations cannot regulate either data extraction or localisation. ..."
"... One suspects big money will be thrown at this by the leading tech giants. ..."
"... Out of idle curiosity, how could you accurately deduce my country of origin from my name? ..."
Dec 14, 2017 | www.nakedcapitalism.com

December 14, 2017 by Yves Smith Yves here. Notice that Costa Rica is served up as an example in this article. Way back in 1997, American Express had designated Costa Rica as one of the countries it identified as sufficiently high income so as to be a target for a local currency card offered via a franchise agreement with a domestic institution (often but not always a bank). 20 years later, the Switzerland of Central America still has limited Internet connectivity, yet is precisely the sort of place that tech titans like Google would like to dominate.

The initiative described in this article reminds me of how the World Bank pushed hard for emerging economies to develop capital markets, for the greater good of America's investment bankers.

By Burcu Kilic, an expert on legal, economic and political issues. Originally published at openDemocracy

Today, the big tech race is for data extractivism from those yet to be 'connected' in the world – tech companies will use all their power to achieve a global regime in which small nations cannot regulate either data extraction or localisation.

n a few weeks' time, trade ministers from 164 countries will gather in Buenos Aires for the 11th World Trade Organization (WTO) Ministerial Conference (MC11). US President Donald Trump in November issued fresh accusations of unfair treatment towards the US by WTO members , making it virtually impossible for trade ministers to leave the table with any agreement in substantial areas.

To avoid a 'failure ministerial," some countries see the solution as pushing governments to open a mandate to start conversations that might lead to a negotiation on binding rules for e-commerce and a declaration of the gathering as the "digital ministerial". Argentina's MC11 chair, Susana Malcorra, is actively pushing for member states to embrace e-commerce at the WTO, claiming that it is necessary to " bridge the gap between the haves and have-nots ".

It is not very clear what kind of gaps Malcorra is trying to bridge. It surely isn't the "connectivity gap" or "digital divide" that is growing between developed and developing countries, seriously impeding digital learning and knowledge in developing countries. In fact, half of humanity is not even connected to the internet, let alone positioned to develop competitive markets or bargain at a multilateral level. Negotiating binding e-commerce rules at the WTO would only widen that gap.

Dangerously, the "South Vision" of digital trade in the global trade arena is being shaped by a recent alliance of governments and well-known tech-sector lobbyists, in a group called 'Friends of E-Commerce for Development' (FED), including Argentina, Chile, Colombia, Costa Rica, Kenya, Mexico, Nigeria, Pakistan, Sri Lanka, Uruguay, and, most recently, China. FED claims that e-commerce is a tool to drive growth, narrow the digital divide, and generate digital solutions for developing and least developed countries.

However, none of the countries in the group (apart from China) is leading or even remotely ready to be in a position to negotiate and push for binding rules on digital trade that will be favorable to them, as their economies are still far away from the technology revolution. For instance, it is perplexing that one of the most fervent defenders of FED's position is Costa Rica. The country's economy is based on the export of bananas, coffee, tropical fruits, and low-tech medical instruments, and almost half of its population is offline . Most of the countries in FED are far from being powerful enough to shift negotiations in favor of small players.

U.S.-based tech giants and Chinese Alibaba – so-called GAFA-A – dominate, by far, the future of the digital playing field, including issues such as identification and digital payments, connectivity, and the next generation of logistics solutions. In fact, there is a no-holds-barred ongoing race among these tech giants to consolidate their market share in developing economies, from the race to grow the advertising market to the race to increase online payments.

An e-commerce agenda that claims unprecedented development for the Global South is a Trojan horse move. Beginning negotiations on such topics at this stage – before governments are prepared to understand what is at stake – could lead to devastating results, accelerating liberalization and the consolidation of the power of tech giants to the detriment of local industries, consumers, and citizens. Aware of the increased disparities between North and South, and the data dominance of a tiny group of GAFA-A companies, a group of African nations issued a statement opposing the digital ambitions of the host for MC11. But the political landscape is more complex, with China, the EU, and Russia now supporting the idea of a "digital" mandate .

Repeating the Same Mistakes?

The relationships of most countries with tech companies are as imbalanced as their relationships with Big Pharma, and there are many parallels to note. Not so long ago, the countries of the Global South faced Big Pharma power in pharmaceutical markets in a similar way. Some developing countries had the same enthusiasm when they negotiated intellectual property rules for the protection of innovation and research and development costs. In reality, those countries were nothing more than users and consumers of that innovation, not the owners or creators. The lessons of negotiating trade issues that lie at the core of public interest issues – in that case, access to medicines – were costly. Human lives and fundamental rights of those who use online services should not be forgotten when addressing the increasingly worrying and unequal relationships with tech power.

