CrossTalk: Cypriot Bail-In

A Doomsday View of 2012

By James Petras for Information Clearing House

The economic, political and social outlook for 2012 is profoundly negative. The almost universal consensus, even among mainstream orthodox economists is pessimistic regarding the world economy. Although, even here, their predictions understate the scope and depth of the crisis, there are powerful reasons to believe that beginning in 2012, we are heading toward a steeper decline than what was experienced during the Great Recession of 2008 – 2009. With fewer resources, greater debt and increasing popular resistance to shouldering the burden of saving the capitalist system, the governments cannot bail out the system.

Many of the major institutions and economic relations which were cause and consequence of world and regional capitalist expansion over the past three decades are in the process of disintegration and disarray. The previous economic engines of global expansion, the US and the European Union, have exhausted their potentialities and are in open decline. The new centers of growth, China, India, Brazil, Russia, which for a ‘short decade’ provided a new impetus for world growth have run their course and are de-accelerating rapidly and will continue to do so throughout the new year.

The Collapse of the European Union

Specifically, the crises-wracked European Union will break up and the de facto multi-tiered structure will turn into a series of bilateral/multi-lateral trade and investment agreements. Germany, France, the Low and Nordic countries will attempt to weather the downturn. England – namely the City of London, in splendid isolation, will sink into negative growth, its financiers scrambling to find new speculative opportunities among the Gulf petrol-states and other ‘niches’. Eastern and Central Europe, particularly Poland and the Czech Republic, will deepen their ties to Germany but will suffer the consequences of the general decline of world markets. Southern Europe (Greece, Spain, Portugal and Italy) will enter into a deep depression as the massive debt payments fueled by savage assaults on wages and social benefits will severely reduce consumer demand.

Depression level unemployment and under-employment running to one-third of the labor force will detonate year-long social conflicts, intensifying into popular uprisings. Eventually a break-up of the European Union is almost inevitable. The euro as a currency of choice will be replaced by or return to national issues accompanied by devaluations and protectionism. Nationalism will be the order of the day. Banks in Germany, France and Switzerland will suffer huge losses on their loans to the South. Major bailouts will become necessary, polarizing German and French societies, between the tax-paying majorities and the bankers. Trade union militancy and rightwing pseudo-‘populism’ (neo-fascism) will intensify the class and national struggles.

A depressed, fragmented and polarized Europe will be less likely to join in any Zionist inspired US-Israeli military adventure against Iran (or even Syria). Crisis ridden Europe will oppose Washington’s confrontationalist approach to Russia and China.

The US: The Recession Returns with a Vengeance

The US economy will suffer the consequences of its ballooning fiscal deficit and will not be able to spend its way out of the world recession of 2012. Nor can it count on ‘exporting’ its way out of negative growth by turning to previously dynamic Asia, as China, India, and the rest of Asia are losing economic steam. China will grow far below its 9% moving average. India will decline from 8% to 5% or lower. Moreover, the Obama regime’s military policy of ‘encirclement’, its economic policy of exclusion and protectionism will preclude any new stimulus from China.

Militarism Exacerbates the Economic Downturn

The US and England will be the biggest losers from the Iraqi post war economic reconstruction. Of $186 billion dollars in infrastructure projects, US and UK corporations will gain less than 5% (Financial Times, 12/16/11, p 1 and 3). A similar outcome is likely in Libya and elsewhere. US imperial militarism destroys an adversary, plunging into debt to do so, and non-belligerents reap the lucrative post-war economic reconstruction contracts.

The US economy will fall into recession in 2012, and the “jobless recovery of 2011” will be replaced by a steep increase of unemployment in 2012. In fact, the entire labor force will shrink as people losing their unemployment benefits will fail to register.

Labor exploitation (“productivity”) will intensify as capitalists force workers to produce more, for less pay, thus widening the income gap between wages and profits.

The economic downturn and growth of unemployment will be accompanied by savage cuts in social programs to subsidize financially troubled banks and industries. The debates among the parties will be over how large the cuts to workers and retirees will be to secure the ‘confidence’ of the bondholders. Faced with equally limited political choices, the electorate will react by voting out incumbents, abstaining and via spontaneous and organized mass movements, such as the “occupy Wall Street” protest. Dissatisfaction, hostility, and frustration will pervade the culture. Democratic Party demagogues will scapegoat China; the Republican Party demagogues will blame the immigrants. Both will fulminate against “the Islamo-fascists” and especially against Iran.

New Wars in the Midst of Crises: Zionists Pull the Trigger

The “52 Presidents of the Major American Jewish Organizations” and their “Israel First” followers in the US Congress, State Department, Treasury, and the Pentagon will push for war with Iran. If they are successful it will result in a regional conflagration and world depression. Given the extremist Israeli regime’s success in securing blind obedience to its war policies from the US Congress and White House, any doubts about the real possibility of a major catastrophic outcome can be set aside.

China: Compensatory Mechanisms in 2012

China will face the global recession of 2012 with several possibilities of ameliorating its impact. Beijing can shift toward producing goods and services for the 700 million domestic consumers currently out of the economic loop. By increasing wages, social services, and environmental safety, China can compensate for the loss of overseas markets. China’s economic growth, which is largely dependent on real estate speculation, will be adversely affected when the bubble is burst. A sharp downturn will result, leading to job losses, municipal bankruptcies and increased social and class conflicts. This can result in either greater repression or gradual democratization. The outcome will profoundly affect China’s market-state relations. The economic crisis will likely strengthen state control over the market.

