The Money Changers Serenade: A New Plot Hatches

Paul Craig Roberts

Former Treasury Secretary Timothy Geithner, a protege of Treasury Secretaries Rubin and Summers, has received his reward for continuing the Rubin-Summers-Paulson policy of supporting the “banks too big to fail” at the expense of the economy and American people. For his service to the handful of gigantic banks, whose existence attests to the fact that the Anti-Trust Act is a dead-letter law, Geithner has been appointed president and managing director of the private equity firm, Warburg Pincus and is on his way to his fortune.

A Warburg in-law financed Woodrow Wilson’s presidential campaign. Part of the reward was Wilson’s appointment of Paul Warburg to the first Federal Reserve Board. The symbiotic relationship between presidents and bankers has continued ever since. The same small clique continues to wield financial power.

Geithner’s career is illustrative. In the 1980s, Geithner worked for Kissinger Associates. In the mid to late 1990s, Geithner served as a deputy assistant Treasury secretary. Under Rubin and Summers he moved up to undersecretary of the Treasury.

From the Treasury he went to the Council on Foreign Relations and from there to the International Monetary Fund (IMF). From there he was appointed president of the Federal Reserve Bank of New York, where he worked to make banks more profitable by allowing higher ratios of debt to capital, thus contributing to the financial crisis.

Geithner arranged the sale of the failed Wall Street firm of Bear Stearns, helped with the taxpayer bailout of AIG, and rejected saving Lehman Brothers from bankruptcy in order to create the crisis atmosphere needed to more fully subordinate US economic policy to the needs of the few large banks.

Rubin, a 26-year veteran of Goldman Sachs, was rewarded by Citibank for his service to the banks while Treasury Secretary with a $50 million compensation package in 2008 and $126,000,000 between 1999 and 2009.

When a person becomes a Treasury official it is made clear that the choice is between serving the banks and becoming rich or trying to serve the public and becoming poor. Few make the latter choice.

As MIchael Hudson has informed us, the goal of the financial sector has always been to convert all income, from corporate profits to government tax revenues, to the service of debt. From the bankers standpoint, the more debt the richer the bankers. Rubin, Summers, Paulson, Geithner, and now banker Treasury Secretary Jack Lew faithfully serve this goal.

The Federal Reserve describes its policy of Quantitative Easing — the creation of new money with which the Fed purchases Treasury debt and mortgage backed securities — as a low interest rate policy in order to stimulate employment and economic growth. Economists and the financial media have parroted this cover story.

In contrast, I have exposed QE as a scheme for pumping profits into the banks and boosting their balance sheets. The real purpose of QE is to drive up the prices of the debt-related derivatives on the banks’ books, thus keeping the banks with solvent balance sheets.

Writing in the Wall Street Journal (“Confessions of a Quantitative Easer,” November 11, 2013), Andrew Huszar confirms my explanation to be the correct one. Huszar is the Federal Reserve official who implemented the policy of QE. He resigned when he realized that the real purposes of QE was to drive up the prices of the banks’ holdings of debt instruments, to provide the banks with trillions of dollars at zero cost with which to lend and speculate, and to provide the banks with “fat commissions from brokering most of the Fed’s QE transactions.” (See: www.paulcraigroberts.org )

This vast con game remains unrecognized by Congress and the public. At the IMF Research Conference on November 8, 2013, former Treasury Secretary Larry Summers presented a plan to expand the con game.

Summers says that it is not enough merely to give the banks interest free money. More should be done for the banks. Instead of being paid interest on their bank deposits, people should be penalized for keeping their money in banks instead of spending it.

To sell this new rip-off scheme, Summers has conjured up an explanation based on the crude and discredited Keynesianism of the 1940s that explained the Great Depression as a problem caused by too much savings. Instead of spending their money, people hoarded it, thus causing aggregate demand and employment to fall.

Summers says that today the problem of too much saving has reappeared. The centerpiece of his argument is “the natural interest rate,” defined as the interest rate at which full employment is established by the equality of saving with investment. If people save more than investors invest, the saved money will not find its way back into the economy, and output and employment will fall.

Summers notes that despite a zero real rate of interest, there is still substantial unemployment. In other words, not even a zero rate of interest can reduce saving to the level of investment, thus frustrating a full employment recovery. Summers concludes that the natural rate of interest has become negative and is stuck below zero.

How to fix this? The way to fix it, Summers says, is to charge people for saving money. To avoid the charges, people would spend the money, thus reducing savings to the level of investment and restoring full employment.

Summers acknowledges that the problem with his solution is that people would take their money out of banks and hoard it in cash holdings. In other words, the cash form of money provides consumers with a freedom to save that holds down consumption and prevents full employment.

Summers has a fix for this: eliminate the freedom by imposing a cashless society where the only money is electronic. As electronic money cannot be hoarded except in bank deposits, penalties can be imposed that force unproductive savings into consumption.

Summers’ scheme, of course, is a harebrained one. With governments running huge deficits, who would purchase bonds at negative interest rates? How would pension and retirement funds operate? Would they also be subject to an annual percentage confiscation?

We know that the response of consumers to the long term decline in real median family income, to the loss of jobs from labor arbitrage across national borders (jobs offshoring), to rising homelessness, to cuts in the social safety net, to the transformation of their full time jobs to part time jobs (employers’ response to Obamacare), has been to reduce their savings rate. Indeed, few have any savings at all. The US personal saving rate is currently 2 percentage points, about 30%, below the long term average. Retired people, unable to earn any interest on their savings from the Fed’s zero interest rate policy, are being forced to draw down their savings in order to pay their bills.

Moreover, it is unclear whether the savings rate is an accurate measure or merely a residual of other calculations. With so many people having to draw down their savings, I wouldn’t be surprised if an accurate measure showed the personal savings rate to be negative.

But for Summers the plight of the consumer is not the problem. The problem is the profits of the banks. Summers has the solution, and the establishment, including Paul Krugman, is applauding it. Once the economy officially turns down again, watch out.

Financial Institutions Admit Austerity Failed

The Market Giveth and Taketh Away
by KEN KLIPPENSTEIN


The first part of 2013 has been something of a confessional period for the economic managerial class. The IMF’s chief economist, Olivier Blanchard, conceded that “forecasters significantly underestimated the increase in unemployment and the decline in domestic demand associated with fiscal consolidation.” (‘Fiscal consolidation’ is a polite way of saying ‘austerity’.) U.S. Treasury Secretary Jack Lew admitted that “there has to be a focus on what the impact on unemployment is” of austerity policies; also, that “you cannot be in the world where austerity just leads to more austerity”; and finally, that “the rush to do all the [austerity] front-end has actually made the problem harder in some countries.” He even suggested that “Europeans need to look as well what they can do to generate more demand in their economy.”

Managing Director of the IMF, Christine Lagarde, confessed that “we don’t see the need to do upfront, heavy duty fiscal consolidation as was initially planned”; and “the best way to create jobs is through growth.” EU Economic and Monetary Affairs Commissioner Olli Rehn said that the IMF and the US’ recent calls for less austerity “are preaching to the converted.”

Meanwhile, Carmen Reinhart and Kenneth Rogoff, the Harvard economists responsible for one of the more influential studies used to defend austerity, have admitted that “austerity is not the only answer to a debt problem.” This came after three economists at the University of Massachusetts accused them of “selective exclusion” of data. Reinhart and Rogoff have since admitted that their critics “correctly identified a spreadsheet coding error.” In my view, their most striking error is being ignored: the failure to recognize that austerity didn’t work during the Great Depression and won’t work now, during the Great Recession. Anyone can make a spreadsheet error. It takes a Harvard professor to forget basic history.

It’s not particularly interesting when doctrinal managers like Reinhart and Rogoff change positions. The ability to turn on one’s heel and switch from one ideological conviction to its opposite, like a schoolchild running the pacer test, is probably the ideological manager’s main duty. The ones who collapse from exhaustion are weeded out long before they become IMF chiefs. What’s more interesting is why the coach is having them run in the opposite direction now.

In a correspondence I had with economist Jack Rasmus, he explained the economic managerial class’ reversal:

First, it may signal a future shift to business-investor tax cuts as a preferred ‘stimulus’ (which doesn’t work either). However, since tax cuts will raise the deficit, they have to justify an increase in the deficit if they’re going to move ahead with the tax cuts. Thus, the attack on ‘austerity’ (stimulus in reverse) as not as productive as they thought is first necessary. On the other hand, it’s important to note that the shift to ‘stimulus’ doesn’t mean a shift from social spending cuts; it means a shift to more deficit via corporate tax cuts.