The threat before our eyes is similarly complex and equally harmful to the way our societies will be shaped in the coming years. In the past, the Big Pharma race was for patent exclusivity, to eliminate local generic production and keep drug prices high. Today, the Big Tech race is for data extractivism from those who have yet to be connected in the world, and tech companies will use all the power they hold to achieve a global regime in which small nations cannot regulate either data extraction or data localization.

Big Tech is one of the most concentrated and resourceful industries of all time. The bargaining power of developing countries is minimal. Developing countries will basically be granting the right to cultivate small parcels of a land controlled by data lords -- under their rules, their mandate, and their will -- with practically no public oversight. The stakes are high. At the core of it is the race to conquer the markets of digital payments and the battle to become the platform where data flows, splitting the territory as old empires did in the past. As the Economist claimed on May 6, 2017: "Conflicts over control of oil have scarred the world for decades. No one yet worries that wars will be fought over data. But the data economy has the same potential for confrontation."

If countries from the Global South want to prepare for data wars, they should start thinking about how to reduce the control of Big Tech over -- how we communicate, shop, and learn the news -- , again, over our societies. The solution lies not in making rules for data liberalization, but in devising ways to use the law to reduce Big Tech's power and protect consumers and citizens. Finding the balance would take some time and we are going to take that time to find the right balance, we are not ready to lock the future yet.

Jef , December 14, 2017 at 11:32 am

I thought thats what the WTO is for?

Thuto , December 14, 2017 at 2:14 pm

One suspects big money will be thrown at this by the leading tech giants. To paraphrase from a comment I made recently regarding a similar topic : "with markets in the developed world pretty much sewn up by the tripartite tech overlords (google, fb and amazon), the next 3 billion users for their products/services are going to come from developing world". With this dynamic in mind, and the "constant growth" mantra humming incessantly in the background, it's easy to see how high stakes a game this is for the tech giants and how no resources will be spared to stymie any efforts at establishing a regulatory oversight framework that will protect the digital rights of citizens in the global south.

Multilateral fora like the WTO are de facto enablers for the marauding frontal attacks of transnational corporations, and it's disheartening to see that some developing nations have already nailed the digital futures of their citizens to the mast of the tech giants by joining this alliance. What's more, this signing away of their liberty will be sold to the citizenry as the best way to usher them into the brightest of all digital futures.

Mark P. , December 14, 2017 at 3:30 pm

One suspects big money will be thrown at this by the leading tech giants.

Vast sums of money are already being thrown at bringing Africa online, for better or worse. Thus, the R&D aimed at providing wireless Internet via giant drones/balloons/satellites by Google, Facebook, etc.

You're African. Possibly South African by your user name, which may explain why you're a little behind the curve, because the action is already happening, but more to the north -- and particularly in East Africa.

The big corporations -- and the tech giants are competing with the banking/credit card giants -- have noted how mobile technology leapt over the dearth of last century's telephony tech, land lines, and in turn enabled the highest adoption rates of cellphone banking in the world. (Particularly in East Africa, as I say.) The payoffs for big corporations are massive -- de facto cashless societies where the corporations control the payment systems –and the politicians are mostly cheap.

In Nigeria, the government has launched a Mastercard-branded national ID card that's also a payment card, in one swoop handing Mastercard more than 170 million potential customers, and their personal and biometric data.

In Kenya, the sums transferred by mobile money operator M-Pesa are more than 25 percent of that country's GDP.

You can see that bringing Africa online is technically a big, decade-long project. But also that the potential payoffs are vast. Though I also suspect China may come out ahead -- they're investing far more in Africa and in some areas their technology -- drones, for instance -- is already superior to what the Europeans and the American companies have.

Thuto , December 14, 2017 at 4:58 pm

Thank you Mark P.

