The lastest from Dr. Michael Hudson

Finance Capitalism Hits a Wall

The Oligarchs’ Escape Plan – at the Treasury’s Expense

By Prof. Michael Hudson

The financial “wealth creation” game is over. Economies emerged from World War II relatively free of debt, but the 60-year global run-up has run its course. Finance capitalism is in a state of collapse, and marginal palliatives cannot revive it. The U.S. economy cannot “inflate its way out of debt,” because this would collapse the dollar and end its dreams of global empire by forcing foreign countries to go their own way. There is too little manufacturing to make the economy more “competitive,” given its high housing costs, transportation, debt and tax overhead. A quarter to a third of U.S. real estate has fallen into Negative Equity, so no banks will lend to them. The economy has hit a debt wall and is falling into Negative Equity, where it may remain for as far as the eye can see until there is a debt write-down.

February 18, 2009 "Global Research" -- - Mr. Obama’s “recovery” plan based on infrastructure spending will make real estate fortunes for well-situated properties along the new public transport routes, but there is no sign of cities levying a windfall property tax to save their finances. Their mayors would rather keep the cities broke than to tax real estate and finance. The aim is to re-inflate property markets to enable owners to pay the banks, not to help the public sector break even. So state and local pension plans will remain underfunded while more corporate pension plans go broke.

One would think that politicians would be willing to do the math and realize that debts that can’t be paid, won’t be. But the debts are being kept on the books, continuing to extract interest to pay the creditors that have made the bad loans. The resulting debt deflation threatens to keep the economy in depression until a radical shift in policy occurs – a shift to save the “real” economy, not just the financial sector and the wealthiest 10% of American families.

There is no sign that Mr. Obama’s economic advisors, Treasury officials and heads of the relevant Congressional committees recognize the need for a write-down. After all, they have been placed in their positions precisely because they do not understand that debt leveraging is a form of economic overhead, not real “wealth creation.” But their tunnel vision is what makes them “reliable” to Wall Street, which doesn’t like surprises. And the entire character of today’s financial crisis continues to be labeled “surprising” and “unexpected” by the press as each new surprisingly pessimistic statistic hits the news. It’s safe to be surprised; suspicious to have expected bad news and being a “premature doomsayer.” One must have faith in the system above all. And the system was the Greenspan Bubble. That is why “Ayn Rand Alan” was put in charge in the first place, after all.

So the government tries to recover the happy Bubble Economy years by getting debt growing again, hoping to re-inflate real estate and stock market prices. That was, after all, the Golden Age of finance capital’s world of using debt leverage to bid up the book-price of fictitious capital assets. Everyone loved it as long as it lasted. Voters thought they had a chance to become millionaires, and approved happily. And at least it made Wall Street richer than ever before – while almost doubling the share of wealth held by the wealthiest 1% of America’s families. For Washington policy makers, they are synonymous with “the economy” – at least the economy for which national economic policy is being formulated these days.

The Obama-Geithner plan to restart the Bubble Economy’s debt growth so as to inflate asset prices by enough to pay off the debt overhang out of new “capital gains” cannot possibly work. But that is the only trick these ponies know. We have entered an era of asset-price deflation, not inflation. Economic data charts throughout the world have hit a wall and every trend has been plunging vertically downward since last autumn. U.S. consumer prices experienced their fastest plunge since the Great Depression of the 1930s, along with consumer “confidence,” international shipping, real estate and stock market prices, oil and the exchange rate for British sterling. The global economy is falling into depression, and cannot recover until debts are written down.

Instead of doing this, the government is doing just the opposite. It is proposing to take bad debts onto the public-sector balance sheet, printing new Treasury bonds give the banks – bonds whose interest charges will have to be paid by taxing labor and industry.

The oligarchy’s plans for a bailout (at least of its own financial position)

In periods of looming collapse, wealthy elites protect their funds like rats fleeing a sinking ship. In times past they bought gold when currencies started to weaken. (Patriotism never has been a characteristic of cosmopolitan finance capital.) Since the 1950s the International Monetary Fund has made loans to support Third World exchange rates long enough to subsidize capital flight. In the United States over the past half-year, bankers and Wall Street investors have tapped the Treasury and Federal Reserve to support prices of their bad loans and financial gambles, buying out or guaranteeing $12 trillion of these junk debts. Protection for the U.S. financial elite thus takes the form of domestic public debt, not foreign currency.

It is all in vain as far as the real economy is concerned. When the Treasury gives banks newly printed government bonds in “cash for trash” swaps, it leaves today’s unpayably high private-sector debt in place. All that happens is that this debt is now owed to (or guaranteed by) the government, which will have to impose taxes to pay the interest charges.

The new twist is a variant on the IMF “stabilization” plans that lend money to central banks to support their currencies – for long enough to enable local oligarchs and foreign investors to move their savings and investments offshore at a good exchange rate. The currency then is permitted to collapse, enabling currency speculators to rake in enough gains to empty out the central bank’s reserves. Speculators view these central bank holdings as a target to be raided – the larger the better. The IMF will lend a central bank, say, $10 billion to “support the currency.” Domestic holders will flee the currency at a high exchange rate. Then, when the loan proceeds are depleted, the currency plunges. Wages are squeezed in the usual IMF austerity program, and the economy is forced to earn enough foreign exchange to pay back the IMF.

As a condition for getting this kind of IMF “support,” governments are told to run a budget surplus, cut back social spending, lower wages and raise taxes on labor so as to squeeze out enough exports to repay the IMF loans. But inasmuch as this kind “stabilization plan” cripples their domestic economy, they are obliged to sell off public infrastructure at distress prices – to foreign buyers who themselves borrow the money. The effect is to make such countries even more dependent on less “neoliberalized” economies.

Latvia is a poster child for this kind of disaster. Its recent agreement with Europe is a case in point. To help the Swedish banks withdraw their funds from the sinking ship, EU support is conditional on Latvia’s government agreeing to cut salaries in the private sector – and not to raise property taxes (currently almost zero).

The problem is that Latvia, like other post-Soviet economies, has scant domestic output to export. Industry throughout the former Soviet Union was torn up and scrapped in the 1990s. (Welcome to victorious finance capitalism, Western-style.) What they had was real estate and public infrastructure free of debt – and hence, available to be pledged as collateral for loans to finance their imports. Ever since its independence from Russia in 1991, Latvia has paid for its imported consumer goods and other purchases by borrowing mortgage credit in foreign currency from Scandinavian and other banks. The effect has been one of the world’s biggest property bubbles – in an economy with no means of breaking even except by loading down its real estate with more and more debt. In practice the loans took the form of mortgage borrowing from foreign banks to finance a real estate bubble – and their import dependency on foreign suppliers.