Second, the abandonment of austerity may represent a prelude to a still greater reliance on monetary policy. Let the central bank bear all the burden (and blame) and take the heat off politicians more visibly responsible for spending cut austerity. Monetary policy (i.e. increasing liquidity to banks, investors and businesses) has in turn two prime goals. One: to boost the stock and financial securities markets and ensure more profits for speculators, and, second, to lower their currency’s exchange value to allow competition with other currency centers…A sure sign that capitalist policymakers are getting more desperate and trying to grow by beggaring their competitors. It’s competitive devaluations—not by fiat as in the 1930s—but by liquidity-exchange rate manipulation.

Whatever the case may be, the financial institutions’ current ideological inflection should probably be regarded with suspicion. It is much too sharp an inflection to indicate any sort of honest change in thinking.

The solutions that the economic managers are advocating demonstrate a useful point. They simultaneously demand stimulus and deficit reduction. As Treasury Secretary Jack Lew put it, “We shouldn’t choose between growth and job creation and getting our fiscal house in order.” This is like a child wishing he could stay up all night and get a good night’s sleep: either choice negates the other. These mental exercises in self-contradiction further illustrate the way in which the elite must accept mutually conflicting views. Orwell called this ‘doublethink.’

Today we call it things like ‘nuance.’ Example: Reinhart and Rogoff said that “the recent debate about the global economy has taken a distressingly simplistic turn,” by which they mean austerity is finally being firmly rejected. In elite circles, ‘simplistic’ explanations are any which involve elementary truths: that authentic stimulus increases the deficit, as do corporate tax cuts; that privatization makes things unaccountable to the public; that a middle and under-class recovery requires an upper-class tax. (These simple facts are incomprehensible to the elite because they suggest a world in which extreme wealth causes injustice rather than eradicates it.) Derivatives and credit default swaps, on the other hand, are ‘nuanced’ tools which anyone without an advanced degree in finance shouldn’t comment on.

An outgrowth of this tendency toward ‘nuance’ is the peculiarly mystical tone that the economics profession has taken on. For example, the view that the business cycle will inevitably restore us to prosperity, and that the present downturn is just some sort of random misfortune. I recall a friend in university remarking that he planned to enter a PhD program in hopes of “waiting out the recession,” as though it were a spell of rain or some other act of god. The market giveth and taketh away. To suggest any sort of human agency behind these downturns—namely, a relationship between the wealth and poverty—is to commit the dreaded error of viewing economics as a zero-sum game. This of course is a fallacy, because economics is a magical process by which the concentrated wealth simultaneously diffuses its wealth (i.e. trickle-down theory).

Democrats, Social Security and the Fiscal Cliff

A Web of Convenient Fictions
by ROB URIE


With democrats ecstatic that political dysfunction has postponed their cutting the social insurance programs that Americans have paid for and count on for a few weeks, discussion of the intricacies of ‘chained CPI’ (Consumer Price Index) versus other measures of inflation used to adjust Social Security can now apparently wait for the New Year. Still, this probably isn’t a bad time to ask: why? Why cut Social Security? The program is currently solvent, is expected to remain solvent for decades to come, and projected shortfalls in the future could be better addressed by raising the incomes of the people who pay into the program, not by cutting payments to those who depend on them. What is to be gained by ‘solving’ a problem that isn’t?

If cutting Social Security isn’t necessary, why then is it being proposed? Barack Obama provided copious evidence in prior proposals, television interviews and speeches that doing so is his intent. Congressional democrats and labor leaders quickly acceded to his proposal to do so, with former House Speaker Nancy Pelosi going so far as to actively lie that proposed cuts will ‘strengthen’ the program. And given the cuts will eventually put tens of millions of Americans into dire poverty from a program they paid into for all of their working lives, what rationale could possibly justify doing so?

The reason I ask is a coalition of democrats, labor, liberals and progressives just re-elected Mr. Obama and democrats in Congress to what—cut Social Security? Mr. Obama created the ‘fiscal cliff’ to first push his stacked (in favor of cutting social insurance programs) ‘deficit commission’ to develop a plan to cut government spending and second, to force the issue to be revisited immediately after the election if no plan was agreed to. And Republican threats to refuse to raise the debt ceiling for leverage to ‘force’ spending cuts are idiotic—George W. Bush and congressional Republicans just led the largest increase in government spending in modern history. And that is not a difficult point to make. (And had it been on beneficial programs, it would have been laudable).

Ultimately the entire ‘debate’ is nonsense—the U.S. doesn’t fund spending directly from taxes. As the Federal Reserve is in the process of demonstrating with its QE (Quantitative Easing) programs, it can buy an unlimited quantity of government debt with money it ‘creates’ –the ‘debt limit’ is an arbitrary misdirection. This isn’t to argue that there is no relationship between economic production and money creation, but it is to point out that the ‘Federal budget’ is a convenient fiction. So, given his repeated analogy of the Federal budget to a family budget, is Mr. Obama ignorant of government finances or does he understand them and is purposely using the misleading analogy to further unstated goals?

The ‘Fix the Debt’ committee of politicians, corporate executives and connected financiers claiming to be concerned about the Federal deficit isn’t discussing eliminating the ‘carried interest’ deduction that benefits billionaire hedge fund managers, raising effective corporate tax rates that are currently the lowest in modern history, materially cutting end-of-empire levels of military spending and raising personal income tax rates on the titans of finance who would be begging for change in the street were it not for Federal government largesse in the (ongoing) bank bailouts. But they are deeply concerned about the Federal deficit, as are Mr. Obama and congressional democrats.

But again, why? The web of convenient fictions currently in play amongst both democrats and republicans in Washington—corporate tax cuts promote economic growth and job creation, government spending ‘crowds out’ more productive private sector spending, ‘excessive’ government debt will cause a financial market rebellion (bond vigilantes) and handing social insurance programs to private market profiteers is beneficial to the insured, are all demonstrably nonsense with only a cursory look at ‘the evidence.’

Effective corporate tax rates are the lowest in modern history and job creation, even before the economic calamity began in 2008, is the weakest since the 1930s. As global warming caused by largely private production and the predatory, dysfunctional private sector demonstrate on a daily basis, the ‘efficiencies’ of private production come from cost shifting, not by levels of human motivation intrinsic to capitalism. As QE is demonstrating, the Federal Reserve can control both short and long term interests rates—the ‘bond vigilantes’ are only in control when they provide cover for private interests. And Barack Obama didn’t choose the ‘least bad’ option with his healthcare ‘reform,’ he chose the private option to which he is ideologically committed.

Without apparent irony, these convenient fictions are straight from the IMF (International Monetary Fund) and World Bank playbooks circa 1980. While couched in the language of ‘economic development,’ IMF policies were / are extractive, designed to exert control over political economies and were / are tools of economic imperialism. The ‘austerity’ of IMF policies, cutting social spending to divert funds to service external debt, was rarely accompanied by even the pretense it benefited those whose social insurance programs were being looted. Cut to Mr. Obama and Democratic Speaker Nancy Pelosi mirroring the Vietnam Warism that to strengthen Social Security we must weaken it. Welcome to neo-Colonial America.

Also without apparent irony, the neo-Keynesian wing of the Democratic Party claims to have correctly analyzed current economic travails and prescribed the necessary and sufficient solutions if only Mr. Obama and the DC democrats would listen. In the first, this leaves the great mystery of why they haven’t listened and have actively articulated the policies of the radical right instead? In the second, Keynesian solutions imply that ‘we are all in this together,’ economically speaking, decades after official Washington and America’s plutocracy made it abundantly clear they believe they are responsible for their lot and we for ours, except when they need a few trillion dollars for a bailout. Finally, the ‘we’re all in this together’ monetary policies of the neo-Keynesians have benefited America’s richest 10% who own financial assets alone. (For explanations see Minsky’s essays on inflation and Marx’s Capital, Volume II).

With no respect whatsoever, this leads to the observation that Mr. Obama and his co-conspirators in the Democratic Party haven’t ‘caved,’ ‘capitulated,’ ‘relented,’ ‘given in,’ ‘submitted’ or ‘yielded’ by agreeing to cut social insurance programs. Mr. Obama’s far-right-of-center policies of his first term were just affirmed by the coalition that re-elected him. He will propose cutting Social Security again in just a few weeks. And democrats, labor, liberals and progressives will again be sincerely debating the merits of chained CPI versus other measures of inflation by which to cut Social Security. But while the effects of cuts will be real, the ‘debate’ won’t be. Put another way, the goal is to cut Social Security, not to ‘strengthen’ it.

In his speech at the Hamilton Project launch (link above) in 2006 Mr. Obama articulated the ‘slippery slope’ argument he believed was the ‘left’ position against ‘modernizing’ America’s social insurance programs. He argued supporters of these programs feared minor ‘adjustments’ were a pretext for the wholesale cuts desired by the radical right. But what this explanation leaves out is context. Were the ‘discussion’ taking place as the economic prospects of the poor and working classes were dramatically rising– rapid income gains, increasing income security, rising food security and income and wealth distribution resembling economic democracy, interpreted intent might be benign. But with Mr. Obama and congressional democrats several decades into giving voice to the desires and policies of the radical right, it would require a fool to believe benign intent today.