Hoisted from a comment I made here recently: "Here in South Africa and through its Free Basics programme, facebook is jumping into bed with unsuspecting ISPs (I say unsuspecting because fb will soon be muscling in on their territory and becoming an ISP itself by provisioning bandwidth directly from its floating satellites) and circumventing net neutrality "

I'm also keenly aware of the developments in Kenya re: safaricom and Mpesa and how that has led to traditional banking via bank accounts being largely leapfrogged for those moving from being unbanked to active economic citizens requiring money transfer facilities. Given the huge succes of Mpesa, I wouldn't be surprised if a multinational tech behemoth (chinese or american) were to make a play for acquiring safaricom and positioning it as a triple-play ISP, money transfer/banking services and digital content provider (harvesting data about users habits on an unprecedented scale across multiple areas of their lives), first in Kenya then expanded throughout east, central and west africa. I must add that your statement about Nigeria puts Mark Zuckerberg's visit there a few months back into context somewhat, perhaps a reconnaissance mission of sorts.

Out of idle curiosity, how could you accurately deduce my country of origin from my name?

Mark P. , December 14, 2017 at 6:59 pm

Out of idle curiosity, how could you accurately deduce my country of origin from my name?

Though I've lived in California for decades, my mother was South African and I maintain a UK passport, having grown up in London.

Mark P. , December 14, 2017 at 3:34 pm

As you also write: "with markets in the developed world pretty much sewn up by the tripartite tech overlords (google, fb and amazon), the next 3 billion users for their products/services are going to come from developing world."

Absolutely true. This cannot be stressed enough. The tech giants know this and the race is on.

Mattski , December 14, 2017 at 3:41 pm

Been happening with food for 50 years.

[Dec 12, 2017] The IMF and the WORLD BANK Puppets of the Neoliberal Onslaught

Dec 12, 2017 | www.mit.edu

Today, September 26, thousands of activists are protesting in Prague, in the Czech Republic, against the policies and institutional structures of the International Monetary Fund (IMF) and the World Bank. These protests are the latest action in a growing movement that is highly critical of the neoliberal economic policies being imposed on people all over the world, including those in western countries. As Robert McChesney concisely describes it, neoliberalism "refers to the policies and processes whereby a relative handful of private interests are permitted to control as much as possible of social life in order to maximize their personal profit." The major beneficiaries of neoliberalism are large trans-national corporations and wealthy investors. The implementation of neoliberal policies came into full force during the eighties under Thatcher and Reagan. Today, the principles of neoliberalism are widely held with near-religious fervor by most major political parties in the US and Britain and are gaining acceptance by those holding power elsewhere.

Although the proponents of neoliberalism extol the virtues of free markets, free trade, private enterprise and consumer choice, the effects of neoliberal policies is quite the opposite. In fact, these policies typically result in very protectionist markets dominated by a few trans-national corporations. Many sectors of the economy - ranging from food processing and distribution to the corporate media to aviation - are oligopolies and can be characterized as highly centralized command economies that are only a shade more competitive than the economy of the former Soviet Union. A major theme of neoliberal policies is deregulation and the removal of government interference in the economy. Consistently, such policies are applied in a one sided way, and always in a manner that benefits large trans-national corporations, the most influential entities in policy making. Hence, within neoliberalism as it is actually applied, capital is allowed to roam the world freely with very few restrictions, yet workers are to remain trapped within the borders of their countries. This serves trans-national corporations well, though for some, not well enough. According to Jack Welsh, CEO of GE, he and GE's shareholders would be best served if factories were on barges so that when workers demand higher wages and better working conditions, the barges could easily be moved to a country with more compliant workers. Another component of neoliberalism is the dismantling of the welfare state. Again, in practice, this policy is applied to the majority of the population, who have to accept cut backs in unemployment benefits and health care, while large corporations continue to receive massive subsidies and tax breaks.

The effects of neoliberal policies on people everywhere has been devastating. During the last two to three decades, wealth disparity has increased many fold within countries as well as between countries. In the US, inflation adjusted median wages are lower today than they were in 1973 (when median wages reached their peak) while the wealth of the top 1% of society has soared. One out of every five children in the US lives in a state of poverty characterized by continual hunger, insecurity and lack of adequate health care. This, after almost ten years of a record breaking economic boom. For the poorest people in the world, the situation has become even more desperate. John Gershman and Alec Irwin state in "Dying for growth":

    100 countries have undergone grave economic decline over the past three decades. Per capita income in these 100 countries is now lower than it was 10, 15, 20 or in some cases even 30 years ago. In Africa, the average household consumes 20 percent less today than it did 25 years ago. Worldwide, more than 1 billion people saw their real incomes fall during the period 1980-1993. Meanwhile, according to the United Nations Development Program's 1998 Human Development Report, the 15 richest people in the world enjoy combined assets that exceed the total annual gross domestic product of sub-Saharan Africa. At the end of the 1990's, the wealth of the three richest individuals on earth surpassed the combined annual GDP of the 48 least developed countries.