So instead of helping it and other post-Soviet nations develop self-reliant economies, the West has viewed them as economic oysters to be broken up to indebt them in order to extract interest charges and capital gains, leaving them empty shells. This policy crested on January 26, 2009, when Joaquin Almunia of the European Commission wrote a letter to Latvia’s Prime Minister spelling out the terms on which Europe will bail out the Swedish and other foreign banks operating in Latvia – at Latvia’s own expense:

Extended assistance is to be used to avoid a balance of payments crisis, which requires … restoring confidence in the banking sector [now entirely foreign owned], and bolstering the foreign reserves of the Bank of Latvia. This implies financing … outstanding government debt repayments (domestic and external). And if the banking sector were to experience adverse events, part of the assistance would be used for targeted capital infusions or appropriate short-term liquidity support. However, financial assistance is not meant to be used to originate new loans to businesses and households. …

… it is important not to raise ungrounded expectations among the general public and the social partners, and, equally, to counter misunderstandings that may arise in this respect. Worryingly, we have witnessed some recent evidence in Latvian public debate of calls for part of the financial assistance to be used inter alia for promoting export industries or to stimulate the economy through increased spending at large. It is important actively to stem these misperceptions.

Riots broke out last week, and protesters stormed the Latvian Treasury. Hardly surprising! There is no attempt to help Latvia develop the export capacity to cover its imports. After the domestic kleptocrats, foreign banks and investors have removed their funds from the economy, the Latvian lat will be permitted to depreciate. Foreign buyers then can come in and pick up local assets on the cheap once again.

The practice of European banks riding the crest of the post-Soviet real estate bubble is backfiring to wreck the European economies that have engaged in this predatory lending to neighboring economies as well. As one reporter has summarized:

In Poland 60 percent of mortgages are in Swiss francs. The zloty has just halved against the franc. Hungary, the Balkans, the Baltics, and Ukraine are all suffering variants of this story. As an act of collective folly – by lenders and borrowers – it matches America’s sub-prime debacle. There is a crucial difference, however. European banks are on the hook for both. US banks are not. Almost all East bloc debts are owed to West Europe, especially Austrian, Swedish, Greek, Italian, and Belgian banks.1

This was the West’s alternative to Stalinism. It did not help these countries emulate how Britain and America got rich by protectionist policies and publicly nurtured industrialization and infrastructure spending. Rather, the financial rape and industrial dismantling of the former Soviet economies was the most recent exercise in Western colonialism. At least U.S. investors were smart enough to stand clear and merely ride the stock market run-up before jumping ship.

But now, the government’s plan to “save” the economy is to “save the banks,” along similar lines to the West trying to save its banks from their adventure in the post-Soviet economies. This is the basic neoliberal economic plan, after all. The U.S. economy is about to be “post-Sovietized.”

The U.S. giveaway to banks, masquerading as “help for troubled homeowners”

The Obama bank bailout is arranged much like an IMF loan to support the exchange rate of foreign currency, but with the Treasury supporting financial asset prices for U.S. banks and other financial institutions. Instead of banks and oligarchs abandoning the dollar, the aim is to enable them to dump their bad mortgages and CDOs and get domestic Treasury bonds. Private-sector debt will be moved onto the U.S. Government balance sheet, where “taxpayers” will bear losses – mainly labor not Wall Street, inasmuch as the financial sector has been freed of income-tax liability by the “small print” in last autumn’s Paulson-Bush bailout package. But at least the U.S. Government is handling the situation entirely in domestic dollars.

As in Third World austerity programs, the effect of keeping the debts in place at the “real” economy’s expense will be to shrink the domestic U.S. market – while providing opportunities for hedge funds to pick up depreciated assets cheaply as the federal government, states and cities sell them off. This is called letting the banks “earn their way out of debt.” It’s strangling the “real” economy, because not a dollar of the government’s response has been devoted to reducing the overall debt volume.

Take the much-vaunted $50 billion program designed to renegotiate mortgages downward for “troubled homeowners.” Upon closer examination it turns out that the real beneficiaries are the giant leading banks such as Citibank and Bank of America that have made the bad loans. The Treasury will take on the bad debt that banks are stuck with, and will permit mortgagees to renegotiate their monthly payment down to 38% of their income. But rather than the banks taking the loss as they should do for over-lending, the Treasury itself will make up the difference – and pay it to the banks so that they will be able to get what they hoped to get. The hapless mortgage-burdened family stuck in their negative-equity home turns out to be merely a passive vehicle for the Treasury to pass debt relief on to the commercial banks.

Few news stories have made this clear, but the Financial Times spelled the details buried in small print.2 It added that the Treasury has not yet decided whether to write down the debt principal for the estimated 15 million families with negative equity (and perhaps 30 million by this time next year as property prices continue to plunge). No doubt a similar deal will be made: For every $100,000 of write-down in debt owed by over-mortgaged homeowners, the bank will receive $100,000 from the Treasury. Government debt will rise by $100,000, and the process will continue until the Treasury has transferred $50,000,000 to the banks that made the reckless loans.

There is enough for just 500 of these renegotiations of $100,000 each. Hardly enough to make much of a dent, but the principle has been put in place for many further bailouts. It will take almost an infinity of them, as long as the Treasury tries to support the fiction that “the miracle of compound interest” can be sustained for long. The danger is the economy may be dead by the time saner economic understanding penetrates the public consciousness. In the mean time, bad private-sector debt will be shifted onto the government’s balance sheet. Interest and amortization currently owed to the banks will be replaced by obligations to the U.S. Treasury. Taxes will be levied to make up the bad debts with which the government is stuck. The “real” economy will pay Wall Street – and will be paying for decades!

Calling the $12 trillion giveaway to bankers a “subprime crisis” makes it appear that bleeding-heart liberals got Fannie Mae and Freddie Mac into trouble by insisting that these public-private institutions make irresponsible loans to the poor. The party line is, “Blame the victim.” But we know this is false. The bulk of bad loans are concentrated in the largest banks. It was Countrywide and other banksters that led the irresponsible lending and brought heavy-handed pressure on Fannie Mae. Most of the nation’s smaller, local banks didn’t make such reckless loans. The big mortgage shops didn’t care about loan quality, because they were run by salesmen. The Treasury is paying off the gamblers and billionaires by supporting the value of bank loans, investments and derivative gambles, leaving the Treasury in debt.

U.S./post-Soviet Convergence?

It may be time to look once again at what Larry Summers and his Rubinomics gang did in Russia in the mid-1990s and to Third World countries during his tenure as World Bank economist to see what kind of future is being planned for the U.S. economy over the next few years. Throughout the Soviet Union the neoliberal model established “equilibrium” in a way that involved demographic collapse: shortening life spans, lower birth rates, alcoholism and drug abuse, psychological depression, suicides, bad health, unemployment and homelessness for the elderly (the neoliberal mode of Social Security reform).

Back in the 1970s, people speculated whether the US and Soviet economies were converging. Throughout the 20^th century, of course, everyone expected government regulation, infrastructure investment and planning to increase. It looked like the spread of democratically elected governments would go hand in hand with people voting in their own economic interest to raise living standards, thereby closing the inequality gap.

This is not the kind of convergence that has occurred since 1991. Government power is being dismantled, living standards have stagnated and wealth is concentrating at the top of the economic pyramid. Economic planning and resource allocation has passed into the hands of Wall Street, whose alternative to Hayek’s “road to serfdom” is debt peonage for the economy at large. There does need to be a strong state, to be sure, to keep the financial and real estate rentier power in place. But the West’s alternative to the old Soviet bureaucracy is a financial planning. In place of a political overhead, we have a financial and real estate overhead.