Hopefully I am underestimating the political pushback proposed cuts will engender. But given the propensity of democrats, labor, liberals and progressives to sincerely debate irrelevancies while giving unwavering support to the increasingly debased policies of their leaders, I doubt it. The bourgeois of these constituencies will likely break with the poor and working class and accede to the bogus rationale that the programs must be weakened so they may be strengthened, calculating that they’ll be all right in any case. And the pundit class will do the narrow calculus of cutting this program to save that without noticing the unwavering trajectory toward neo-liberal hell of the last forty years. To the folks who support the Democratic Party without apparently knowing what their policies are, good luck with that Social Security thing and all. To everyone else, we didn’t ask for this, but it’s coming our way anyhow.

Debt Slavery

How It Destroyed Rome, & Why It Will Destroy Us Unless It’s Stopped

by MICHAEL HUDSON

 

Book V of Aristotle’s Politics describes the eternal transition of oligarchies making themselves into hereditary aristocracies – which end up being overthrown by tyrants or develop internal rivalries as some families decide to “take the multitude into their camp” and usher in democracy, within which an oligarchy emerges once again, followed by aristocracy, democracy, and so on throughout history.

Debt has been the main dynamic driving these shifts – always with new twists and turns. It polarizes wealth to create a creditor class, whose oligarchic rule is ended as new leaders (“tyrants” to Aristotle) win popular support by cancelling the debts and redistributing property or taking its usufruct for the state.

Since the Renaissance, however, bankers have shifted their political support to democracies. This did not reflect egalitarian or liberal political convictions as such, but rather a desire for better security for their loans. As James Steuart explained in 1767, royal borrowings remained private affairs rather than truly public debts. For a sovereign’s debts to become binding upon the entire nation, elected representatives had to enact the taxes to pay their interest charges.

By giving taxpayers this voice in government, the Dutch and British democracies provided creditors with much safer claims for payment than did kings and princes whose debts died with them. But the recent debt protests from Iceland to Greece and Spain suggest that creditors are shifting their support away from democracies. They are demanding fiscal austerity and even privatization sell-offs.

This is turning international finance into a new mode of warfare. Its objective is the same as military conquest in times past: to appropriate land and mineral resources, also communal infrastructure and extract tribute. In response, democracies are demanding referendums over whether to pay creditors by selling off the public domain and raising taxes to impose unemployment, falling wages and economic depression. The alternative is to write down debts or even annul them, and to re-assert regulatory control over the financial sector.

Near Eastern rulers proclaimed clean slates for debtors to preserve economic balance
Charging interest on advances of goods or money was not originally intended to polarize economies. First administered early in the third millennium BC as a contractual arrangement by Sumer’s temples and palaces with merchants and entrepreneurs who typically worked in the royal bureaucracy, interest at 20 per cent (doubling the principal in five years) was supposed to approximate a fair share of the returns from long-distance trade or leasing land and other public assets such as workshops, boats and ale houses.

As the practice was privatized by royal collectors of user fees and rents, “divine kingship” protected agrarian debtors. Hammurabi’s laws (c. 1750 BC) cancelled their debts in times of flood or drought. All the rulers of his Babylonian dynasty began their first full year on the throne by cancelling agrarian debts so as to clear out payment arrears by proclaiming a clean slate. Bondservants, land or crop rights and other pledges were returned to the debtors to “restore order” in an idealized “original” condition of balance. This practice survived in the Jubilee Year of Mosaic Law in Leviticus 25.

The logic was clear enough. Ancient societies needed to field armies to defend their land, and this required liberating indebted citizens from bondage. Hammurabi’s laws protected charioteers and other fighters from being reduced to debt bondage, and blocked creditors from taking the crops of tenants on royal and other public lands and on communal land that owed manpower and military service to the palace.

In Egypt, the pharaoh Bakenranef (c. 720-715 BC, “Bocchoris” in Greek) proclaimed a debt amnesty and abolished debt-servitude when faced with a military threat from Ethiopia. According to Diodorus of Sicily (I, 79, writing in 40-30 BC), he ruled that if a debtor contested the claim, the debt was nullified if the creditor could not back up his claim by producing a written contract. (It seems that creditors always have been prone to exaggerate the balances due.) The pharaoh reasoned that “the bodies of citizens should belong to the state, to the end that it might avail itself of the services which its citizens owed it, in times of both war and peace. For he felt that it would be absurd for a soldier … to be haled to prison by his creditor for an unpaid loan, and that the greed of private citizens should in this way endanger the safety of all.”

The fact that the main Near Eastern creditors were the palace, temples and their collectors made it politically easy to cancel the debts. It always is easy to annul debts owed to oneself. Even Roman emperors burned the tax records to prevent a crisis. But it was much harder to cancel debts owed to private creditors as the practice of charging interest spread westward to Mediterranean chiefdoms after about 750 BC. Instead of enabling families to bridge gaps between income and outgo, debt became the major lever of land expropriation, polarizing communities between creditor oligarchies and indebted clients. In Judah, the prophet Isaiah (5:8-9) decried foreclosing creditors who “add house to house and join field to field till no space is left and you live alone in the land.”

Creditor power and stable growth rarely have gone together. Most personal debts in this classical period were the product of small amounts of money lent to individuals living on the edge of subsistence and who could not make ends meet. Forfeiture of land and assets – and personal liberty – forced debtors into bondage that became irreversible. By the 7^th century BC, “tyrants” (popular leaders) emerged to overthrow the aristocracies in Corinth and other wealthy Greek cities, gaining support by cancelling the debts. In a less tyrannical manner, Solon founded the Athenian democracy in 594 BC by banning debt bondage.

But oligarchies re-emerged and called in Rome when Sparta’s kings Agis, Cleomenes and their successor Nabis sought to cancel debts late in the third century BC. They were killed and their supporters driven out. It has been a political constant of history since antiquity that creditor interests opposed both popular democracy and royal power able to limit the financial conquest of society – a conquest aimed at attaching interest-bearing debt claims for payment on as much of the economic surplus as possible.

When the Gracchi brothers and their followers tried to reform the credit laws in 133 BC, the dominant Senatorial class acted with violence, killing them and inaugurating a century of Social War, resolved by the ascension of Augustus as emperor in 29 BC.

Rome’s creditor oligarchy wins the Social War, enslaves the population and brings on a Dark Age
Matters were more bloody abroad. Aristotle did not mention empire building as part of his political schema, but foreign conquest always has been a major factor in imposing debts, and war debts have been the major cause of public debt in modern times. Antiquity’s harshest debt levy was by Rome, whose creditors spread out to plague Asia Minor, its most prosperous province. The rule of law all but disappeared when publican creditor “knights”  arrived. Mithridates of Pontus led three popular revolts, and local populations in Ephesus and other cities rose up and killed a reported 80,000 Romans in 88 BC. The Roman army retaliated, and Sulla imposed war tribute of 20,000 talents in 84 BC. Charges for back interest multiplied this sum six-fold by 70 BC.

Among Rome’s leading historians, Livy, Plutarch and Diodorus blamed the fall of the Republic on creditor intransigence in waging the century-long Social War marked by political murder from 133 to 29 BC. Populist leaders sought to gain a following by advocating debt cancellations (e.g., the Catiline conspiracy in 63-62 BC). They were killed. By the second century AD about a quarter of the population was reduced to bondage. By the fifth century Rome’s economy collapsed, stripped of money. Subsistence life reverted to the countryside.

Creditors find a legalistic reason to support parliamentary democracy
When banking recovered after the Crusades looted Byzantium and infused silver and gold to review Western European commerce, Christian opposition to charging interest was overcome by the combination of prestigious lenders (the Knights Templars and Hospitallers providing credit during the Crusades) and their major clients – kings, at first to pay the Church and increasingly to wage war. But royal debts went bad when kings died. The Bardi and Peruzzi went bankrupt in 1345 when Edward III repudiated his war debts. Banking families lost more on loans to the Habsburg and Bourbon despots on the thrones of Spain, Austria and France.

Matters changed with the Dutch democracy, seeking to win and secure its liberty from Habsburg Spain. The fact that their parliament was to contract permanent public debts on behalf of the state enabled the Low Countries to raise loans to employ mercenaries in an epoch when money and credit were the sinews of war. Access to credit “was accordingly their most powerful weapon in the struggle for their freedom,” Richard Ehrenberg wrote in his Capital and Finance in the Age of the Renaissance (1928): “Anyone who gave credit to a prince knew that the repayment of the debt depended only on his debtor’s capacity and will to pay. The case was very different for the cities, which had power as overlords, but were also corporations, associations of individuals held in common bond. According to the generally accepted law each individual burgher was liable for the debts of the city both with his person and his property.”