Russia Faces the Crisis

Russia’s election of President Putin will lead to less collaboration in backing US promoted uprisings and sanctions against Russian allies and trading partners. Putin will turn toward greater ties with China and will benefit from the break-up of the EU and the weakening of NATO.

The western media backed opposition will use its financial clout to erode Putin’s image and encourage investment boycotts though they will lose the Presidential elections by a big margin. The world recession will weaken the Russian economy and will force it to choose between greater public ownership or greater dependency on state funds to bail out prominent oligarchs.

The Transition 2011-2012: From Regional Stagnation and Recession to World Crises

The year 2011 laid the groundwork for the breakdown of the European Union. The crises began with the demise of the Euro, stagnation in the US and the outbreak of mass protests against the obscene inequalities on a world scale. The events of 2011 were a dress rehearsal for a new year of full scale trade wars between major powers, sharpening inter-imperialist struggles and the likelihood of popular rebellions turning into revolutions. Moreover, the escalation of Zionist-orchestrated war fever against Iran in 2011 promises the biggest regional war since the US-Indo-Chinese conflict. The electoral campaigns and outcomes of Presidential elections in the US, Russia and France will deepen the global conflicts and economic crises.

During 2011 the Obama regime announced a policy of military confrontation with Russia and China and policies designed to undermine and degrade China’s rise as a world economic power. In the face of a deepening economic recession and with the decline of overseas markets, especially in Europe, a major trade war will unfold. Washington will aggressively pursue policies limiting Chinese exports and investments. The White House will escalate its efforts to disrupt China’s trade and investments in Asia, Africa and elsewhere. We can expect greater US efforts to exploit China’s internal ethnic and popular conflicts and to increase its military presence off China’s coastline. A major provocation or fabricated incident in this context is not to be excluded. The result in 2012 could lead to rabid chauvinist calls for a costly new ‘Cold War’. Obama has provided the framework and justification for a large-scale, long-term confrontation with China. This will be seen as a desperate effort to prop up US influence and strategic positions in Asia. The US military “quadrangle of power” – US-Japan-Australia-South Korea – with satellite support from the Philippines, will pit China’s market ties against Washington’s military build-up.

Europe: Deeper Austerity and Intensified Class Struggle

The austerity programs imposed in Europe, from England to Latvia to southern Europe will really take hold in 2012. Massive public sector firings and reduced private sector salaries and job opportunities will lead to a year of permanent class warfare and regime challenges. The ‘austerity policies’ in the South, will be accompanied by debt defaults resulting in bank failures in France and Germany. England’s financial ruling class, isolated from Europe, but dominant in England, will insist that the Conservatives ‘repress’ labor and popular unrest. A new tough neo-Thatcherite style of autocratic rule will emerge; the Labor-trade union opposition will issue empty protests and tighten the leash on the rebellious populace. In a word, the regressive socio-economic policies put in place in 2011 have set the stage for new police-state regimes and more acute and possibly bloody confrontations with workers and unemployed youth with no future.

The Coming Wars that End America “As We Know It”

Within the US, Obama has laid the groundwork for a new and bigger war in the Middle East by relocating troops from Iraq and Afghanistan and concentrating them against Iran. To undermine Iran, Washington is expanding clandestine military and civilian operations against Iranian allies in Syria, Pakistan, Venezuela, and China. The key to the US and Israeli bellicose strategy toward Iran is a series of wars in neighboring states, worldwide economic sanctions, cyber-attacks aimed at disabling vital industries, and clandestine terrorist assassinations of scientists and military officials. The entire push, planning, and execution of the US policies leading up to war with Iran can be empirically and without a doubt attributed to the Zionist power configuration occupying strategic positions in the US Administration, mass media and ‘civil society’. A systematic analysis of American policymakers designing and implementing economic sanctions policy in Congress finds prominent roles for such mega-Zionists (Israel-Firsters) as Ileana Ros-Lehtinen and Howard Berman, Dennis Ross in the White House, Jeffrey Feltman in the State Department, and Stuart Levy, and his replacement David Cohen, in the Treasury. The White House is totally beholden to Zionist fund raisers and takes its cue from the 52 Presidents of the Major American Jewish Organization.

The Israeli-Zionist strategy is to encircle Iran, weaken it economically and attack its military. The Iraq invasion was the US’s first war for Israel; the Libyan war the second; the current proxy war against Syria is the third. These wars have destroyed Israel’s adversaries or are in the process of doing so. During 2011, economic sanctions, which were designed to create domestic discontent in Iran, were the principle weapon of choice. The global sanctions campaign engaged the entire energies of the major Jewish-Zionist lobbies. They have faced no opposition from the mass media, Congress or the White Office. The Zionist Power Configuration (ZPC) has been virtually exempt from criticism by any of the progressive, leftist and socialist journals, movements or grouplets – with a few notable exceptions.

The past year’s re-positioning of US troops from Iraq to the borders of Iran, the sanctions and the rising Big Push from Israel’s Fifth Column in the US means expanded war in the Middle East. This likely means a “surprise” aerial and maritime missile attack by US forces. This will be based on a concocted pretext of an “imminent nuclear attack” concocted by Israeli Mossad and faithfully transmitted by the ZPC to their lackeys US Congress and White House for consumption and transmission to the world. It will be a destructive, bloody, prolonged war for Israel; the US will bear the direct military cost by itself and the rest of the world will pay a dear economic price. The Zionist-promoted US war will convert the recession of early 2012 into a major depression by the end of the year and probably provoke mass upheavals.