Stalinist Russia and Maoist China achieved high technology without land-rent, monopoly rent and interest overhead. This purging of rentier income was the historical task of classical political economy, and it became that of socialism. The aim was to create a Clean Slate financially, bringing prices in line with technologically necessary costs of production. The aim was to provide everyone with the fruits of their labor rather than letting banks and landlords siphon off the economic surplus.

Ideas of economic efficiency and “wealth creation” today are an utterly different kind of liberalism and “free markets.” Commercial banks lend money not to increase production but to inflate asset prices. Some 70% of bank loans are mortgage loans for real estate, and most of the rest is for corporate takeovers and raids, to finance stock buy-backs or simply to pay dividends. Asset-price inflation obliges people to go deeper into debt than ever before to obtain access to housing, education and medical care. The economy is being “financialized,” not industrialized. This has been the plan as much for the post-Soviet states as for North America, Western Europe and the Third World.

But we are far from having reached the end of the line. Celebrations that our present financialized economy represents the “end of history” are laughingly premature. Today’s policies look more like a dead end. But that does not mean that, like the Roman Empire, they won’t lead us down toward a new Dark Age. That’s what tends to happen when oligarchies do the planning.

Is America a Failed Economy?

It may be time to ask whether neoliberal pro-rentier economics has turned America and the West into a Failed Economy. Is there really no alternative? Have the neoliberals made the shift of planning from governments to the financial oligarchy irreversible?

Let’s first dispose of the “foundation myth” of the idea still guiding the United States and Europe. Free-market economists pretend that prices can be brought into line most efficiently with technologically necessary costs of production under capitalism, and indeed, under finance capitalism. The banks and stock market are supposed to allocate resources most efficiency. That at least is the dream of self-regulating markets. But today it looks like only a myth, public relations patter talk to get a generation of increasingly indebted voters not to act in their own self-interest.

Industrial capitalism always has been a hybrid, a symbiosis with its feudal legacy of absentee property ownership, oligarchic finance and public debts rather than the government acting as net creditor. The essence of feudalism was extractive, not productive. That is why it created industrial capitalism as State Policy in the first place – if only to increase its war-making powers. But the question must now be raised as to whether only socialism can complete the historical task that classical political economy set out for itself – the ideal that futurists in the 19^th and 20^th centuries believed that an unpurified capitalism might still be able bring about without shedding its legacy of commercial banking indebting property and carving infrastructure out of the public domain.

Today it is easier to see that the Western economies cannot go on the way they have been. They have reached the point where the debts exceed the ability to pay. Instead of recognizing this fact and scaling debts back into line with the ability to pay, the Obama-Geithner plan is to bail out the big banks and hedge funds, keeping the volume of debt in place and indeed, growing once again through the “magic of compound interest.” The result can only be an increasingly extractive economy, until households, real estate and industrial companies, states and cities, and the national government itself is driven into debt peonage.

The alternative is a century and a half old, and emerged out of the ideals of the classical economic doctrines of Adam Smith, David Ricardo, John Stuart Mill, and the last great classical economist, Marx. Their common denominator was to view rent and interest are extractive, not productive. Classical political economy and its successor Progressive Era socialism sought to nationalize the land (or at least to fully tax its rent as the fiscal base). Governments were to create their own credit, not leave this function to wealthy elites via a bank monopoly on credit creation. So today’s neoliberalism paints a false picture of what the classical economists envisioned as free markets. They were markets free of economic rent and interest (and taxes to support an aristocracy or oligarchy). Socialism was to free economies from these overhead charges. Today’s Obama-Geithner rescue plan is just the reverse.

NOTES

1 Ambrose Evans-Pritchard, “If Eastern Europe falls, world is next,” The Telegraph, February 14, 2009.

2 Krishna Guha, “US closes in on subsidy plan to stop foreclosures,” Financial Times, February 13, 2009.

© Copyright Michael Hudson, Global Research, 2009

Mr. Paulson¹s Deceptive Speech

Michael Hudson

Yesterday, November 20, Treasury Secretary Henry Paulson presented so deceptive a speech at The Ronald Reagan Presidential Library in Simi Valley, California, that was that its false framing of Washington's financial giveaway to Wall Street deserves to be enshrined in the annals of Orwellian doublethink.

What prompted the speech seems have been Congressional criticism of Mr. Paulson¹s bait-and-switch transfer of public funds to Wall Street, and the Federal Reserve¹s transfer of an amount twice as high as Congress's $700 billion. His most urgent aim was to ward off accusations that the Treasury and Federal Reserve have acted illegally. Federal law, and in particular the Anti-Deficiency Act, prohibits Treasury from spending money, lending money, and guaranteeing or buying assets without Congressional approval. The Federal Reserve can and does lend on a secured basis, but only if it expects not to realize losses. (Italics added.)

But Congress did not approve the Treasury's $250 billion of preferred stock investments in Wall Street banks. The happy recipients, their stockholders and officers evidently worried precisely that this "investment" would end up taking losses. That is why the Treasury stands in
back of bona fide creditors. That is why preferred stock was preferred by existing stockholders to loans and guarantees (which have priority in case of bankruptcy), not to mention the conditions that Congress thought it had laid down calling for these institutions to renegotiate mortgages to bring them in line with the debtor's ability to pay.

The Fed has refused to let Congress know any details ­ any details at all ­ about its cash-for-trash swaps with these institutions. This is what has concerns Congress, and what has prompted Bloomberg to bring a lawsuit in order to discover and publicize the details. It is not hard to'see why this curiosity exists. The only reasonable explanation as to why investment banks, American International Group (A.I.G.) and commercial banks apparently headed by Citibank (whose shares plunged yet another 30 percent during Wednesday and Thursday) have turned over a trillion dollars worth of illiquid mortgage securities, junk bonds and who knows what other junk to the Fed is to avoid taking a loss on these bad loans and investments. As Mr. Paulson explained matters, ³the Federal Reserve has statutory authority to lend against a pool of mortgage loans on a fully secured basis. The Fed was able to assist the JPMorgan purchase because they believed that there was a reasonable prospect of avoiding losses.

What time frame are we talking about here? Evidently one in which Mr. Paulson will have left the administration, sticking his successor with the losses and, presumably, the blame.

Everything seems to have been unexpected to Mr. Paulson ­ as if ignorance is a defence. When I came to Washington in 2006, he reminisced, markets were benign. We were still in Alan Greenspan's idea that inflating asset prices on credit constitutes wealth creation. At that time I myself was only one of many who warned that the real estate market had come to rest on a foundation of junk mortgage lending. Every banker with whom I spoke at the time knew this. But most were still seeking to make hay while the making was good, and it was still quite good ­ for the banks, that is. Matters were not benign for the increasingly debt-ridden U.S. economy, but at least they were rosy for Wall Street. Bank executives were paying themselves enormous
salaries and even larger stock options. Meanwhile, the smarter money managers were beginning to shift their funds out of the U.S. economy in a wave of capital flight of a magnitude not seen since Russia in the mid-1990s.