The financial achievement of parliamentary government was thus to establish debts that were not merely the personal obligations of princes, but were truly public and binding regardless of who occupied the throne. This is why the first two democratic nations, the Netherlands and Britain after its 1688 revolution, developed the most active capital markets and proceeded to become leading military powers. What is ironic is that it was the need for war financing that promoted democracy, forming a symbiotic trinity between war making, credit and parliamentary democracy which has lasted to this day.

At this time “the legal position of the King qua borrower was obscure, and it was still doubtful whether his creditors had any remedy against him in case of default.” (Charles Wilson, England’s Apprenticeship: 1603-1763: 1965.) The more despotic Spain, Austria and France became, the greater the difficulty they found in financing their military adventures. By the end of the eighteenth century Austria was left “without credit, and consequently without much debt,” the least credit-worthy and worst armed country in Europe, fully dependent on British subsidies and loan guarantees by the time of the Napoleonic Wars.

Finance accommodates itself to democracy, but then pushes for oligarchy
While the nineteenth century’s democratic reforms reduced the power of landed aristocracies to control parliaments, bankers moved flexibly to achieve a symbiotic relationship with nearly every form of government. In France, followers of Saint-Simon promoted the idea of banks acting like mutual funds, extending credit against equity shares in profit. The German state made an alliance with large banking and heavy industry. Marx wrote optimistically about how socialism would make finance productive rather than parasitic. In the United States, regulation of public utilities went hand in hand with guaranteed returns. In China, Sun-Yat-Sen wrote in 1922: “I intend to make all the national industries of China into a Great Trust owned by the Chinese people, and financed with international capital for mutual benefit.”

World War I saw the United States replace Britain as the major creditor nation, and by the end of World War II it had cornered some 80 per cent of the world’s monetary gold. Its diplomats shaped the IMF and World Bank along creditor-oriented lines that financed trade dependency, mainly on the United States. Loans to finance trade and payments deficits were subject to “conditionalities” that shifted economic planning to client oligarchies and military dictatorships. The democratic response to resulting austerity plans squeezing out debt service was unable to go much beyond “IMF riots,” until Argentina rejected its foreign debt.

A similar creditor-oriented austerity is now being imposed on Europe by the European Central Bank (ECB) and EU bureaucracy. Ostensibly social democratic governments have been directed to save the banks rather than reviving economic growth and employment. Losses on bad bank loans and speculations are taken onto the public balance sheet while scaling back public spending and even selling off infrastructure. The response of taxpayers stuck with the resulting debt has been to mount popular protests starting in Iceland and Latvia in January 2009, and more widespread demonstrations in Greece and Spain this autumn to protest their governments’ refusal to hold referendums on these fateful bailouts of foreign bondholders.

Shifting planning away from elected public representatives to bankers
Every economy is planned. This traditionally has been the function of government. Relinquishing this role under the slogan of “free markets” leaves it in the hands of banks. Yet the planning privilege of credit creation and allocation turns out to be even more centralized than that of elected public officials. And to make matters worse, the financial time frame is short-term hit-and-run, ending up as asset stripping. By seeking their own gains, the banks tend to destroy the economy. The surplus ends up being consumed by interest and other financial charges, leaving no revenue for new capital investment or basic social spending.

This is why relinquishing policy control to a creditor class rarely has gone together with economic growth and rising living standards. The tendency for debts to grow faster than the population’s ability to pay has been a basic constant throughout all recorded history. Debts mount up exponentially, absorbing the surplus and reducing much of the population to the equivalent of debt peonage. To restore economic balance, antiquity’s cry for debt cancellation sought what the Bronze Age Near East achieved by royal fiat: to cancel the overgrowth of debts.

In more modern times, democracies have urged a strong state to tax rentier income and wealth, and when called for, to write down debts. This is done most readily when the state itself creates money and credit. It is done least easily when banks translate their gains into political power. When banks are permitted to be self-regulating and given veto power over government regulators, the economy is distorted to permit creditors to indulge in the speculative gambles and outright fraud that have marked the past decade. The fall of the Roman Empire demonstrates what happens when creditor demands are unchecked. Under these conditions the alternative to government planning and regulation of the financial sector becomes a road to debt peonage.

Finance vs. government; oligarchy vs. democracy
Democracy involves subordinating financial dynamics to serve economic balance and growth – and taxing rentier income or keeping basic monopolies in the public domain. Untaxing or privatizing property income “frees” it to be pledged to the banks, to be capitalized into larger loans. Financed by debt leveraging, asset-price inflation increases rentier wealth while indebting the economy at large. The economy shrinks, falling into negative equity.

The financial sector has gained sufficient influence to use such emergencies as an opportunity to convince governments that that the economy will collapse they it do not “save the banks.” In practice this means consolidating their control over policy, which they use in ways that further polarize economies. The basic model is what occurred in ancient Rome, moving from democracy to oligarchy. In fact, giving priority to bankers and leaving economic planning to be dictated by the EU, ECB and IMF threatens to strip the nation-state of the power to coin or print money and levy taxes.

The resulting conflict is pitting financial interests against national self-determination. The idea of an independent central bank being “the hallmark of democracy” is a euphemism for relinquishing the most important policy decision – the ability to create money and credit – to the financial sector. Rather than leaving the policy choice to popular referendums, the rescue of banks organized by the EU and ECB now represents the largest category of rising national debt. The private bank debts taken onto government balance sheets in Ireland and Greece have been turned into taxpayer obligations. The same is true for America’s $13 trillion added since September 2008 (including $5.3 trillion in Fannie Mae and Freddie Mac bad mortgages taken onto the government’s balance sheet, and $2 trillion of Federal Reserve “cash-for-trash” swaps).

This is being dictated by financial proxies euphemized as technocrats. Designated by creditor lobbyists, their role is to calculate just how much unemployment and depression is needed to squeeze out a surplus to pay creditors for debts now on the books. What makes this calculation self-defeating is the fact that economic shrinkage – debt deflation – makes the debt burden even more unpayable.

Neither banks nor public authorities (or mainstream academics, for that matter) calculated the economy’s realistic ability to pay – that is, to pay without shrinking the economy. Through their media and think tanks, they have convinced populations that the way to get rich most rapidly is to borrow money to buy real estate, stocks and bonds rising in price – being inflated by bank credit – and to reverse the past century’s progressive taxation of wealth.

To put matters bluntly, the result has been junk economics. Its aim is to disable public checks and balances, shifting planning power into the hands of high finance on the claim that this is more efficient than public regulation. Government planning and taxation is accused of being “the road to serfdom,” as if “free markets” controlled by bankers given leeway to act recklessly is not planned by special interests in ways that are oligarchic, not democratic. Governments are told to pay bailout debts taken on not to defend countries in military warfare as in times past, but to benefit the wealthiest layer of the population by shifting its losses onto taxpayers.

The failure to take the wishes of voters into consideration leaves the resulting national debts on shaky ground politically and even legally. Debts imposed by fiat, by governments or foreign financial agencies in the face of strong popular opposition may be as tenuous as those of the Habsburgs and other despots in past epochs. Lacking popular validation, they may die with the regime that contracted them. New governments may act democratically to subordinate the banking and financial sector to serve the economy, not the other way around.

At the very least, they may seek to pay by re-introducing progressive taxation of wealth and income, shifting the fiscal burden onto rentier wealth and property. Re-regulation of banking and providing a public option for credit and banking services would renew the social democratic program that seemed well underway a century ago.

Iceland and Argentina are most recent examples, but one may look back to the moratorium on Inter-Ally arms debts and German reparations in 1931.A basic mathematical as well as political principle is at work: Debts that can’t be paid, won’t be.

Meet the Global Ruling Class

Telling the Players With a Scorecard

by STEVEN COLATRELLA

Padua, Italy.

Making economics and politics appear separate is one of the chief characteristics of capitalism as a system of class rule, as Ellen Mieksins Wood has pointed out in many of her writings. But it is how politics is manifested AS economics and economics AS politics that should concern us especially right now.

Today a general strike is paralyzing Portugal, as workers there protest the loss of job security through legal changes, and the wage cuts (through elimination of 13^th and 14^th months of pay, which are standard in many European countries where monthly wages are not that high) that are essential parts of the austerity program approved last week to please the Troika (IMF, European Central Bank and EU Commission). Fitch announced this afternoon that is downgrading Portugal’s bonds to junk status.

In the streets of Cairo clashes have taken place over six days, and hundreds of thousands have gathered for several days in a row demanding that the military junta cede power to civilian rule so that the process of democratization supposedly won in the February Revolution can go forward again. Standard and Poor just cut Egypt’s sovereign bond ratings “deeper into junk status”.

The message is: bond ratings are a reflection of how well a local government successfully suppresses working class and popular revolt. That is lesson 1.