The Thistle won't waste ink on how the wealthy have fared since the mainstream corporate press does a very commendable job in this respect.

Neoliberalism has been a disaster for the environment as well. Despite the growing awareness in the late eighties that the rate of fossil fuel consumption at that time would cause global warming and many other forms of unpredictable and dangerous environmental changes, energy consumption has continued to increase at an alarming rate. This has been facilitated by neoliberal deregulation of environmental protections championed by corporate puppets such as Newt Gingrich and Tom Delay. In their continued quest for windfall profits, for example, corporations such as Ford and GM aggressively marketed (and continue to do so) highly polluting sports utility vehicles (SUVs) while ignoring cleaner and more efficient technologies. This was made possible by loop holes in environmental laws allowing SUVs to be sold that do not meet the emission standards imposed on passenger cars. Consumer Reports Magazine (Nov. pg. 54) noted in 1997, that "the growing popularity of SUVs, has helped make the 1997 automotive model year the least fuel-efficient in the last 16 years". Due to the subservience of government to large corporations, these loop holes are still in place. Today, the qualitative predictions of a decade ago are starting to manifesting themselves. The average temperature of the world has risen over the last decade and for the first time, water has been observed on the polar caps.

One industry that has benefited significantly from neoliberal policies is the biotech industry, though not without potentially catastrophic costs for the majority of the population. While large biotech corporations such as Monsanto and Dupont are aiming for massive profits, the environment and our food supply is irreversibly being altered in the process, creating a situation where large portions of the population and all future generations are subjected to potentially severe and unpredictable health risks. As a way to promote the nascent biotech industry, the Bush administration in the early nineties adopted a policy which held that regulations should not be created in such a way as to be a burden on the industry. The Clinton administration has continued this policy, and today approximately 60% of our food is genetically modified. This transformation of our food supply has occurred with scant public knowledge or oversight. And although genes from viruses, bacteria or arctic fish with anti-freeze properties are inserted into crops, the federal regulatory agencies, with heavy industry influence, maintain that genetically modified foods are no different from crops obtained with traditional breeding techniques and therefore do not need to be approved (unless the transported genes are known to induce a human allergen). Studies investigating the long term health and environmental effects of genetically modified crops are not required by any federal agency and are rarely performed. In this atmosphere of deregulation and concentrated corporate control, it is only a matter of time before a serious biological catastrophe occurs.

What does the IMF and World Bank have to do with this?

The IMF and World Bank were both created at the end of world war II in a political climate the is very different from that of today. Nevertheless, their roles and modalities have been suitably updated to serve the interests of those that benefit from neoliberalism. The institutional structures of the IMF and World Bank were framed at an international conference in Bretton Woods, New Hampshire. Initially, the primary focus of the IMF was to regulate currency exchange rates to facilitate orderly international trade and to be a lender of last resort when a member country experiences balance of payments difficulties and is unable to borrow money from other sources. The original purpose of the World Bank was to lend money to Western European governments to help them rebuild their countries after the war. In later years, the World Bank shifted its attention towards development loans to third world countries.

Immediately after world war II, most western countries, including the US, had 'New Deal' style social contracts with sufficient welfare provisions to ensure 'stability' between labor and capital. It was understood that restrictions on international capital flow were necessary to protect these social contracts. The postwar 'Bretton Woods' economic system which lasted until the early seventies, was based on the right and obligation of governments to regulate capital flow and was characterized by rapid economic growth. In the early seventies, the Nixon administration unilaterally abandoned the Bretton Woods system by dropping the gold standard and lifting restrictions on capital flows. The ensuing period has been marked by dramatically increased financial speculation and low growth rates.

Although seemingly neutral institutions, in practice, the IMF and World Bank end up serving powerful interests of western countries. At both institutions, the voting power of a given country is not measured by, for example, population, but by how much capital that country contributes to the institutions and by other political factors reflecting the power the country wields in the world. The G7 plays a dominant role in determining policy, with the US, France, Germany, Japan and Great Britain each having their own director on the institution's executive board while 19 other directors are elected by the rest of the approximately 150 member countries. The president of the World Bank is traditionally an American citizen and is chosen with US congressional involvement. The managing director of the IMF is traditionally a European. On the IMF board of governors, comprised of treasury secretaries, the G7 have a combined voting power of 46%.