Conclusion

All indications point to 2012 being a turning point year of unrelenting economic crisis spreading outward from Europe and the US to Asia and its dependencies in Africa and Latin America. The crisis will be truly global. Inter-imperial confrontations and colonial wars will undermine any efforts to ameliorate this crisis. In response, mass movements will emerge moving over time from protests and rebellions, and hopefully to social revolutions and political power.

James Petras, a former Professor of Sociology at Binghamton University, New York, owns a 50-year membership in the class struggle, is an adviser to the landless and jobless in Brazil and Argentina, and is co-author of Globalization Unmasked

Spinning Unemployment Figures in a Collapsing Empire

by Dr. Paul Craig Roberts for Global Research

The Bureau of Labor Statistics (BLS) reported Friday that the economy gained only 103,000 new jobs in December--not enough to keep up with population growth--but the rate of unemployment (U.3) fell from 9.8% to 9.4%. If you are confused by the report, you are among the many.

In truth, what fell was not the number of unemployed people but the number of unemployed people who are actively looking for work. Those who have become discouraged and have ceased looking for work are not considered to be in the work force and are not counted as unemployed in the U.3 measure. The unemployment rate fell because discouraged workers increased, not because employment rose.

The BLS counts short-term discouraged workers (less than one year) in its U.6 measure of unemployment. That unemployment rate is 16.7%. When statistician John Williams (shadowstats.com) adds the long-term discouraged, the US unemployment rate as of December 2010 was 22.4%.

The question to ask yourself is: why does the media focus on the unemployment measure that does not count any discouraged workers? The answer is that the U.3 measurement only counts 42% of the unemployed and makes the situation appear to be a lot better than it is.

Where are the 103,000 new jobs? As I have reported for years, the jobs are in non-tradable domestic services: waitresses and bar tenders, health care and social assistance (primarily ambulatory health care services), and retail and wholesale trade.

Today the United States has only 11,670,000 manufacturing jobs, less than 9% of total jobs. Yet, despite America’s heavy dependence on foreign manufactures and foreign creditors, the idiots in Washington think that they are a superpower standing astride the world like a colossus.

John Williams reports that “the level of payroll employment still stands below where it was a decade ago, despite the U.S.population growing by more than 10% in the same period. The structural impairments to U.S. economic activity continue to constrain normal commercial activity, preventing any meaningful recovery in business activity.”

Another way of saying this is that American corporations have taken American jobs offshore and given them to the Chinese. So much for big business patriotism.

Williams also reports that, unless it is finagled, next month’s BLS benchmark revision of payroll employment data will lower the level of previously reported employment by more than 500,000.

Federal Reserve chairman Ben Bernanke used his testimony before the Senate Budget Committee last Friday to warn that the U.S. government must get its budget deficit under control or “the economic and financial effects would be severe.” Here Bernanke is acknowledging that the Federal Reserve cannot indefinitely print money in order to finance wars and bailouts of the mega-rich.

But how is the government to get its budget under control? The U.S. government, regardless of political party or president, is committed to American hegemony over the world. The Congress has just passed the largest military budget in history, and there is no indication that any of America’s wars and military occupations are near an end.

The financial crisis is not over, with more foreclosures and more losses for the financial sector that will result in more taxpayer bailouts for those “too big to fail.” John Williams says that the double-dip is already happening, just disguised by faulty statistics, and that the deficit implications are horrendous and are likely to result in hyperinflation as the Federal Reserve will have to monetize the otherwise un-financeable deficits.

The dollar is also in danger, its role as reserve currency undermined by the Federal Reserve’s creation of more and more dollars.  Temporarily, the dollar is buttressed by the grief that Wall Street’s sale of fraudulent derivative financial instruments to Europe has caused the euro.

The Republicans will try to destroy Social Security and Medicare in order to pay for wars and bailouts. If Americans are capable of realizing that they are threatened on a much greater level by the Republicans’ evisceration of the social safety net than they are by terrorists, the Republican assault on what they call “the welfare state” will fail.

The fallback target will be private pensions, assuming any survive plunder by the Wall Street investment banks. Pension funds could be required to invest in Treasury debt or they could face a levy. In the Clinton administration, Assistant Secretary of the Treasury Alicia Munnell proposed confiscating 15% of all pension assets on the grounds that they had accumulated tax free. Certainly Washington will steal Americans’ pensions, just as Washington has stolen Americans’ civil liberties, in order to continue the empire’s wars of hegemony.

Increasingly, the rest of the world views America as the single source of its financial and political woes. While the superpower massacres Muslims in the Middle East and Central Asia, people in the rest of the world have learned from WikiLeaks that the U.S. government manipulates, bribes, threatens, and deceives other governments in order to have those governments serve the U.S. government’s interest at the expense of the interests of their own peoples.

The American Imperial Empire rests on puppet governments that are increasingly distrusted and hated by the peoples under their rule. Like the Soviet Union’s Eastern European empire, the American Empire is ruled not directly but through puppet states.

Puppet governments are caught between the empire’s power and the power of the local population. To the extent that Europeans have a moral conscience, they will find America’s foreign policy increasingly repugnant. To the extent that Muslim solidarity grows, the Muslim puppet governments that support America’s and Israel’s massacres of Muslims will find themselves threatened from within.