Acting as if all this could not have been foreseen, Mr. Paulson assured his mistake-friendly audience, There was no playbook for responding to a once or twice in a hundred year event.² A kind of random historical earthquake seems to have been at work, a financial San Andreas fault. Mr. Paulson then trivialized this, however, with the euphemism "housing correction."

The key is, what is to be corrected? Is it not the financial market itself?

Mr. Paulson then set about dissembling the character of the U.S. and global financial system. "Our financial system," he claimed, "is built on the hard work of our citizens; it is built on the savings of our citizens."

This is where he seeks to spread the disinformation that the explosion of debt that now burdens the U.S. economy has not been the case of Americans saving. It is the result of autonomous credit-creation by the commercial banking system. The basic financial principle of modern banking is that loans create deposits. The bank loan comes first ­ then the deposit or saving.

Here's how it works. A bank's marketing department seeks to drum up customers for debt. A borrower will go into a bank and sign a promissory note, and the bank then creates a checking account in the amount that is stipulated. The note calls for a specific rate of interest to be paid ­ a
rate much higher than that which the bank can borrow from the Federal Reserve or in the money market in general. One benchmark global rate to bankers is the London Interbank Borrowing Overnight Rate (LIBOR), and the other is the Federal Reserve's discount rate to banks. (Japanese banks also provided loans to large financial institutions at under 1% per year,
spurring the international carry trade, borrowing cheap in yen and then converting the funds into other currencies and lending at a higher rate.)

None of this involves saving. It involves credit creation in which banks have a legal monopoly, with funding monetized by the U.S, Japanese and other major foreign central banks. This free credit creation is at the root of the problem, not the natural growth of savings.

What have banks done with this credit-creating privilege? Nearly all their loans have been to enable buyers to purchase assets (real estate, stocks and bonds or entire companies) already in place, or to enable hedge funds to play the mathematical games that have come to characterize today¹s casino capitalism. Mr. Paulson depicts the resulting financial system as being essential for the good functioning of "Main Street." But surely he must know some lawyer who might explain to him that only very, very wealthy speculators are allowed to play the hedge fund game of financial derivatives that lies at the heart of today's financial breakdown and negative equity
for banks that have made bad gambles. The legal reality is that in order to invest in hedge funds and similar casino capitalism gambles (or in Broadway plays and other high-risk ventures, for that matter), prospective financiers must sign releases attesting to the fact that they can afford to lose their money.

"If the financial system were allowed to collapse,"Mr. Paulson warned, "it is the American people who would pay the price. This has never been just about the banks; it has always been about continued prosperity and opportunity for all Americans." Not really. Wall Street hardly is so altruistic. It has increasingly made its money off Americans, by engaging in increasingly predatory, extractive lending to the economy. That is what has caused the U.S. debt burden to soar so far ahead of the ability of debtors to pay. It also is what is now diverting spending away from consumption and (for companies) new capital investment to pay creditors.

Not content with misrepresenting how the U.S. economy works, Mr. Paulson then drew a picture of the global economy that also is a travesty. "The world was awash in money looking for higher return," he explained, "and much of this money was invested in U.S. assets."

Well, not exactly. The world economy has been awash in the U.S. payments deficit, which has swollen the reserves of central banks in the creditor nations from Asia to Western Europe. These central banks have recycled $4 trillion their dollar inflows to the United States under dollar
hegemony. Rather than seeking a "higher return," central banks have found themselves o liged to invest in low-yielding U.S. Treasury securities, or somewhat higher Fannie Mae and Freddie Mac securities. These returns are much lower than U.S. investors have sought in buying up foreign companies and their stocks, whose price appreciation far exceeded the rate that foreign economies were able to recoup on their dollar recycling to the United States.

Mr. Paulson wants above all to deter foreign economies from breaking away from this dysfunctional system. The second important priority, he explained to his Reagan Library audience, must be continued reform of the International Financial Institutions like the World Bank and the IMF to allow for greater participation of developing nations.² The aim here is to make the financial sector's lobbying control over the world¹s financial system global. A final reform priority must be consistent liberalization of policies on trade and investment, with an emphasis on avoiding new protectionist measures and achieving a breakthrough in the Doha
round of global trade talk.

New protectionist measures! Even as U.S. auto companies are advocating special subsidies for the U.S. auto industry in Detroit and pursuing beggar-my-neighbor financial policies (let foreign banks and economies absorb the financial loss from playing in the Wall Street casino),
foreign countries are not to develop a financial system more highly regulated, an agriculture more aimed at feeding their own people. They are not to block capital outflows from the United States based on ³free² credit creation to buy out their commanding heights as the IMF imposes austerity plans and forced privatization sell-offs on Third World and post-Soviet countries while cutting taxes at home in the face of an escalating U.S. trade deficit and rising foreign military spending.

Mr. Paulson's speech looks like a major salvo in the Bush Administration's attempt to make both the Wall Street bailout and the U.S. predatory finance irreversible, while the government replaces public debt (Treasury bonds) for Wall Street's bad gambles. His errors are calculated to
misinform, as are most lobbying efforts by the banking and financial sector. One can only hope that Congress will question his testimony that has repeatedly followed this line with more acumen than prompted its earlier acceptance of the Treasury's bailout act. It's time to clean up this act.

Good article explaining the dollar devaluations

Creative destruction gone too far

Christopher Wood's point that "credit inflation always breeds deflations" is
well taken (Embrace Creative Destruction, WSJ Oct. 21). The rest of his
analysis is not.

In the first place, "credit inflation" is not a "natural" but man-made
phenomenon. Therefore, his embrace of "creative destruction" on behalf of
the world's exploited poor and powerless begs the question why the wilful
predatory sins of the world's rich and powerful should be visited upon them?

Indeed, from Indonesia , Thailand , and Korea , to Russia , the front-line
soldiers in Wood's "cleansing process" may rightfully ascribe their
predicament to brute-force mentality masquerading as economic science.
Specifically, Schumpeter's concept of "creative destruction" concerned
entrepreneurial competition where the fate of the world's Microsofts and
Netscapes was determined in the market place and not in the courts, nor did
it envisage IMF-funded bailouts for phantom capitalists in flight from one
disaster area to the next.

Secondly, now as in the 1930s, it may be impolitic to ascribe the present
crisis to lack of effective demand relative to aggregate world supply
capacity. Yet the fact remains that "over investment", "excess capacity"
and "overproduction" are all relative to the level of effective demand.

It is not rocket science to see that predatory capitalists were the chief
beneficiaries of the Third World Debt bonanza of the 1970s, the U.S. S&L
craze of the 1980s, and the Asia-Russia- Latin America credit bubble of the
1990s, while the clean-up costs in terms of bank "recapitalization" etc.
have been shouldered by the average would-be consumer. Nor is it rocket
science to see how this must deflate effective demand.
But, then, who cares?