Lesson 2: The downgraded bond rating is also intended to back that government up in suppressing such opposition, by limiting options, requiring even stricter and more painful austerity. This has been very much the point of externally-imposed austerity programs for more than 30 years, in the form of structural adjustment programs of the IMF and World Bank, and more recently across Europe and the US. Further, the organized, collective purchase or non-purchase of a country’s sovereign debt is a primary means by which the capitalist class, especially its best organized sector finance, controls and limits the policy options available to any government. Hence the famous exchange recorded in Bob Woodward’s “The Choice” in which newly elected Bill Clinton rants about how the bond market is controlling his presidency.

Lesson 3: “market” is an abstraction. What is abstracts is a set of identifiable players, fewer than it might seem at first, since the concerted, coordinated or simply coincidental actions of a few very large banks and investors can make a huge difference on a given day when concentrated on a single country.

This leads to Lesson 4: There is an increasingly united, increasingly global ruling class, who act collectively through a set of institutions that I call, using that classes’ own phrase for it “global governance”. Global governance includes four different kinds of organizations:

• Most obviously, the specifically global governance organizations themselves, that is institutions such as the IMF, World Bank, WTO, EU Commission, UN Security Council and a plethora of less central agencies involved with energy, environment, management of the seas and so forth.

• Informal gatherings, some official, some not, ranging from the annual World Economic Forum at Davos, Switzerland to the right wing’s favorite conspiratorial suspect the Bilderberg Group, to the Trilateral Commission to the G20 summits, to the European Council summits. The importance of these in shaping and enforcing, through peer pressure, or what one scholar called “elite socialization” should not be underestimated. Nelson Mandela describes how it was at Davos in the 1990s, when he was the world’s most famous and esteemed leader, that he was convinced by the consensus of other world leaders to abandon the promises of his own ANC’s Freedom Charter with its call to make the wealth and resources of South Africa property of the whole people and instead to work for free markets, foreign investment and trade. Any process more convincing than a lifetime as leader of a revolutionary movement and 27 years of suffering in prison for it should be taken seriously.

• Central Banks. These are now Fifth Columns in every democratic republic. Their “independence” – of elected officials, constitutional niceties and control by the people – is a requirement by capital worldwide as a precondition for even dealing with countries, as it was for creating the European Union and the Euro. These act as political leadership for the banking and investment industries as a whole, guiding financial movements, setting initial conditions, such as money supply and interest rates, so that the options available to other actors are restricted. While these are national in general the ECB is of course above and outside of any national government’s control, which was the whole point of it, indeed is the whole point of central banks in general today. That the ECB’s new head, Mario Draghi was able to oust elected (if execrable) prime minister Silvio Berlusconi by not buying Italian state bonds for a few days a couple of weeks ago makes clear my point. Investors followed Draghi’s lead and the result was that the whole Euro zone was nearly capsized as it took time for Draghi’s adjustment in buying Italian bonds to turn the ship around again once it was clear that finance has won and their direct rule, in the form of the unelected government of new PM Mario Monti, former head of the Italian central bank and ex-Goldman Sachs executive, was guaranteed.

• A number of private but collective actors such as banks, investors and especially ratings agencies – the big three Standard and Poor, Fitch and Moody’s to whom anti-trust rules apparently do not apply, since if they did any country that applied them would be subject to a downgrade similar to the one that S and P carried out on the US rating this past year to put pressure on for more austerity during the Debt Ceiling crisis there. That no such downgrade of say, Lehman Brothers, Bear Sterns or any of the other disasters on Wall St. took place has not been the subject of an investigation, let alone of any arrests and charges, or to be really absurd the cancelling of the ratings agencies’ charters and their being closed down for good in favor of a governmental or inter-governmental, non-profit and neutral body to rate companies and public credit worthiness should not surprise us. Do anything of the sort and your credit will be downgraded, costing you a fortune in higher interest rates to sell your bonds, or even a shriveling of credit resulting from your meddling in ruling class matters.
  

These actors, though distinct, not always in perfect agreement and coming from different points of view at times, are nevertheless part of the same overall division of labor (no pun intended, but irony yes) for capital: they constitute, in their ensemble as global governance a political force, a political party of sorts if you like, able to act in concert, and whose general perspective will be similar as a result of the elite socialization process that serves to unite the private and public sector, the national and global organization actors into a single class.

How else to explain why Obama, Mandela and his successors, Lula and others so easily end up carrying out the same essential policies? How better to understand why everyone at the G20 agreed that Greek Prime Minister Papandreos’ call for a national referendum so the Greek people could decide their own fate, and judge whether the wrecking of their national economy and social fabric was too high a price to pay for membership in the Euro was an act of insanity and in bad taste besides?

So Lesson 5, summing up what we have learned: whenever you see economics, especially when it seems to be neutral, professional, technocratic, as in the new governments in Greece and Italy, you are watching politics happen, class politics. And it is not happening either as a result of impersonal, diffuse market forces, but because there are organized class forces making it happen.

My wife recently came to this conclusion independently as she learned watching the news here in Italy where we live, that Italy will now be required (passive tense, already a literary preference for style in the Italian language is very well suited to the process of global governance, since in governance, unlike in government, no one appears to be governing – all the better for those that are) to change its constitution to require municipalities and the national state to balance their budget. Such a legal change is appalling for several reasons, among which are that the Italian constitution is the result of the Resistance movement that liberated the country from the Nazis and Fascists, and changing it because of outside pressure is shocking to many. Second, because any such requirement of a balanced budget essentially outlaws Keynesian economics and most social democratic and leftist politics by definition. Whether one likes or does not like such policies, banning one side in a political debate from enacting its own policies and requiring only one set of opposed policies is to thoroughly supplant exactly what a democratic debate and elections are meant to decide.

But my wife Silvia cut straight to the chase, to the heart of the matter one split-second after hearing the news: “That is the same thing the right wanted in the US when they were debating the Debt Ceiling” she told me. “This is a precisely-formulated program!” That is, she had exactly identified the main point in world politics today: who the main actors are. C.Wright Mills would not have put it better – a few whose ability to shape history far outweighs that of most of the rest of us put together. He called the ones he studied the Power Elite, I call the ones we face today a global ruling class and the institutional framework through which they act Global Governance. They’ve evolved since Mills’ time in other words.

But there is one more lesson: Politics, OUR politics, is also represented as economics. This is hard for activists to see since it sometimes requires both reading hieroglyphics such as market quotations, or interest rates, that at first sight appear to be unrelated to strikes, struggles, occupations and protests, even elections, and even boring to those of us who have avoided working in banking or Wall St. because this stuff did not seem the stuff of dreams to us. Also because it requires understanding that the results of our struggles sometimes leap up several levels of mediation.

Thus, on October 22, during the waning days of Jean-Claude Trichet’s tenure at head of the ECB, it was announced by Trichet, Sarkozy and Merkel that the banks would have to take a 50% haircut on their loans to Greece to save the Eurozone. This came just a couple of days after the largest, most disruptive strikes and protests to that time in Athens during the entire year and half of agony that has attended Greece’s debt crisis/class war, which is saying something, and after 100,000 had marched in Rome with much of the city involving clashes with police, on the eve of the already in the works Italian crisis. The ruling class had taken a step back from the abyss, writing down the Greek debts, as a revolution in Greece, the country’s withdrawal from the Euro and the Euro’s collapse were not the results desired, since the whole point was to use the Euro to force Greece to transfer wealth from its working population to global finance, not to have the whole debt cancelled and the measure of wealth in European banks reduced to paper.

Similarly, yesterday’s (Nov. 23) fiasco of German bonds, and the news that a Eurobond of some kind now appears inevitable are highly mediated but unmistakable results of the struggle as well. It has proven impossible to defend German finance while waging the class war on so many fronts in Southern Europe and while the students in Italy whose occupations as the “draghi ribelli” (rebel dragons but a play on the surname of the ECB head) and Greek and Portugese strikers and protesters will undoubtedly be made to pay later with more downgrades, more austerity proposals and the rest, they should be aware that their struggles in the streets, plazas and piazzas are not without effect.

For in the end, the real lesson is that economic minutia measure class struggle, and our struggle therefore has an impact on the system as a whole, its profitability, its flows of investment, its institutional stability. This is the trump card of political struggle, from Tahrir Square to the occupations across the US, to the strikes coming up in the UK, Greece and elsewhere in the next week or so, we can rest assured that the cracks in their seemingly technocratic edifice, in their stock quotations, bond ratings and profit rates are determined by our movements in the final analysis.

Occupy Wall Street Rediscovers the Radical Imagination

Sunday, September 25, 2011 by the Guardian/UK
The young people protesting in Wall Street and beyond reject this vain economic order. They have come to reclaim the future.

by David Graeber

 

 

Why are people occupying Wall Street? Why has the occupation – despite the latest police crackdown – sent out sparks across America, within days, inspiring hundreds of people to send pizzas, money, equipment and, now, to start their own movements called OccupyChicago, OccupyFlorida, in OccupyDenver or OccupyLA?