The American Empire is on the rocks, despite its vast arsenal of nuclear weapons and its control over the foreign and domestic policies of its subservient puppet states in Western and Eastern Europe, the United Kingdom, Canada, Australia, parts of Africa, the Middle East, Japan, Thailand, Indonesia, the Baltic states, Georgia, Kosovo, Mexico, Central America, Columbia, and, no doubt, others.

A country that is the font of war and oppression, whose dominance rests on the weak reed of puppet states, and whose economy is collapsing will not long remain dominant.

Two very different takes on the "Greek crisis" (UPDATED!)

To be very honest, I have not kept a close eye on what has been going on in the EU or, even less so, Greece. I also get a strong feeling that there is a lot of smoke and propaganda around all this. I would like to share with you two very different outlooks on this topic: the analyses of investment banker Marshall Auerback and French economist Franck Biancheri. They are both 'heavyweights' in the field, they both speak very convincingly, and yet they both totally disagree, in particular on what the Greek crisis means for the EU, the UK and, eventually, the USA.

Listen to Biancheri here:

Guns and Butter - May 5, 2010 at 1:00pm

Click to listen (or download)

As for Auerback, you can listen to his very interesting interview by George Kenny by visiting the website Electric Politics:

http://www.electricpolitics.com/podcast/2010/05/i_euro.html

If you know of any good articles, audio or video recordings or books which you believe could help me make sense of what is going on in this latest economic crisis, please let me know.

Thanks,

The Saker

UPDATE1: L. just reminded me of these most interesting YouTube videos of Peter Schiff - the chief economic advisor for Lew Rockwell and Ron Paul. Also very interesting!





UPDATE2: another very interesting take on all this: Michael Hudson, Chief Economic Advisor to Dennis Kucinich in 2008, just published "Drop Dead Economics: The Financial Crisis in Greece and the European Union - The Wealthy Won’t Pay Their Taxes, So Labor Must Do So" at GlobalResearch.ca.

Euro crisis: Latvia and the PIGS

Down on the Euro Animal Farm, some animals are more equal than others, finds Eric Walberg

Two million people took to the streets of Athens last week in the country's second general strike this month, protesting the austerity measures proposed by their socialist government. All of Greece came to a 24-hour standstill and the airport was closed as a result of the action. The only public transport was the commuter train so that protesters could reach the demonstration.

The crisis broke last autumn after Prime Minister George Papandreous took office and discovered the country was bankrupt. The conservative government had cheated to get into the European Union euro zone in 2001, cooking the books. What on paper -- creative accounting courtesy of Goldman Sachs -- was a budget deficit of 3 per cent and public debt 60 per cent of GDP, by 2009 had ballooned to 13 per cent and 125 per cent.

Initially, the EU tried to finesse the issue, declaring solidarity with Greece. But the financial sharks are sharpening their teeth, smelling blood. Their response to the Greek problem is naturally to rush to profit from it. Greece's "credit rating" has already been lowered, meaning any new bonds will carry a much higher price tag for the government (read: people). That of course makes it all the harder for Greece (read: the people) to actually pay the bankers. And when the country defaults, the EU will be forced to cough up in any case. Win, win for the fat cats. What EU leaders meant by solidarity was not that they were going to pour public money into Greece, as they have been pouring into their banks over the past year and a half, but that they intended to squeeze the money "owed" the banks out of the Greek people, relying on IMF oracles.

The European Parliament, the democratic facade for this, is really just the mouthpiece for the austerity seekers. Chairman of the EP Special Committee on the Economic and Financial Crisis Wolf Klinz has called for a commissar to be sent to make sure the Greeks deliver the required pound of flesh.

But who did the fiddling in the first place? The EU statistics agency Eurostat says that in 2001, Goldman Sachs secretly helped the right-wing Greek government meet EU membership criteria by masking the extent of public deficit and national debt. Once in Euroland, Greek consumers naively snapped up slick German goods and let their own industry atrophy. Now the debt trap is closing.

The traditional way out would be to devalue the drachma, in order to cut imports and stimulate exports, distributing the overall burden of adjustment to the nation as a whole -- rich and poor. But there is no drachma anymore. Bound to the euro, Greece can neither stimulate its domestic market nor export successfully. Poverty appears to be the only solution. Or, at the suggestion of Josef Schlarmann, a senior member of the German Christian Democratic Party, sell off its islands and antiquities -- presumably to rich German bankers. Greeks still resent as their brutal WWII occupiers, and this clumsy faux pas has already set off a campaign to boycott German goods.

Whatever paper is used to cover the cracks, the outlook for Greece -- and the EU -- remains grim, because France and Germany are merely adding to their own liabilities while not reducing Greece’s, and Greece will be quite unable to cut its deficit by the requisite 10 percentage points of GDP.

The very fabric of the European Union is being torn asunder as the rich members turn their backs on the poor. The iron law of capitalism -- the strong protect their own interests at the expense of the weak -- is once again being played out. Squeeze the workers. Communist propaganda, you might say, but unfortunately true.

In an ideal Europe, workers in Germany would come to the aid of workers in Greece by demanding a radical revision of economic policy, making the banks sovereign and the bankers civil servants, building a real social democracy. The reality is quite different. The Greek financial crisis exposes the absence of any real community spirit in the EU. The solidarity declared by EU members is a solidarity of businessmen.