Gunnar Tomasson, IMF 1966-1989, Bethesda , Maryland
Arno Mong Daastøl, University of Maastricht / of Oslo



Wall Street Journal Oct.21st, 1998
Commentary

Embrace Creative Destruction
By CHRISTOPHER WOOD

Global financial markets' exuberant reaction to the Federal Reserve's new
bias toward looser monetary policy is understandable given recent
turbulence. But it also signals that many investors still operate on the
assumption that falling interest rates are self-evidently good news for
equities. Thus, bad news has been good news for the past several years on
Wall Street: Any evidence of a slowing economy has inspired hopes of lower
interest rates, causing share prices to rise. This benign paradox has been
the underpinning of the so-called Goldilocks economy. Unfortunately for
those investors who put their savings in domestic stocks through mutual
funds, this particular game is up. The stock market has finally begun to
sniff deflation. Analyst earnings' projections are now being revised down,
as the realization grows that profits will disappoint. More and more
companies are beset by the key problem facing businesses in a deflationary
period: lack of pricing power. Technology, the engine of the Wall Street
bull market, will be the at the center of the storm as companies reverse
trend and slash their information technology budgets. American investors
will take some time to be convinced of the deflationary argument, since it
is counterintuitive to baby boomers brought up in the post-World War II
inflationary period. The deflationary tide is real, however, and it will
overwhelm short-term cyclical blips of the kind still preoccupying
mechanistic monetarists on the Federal Reserve Board. Fortunately, Fed
Chairman Alan Greenspan is a student of economic history as well as modern
macroeconomic theory. He knows that throughout recorded history, prices have
more often trended down rather than up. As a consequence, he has been
quicker to lower interest rates in response to deflationary symptoms than
the conventional central bankers at the Bank of England and the Bundesbank,
who can be relied upon to continue fighting the last war.
Mr. Greenspan has been acting more quickly because he understands what
should be obvious to anyone who has observed Asia during the past year or
Japan for the past eight years. The Asian crisis is not caused by specific
factors, such as corruption or cronyism, cited by most of the press and the
financial chattering classes who assemble at annual International Monetary
Fund/World Bank jamborees. Rather, Asia and emerging markets in general are
at the leading edge of a deflation crisis.
The root cause of the crisis is excess capacity. Asia has proved the key
victim precisely because it was the region where the multinationals and
international banks were most willing to invest and lend on account of their
unquestioned belief in the never-ending Asian miracle. This is nothing new.
Indeed it is the oldest story in capitalism. As students of the Austrian
school of economics will understand, credit inflations always breed credit
deflations. Financial markets amplify this tendency because they are driven
in the short term by herd psychology. Thus, in 1993 emerging markets
represented the future of world finance. In 1998 they are written off by the
consensus. Socialists would argue that these tendencies require regulation
to curb the excesses of the cycle. The Austrian economists held that
creative destruction, the cleansing process we are now witnessing (or should
be witnessing), is entirely healthy and, indeed, to be welcomed.
The most alarming point about Asia today is that excess capacity is not
being removed more quickly. Thus, in Korea the political leadership still
does not seem to comprehend that closing down capacity is the quickest way
to salvation. Likewise, China 's collective leadership still does not
understand that producing things nobody wants to buy is a complete waste of
time. They believe this specious activity is somehow a worthwhile form of
human endeavor because it can be described as "manufacturing. " But it is not
just manufacturing where the excess capacity needs to be removed. Consider
Long-Term Capital Management. The shocking leverage commanded by this
well-connected hedge fund represents a scale of excess, in the context of
the financial services industry, every bit as extreme as the debt taken on
by the Koreans to mount their drive into semiconductors. Both excesses need
to be expunged, which is not exactly an argument for Fed intervention.
Deflation does not have to be a malign force, especially if productivity is
rising. But when combined with huge indebtedness and collapsing asset
prices, the consequences are not pleasant, as is now clear from the
depression engulfing Asia . Prices are already falling at street level in
China and Japan . By next year prices should also be falling in Korea , Hong
Kong and Singapore .
If Mr. Greenspan does prove to be reasonably proactive, that should help
mitigate the pain. Unfortunately, it does not mean the U.S. can escape a
protracted bear market, or indeed a deflationary slowdown in the real
economy. Both are now signaled by the inversion of the yield curve.
Unfortunately, the unambiguous lesson of history is that it is harder to
reactivate deflating economies, via interest rate cuts, than it is to rein
in overheating economies through monetary tightening. This is a lesson which
the former Bank of Japan governor, Yasushi Mieno, was painfully slow to
learn in the early 1990s. This has also been the recent experience of
Chinese Premier Zhu Rongji, who has been behind the curve in recognizing
that deflation is now the greatest threat to the mainland economy. Leaders
can also wreak havoc by overreacting to the problems brought by deflation.
The bear market in the emerging markets will last much longer than necessary
if the seductive case for capital controls is not fought much more
aggressively. "Hot money" capital flows had nothing to do with the cause of
the problem, which is clearly overinvestment. If governments feel the urge
to "regulate" something, they should regulate the banks who foolishly lent
the money, be it to well-connected cronies or well-connected hedge funds.
Finally, none of the above means that emerging markets should be written of
as an asset class. Emerging markets are here to stay, if for no other reason
than the populations of developing countries have developed a taste for
capitalism and consumerism. The sooner creative destruction is allowed to
work, the sooner they will emerge on the other side.
Mr. Wood is the global emerging market strategist for Santander Investment
and author of "The Bubble Economy" (Atlantic Monthly Press, 1992).
Copyright (c) 1998 Dow Jones & Company, Inc. All Rights Reserved.

Former Prime Minister Paul Martin and Haiti and "free trade"

Former Prime Minister Paul Martin and Haiti

July 28th, 2008 by CHAN

(this article first appeared on HaitiAnalysis.com: Link to original article here)

Paul Martin’s History of Haiti and Future Plans for Africa

By: Tracy Glynn - HaitiAnalysis

Rumour spread fast amongst the small activist community in Fredericton months before the official announcement was made that the local chapter of Engineers Without Borders would be hosting a lecture by former Prime Minister Paul Martin on March 23, 2008 at the University of New Brunswick. As Finance Minister, Martin slashed social spending so that more could be given to corporate welfare. Post-secondary education was gutted to the tune of $7 billion from 1993 to 2000, forcing many students into debt before they turned twenty. Plagued by scandals during his reign as Prime Minister, a Ipsos-Reid poll conducted in 2004 found that 61 per cent of Canadians thought his governing Liberal Party was corrupt. After losing the election to Harper, Martin now finds himself speaking at university campuses as an authority on “how business and government can help Africa.”

The corporate media that covered Martin’s lecture failed to mentioned the presence of over a dozen protesters who gathered to counter the onslaught of misinformation and Liberal rhetoric. Flyers were distributed to the crowd on Paul Martin’s track record as Prime Minister including his role in overthrowing the democratically-elected government of Jean-Bertrand Aristide in Haiti.

When Paul Martin began his speech, two UNB students stood up alongside Martin and unfurled a banner that read

“Canada Out of Haiti and Afghanistan”.

A few minutes later, another couple of students unfurled another banner that read

“Neo-Liberalism=Neo-Colonialism”

on the other side of Martin. The two pairs of students with their message stood by Martin during his entire lecture. Martin, like any good Liberal willing to “listen”, was quoted in the local newspaper as saying that he would expect a protest at a university.