The power of the IMF becomes clear when a country gets into financial trouble and needs funds to make payments on private loans. Before the IMF grants a loan, it imposes conditions on that country, requiring it to make structural changes in its economy. These conditions are called 'Structural Adjustment Programs' (SAPs) and are designed to increase money flow into the country by promoting exports so that the country can pay off its debts. Not surprisingly, in view of the dominance of the G7 in IMF policy making, the SAPs are highly neoliberal. The effective power of the IMF is often larger than that associated with the size of its loans because private lenders often deem a country credit-worthy based on actions of the IMF.

The World Bank plays a qualitatively different role than the IMF, but works tightly within the stringent SAP framework imposed by the IMF. It focuses on development loans for specific projects, such as the building of dams, roads, harbors etc that are considered necessary for 'economic growth' in a developing country. Since it is a multilateral institution, the World Bank is less likely than unilateral lending institutions such as the Export Import Bank of the US to offer loans for the purpose of promoting and subsidizing particular corporations. Nevertheless, the conceptions of growth and economic well being within the World Bank are very much molded by western corporate values and rarely take account of local cultural concerns. This is clearly exhibited by the modalities of its projects, such as the 'Green Revolution' in agriculture, heavily promoted in the third world by the World Bank in the sixties and seventies. The 'Green Revolution' refers to the massive industrialization of agriculture, involving the replacement of a multitude of indigenous crops with a few high-yielding varieties that require expensive investments of chemicals, fertilizers and machinery. In the third world, the 'Green Revolution' was often imposed on indigenous populations with reasonably sustainable and self sufficient traditions of rural agriculture. The mechanization of food production in third world countries, which have a large surplus labor pool, has led to the marginalization of many people, disconnecting them from the economy and exacerbating wealth disparity in these countries. Furthermore, excessive chemical agriculture has led to soil desertification and erosion, increasing the occurrence of famines. While the 'Green Revolution' was a catastrophe for the poor in third world countries, western chemical corporations such as Monsanto, Dow and Dupont fared very well, cashing in high profits and increasing their control over food production in third world countries.

Today, the World Bank is at it again. This time it is promoting the use of genetically modified seeds in the third world and works with governments to solidify patent laws which would grant biotech corporations like Monsanto unprecedented control over food production. The pattern is clear, whether deliberate or nor, the World Bank serves to set the stage for large trans-national corporations to enter third world countries, extract large profits and then leave with carnage in their wake.

While the World Bank publicly emphasizes that it aims to alleviate poverty in the world, imperialistic attitudes occasionally emerge from its leading figures. In 1991, then chief economist Lawrence Summers (now US Secretary of the Treasury) wrote in an internal memo that was leaked:

    Just between you and me, shouldn't the World Bank be encouraging more migration of the dirty industries to the LDCs [less developed countries]? ... The economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable, and we should face up to that ... Under-populated countries in Africa are vastly under-polluted; their air quality is probably vastly inefficiently low compared to Los Angeles or Mexico City .... The concern over an agent that causes a one-in-a-million chance in the odds of prostate cancer is obviously going to be much higher in a country where people survive to get prostate cancer than in a country where under-five mortality is 200 per thousand.

And thistle thought that the World Bank tried to extend lives in developing countries, not take advantage of low life expectancy.

How do countries get into financial troubles, the Debt Crisis.

The most devastating program imposed by the IMF and the World Bank on third world countries are the Structural Adjustment Programs. The widespread use of SAPs started in the early eighties after a major debt crisis. The debt crisis arose from a combination of (i) reckless lending by western commercial banks to third world countries, (ii) mismanagement within third world countries and (iii) changes in the international economy.

During the seventies, rising oil prices generated enormous profits for petrochemical corporations. These profits ended up in large commercial banks which then sought to reinvest the capital. Much of this capital was invested in the form of high risk loans to third world countries, many of which were run by corrupt dictators. Instead of investing the capital in productive projects that would benefit the general population, dictators often diverted the funds to personal Swiss bank accounts or used the them to purchase military equipment for domestic repression. This state of affairs persisted for a while, since commodity prices remained stable and interest rates were relatively low enabling third world countries to adequately service their debts. In 1979, the situation changed, however, when Paul Volker, the new Federal Reserve Chairman, raised interest rates. This dramatically increased the cost of debtor countries' loans. At the same time, the US was heading into a recession and world commodity prices dropped, tightening cash flows necessary for debt payment. The possibility that many third world countries would default on their debt payments threatened a major financial crisis that would result in large commercial bank failures. To prevent this, powerful countries from the G7 stepped in and actively used the IMF and World Bank to bail out third world countries. Yet the bail-out packages were contingent upon the third world countries introducing major neoliberal policies (i.e. SAPs) to promote exports.