 There are obvious reasons. We are watching the beginnings of the defiant self-assertion of a new generation of Americans, a generation who are looking forward to finishing their education with no jobs, no future, but still saddled with enormous and unforgivable debt. Most, I found, were of working-class or otherwise modest backgrounds, kids who did exactly what they were told they should: studied, got into college, and are now not just being punished for it, but humiliated – faced with a life of being treated as deadbeats, moral reprobates (not just the youth but some of us geezers get the same treatment--jef).

Is it really surprising they would like to have a word with the financial magnates who stole their future?

Just as in Europe, we are seeing the results of colossal social failure. The occupiers are the very sort of people, brimming with ideas, whose energies a healthy society would be marshaling to improve life for everyone. Instead, they are using it to envision ways to bring the whole system down.

But the ultimate failure here is of imagination. What we are witnessing can also be seen as a demand to finally have a conversation we were all supposed to have back in 2008. There was a moment, after the near-collapse of the world's financial architecture, when anything seemed possible.

Everything we'd been told for the last decade turned out to be a lie. Markets did not run themselves; creators of financial instruments were not infallible geniuses; and debts did not really need to be repaid – in fact, money itself was revealed to be a political instrument, trillions of dollars of which could be whisked in or out of existence overnight if governments or central banks required it. Even the Economist was running headlines like "Capitalism: Was it a Good Idea?"

It seemed the time had come to rethink everything: the very nature of markets, money, debt; to ask what an "economy" is actually for. This lasted perhaps two weeks. Then, in one of the most colossal failures of nerve in history, we all collectively clapped our hands over our ears and tried to put things back as close as possible to the way they'd been before.

Perhaps, it's not surprising. It's becoming increasingly obvious that the real priority of those running the world for the last few decades has not been creating a viable form of capitalism, but rather, convincing us all that the current form of capitalism is the only conceivable economic system, so its flaws are irrelevant. As a result, we're all sitting around dumbfounded as the whole apparatus falls apart.

What we've learned now is that the economic crisis of the 1970s never really went away. It was fobbed off by cheap credit at home and massive plunder abroad – the latter, in the name of the "third world debt crisis". But the global south fought back. The "alter-globalization movement", was in the end, successful: the IMF has been driven out of East Asia and Latin America, just as it is now being driven from the Middle East. As a result, the debt crisis has come home to Europe and North America, replete with the exact same approach: declare a financial crisis, appoint supposedly neutral technocrats to manage it, and then engage in an orgy of plunder in the name of "austerity".

The form of resistance that has emerged looks remarkably similar to the old global justice movement, too: we see the rejection of old-fashioned party politics, the same embrace of radical diversity, the same emphasis on inventing new forms of democracy from below. What's different is largely the target: where in 2000, it was directed at the power of unprecedented new planetary bureaucracies (the WTO, IMF, World Bank, NAFTA), institutions with no democratic accountability, which existed only to serve the interests of transnational capital; now, it is at the entire political classes of countries like Greece, Spain and, now, the US – for exactly the same reason. This is why protesters are often hesitant even to issue formal demands, since that might imply recognizing the legitimacy of the politicians against whom they are ranged.

When the history is finally written, though, it's likely all of this tumult – beginning with the Arab Spring – will be remembered as the opening salvo in a wave of negotiations over the dissolution of the American Empire. Thirty years of relentless prioritizing of propaganda over substance, and snuffing out anything that might look like a political basis for opposition, might make the prospects for the young protesters look bleak; and it's clear that the rich are determined to seize as large a share of the spoils as remain, tossing a whole generation of young people to the wolves in order to do so. But history is not on their side.

We might do well to consider the collapse of the European colonial empires. It certainly did not lead to the rich successfully grabbing all the cookies, but to the creation of the modern welfare state. We don't know precisely what will come out of this round. But if the occupiers finally manage to break the 30-year stranglehold that has been placed on the human imagination, as in those first weeks after September 2008, everything will once again be on the table – and the occupiers of Wall Street and other cities around the US will have done us the greatest favor anyone possibly can.

IMF says US economy may be weak 'for years to come'

AFP - Tuesday, September 20, 2011

WASHINGTON (AFP) - The International Monetary Fund on Tuesday warned the US economy could remain weak for years to come, describing a recovery stalled amid unrelenting headwinds and in dire need of a push from government.

The Washington-based fund slashed its US growth forecasts for this year and next, while warning of the need for more government stimulus in the short-term as well as a credible longer-term plan to cut spending.

"The US economy is struggling to gain a strong foothold, with sluggish growth and a protracted job recovery," the IMF said, as it cut US growth forecasts for this year by a full percentage point to a paltry 1.5 percent.

That is a slower rate than projected for the crisis-wracked eurozone.

Citing crushed US consumer confidence and battered business sentiment -- as well as ongoing crises in the housing and financial markets -- the IMF said "growth will be modest relative to historical averages for years to come."

That bleak assessment is certain to fuel fears that the United States is destined for a Japan-like "lost decade" of growth, particularly as the White House and Congress continue to bicker over how to cut debt levels and how to stimulate growth.

"The first priority for the US authorities is to commit to a credible fiscal policy agenda that places public debt on a sustainable track over the medium term, while supporting the near-term recovery."

As President Barack Obama and his Republican foes fight over how to put the budget back on an even keel, the IMF said a solid deal was essential both for the US, and for the global economy.

"Delays in accomplishing an adequate medium term debt-reduction plan could suddenly induce an increase in the US risk premium, with major global ramifications."

By contrast a deal could pave the way for sounder short-term fiscal policies.

"This would allow the near-term fiscal policy stance to be more attuned to the cycle, for example, through temporary stimulus to support labor and housing markets, state and local governments, and infrastructure spending."

The IMF's gloomy assessment of the US economy comes as Washington girds to enter a presidential election year, making political compromise all the more tricky.

But the pessimistic outlook is shared by private economists.

"In an economy like that of the United States where around 60 percent of the economy is consumption, confidence is perhaps the most important ingredient requisite for economic growth and an improving job market," said Jason Schenker of Prestige Economics.

"Without confidence and without spending, deflation and recession are major risks."

JP Morgan explains the euro crisis with Lego

Felix Salmon

This chart comes from a Michael Cembalest’s research note today. The key is in there too. I’m not making this up:

1. The toreador in a floppy hat, and the F1 driver with his helmet, represent Spain, Italy and the rest of the Euro Periphery.
2. The three men with helmets, shields, and medieval weaponry represent the CDU, CSU and FDP parties in Germany.
3. The blue-and-white sailor boy is Finland. Obvs.
4. The woman with an oversized carrot and her friend in overalls with a shovel represent the Social Democrats and Greens.
5. Wotan represents the Bundesbank.
6. The piggy bank is the IMF.
7. The grey-haired Banque chap is the ECB.
8. The chap in the red bib is Poland.
9. The artists are France.
10. The angry chef, the sweeper with a broom, the airline pilot, and the rest of the motley crew at bottom left, represent EU taxpayers in Core countries.
11. The storm troopers are the EU Commission and Euro Group Finance Ministers, chaired by Jose Manuel Barroso and Jean- Claude Juncker.
12. The monocled banker and his assistant are EU bondholders and shareholders.

Full credit here is given to “Peter Cembalest, who specializes in conceptualization of such phenomena”; I assume that Peter (age 9) helped out too with the Icelandic bonus extra, for people who make it to page three. But Iceland sadly didn’t make the cut as one of the “12 players in the EMU Debt Crisis most likely to affect policy from here”.

Cembalest does at one point feel the need to explain what he’s doing here:

If today’s diorama analysis borders on the absurd, so does maintaining the fiction that accumulation of massive public and private sector claims in Europe can somehow be engineered away.

Still, I like the idea of sitting all the key European players in a room with a box of lego and telling them to work things out that way. The results couldn’t really be more farcical than those of the EU bank stress tests.

To Stop Corruption, Fight the Power, Not the People

Friday, August 26, 2011 by ColorLines

by Michelle Chen

 

Absolute power corrupts absolutely, and in a world where the gap between the powerful and powerless grows wider each day, corruption in political and economic institutions spreads much faster than shame.

Political power is abused wherever it exists—with scandals ranging from political graft in India to white collar crime on Wall Street to bribery of government regulators in China. Nonetheless, some communities seem especially vulnerable to the cycle of corruption, repression and impunity. And lately, we’ve seen many of them getting fed up with living under regimes that have lost legitimacy in the eyes of the people. Corruption has been one of the major issues driving the unrest across the Middle East and North Africa, and it has catalyzed a Gandhi-esque movement in the streets of New Delhi.

Indian activist Anna Hazare has inspired huge demonstrations in support of his hunger strike to promote a strict, controversial anti-corruption measure known as the Jan Lokpal bill. The government’s recent crackdown on Hazare only steeled protesters’ resolve under the slogan “India is Anna, Anna is India.”