Sadly, many of Martin’s remarks received little challenge from what one would expect would be a critical audience on a university campus. Except for the occasional interruption, Martin was able to make several outrageous statements in an apparent attempt to rewrite a history that only transpired in the past decade. The first interruption came when Martin was responding to a question about the Responsibility to Protect doctrine and he said that he could not think of any Canadian business interests in Haiti. A student asked

“What about the sweatshops?”

Surely Martin must know of the presence of Montreal-based Gildan Active Wear in the country’s capital, Port-au-Prince. Gildan has recently closed their remaining North American shops to expand in countries where labour and production is cheaper like in Haiti and the Dominican Republic.

How was Gildan connected to the overthrowing of Haiti’s democratically-elected and popular leader? Gildan was the primary subcontractor for Alpha Industries, which was owned by Andy Apaid. Apaid was also the head of Group 184, which was the main opposition force to Aristide’s Lavalas party. Aristide, while enjoying popular support especially amongst the country’s poor, was overthrown from power with the help of Canada, the U.S. and France in 2004. About a year before being removed from power, Aristide increased minimum wage from 36 to 70 gourdes in February 2003, a move most likely opposed by the sweatshop kings.

Martin could also not have possibly forgotten about the presence in Haiti of what is now the world’s largest engineering firm, SNC-Lavalin, also from Montreal. SNC-Lavalin after all built the Canadian Embassy in Haiti’s capital. As one of the largest recipients of Canadian aid dollars, SNC-Lavalin works on CIDA-funded projects around the world, from Haiti to Afghanistan. Martin himself has gone the distance for this company, lobbying on behalf of SNC-Lavalin in arms deals in Libya. St. Genevieve Resources is another Canadian company in Haiti with mineral interests. Yves Engler, co-author of Canada in Haiti: Waging War on the Poor Majority, summarizes the close ties between Canadian aid abetting Canadian imperialism:

“the Canadian government may call it foreign aid, but a central aim of the Canadian International Development Agency has always been to help Canadian companies expand abroad both directly and indirectly. The mining sector, for instance, is one of Canadian aid’s greatest success stories and today, Canadian companies hold some 7000 mining concessions around the world… By having a direct hand in liberalizing mining codes in Colombia, Zimbabwe, Botswana, Guinea etc., the Canadian International Development Agency (CIDA) has helped the flow of mining profits into Canada. In addition, Canada has channelled billions of “aid” dollars through IMF/World Bank structural adjustment programs that have liberalized mining laws around the world.”

Canada has also funded and had incredible say over Haiti’s troubled judicial and prison systems, police force and elections, but as Engler points out:

“Helping keep the world safe for ever-greater exploitation by the world’s corporate oligarchy has been Canadian aid’s biggest success.”

When interrupted during his version of how Aristide was ousted, Martin said that Aristide had asked for help to be removed safely. It was pointed out that Martin’s government had actually orchestrated the second coup of the democratically-elected Aristide with the support of the Canadian military that secured the airport for his removal. Aristide maintains that he was kidnapped by U.S. forces and forced into exile. Martin conveniently left out an important part of history involving his government hosting a meeting in Ottawa with the Presidents of the U.S. and France in January 2003. The meeting, dubbed the Ottawa Initiative, planned the removal of Aristide.

Canada also contributed to the U.S.-supported destabilization campaign aimed at removing Aristide by cutting off aid to Haiti that was highly dependent on foreign aid. CIDA also funded Haitian and Quebec NGOs that were actively organizing against Aristide.

CIDA also financed and militarized the Haitian police force that arrested the former Haitian Prime Minister, Yvon Neptune, on orders from a Justice Ministry where a CIDA employee, Philip Vixamar, was second in command. The former Haitian Prime Minister remained in jail for over two years under a CIDA-backed court system stacked by the coup government.

Martin ended the discussion on Haiti by saying that the neighbouring Caribbean countries supported the removal of Aristide. Actually, the 15-nation Caribbean Community (CARICOM) has called for an independent U.N.-led investigation into the details surrounding Aristide’s removal from power.

Perhaps one of the greatest ironies of the evening came with Martin’s comment that Canada does not have a colonial past after talking about a way forward for First Nations. Didn’t European settlers colonize the land known today as Canada? Besides a certain colonial past, Canada is currently colonizing lands and resources all over the world via its companies, banks, free trade agreements and publicly funded export credit agencies and pension plans. Royal Bank of Canada recently acquired the largest bank in Trinidad, RBTT while the Bank of Nova Scotia has had a foothold in the Caribbean region for over a century, establishing a branch in Jamaica in 1889. Canada has been extracting the riches of countries in this region ever since at the expense of the environment and traditional livelihoods of the colonized.

Martin also said that poverty drives environmental degradation. Martin seems to be getting greed mixed up with poverty. Martin made reference to the growing deforestation in the Congo basin. He blamed poverty and the looting of the forest by locals for fuel. He failed to mention that Canadian mining companies are deforesting large tracts of land for minerals and profit in the country.

The foreign theft of resources from the Congo rainforest is well documented. But Martin’s twisting of the facts of what is happening today in the Congo allows Canadian mining companies to get richer from Congo’s mineral wealth. About ten Canadian mining companies are active in the Democratic Republic of Congo (DRC) today.

In 2002, eight Canadian companies were implicated in the U.N. Report on the Illegal Exploitation of Natural Resources and Other Forms of Wealth in the Congo. The report recommended investigations by the Canadian government into their actions but no such action was taken. More recently, Anvil Mining, a Canadian-Australian company, is accused of helping soldiers end an uprising in a village near an Anvil mine that killed more than 80 people including villagers.

According to Le Monde Diplomatique, Canadian mining companies Barrick and Banro had been “funding military operations [in the DRC] in exchange for lucrative contracts.” Barrick and Banro are today trying to silence allegations of abuse in Africa, in the case of Barrick, an alleged massacre of small-scale miners in Tanzania. Écosociété, a Quebec-based publisher, has recently been served with two libel lawsuits, a $5 million SLAPP suit by Banro and a $6 million SLAPP suit by Barrick following the publication of the book Noir Canada.

Over the years advisors and directors for Barrick have included George H.W. Bush, Brian Mulroney, as well as American and Canadian Senators and elite. Connections between Canadian politicians and companies exploiting resources around the globe abound and certainly are not limited to Paul Martin. Joe Clark was both the leader of the Progressive Conservative Party while acting as a special advisor on Africa for the mining company First Quantum Mineral in the mid 1990s.

As more and more Canadians were becoming aware of the extent of abuses faced by communities affected by Canadian mining across the globe, Martin’s government rejected recommendations by an all party Senate Committee to regulate the Canadian extractive sector abroad.

Martin’s prescription for Africa: The Common Market. A common market is essentially a customs union with common policies on product regulation. It is driven by philosophies of the freedom of movement of land, capital and labour for production, and of enterprise. Sounds a lot like “free trade”? Martin never uttered those two words during his entire speech. Maybe he did not want to upset his hosts, the Engineers Without Borders, who were handing out fair trade chocolates during the opening reception.

Martin has just founded an organization devoted to stopping environmental degradation in the Congo Rainforest Basin. One could be forgiven if they made the presumption that this fund has more to do with creating Canadian business friendly havens than helping the poor people of Africa.