Examples of SAP prescriptions include:

    - an increase in 'labor flexibility' which means caps on minimum wages, and policies to weaken trade unions and worker's bargaining power.
    - tax increases combined with cuts in social spending such as education and health care, to free up funds for debt repayment.
    - privatization of public sector enterprises, such as utility companies and public transport
    - financial liberalization designed to remove restrictions on the flow of international capital in and out of the country coupled with the removal of restrictions on what foreign corporations and banks can buy.

    Despite almost two decades of Structural Adjustment Programs, many third world countries have not been able to pull themselves out of massive debt. The SAPs have, however, served corporations superbly, offering them new opportunities to exploit workers and natural resources.

    As Prof. Chomsky often says, the debt crisis is an ideological construct. In a true capitalist society, the third world debt would be wiped out. The Banks who made the risky loans would have to accept the losses, and the dictators and their entourage would have to repay the money they embezzled. The power structure in society however, prevents this from happening. In the west tax payers end up assuming the risk while the large banks run off with the high profits often derived from high risk loans. In the third world, the people end up paying the costs while their elites retire in the French Riviera.

    It is important to realize that the IMF and World Bank are tools for powerful entities in society such as trans-national corporations and wealthy investors. The Thistle believes that massive world poverty and environmental destruction is the result of the appalling concentration of power in the hands of a small minority whose sights are blinded by dollar signs and whose passions are the aggrandizement of ever more power. The Thistle holds that an equitable and democratic world centered around cooperation and solidarity would be more able to deal with environmental and human crises.