The EU now has an ersatz ideology of internationalism, rejecting the nation state as the source of all evil, cultivating "a pompous pride in Europe as the centre of human rights, giver of moral lessons to the world, which happens to fit in perfectly with its subservience to US imperial foreign policy in the Middle East and beyond," according to Diana Johnstone, author of Fools Crusade: Yugoslavia, NATO and Western Delusions. In this cosy Euro brotherhood, Greece is portrayed as a picturesque Third World country, living the Aesopian carefree life of the cricket to the Germans' ant. The likes of Portugal, Italy / Ireland, Greece and Spain are affectionately dubbed PIGS, a chilling throwback to Orwell's Animal Farm.

But the storm clouds now gathering are not just over Greece; the entire western world is still very much in fiscal crisis. The investment bank Societe Generale recently published a frightening estimate of the real liabilities of Western governments, including off balance sheet debts. In every case the numbers, including unfunded pension fund liabilities, dwarf the official debt position. Greece is by far the worst because of what Otmar Issing, the German former chief economist of the European Central Bank, described with German tact as “one of the most luxurious pension systems in the world”. Its total net liabilities are 800 per cent of GDP – eight times the official position. For the US , it is 550, the UK 400, Germany 400, France 550, Italy 350 and Spain 250. In other words, the entire western world is insolvent and each country is facing its own day of reckoning – starting, appropriately enough, in Greece, the home of western civilisation.

Who cleans up the mess when bankers play casino capitalism and go broke? Ninety-three per cent of the people of Iceland rejected a proposal requiring them to cover the debt of their oldest and largest bank on 6 March. Covering the debt would have cost Iceland's 317,000 citizens around $17,000 each. Iceland's national referendum was the first (legal) expression of the people's will to decide who pays when the financial elite fail. Greece's (illegal) general strikes were the first truly democratic expression of the people's will. The sharks should take heed. When the oxygen is used up, the water turned into a cesspool, their days are numbered too.

As the working class begins to wake up, it takes a page from its master's book. It must be international. Last week saw a succession of strikes and protests throughout Europe: Lufthansa’s pilots, French air traffic controllers and oil refinery workers, protest rallies in Madrid, Barcelona and Valencia against the austerity measures of the Spanish Socialist Workers Party government. Trade unions in the Czech Republic announced that public transport would be halted this week. A one-day general strike of the public sector in Portugal protested measures to cut the deficit to 3 per cent of GDP by 2013. A truly pan-European movement is being born. The Independent's Sean O’Grady predicts such actions “promise to be just the start of the greatest demonstration of public unrest seen on the continent since the revolutionary fervour of 1968.”

The other lesson the workers are learning is that they must throw off their deadwood leadership. The aim of the unions is to regulate social tensions and ensure that they do not pose a threat to big business and the state. British Airways cabin crews were set to strike until their union put strike action "on hold". The German pilots' union, Vereinigung Cockpit, called off the strike at Lufthansa on its first day, as did the General Confederation of Labour in the strike against the oil giant Total in France. In both cases, the unions capitulated without having won any of the workers’ demands.

The most draconian cuts are being imposed by social democratic governments; in particular, the socialists in Greece, Spain and Portugal. In every instance, writes Christ Marsden, "they were elected with the support of the trade union bureaucracies, which have remained their allies as promised reforms have given way to austerity budgets." The general strike in Greece is a sign that the corporate union leadership is being swept into action against the pseudo-socialist government by incensed workers, a portent of what will no doubt come. More communist propaganda, but unfortunately true.

A sad footnote to this is the case of the weakest new members from the ex-socialist bloc. Latvia's 25.5 per cent plunge in GDP over the past two years is already the worst two-year drop on record ever, ahead of the Great Depression, with projections of even greater debt and the need for even great austerity measures, as the government madly continues to pursue the euro will-o'-the-wisp. Yes, the Latvias are indeed corrupt, their post-Soviet elites stole, stripped and sold the shop to Western interests, and then transferred their ill-gotten gains abroad.

But worse yet is the outright theft carried out in broad daylight by Western banks, whose academic friends were hired to write the Latvias' tax codes and who provided easy euro-denominated credit, so when the crunch came, they could move in and take whatever was left. Why invade such countries as Greece or Latvia with armies when you have bankers?

The real significance of the euro is now becoming clear: just as there are no national economies anymore, there is no national solution to the crisis facing workers in Greece, Spain, Portugal or anywhere else. They are forced into a common struggle against global capital. "Workers of the world unite!" never sounded so apt. And a mini-oracle to Goldman, Sachs, Klinz and Issing: Take your next winter holiday in sunny, profligate Greece at your peril.
***

Eric Walberg writes for Al-Ahram Weekly http://weekly.ahram.org.eg/ You can reach him at http://ericwalberg.com/

Ron Paul: State of the Republic Address

What would it take to make them understand?!

Here are some of the figures which Michael Moore gave to Amy Goodman today on Democracy Now:

This is the way it is now in this country. The wealthiest one percent right have more financial wealth than the bottom 95 percent combined. When you have a situation like that, where the one percent essentially not only own all the wealth, but own Congress, call the shots, are we really telling the truth when we call this a democracy?

(...)

The number one reason, it turns out, that people lose their homes is because of medical bills. It’s the number one cause of foreclosure and the number one cause of bankruptcies in this country. And we’re at a point right now where one in eight homes are either in delinquency or foreclosure, homes with mortgages, and there’s a foreclosure filing in this country once every seven-and-a-half seconds. Every seven-and-a-half seconds there’s a foreclosure filing in this country. I mean, this is a crisis.