Canada, World Bank and the IMF

Dear All

In 2008, Finance Canada made substantial improvements to its annual report to Parliament on the World Bank and IMF. Now, for the first time ever, the government has disclosed its positions on a whole range of issues.

Accordingly, please find attached (and on-line) a policy brief analyzing some of Canada's positions around governance and accountability at the Bank and Fund, Bank support for fossil fuels, climate change, conditionality and the Bank's new strategic focus, among other things.

Presenting short background information on each of the issues, the brief critiques both the Bank and IMF's take on these issues, and the Canadian government's own position, and presents some policy suggestions for remedying the gaps in all three approaches.

Sincerely,

Fraser Reilly-King

--
Coordinator
Halifax Initiative Coalition

Coordonnateur
La coalition Initiative d'Halifax

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
153 Chapel Street, Suite 104
Ottawa, ON  K1N 1H5
CANADA
Tel: (+1) 613 789-4447
Fax: (+1) 613 241-4170
Skype: halifaxinitiative
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Read the Final Report from our converence
on the "Changing Face of Global Development
Finance: Impacts and implications for aid,
development, the South and the Bretton
Woods Institutions"


http://www.halifaxinitiative.org/index.php/reports_analysis/1086

Has the moment come to replace the US dollar?

Has the moment come to replace the US dollar?

By Kenneth Rogoff
The Daily Star

As the world's financial leaders meet in Washington this month at the World Bank -International Monetary Fund annual meeting, perhaps they should be glad there is no clear alternative to the dollar as the global currency standard. If the euro were fully ready for primetime, we might well be seeing its dollar exchange rate jump to over 2.00, and not just to 1.65 or 1.70, as it seems poised to do anyway. You can't treat your customers as badly as the United States has done lately if they can go elsewhere.

Over the past six years, the value of the trade-weighted dollar has fallen by more than a quarter, as the US has continued to rack up historically unprecedented trade deficits. With a soft economy, a badly compromised financial system, and serious concerns about rising inflation, the long-term dollar trend is downward, however the current crisis ends. And it is not over.

The Federal Reserve's bailout of the financial system is unlikely to stand up unless banks find fresh capital, and lots of it. Ultra-rich sovereign wealth funds have the cash to rescue US banks. But they are unlikely to want to do so at this point, even if the US political system allowed it. Instead, as the credit crunch and housing price decline continue, an epic mortgage bailout appears increasingly likely, possibly costing US taxpayers $1 trillion or more. The problem is that after so many years of miserable returns on dollar assets, will global investors really be willing to absorb another $1 trillion in US debt at anything near current interest rates and exchange rates?

US debt hardly looks like a bargain right now, even without the sinking dollar. Far-flung military misadventures continue to stretch the country's fiscal resources, with costs potentially running into many trillions of dollars, according to a recent study by Joseph Stiglitz and Linda Bilmes.

Next year will almost certainly see a massive rise in US corporate defaults, even though many firms entered the recession with relatively strong balance sheets. State and municipal finances are in even worse shape. With tax revenues collapsing due to falling home prices and incomes, dozens of US municipalities could well go into receivership, as New York City did in the 1970s. US municipal bonds are already trading at huge risk premiums, and the first big government default hasn't even hit yet.

Of course, if the dollar were to fall off its perch as the world's dominant currency any time soon, the euro would be the only serious alternative. The yuan may well supplant the dollar in the second half of this century. But China's draconian capital controls and massive financial repression currently disqualify it from anchoring the global economic system.

Fortunately for the dollar, the euro, too, seems to have its problems. European banks remain balkanized, with a patchwork of national regulators seeking to promote their own champions. European governments' debt may all be denominated in euro, but German and Italian debt are hardly the same thing, so the government euro-bond market lacks the depth and liquidity of the US Treasury bill market.

Moreover, international investors can buy and sell real estate far more easily in the US than in most of Europe. And the absence of a Europe-wide fiscal policy creates significant uncertainty about how the European Central Bank would finance itself if it suddenly faced large losses on junk bank debt after a big bailout.

But the euro does have growing strengths. At current market exchange rates, the European Union is now larger economically than the US. New central and eastern European members are bringing enormous dynamism and flexibility. At the same time, the European Central Bank has gained considerable credibility from its handling of the global credit crisis. Indeed, if the euro zone can persuade Great Britain to become a full-fledged member, thereby acquiring one of the world's two premier financial centers (London), the euro might start to look like a viable alternative to the dollar.

In 1971, as the dollar collapsed towards the end of the post-World War II fixed exchange-rate system, US Treasury Secretary John Connally famously told his foreign counterparts that "the dollar is our currency, but your problem." And the dollar's exalted global status has survived ever since, despite many episodes of neglect and abuse.

World currency standards have enormous inertia. The British pound only forfeited its role to the US dollar after more than 50 years of industrial decline and two world wars. But it could happen a lot faster this time. As central bankers and finance ministers ponder how to intervene to prop up the dollar, they should also start thinking about what to do when the time comes to pull the plug.

Kenneth Rogoff is a professor of economics and public policy at Harvard University, and was formerly chief economist at the International Monetary Fund.

IMF Sells 440.3 Tons Of Gold

Published on Tuesday, April 08, 2008.

Source: All Headline News

Washington (AHN) - The executive board of the International Monetary Fund has approved the sale of some 440.3 tons of its gold supplies in a wide-ranging financial overhaul and to replenish its depleting coffers.

Dominique Strauss-Kahn, IMF managing director, welcomed the board's move on Monday, the action seen as a buffer to the expected $400 million budget deficit the Washington-based lending institution could experience in the next few years.

The board is projecting to generate at least $11 billion from the sale of at least 12 percent of its gold reserve. The money to be generated from the sales would fund the reorganization of the IMF and finance lending to needing countries.

Strauss-Kahn said it will also shore up diverse investments to generate income.
However, the IMF still needs congressional approval and legislative action of the 184 member-nations of the IMF.

The IMF is facing the challenge of cutting costs and trimming its bureaucracy, after a downturn in lending as some countries refuse to borrow money due to IMF's strict conditions.
The lending firm has a projected budget deficit of at least $140 million for the fiscal year 2008 which will end on April 30.

However, the IMF said the sale of the gold will be carried out in several transactions over several years so as not to affect the international gold market.

Global price of gold reached an all-time high of over $1,000 an ounce.