[Nov 30, 2017] Money Imperialism by Michael Hudson

Highly recommended!
Notable quotes:
"... Since World War II the United States has used the Dollar Standard and its dominant role in the IMF and World Bank to steer trade and investment along lines benefiting its own economy. But now that the growth of China's mixed economy has outstripped all others while Russia finally is beginning to recover, countries have the option of borrowing from the Asian Infrastructure Investment Bank (AIIB) and other non-U.S. consortia. ..."
"... The problem with surrendering is that this Washington Consensus is extractive and lives in the short run, laying the seeds of financial dependency, debt-leveraged bubbles and subsequent debt deflation and austerity. The financial business plan is to carve out opportunities for price gouging and corporate profits. Today's U.S.-sponsored trade and investment treaties would make governments pay fines equal to the amount that environmental and price regulations, laws protecting consumers and other social policies might reduce corporate profits. "Companies would be able to demand compensation from countries whose health, financial, environmental and other public interest policies they thought to be undermining their interests, and take governments before extrajudicial tribunals. These tribunals, organised under World Bank and UN rules, would have the power to order taxpayers to pay extensive compensation over legislation seen as undermining a company's 'expected future profits.' ..."
"... At the center of today's global split are the last few centuries of Western social and democratic reform. Seeking to follow the classical Western development path by retaining a mixed public/private economy, China, Russia and other nations find it easier to create new institutions such as the AIIB than to reform the dollar standard IMF and World Bank. Their choice is between short-term gains by dependency leading to austerity, or long-term development with independence and ultimate prosperity. ..."
"... The price of resistance involves risking military or covert overthrow. Long before the Ukraine crisis, the United States has dropped the pretense of backing democracies. The die was cast in 1953 with the coup against Iran's secular government, and the 1954 coup in Guatemala to oppose land reform. Support for client oligarchies and dictatorships in Latin America in the 1960 and '70s was highlighted by the overthrow of Allende in Chile and Operation Condor's assassination program throughout the continent. Under President Barack Obama and Secretary of State Hillary Clinton, the United States has claimed that America's status as the world's "indispensible nation" entitled it back the recent coups in Honduras and Ukraine, and to sponsor the NATO attack on Libya and Syria, leaving Europe to absorb the refugees. ..."
"... The trans-Atlantic financial bubble has left a legacy of austerity since 2008. Debt-ridden economies are being told to cope with their downturns by privatizing their public domain. ..."
"... The immediate question facing Germany and the rest of Western Europe is how long they will sacrifice their trade and investment opportunities with Russia, Iran and other economies by adhering to U.S.-sponsored sanctions. American intransigence threatens to force an either/or choice in what looms as a seismic geopolitical shift over the proper role of governments: Should their public sectors provide basic services and protect populations from predatory monopolies, rent extraction and financial polarization? ..."
"... Today's global financial crisis can be traced back to World War I and its aftermath. The principle that needed to be voiced was the right of sovereign nations not to be forced to sacrifice their economic survival on the altar of inter-government and private debt demands. The concept of nationhood embodied in the 1648 Treaty of Westphalia based international law on the principle of parity of sovereign states and non-interference. Without a global alternative to letting debt dynamics polarize societies and tear economies apart, monetary imperialism by creditor nations is inevitable. ..."
"... The past century's global fracture between creditor and debtor economies has interrupted what seemed to be Europe's democratic destiny to empower governments to override financial and other rentier interests. Instead, the West is following U.S. diplomatic leadership back into the age when these interests ruled governments. This conflict between creditors and democracy, between oligarchy and economic growth (and indeed, survival) will remain the defining issue of our epoch over the next generation, and probably for the remainder of the 21 st century. ..."
"... wiki/Anglo-Persian Oil Company "In 1901 William Knox D'Arcy, a millionaire London socialite, negotiated an oil concession with Mozaffar al-Din Shah Qajar of Persia. He financed this with capital he had made from his shares in the highly profitable Mount Morgan mine in Queensland, Australia. D'Arcy assumed exclusive rights to prospect for oil for 60 years in a vast tract of territory including most of Iran. In exchange the Shah received £20,000 (£2.0 million today),[1] an equal amount in shares of D'Arcy's company, and a promise of 16% of future profits." Note the 16% = ~1/6, the rest going off-shore. ..."
"... The Greens in Aus researched the resources sector in Aus, to find that it is 83% 'owned' by off-shore entities. Note that 83% = ~5/6, which goes off-shore. Coincidence? ..."
"... Note that in Aus, the democratically elected so-called 'leaders' not only allow exactly this sort of economic rape, they actively assist it by, say, crippling the central bank and pleading for FDI = selling our, we the people's interests, out. Those traitor-leaders are reversing 'Enlightenment' provisions, privatising whatever they can and, as Michael Hudson well points out the principles, running Aus into debt and austerity. ..."
"... US banking oligarchs will expend the last drop of our blood to prevent a such a linking, just as they were willing to sacrifice our blood and treasure in WW1 and 2, as is alluded to here.: ..."
"... The past century's global fracture between creditor and debtor economies has interrupted what seemed to be Europe's democratic destiny to empower governments to override financial and other rentier interests. Instead, the West is following U.S. diplomatic leadership back into the age when these interests ruled governments. This conflict between creditors and democracy, between oligarchy and economic growth (and indeed, survival) will remain the defining issue of our epoch over the next generation, and probably for the remainder of the 21st century. ..."
"... It's important to note that such interests have ruled (owned, actually) imperial Britain for centuries and the US since its inception, and the anti-federalists knew it. ..."
"... "After World War I the U.S. Government deviated from what had been traditional European policy – forgiving military support costs among the victors. U.S. officials demanded payment for the arms shipped to its Allies in the years before America entered the Great War in 1917. The Allies turned to Germany for reparations to pay these debts." The Yank banker, the Yankee Wall Street super rich, set off a process of greed that led to Hitler. ..."
"... But they didn't invent anything. They learned from their WASP forebears in the British Empire, whose banking back to Oliver Cromwell had become inextricably entangled with Jewish money and Jewish interests to the point that Jews per capita dominated it even at the height of the British Empire, when simpleton WASPs assume that WASPs truly ran everything, and that WASP power was for the good of even the poorest WASPs. ..."
"... The Berlin Baghdad railway was an important cause for WWI. ..."
"... Bingo. Stopping it was a huge factor. There was no way the banksters of the world were going to let that go forward, nor were they going to let Germany and Russia link up in any other ways. They certainly were not about to allow any threats to the Suez Canal nor any chance to let the oil fields slip from their control either. ..."
"... This is not how the Enlightenment was supposed to evolve ..."
"... In fact, this is exactly how it was supposed to work. The wave of liberal democracies was precisely to overturn the monarchies, which were the last bulwark protecting the people from the full tyranny of the financiers, who were, by nature, one-world internationalists. ..."
"... The real problem with this is that any form of monetary arrangement involves an implied trusteeship, with obligations on, as well as benefits for, the trustee. The US is so abusing its trusteeship through the continual use of an irresponsible sanctions regime that it risks a good portion of the world economy abandoning its system for someone else's, which may be perceived to be run more responsibility. The disaster scenario would be the US having therefore in the future to access that other system to purchase oil or minerals, and having that system do to us what we previously did to them -- sanction us out. ..."
"... " Marx believed that capitalism was inherently built upon practices of usury and thus inevitably leading to the separation of society into two classes: one composed of those who produce value and the other, which feeds upon the first one. In "Theories of Surplus Value" (written 1862-1863), he states " that interest (in contrast to industrial profit) and rent (that is the form of landed property created by capitalist production itself) are superfetations (i.e., excessive accumulations) which are not essential to capitalist production and of which it can rid itself." ..."
Nov 30, 2017 | www.unz.com