(...)

You know, I can’t stand the nightly news with that Dow Jones average they always show to report how well the wealthy are doing on Wall Street and how it’s climbing every day, etc., etc., and there’s never any indicators about what’s happening to people in their daily lives, the bulk of the people in this country, the 14,000 yesterday who lost their health insurance and the 14,000 who will lose their health insurance today and tomorrow and the day after that. Where’s that index?

How long will this insane obscenity go on?

The Saker


Watch the full interview:

The Empire is Bankrupt - is anybody paying attention?

While the "big story" right now is the situation in Iran, check out this other "big story" which is not getting nearly as much attention:

The American Empire Is Bankrupt by Chris Hedges

De-Dollarization: Dismantling America’s Financial-Military Empire by Michael Hudson

(thanks to C. for bringing these two articles to my attention!)

GM sells the Hummer to China

The Hummer. The ultimate symbol of American arrogance. The bloated, loud, gas-guzzling road monster trailer trash uses to impress cheerleaders and kill "ragheads". The ultimate rejection of any kind of ecological sensitivity. The proud expression of the imperial hubris which wannabe Texas machos (like Dubya) liked to see Americans drive in.

The Hummer is being sold to "Communist" China.

What a pathetically fitting end for this obnoxious piece of garbage.

One in ten Americans collecting 'food stamps'

by Caroline Hedley for The Guardian

A record 32.2 million people took advantage of the US welfare initiative that allows low-income individuals to exchange "stamps" for groceries in January, according to a United States government report.

The average recipient was given $112.82 (£77) per month to spend through the recently-renamed 'Supplemental Nutrition Assistance Program', or 'SNAP'.

The figures show an increase of over 4.3 million claimants in just ten months, and mark the third time in five months that enrolment has set a new record.

Many Americans have turned to food stamps as a direct result of the economic crisis, which saw national unemployment levels soar to 8.1 per cent in February – the highest in 25 years. The figure was just 4.8 per cent in the same month in 2008, and it is estimated that some 4.4 million jobs have been lost since the start of the recession in December 2007.

Enrolment in the food stamps programme rose in all but four of the 50 states, according to statistics released by the US Department of Agriculture. Significant increases were recorded in Vermont, Alaska, South Dakota, California and New York.

"A weakened economy means that many more individuals are turning to SNAP/Food Stamps," a spokesman for the anti-hunger group Food Research and Action Centre, said.

President Obama has approved a temporary 13 per cent increase in food stamp benefits, beginning this month, as part of his government's economic stimulus plan.

Russia and China back currency study

Reuters reports:

Russia proposed on Thursday an IMF or G20 study on creating a new international reserve currency and China reiterated support for a broader discussion of the dollar's role that was missing at the London G20 summit.

Strengthened regional currencies would be a basis for the new unit, which could also be partially backed by gold, Russia said in a statement released on the sidelines of the summit.

Chinese President Hu Jintao said the international monetary system had to be improved.

"It is necessary to maintain the relative stability of the exchange rates of major reserve currencies and develop a more diverse and rational international monetary system," he told the summit.

China and Russia have floated in recent weeks ideas about reducing reliance on the U.S. dollar as the world's primary unit of foreign exchange, possibly by developing the Special Drawing Rights issued by the International Monetary Fund.

But the G20 Financial Summit has focussed firstly on promoting economic growth and repairing the financial system -- not on the longer-term task of overhauling the foundations of the global monetary system.

The idea, however, is gaining momentum since one underlying cause of the current crisis is seen to be heavy reliance on dollar-based assets as the only highly liquid instrument to invest in.

"The new global reserve currency has not been discussed at the summit. We only discussed it at several bilateral meetings," Russian President Dmitry Medvedev's chief economic aide Arkady Dvorkovich told a news briefing.

The Russian statement called developing the global currency system a very important issue for strategic, rather than tactical, solutions to the financial crisis.

It said that "we should return to this topic in the months immediately after the summit."

China's Hu did not call for an immediate discussion on a new reserve currency but urged the International Monetary Fund (IMF) to strengthen and improve its oversight of the macroeconomic policies of major reserve currency-issuing economies.

The reasons for promoting discussion are that currency markets are extremely unstable, new regional currencies are strengthening and the euro's launch showed how it could promote fiscal discipline.

According to the IMF, the dollar accounted for 64 percent of the world's foreign currency reserves, followed by the euro, at 26 percent, with sterling and the yen at 5 and 3 percent.

Russia said countries with major currencies "do not bear sufficient responsibility for macroeconomic policies."

"On this basis we conclude that it would be wise to support the creation of strong regional currencies and to use them as the basis for a new reserve currency. One could also consider partially backing this currency with gold," Russia said.

"It is not our goal to destroy existing institutions or to weaken the dollar, pound or euro. We are simply calling for a joint assessment of how the global currency system can most favourably be developed for the sake of the global economy."

Accordingly, Russia proposed that the IMF or a G20 working group prepare studies, for review by G20 finance ministers and central bankers, both on widening the list of currencies used as reserve currencies by taking coordinated measures to stimulate the development of major regional financial centres; and on creating a supranational reserve currency.