Yet not all have been swept up in Hazare fever. Author and activist Arundhati Roy boldly challenged the public framing of the corruption issue, arguing it has been whitewashed by a bourgeois, nationalistic political class.In a commentary in The Hindu, she describes the obsession with the Lokpal bill, which would institute a “draconian” bureaucracy to monitor officials, as a well-managed charade, designed to absorb popular grievances into a more palatable but no less hierarchical concept of “accountability”:

Is corruption just a matter of legality, of financial irregularity and bribery, or is it the currency of a social transaction in an egregiously unequal society, in which power continues to be concentrated in the hands of a smaller and smaller minority? Imagine, for example, a city of shopping malls, on whose streets hawking has been banned. A hawker pays the local beat cop and the man from the municipality a small bribe to break the law and sell her wares to those who cannot afford the prices in the malls. Is that such a terrible thing? In future will she have to pay the Lokpal representative too? Does the solution to the problems faced by ordinary people lie in addressing the structural inequality, or in creating yet another power structure that people will have to defer to?

Rukshana Nanayakkara, senior programme coordinator for South Asia with the watchdog group Transparency International, told Colorlines that although the Indian and Arab uprisings may voice the outrage of citizens who feel “helpless and hopeless” about their rulers, their protests won’t necessarily articulate a solution:

While it is an important task to highlight corruption issues or to drive a grassroots movement based on this to overcome barriers to bring change, the real impact would lie within systemic changes and sustained ethical environments.

We can agree that corruption is bad, but can’t agree on what corruption really is. And when those who already have power are allowed to define and regulate corrupt practices, they’re empowered to permit the most dangerous form of impunity—the kind that is ingrained in the very edifice of the state.

Corruption Near and FarCorruption may be a universal scourge, but media portrayals and civil society surveys suggest that the problem is especially acute in the Global South, which in turn invites facile “cultural” explanations for greed and graft (pointing to, say, gift-giving traditions or inborn backwardness and tribalism of sub-Saharan Africa).

Yet North and South are both plagued by breakdowns of institutional integrity. The banking collapse and everyday machinations of government reveal that the malaise reaches up to the highest offices in Washington. Indeed, much of the dirty money that floods into the Global South trickles down from above, according to a Transparency International paper:

The North also carries part of the responsibility for the situation in the South due to its role as the bribe-payer. After all, it is largely Northern corporate interests that supply the bribe payments. Until recently, governments of the North not only tolerated these corrupt practices, but they even rewarded them with tax deductibility.

The public’s mental map of official immorality around the world reflects political blindspots: we tend to indict obvious crimes without interrogating structures and historical inequities.
“Corruption in the Global South is much talked about as it is part of day-to-day lives of people, as opposed to grand level corruption, which is normally opaque and harder to uncover,” Nanayakkara noted. At the same time, Transparency International says public perceptions of corruption are rising in affluent countries, in part due to the financial crisis.

But official transgressions do cut especially deep in impoverished communities, where rules are slackened to attract private investment or “development aid.” In the Haiti earthquake, for example, Transparency International observed that the extreme death toll could be traced in part to “alleged corruption in the construction of public buildings, including schools and hospitals.” And in the aftermath, suspicions of profiteering continue to swirl around the reconstruction process, now being directed by a shaky national government and the corporate-friendly coffers of the Haiti Interim Recovery Commission.

Environmental disasters can aggravate government malfeasance. Activists warn that policy responses to climate change may create unprecedented opportunities for exploitation and profiteering, particularly in much-hyped development projects for green energy and forest preservation.

The idea of corruption as culturally endemic offers convenient justification for outside intervention in poor countries. In an analysis of public myths about corruption, development scholars Ed Brown, Jon Cloke and Mohammad Sohail argued, “rather than seeing corruption as a complex socio-political phenomenon linked to global processes and specific national cultural and political economies, the issue is often reduced to a kind of political backwardness which needs ‘treatment.’ ”

The potential side effects of this medicine have manifested in neoliberal financial interventions like the IMF restructuring plans that pauperized Haiti and stoked chaos in Greece. The authors point out that so-called “anti-corruption programmes” imposed by free-market experts sometimes aggravate economic damage and ironically end up reaffirming stereotypes of poor countries as innately incompetent.

Symptoms and CausesSometimes the popular fixation on officials’ ethical transgressions distracts from the political malaise of which they are a symptom. And political elites are wise to this. In the U.S., the right evokes the canard of “waste, fraud and abuse” to militate against any form of income redistribution by blaming the economic hardship that “deserving” citizens face on imaginary “welfare queens,” patients who use too much Medicaid, civil servants collecting extra disability pay, and other social parasites.

Is corruption just the cost of doing business in a society that traffics in injustice? A recent public opinion study suggests people’s lack of trust in government institutions isn’t just tied to perceptions of official malfeasance, but the degree of social inequality they experience, along with the perceived failure of policymakers to address it.

The rebellions unfolding in North Africa, the Middle East and India reflect righteous resentment at rulers who have made careers out of betraying public trust. Of course, ultimately, Indian officials may fail again to police themselves, and the Arab Spring uprisings may be hijacked by new political orders that just rebrand old patterns of tyranny and kleptocracy. Whatever emerges from the unrest, fundamental inequalities will still reign, as long as entrenched hierarchies remain intact and governance hinges on tiers of privilege.

Our disgust with rotten politicians and Wall Street kingpins is in part anger at their impunity, but maybe there’s a streak of latent jealousy, a dog-eat-doggedness that pervades any competitive capitalist society. Still, even if humans are hard wired to exploit, we’re also hard wired to keep trying to harness power, however naïvely we deploy legislation and revolutionary rhetoric. In the debate over fixing crooked leaders, the definition of corruption often leaves out the root: not the people who misuse authority, but an excess of power itself.

A World Overwhelmed by Western Hypocrisy

In America, Lawlessness is Now Complete
By PAUL CRAIG ROBERTS

Western institutions have become caricatures of hypocrisy.

The International Monetary Fund and the European Central Bank are violating their charters in order to bail out French, German, and Dutch private banks. The IMF is only empowered to make balance of payments loans, but is lending to the Greek government for prohibited budgetary reasons in order that the Greek government can pay the banks. The ECB is prohibited from bailing out member country governments, but is doing so anyway in order that the banks can be paid. The German parliament approved the bailout, which violates provisions of the European Treaty and Germany’s own Basic Law. The case is in the German Constitutional Court, a fact unreported in the US media.

US president George W. Bush’s designated lawyer ruled that the president has “unitary powers” that elevate him above statutory US law, treaties, and international law. According to this lawyer’s legal decisions, the “unitary executive” can violate with impunity the Foreign Intelligence Surveillance Act, which prevents spying on Americans without warrants obtained from the FISA Court. Bush’s man also ruled that Bush could violate with impunity the statutory US laws against torture as well as the Geneva Conventions. In other words, the fictional “unitary powers” make the president into a Caesar.

Constitutional protections, such as habeas corpus, which prohibit government from holding people indefinitely without presenting charges and evidence to a court, and which prohibit government from denying detained people due process of law and access to an attorney, were thrown out the window by the US Department of Justice, and the federal courts went along with most of it.

As did Congress, “the people’s representatives”. Congress even enacted the Military Tribunals Commissions Act of 2006, signed by the White House Brownshirt on October 17.

This act allows anyone alleged to be an “unlawful enemy combatant” to be sentenced to death on the basis of secret and hearsay evidence not presented in the kangaroo military court placed out of reach of US federal courts. The crazed nazis in Congress who supported this total destruction of Anglo-American law masqueraded as “patriots in the war against terrorism.”

The act designates anyone accused by the US, without evidence being presented, as being part of the Taliban, al-Qaeda, or “associated forces” to be an “unlawful enemy combatant,” which strips the person of the protection of law.

The Taliban consists of indigenous Afghan peoples, who, prior to the US military intervention, were fighting to unify the country. The Taliban are Islamist, and the US government fears another Islamist government, like the one in Iran that was blowback from US intervention in Iran’s internal affairs. The “freedom and democracy” Americans overthrew an elected Iranian leader and imposed a tyrant. American-Iranian relations have never recovered from the tyranny that Washington imposed on Iranians.

Washington is opposed to any government whose leaders cannot be purchased to perform as Washington’s puppets. This is why George W. Bush’s regime invaded Afghanistan, why Washington overthrew Saddam Hussein, and why Washington wants to overthrow Libya, Syria, and Iran.

Barack Obama inherited the Afghan war, which has lasted longer than World War II with no victory in sight. Instead of keeping with his election promises and ending the fruitless war, Obama intensified it with a “surge,”

The war is now ten years old, and the Taliban control more of the country than does the US and its NATO puppets. Frustrated by their failure, the Americans and their NATO puppets increasingly murder women, children, village elders, Afghan police, and aid workers.