Money Imperialism Introduction to the German Edition Michael Hudson November 29, 2017 3,500 Words 1 Comment Reply

In theory, the global financial system is supposed to help every country gain. Mainstream teaching of international finance, trade and "foreign aid" (defined simply as any government credit) depicts an almost utopian system uplifting all countries, not stripping their assets and imposing austerity. The reality since World War I is that the United States has taken the lead in shaping the international financial system to promote gains for its own bankers, farm exporters, its oil and gas sector, and buyers of foreign resources – and most of all, to collect on debts owed to it.

Each time this global system has broken down over the past century, the major destabilizing force has been American over-reach and the drive by its bankers and bondholders for short-term gains. The dollar-centered financial system is leaving more industrial as well as Third World countries debt-strapped. Its three institutional pillars – the International Monetary Fund (IMF), World Bank and World Trade Organization – have imposed monetary, fiscal and financial dependency, most recently by the post-Soviet Baltics, Greece and the rest of southern Europe. The resulting strains are now reaching the point where they are breaking apart the arrangements put in place after World War II.

The most destructive fiction of international finance is that all debts can be paid, and indeed should be paid, even when this tears economies apart by forcing them into austerity – to save bondholders, not labor and industry. Yet European countries, and especially Germany, have shied from pressing for a more balanced global economy that would foster growth for all countries and avoid the current economic slowdown and debt deflation.

Imposing austerity on Germany after World War I

After World War I the U.S. Government deviated from what had been traditional European policy – forgiving military support costs among the victors. U.S. officials demanded payment for the arms shipped to its Allies in the years before America entered the Great War in 1917. The Allies turned to Germany for reparations to pay these debts. Headed by John Maynard Keynes, British diplomats sought to clean their hands of responsibility for the consequences by promising that all the money they received from Germany would simply be forwarded to the U.S. Treasury.

The sums were so unpayably high that Germany was driven into austerity and collapse. The nation suffered hyperinflation as the Reichsbank printed marks to throw onto the foreign exchange also were pushed into financial collapse. The debt deflation was much like that of Third World debtors a generation ago, and today's southern European PIIGS (Portugal, Ireland, Italy, Greece and Spain).

In a pretense that the reparations and Inter-Ally debt tangle could be made solvent, a triangular flow of payments was facilitated by a convoluted U.S. easy-money policy. American investors sought high returns by buying German local bonds; German municipalities turned over the dollars they received to the Reichsbank for domestic currency; and the Reichsbank used this foreign exchange to pay reparations to Britain and other Allies, enabling these countries to pay the United States what it demanded.

But solutions based on attempts to keep debts of such magnitude in place by lending debtors the money to pay can only be temporary. The U.S. Federal Reserve sustained this triangular flow by holding down U.S. interest rates. This made it attractive for American investors to buy German municipal bonds and other high-yielding debts. It also deterred Wall Street from drawing funds away from Britain, which would have driven its economy deeper into austerity after the General Strike of 1926. But domestically, low U.S. interest rates and easy credit spurred a real estate bubble, followed by a stock market bubble that burst in 1929. The triangular flow of payments broke down in 1931, leaving a legacy of debt deflation burdening the U.S. and European economies. The Great Depression lasted until outbreak of World War II in 1939.

Planning for the postwar period took shape as the war neared its end. U.S. diplomats had learned an important lesson. This time there would be no arms debts or reparations. The global financial system would be stabilized – on the basis of gold, and on creditor-oriented rules. By the end of the 1940s the United Sta