Half of Bank Bailout Money Going to Shareholders

This from today's Democracy Now:

The Washington Post reports major US banks are on pace to spend more than half their bailout money on rewarding their shareholders. The thirty-three banks are set to receive some $163 billion in government bailouts. Half of that sum would go toward paying off shareholders over the next three years. The Bush administration touted the bank bailout as necessary to resume lending. But Treasury officials say the banks would never accepted loans if they weren’t allowed to redistribute dividends to shareholders. Democratic Senator Charles Schumer of New York is calling for the suspension of dividend payments at bailed-out banks. This comes as the New York Times reports the insurance company American International Group has rapidly used most of its $123 billion government loan with little account for where the money has gone. AIG has drawn some $90 billion in government money so far.

Did I read this correctly?! "The banks would never accepted loans if they weren’t allowed to redistribute dividends to shareholders". THE BANKS WOULD NOT HAVE ACCEPTED?!

Can anyone imagine a more arrogant attitude from the banks which the shareholders are now asked to bail out?

This just goes to show who really holds power in the USA.

Here we go again!

MARKET DATA - 13:06 UK

FTSE 100	3796.71 down	-291.12	-7.12%
Dax	4148.65 down	-371.05	-8.21%
Cac 40	3042.78 down	-268.09	-8.10%
Dow Jones	8691.25 up	172.04	2.02%
Nasdaq	1603.91 down	-11.84	-0.73%
BBC Global 30	4842.99 up	5.55	0.11%

ZAG! (updated)

MARKET DATA - 18:50 UK

FTSE 100	4040.89	-188.84	-4.46%
Dax	4571.07	-213.34	-4.46%
Cac 40	3298.18	-177.22	-5.10%
Dow Jones	8651.03	-382.63	-4.24%
Nasdaq	1645.80	-50.88	-3.00%
BBC Global 30	4814.27	-54.50	-1.12%

Parsing Mr. Paulson’s Bailout Speech: The Unprecedented Giveaway of Financial Wealth Story

by Michael Hudson for Global Research

Mr. Paulson’s bailout speech on Monday, October 13 poses some fundamental economic questions: What is the impact on the economy at large of this autumn’s unprecedented creation and giveaway of financial wealth to the wealthiest layer of the population? How long can the Treasury’s bailout of Wall Street (but not the rest of the economy!) sustain a debt overhead that is growing exponentially? Is there any limit to the amount of U.S. Treasury debt that the government can create and turn over to its major political campaign contributors? And is it too much to say that we are seeing the end of economic democracy and the emergence of a financial oligarchy – a self-serving class whose actions threaten to polarize society and, in the process, stifle economic growth and lead to the very bankruptcy that the bailout was supposed to prevent?

Everything that I have read in economic history leads me to believe that we are entering a nightmare transition era. The business cycle is essentially a financial cycle. Upswings tend to become economy-wide Ponzi schemes as banks and other creditors, savers and investors receive interest and plow it back into new loans, accruing yet more interest as debt levels rise. This is the “magic of compound interest” in a nutshell. No “real” economy in history has grown at a rate able to keep up with this financial dynamic. Indeed, payment of this interest by households and businesses leaves less to spend on goods and services, causing markets to shrink and investment and employment to be cut back.

Wearing blinders to avoid confronting any reality that would suggest that banks cannot make money ad infinitum by selling more and more credit – that is, indebting the non-financial economy more and more – government officials such as Treasury Secretary Paulson or Federal Reserve Chairman Bernanke are professionally unable to acknowledge this problem, and it does not appear in most neoclassical or monetarist textbooks. But the underlying mathematics of compound interest are rediscovered in each generation, often prompted by the force majeur of financial crisis.

A generation ago, for instance, Hyman Minsky gained a following by describing what he aptly called the Ponzi stage of the business cycle. It was the phase in which debtors no longer were able to pay off their loans out of current income (as in Stage #1, where they earned enough to cover their interest and amortization charges), and indeed did not even earn enough to pay the interest charges (as in Stage #2), but had to borrow the money to pay the interest owed to their bankers and other creditors. In this Stage #3 the interest was simply added onto the debt, growing at a compound rate. It ends in a crash.

This was the flip side of the magic of compound interest – the belief that people can get rich by “putting money to work.” Money doesn’t really work, of course. When lent out, it extracts interest from the “real” production and consumption economy, that is, from the labor and industry that actually do the work. It is much like a tax, a monopoly rent levied by the financial sector. Yet this quasi-tax, this extractive financial rent (as Alfred Marshall explained over a century ago) is the dynamic that is supposed to enable corporate, state and local pension funds to pay for retirement simply out of stock market gains and bond investments – purely financially and hence at the expense of the economy at large whose employees are supposed to be gainers. This is the essence of “pension-fund capitalism,” a Ponzi-scheme variant of finance capitalism. Unfortunately, it is grounded in purely mathematical relationships that have little grounding in the “real” economy in which families and companies produce and consume.

Mr. Paulson’s bailout plan reflects a state of denial with regard to this dynamic. The debt overhead is self-aggravating, becoming less and less “solvable” and hence more of a quandary, that is, a problem with no visible solution. At least, no solution acceptable to Wall Street, and hence to Mr. Paulson and the Democratic and Republican congressional leaders. The banks and large swaths of the financial sector are broke from having made bad gambles in the belief that money could be made to “work” under conditions that shrink the underlying industrial economy and stifle wage gains, eroding the market for consumer goods. Debt deflation reduces sales and business activity in general, and hence corporate earnings. This depresses stock market and real estate prices, and hence the value of collateral pledged to back the economy’s debt overhead. Negative equity leads to bankruptcy and foreclosures.