Is an International Financial Conspiracy Driving World Events? By Richard C. Cook

URL of this article: www.globalresearch.ca/index.php?context=va&aid=8450

Global Research, March 27, 2008

"They make a desolation and call it peace." -Tacitus Was Alan Greenspan really as dumb as he looks in creating the late housing bubble that threatens to bring the entire Western debt-based economy crashing down? Was something as easy to foresee as this really the trigger for a meltdown that could destroy the world's financial system? Or was it done, perhaps, "accidentally on purpose"? And if so, why? Let's turn to the U.S. personage that conspiracy theorists most often mention as being at the epicenter of whatever elite plan is reputed to exist. This would be David Rockefeller, the 92-year-old multibillionaire godfather of the world's financial elite. The lengthy Wikipedia article on Rockefeller provides the following version of a celebrated statement he allegedly made in an opening speech at the Bilderberg conference in Baden-Baden, Germany, in June 1991: "We are grateful to the Washington Post, the New York Times, Time magazine, and other great publications whose directors have attended our meetings and respected their promises of discretion for almost forty years. It would have been impossible for us to develop our plan for the world if we had been subject to the bright lights of publicity during these years. But the world is now more sophisticated and prepared to march towards a world government which will never again know war, but only peace and prosperity for the whole of humanity. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the national auto-determination practiced in the past centuries." This speech was made 17 years ago. It came at the beginning in the U.S. of the Bill Clinton administration. Rockefeller speaks of an "us." This "us," he says, has been having meetings for almost 40 years. If you add the 17 years since he gave the speech it was 57 years ago—two full generations. Not only has "us" developed a "plan for the world," but the attempt to "develop" the plan has evidently been successful, at least in Rockefeller's mind. The ultimate goal of "us" is to create "the supranational sovereignty of an intellectual elite and world bankers." This will lead, he says, toward a "world government which will never again know war." Just as an intellectual exercise, let's assume that David Rockefeller is as important and powerful a person as he seems to think he is. Let's give the man some credit and assume that he and "us" have in fact succeeded to a degree. This would mean that the major decisions and events since Rockefeller gave the speech in 1991 have probably also been part of the plan or that they have at least represented its features and intent. Therefore by examining these decisions and events we can determine whether in fact Rockefeller is being truthful in his assessment that the Utopia he has in mind is on its way or has at least come closer to being realized. In no particular order, some of these decisions and events are as follows: The implementation of the North American Free Trade Agreement by the Bill Clinton and George W. Bush administrations has led to the elimination of millions of U.S. manufacturing jobs as well as the destruction of U.S. family farming in favor of global agribusiness. Similar free trade agreements, including those under the auspices of the World Trade Organization, have led to export of millions of additional manufacturing jobs to China and elsewhere. Average family income in the U.S. has steadily eroded while the share of the nation's wealth held by the richest income brackets has soared. Some Wall Street hedge fund managers are making $1 billion a year while the number of homeless, including war veterans, pushes a million. The housing bubble has led to a huge inflation of real estate prices in the U.S. Millions of homes are falling into the hands of the bankers through foreclosure. The cost of land and rentals has further decimated family agriculture as well as small business. Rising property taxes based on inflated land assessments have forced millions of lower-and middle-income people and elderly out of their homes. The fact that bankers now control national monetary systems in their entirety, under laws where money is introduced only through lending at interest, has resulted in a massive debt pyramid that is teetering on collapse. This "monetarist" system was pioneered by Rockefeller-family funded economists at the University of Chicago. The rub is that when the pyramid comes down and everyone goes bankrupt the banks which have been creating money "out of thin air" will then be able to seize valuable assets for pennies on the dollar, as J.P. Morgan Chase is preparing to do with the businesses owned by Carlyle Capital. Meaningful regulation of the financial industry has been abandoned by government, and any politician that stands in the way, such as Eliot Spitzer, is destroyed. The total tax burden on Americans from federal, state, and local governments now exceeds forty percent of income and is rising. Today, with a recession starting, the Democratic-controlled Congress, while supporting the minuscule "stimulus" rebate, is hypocritically raising taxes further, even for middle-income earners. Back taxes, along with student loans, can no longer be eliminated by bankruptcy protection. Gasoline prices are soaring even as companies like Exxon-Mobil are recording record profits. Other commodity prices are going up steadily, including food prices, with some countries starting to experience near-famine conditions. 40 million people in America are officially classified as "food insecure." Corporate control of water and mineral resources has removed much of what is available from the public commons, and the deregulation of energy production has led to huge increases in the costs of electricity in many areas. The destruction of family farming in the U.S. by NAFTA (along with family farming in Mexico and Canada) has been mirrored by policies toward other nations on the part of the International Monetary Fund and World Bank. Around the world, due to pressure from the "Washington consensus," local food self-sufficiency has been replaced by raising of crops primarily for export. Migration off the land has fed the population of huge slums around the cities of underdeveloped countries. Since the 1980s the U.S. has been fighting wars throughout the world either directly or by proxy. The former Yugoslavia was dismembered by NATO. Under cover of 9/11 and by utilizing off-the-shelf plans, the U.S. is now engaged in the military conquest and permanent military occupation of the Middle East. A worldwide encirclement of Russia and China by U.S. and NATO forces is underway, and a new push to militarize space has begun. The Western powers are clearly preparing for at least the possibility of another world war. The expansion of the U.S. military empire abroad is mirrored by the creation of a totalitarian system of surveillance at home, whereby the activities of private citizens are spied upon and tracked by technology and systems which have been put into place under the heading of the "War on Terror." Human microchip implants for tracking purposes are starting to be used. The military-industrial complex has become the nation's largest and most successful industry with tens of thousands of planners engaged in devising new and better ways, both overt and covert, to destroy both foreign and domestic "enemies." Meanwhile, the U.S. has the largest prison population of any country on earth. Plus everyday life for millions of people is a crushing burden of government, insurance, and financial fees, charges, and paperwork. And the simplest business transactions are burdened by rake-offs for legions of accountants, lawyers, bureaucrats, brokers, speculators, and middlemen. Finally, the deteriorating conditions of everyday life have given rise to an extraordinary level of stress-related disease, as well as epidemic alcohol and drug addiction. Governments themselves around the world engage in drug trafficking. Instead of working to lower stress levels, public policy is skewed in favor of an enormous prescription drug industry that grows rich off the declining level of health through treatment of symptoms rather than causes. Many of these heavily-advertised medications themselves have devastating side-effects. This list should at least give us enough to go on in order to ask a hard question. Assuming again that all these things are parts of the elitist plan which Mr. Rockefeller boasts to have been developing, isn't it a little strange that the means which have been selected to achieve "peace and prosperity for the whole of humanity" involve so much violence, deception, oppression, exploitation, graft, and theft? In fact it looks to me as though "our plan for the world" is one that is based on genocide, world war, police control of populations, and seizure of the world's resources by the financial elite and their puppet politicians and military forces. In particular, could there be a better way to accomplish all this than what appears to be a concentrated plan to remove from people everywhere in the world the ability to raise their own food? After all, genocide by starvation may be slow, but it is very effective. Especially when it can be blamed on "market forces." And can it be that the "us" which is doing all these things, including the great David Rockefeller himself, are just criminals who have somehow taken over the seats of power? If so, they are criminals who have done everything they can to watch their backs and cover their tracks, including a chokehold over the educational system and the monopolistic mainstream media. One thing is certain: The voters of America have never knowingly agreed to any of this. Richard C. Cook is a former U.S. federal government analyst, whose career included service with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, NASA, and the U.S. Treasury Department. His articles on economics, politics, and space policy have appeared on numerous websites. His book on monetary reform entitled We Hold These Truths: The Promise of Monetary Reform is in preparation. He is also the author of Challenger Revealed: An Insider's Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age, called by one reviewer, "the most important spaceflight book of the last twenty years." His website is at www.richardccook.com.

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