A video taken by a US helicopter gunship, leaked to Wikileaks and released, shows American forces, as if they were playing video games, slaughtering civilians, including camera men for a prominent news service, as they are walking down a peaceful street. A father with small children, who stopped to help the dying victims of American soldiers’ fun and games, was also blown away, as were his children. The American voices on the video blame the children’s demise on the father for bringing kids into a “war zone.” It was no war zone, just a quiet city street with civilians walking along.

The video documents American crimes against humanity as powerfully as any evidence used against the Nazis in the aftermath of World War II at the Nuremberg Trials.

Perhaps the height of lawlessness was attained when the Obama regime announced that it had a list of American citizens who would be assassinated without due process of law.

One would think that if law any longer had any meaning in Western civilization, George W. Bush, Dick Cheney, indeed, the entire Bush/Cheney regime, as well as Tony Blair and Bush’s other co-conspirators, would be standing before the International Criminal Court.

Yet it is Gadaffi for whom the International Criminal Court has issued arrest warrants. Western powers are using the International Criminal Court, which is supposed to serve justice, for self-interested reasons that are unjust.

What is Gadaffi’s crime? His crime is that he is attempting to prevent Libya from being overthrown by a US-supported, and perhaps organized, armed uprising in Eastern Libya that is being used to evict China from its oil investments in Eastern Libya.

Libya is the first armed revolt in the so-called “Arab Spring.” Reports have made it clear that there is nothing “democratic” about the revolt.

The West managed to push a “no-fly” resolution through its puppet organization, the United Nations. The resolution was limited to neutralizing Gadaffi’s air force. However, Washington, and its French puppet, Sarkozy, quickly made an “expansive interpretation” of the UN resolution and turned it into authorization to become directly involved in the war.

Gadaffi has resisted the armed rebellion against the state of Libya, which is the normal response of a government to rebellion. The US would respond the same as would the UK and France. But by trying to prevent the overthrow of his country and his country from becoming another American puppet state, Gadaffi has been indicted. The International Criminal Court knows that it cannot indict the real perpetrators of crimes against humanity--Bush, Blair, Obama, and Sarkozy--but the court needs cases and accepts the victims that the West succeeds in demonizing.

In our times, everyone who resists or even criticizes the US is a criminal. For example, Washington considers Julian Assange and Bradley Manning to be criminals, because they made information available that exposed crimes committed by the US government. Anyone who even disagrees with Washington, is considered to be a “threat,” and Obama can have such “threats” assassinated or arrested as a “terrorist suspect” or as someone “providing aid and comfort to terrorists.” American conservatives and liberals, who once supported the US Constitution, are all in favor of shredding the Constitution in the interest of being “safe from terrorists.” They even accept such intrusions as porno-scans and sexual groping in order to be “safe” on air flights.

The collapse of law is across the board. The Supreme Court decided that it is “free speech” for America to be ruled by corporations, not by law and certainly not by the people. On June 27, the US Supreme Court advanced the fascist state that the “conservative” court is creating with the ruling that Arizona cannot publicly fund election candidates in order to level the playing field currently unbalanced by corporate money. The “conservative” US Supreme Court considers public funding of candidates to be unconstitutional, but not the “free speech” funding by business interests who purchase the government in order to rule the country. The US Supreme Court has become a corporate functionary and legitimizes rule by corporations. Mussolini called this rule, imposed on Americans by the US Supreme Court, fascism.

The Supreme Court also ruled on June 27 that California violated the US Constitution by banning the sale of violent video games to kids, despite evidence that the violent games trained the young to violent behavior. It is fine with the Supreme Court for soldiers, whose lives are on the line, to be prohibited under penalty of law from drinking beer before they are 21, but the idiot Court supports inculcating kids to be murderers, as long as it is in the interest of corporate profits, in the name of “free speech.”

Amazing, isn’t it, that a court so concerned with ‘free speech” has not protected American war protesters from unconstitutional searches and arrests, or protected protesters from being attacked by police or herded into fenced-in areas distant from the object of protest.

As the second decade of the 21st century opens, those who oppose US hegemony and the evil that emanates from Washington risk being declared to be “terrorists.” If they are American citizens, they can be assassinated. If they are foreign leaders, their country can be invaded. When captured, they can be executed, like Saddam Hussein, or sent off to the ICC, like the hapless Serbs, who tried to defend their country from being dismantled by the Americans.

And the American sheeple think that they have “freedom and democracy.”

Washington relies on fear to cover up its crimes. A majority of Americans now fear and hate Muslims, peoples about whom Americans know nothing but the racist propaganda which encourages Americans to believe that Muslims are hiding under their beds in order to murder them in their sleep.

The neoconservatives, of course, are the purveyors of fear. The more fearful the sheeple, the more they seek safety in the neocon police state and the more they overlook Washington’s crimes of aggression against Muslims.

Safety uber alles. That has become the motto of a once free and independent American people, who once were admired but today are despised.

In America lawlessness is now complete. Women can have abortions, but if they have stillbirths, they are arrested for murder.

Americans are such a terrified and abused people that a 95-year old woman dying from leukemia traveling to a last reunion with family members was forced to remove her adult diaper in order to clear airport security. Only a population totally cowed would permit such abuses of human dignity.

In a June 27 interview on National Public Radio, Ban Ki-moon, Washington’s South Korean puppet installed as the Secretary General of the United Nations, was unable to answer why the UN and the US tolerate the slaughter of unarmed civilians in Bahrain, but support the International Criminal Court’s indictment of Gadaffi for defending Libya against armed rebellion. Gadaffi has killed far fewer people than the US, UK, or the Saudis in Bahrain. Indeed, NATO and the Americans have killed more Libyans than has Gadaffi. The difference is that the US has a naval base in Bahrain, but not in Libya.

There is nothing left of the American character. Only a people who have lost their soul could tolerate the evil that emanates from Washington.

Raging Greeks Stage Biggest Anti-Austerity Protest Yet

Sunday, June 5, 2011 by Agence France-Presse

Police: Over 50,000 Greek protesters assemble in the capital

by Will Vassilopoulos 

ATHENS — Thousands of Greeks took to the streets of Athens late Sunday on the 12th consecutive day of protests against the government's draconian austerity measures.

Over 50,000 people, according to police estimates, thronged the capital's central Syntagma square for a peaceful demonstration responding to calls for gatherings across Europe. Some 3,000 people also gathered in Greece's second largest city, Thessaloniki, according to the police.

"Thieves, thieves," the crowd chanted waiving Greek flags, but also flags from Spain, Portugal, Tunisia and Argentina.

"You got the disease we got the solution. Revolution," one banner proclaimed.

Sunday's gathering appeared to be the largest since protests began over a week ago.

The non-political, non-ideological demonstrations are modeled by a similar mobilization in Spain led by a group calling themselves 'the indignants'.

"There is hope if demonstrations like this make a difference. If political parties get involved, then no," 26-year-old Maro told AFP.

"I'm indignant because I know I will never find a job in my profession," Maro, who studied to be a fashion designer, said.

Greeks feel indignant and voiced their discontent to the government, which just agreed to a new wave of spending cuts and tax hikes amid a deep recession and job layoffs in order to safeguard a new package of financial help from its creditors, the European union and International Monetary Fund.

"It's a shame what is being done to Greece," retired policeman Stelios Sfinas told AFP.

"I want 'troika' out," the 87-year-old added, referring to the country's three main creditors: the European Union, International Monetary Fund and European Central Bank.

48-year-old Panos came with his wife and two young daughters to the demonstration.

"I'm not indignant, I'm disheartened," said Panos who said he saw his salary at a research company he works lowered 70 percent the past year.

"Our relatives support us by lending us money to live," added his unemployed wife.

Culture Minister Pavlos Geroulanos described the Syntagma square demonstration as both a Greek and global phenomenon.

"This shows that a system that worked for many years has reached its limits and at this moment all of the people in all these countries demand the system changes," he told state television NET early on Sunday.

The minister added that the government's priority was to change matters for the state to operate better.

However, most Greeks no longer have confidence in the country's political system, according to an opinion poll published in the daily To Vima last week.

Three-quarters of those surveyed said they disapproved of Socialist Prime Minister George Papandreou's handling of the crisis and also the reaction of his right-wing rival, Antonis Samaras.

In an effort to improve its image the government released a video on its website on Saturday outlining the achievements it has made while in power the past 20 months.

The mass demonstration comes a day after Greece's two main private and public sector unions protested in central Athens to condemn the government's new bailout deal from international lenders.

Drowning in debt, Greece won Friday the pledge of a new bailout on top of a July cashflow fix from European Union and International Monetary Fund, but only after surrendering some of its financial autonomy.

International backers want greater control over a radical economic overhaul, ranging from decisions over the privatisation of Greek state assets to fixing the country's chaotic tax collection system.