By increasing America’s national debt from $5 trillion earlier this year to $13 trillion in almost a single swoop by taking on junk loans and other bad investments rather than letting them to under as traditionally has occurred in the “cleansing” culmination of business crashes (“cleansing” in the sense of clean slates for debts that cannot reasonably be paid), Mr. Paulson’s bailout actions increase the interest payments that the government must pay out of taxes or by borrowing (ore printing) yet more money. Someone must pay for bad debts and junk loans that are not wiped off the books. The government is now to take on the roll of debt collector to “make a profit for taxpayers” by going around and kneecapping the economy – which of course is comprised primarily of the “taxpayers” ostensibly being helped.

It is a con game. Financial gains have soared since 1980, but banks and institutional investors have not used them to finance tangible capital formation. They simply have recycled their receipt of interest (and credit-card fees and penalties that often amount to as much as interest) into yet new loans, extracting yet more interest and so on. This financial extraction leaves less personal and business income to spend on consumer goods, capital goods and services. Sales shrink, causing defaults as the economy is less able to pay its stipulated interest charges.

This phenomenon of debt deflation has occurred throughout history, not only over the modern business cycle but for centuries at a time. The most self-destructive example of financial short-termism is the decline and fall of the Roman Empire into debt bondage and ultimately into a Dark Age. The political turning point was the violent takeover of the Senate by oligarchic creditors who murdered the debtor-oriented reformers led by the Gracchi brothers in 133 BC, picking up benches and using them as rams to push the reformers over the cliff on which the political assembly was located. A similar violent overthrow occurred in Sparta a century earlier when its kings Agis and Cleomenes sought to annul debts so as to reverse the city-state’s economic polarization. The creditor oligarchy exiled and killed the kings, as Plutarch described in his Parallel Lives of the Illustrious Greeks and Romans. This used to be basic reading among educated people, but today these events have all but disappeared from most people’s historical memory. A knowledge of the evolution of economic structures has been replaced by a mere series political personalities and military conquests.

The moral of ancient and modern history alike is that a critical point inevitably arrives at which economies either adopt hard creditor-oriented laws that impoverish the population and plunge downward socially and militarily, or save themselves by alleviating the debt burden. What is remarkable today is the almost total failure of political leaders to provide an alternative to Mr. Paulson’s bailout of Wall Street from the Bear Stearns bankruptcy down through the government takeover of Fannie Mae and Freddie Mac to last week’s giveaway to the banks. Nobody is even warning where this destructive decision is leading. Governments ostensibly representing “free market” philosophy are acting as the lender of last resort – not to households and business non-financial debtors, and not to wipe out the debt overhang in a Clean Slate, but to subsidize the excess of financial claims over and above the economy’s ability to pay and the market value of assets pledged as collateral.

This attempt is necessarily in vain. No amount of money can sustain the exponential growth of debt, not to mention the freely created credit and mutual gambles on derivatives and other financial claims whose volume has exploded in recent years. The government is committed to “bailing out” banks and other creditors whose loans and swaps have gone bad. It remains in denial with regard to the debt deflation that must be imposed on the rest of the economy to “make good” on these financial trends.

Here’s why the plan for the government to recover the money is whistling in the dark: It calls for banks to “earn their way out of debt” by selling more of their product – credit, that is, debt. Homeowners and other consumers, students and car buyers, credit card users and their employers – the “taxpayers” supposed to be helped – are to pay the repayment money to the banks, instead of using it to purchase goods and services. If they charge only 6% per year, they will extract $93 billion in interest charges – $42 billion to pay the Treasury for its $700 billion, and another $51 billion for the Federal Reserve’s $850 billion in “cash for trash” loans.

If you are going to rob the government, I suppose the best strategy is simply to brazen it out. To listen to the mass media, there seemed no alternative but for Congress to ram the plan through just as Wall Street lobbyists had written i, to “save the market from imminent meltdown,” refusing to hold hearings or take testimony from critics or listen to the hundreds of economists who have denounced the giveaway.

Hubris has reached a level of deception hardly seen since the 19th century’s giveaways to the railroad barons. “We didn’t want to be punitive,” Mr. Paulson explained in a Financial Times interview,[1] as if the only alternative was an enormous gift. Europe did not engage in any such giveaway, yet he claimed that England and other European countries forced his hand by bailing out their banks, and that the Treasury simply wanted to keep U.S. banks competitive. Wringing his hands melodramatically, he assured the public on Monday that “We regret having to take these actions.” Banks went along with the pretense that the bailout was a worrisome socialist intrusion into the “free market,” not a giveaway to Wall Street in the plan drawn up by their own industry lobbyists. “Today’s actions are not what we ever wanted to do,” Mr. Paulson went on, “but today’s actions are what we must do to restore confidence to our financial system.” The confidence in question was a classic exercise in disinformation – a well-crafted con game.

Mr. Paulson depicted the government’s purchase of special non-voting stock as a European-style nationalization. But government’s appointed public representatives to the boards of European banks being bailed out. This has not happened in America. Bank lobbyists are reported to have approached Treasury to express their worry that their shareholdings might be diluted. But the Treasury-Democratic Party plan invests $250 billion in government credit in non-voting shares. If a recipient of this credit goes broke, the government is left the end of the line behind other creditors. Its “shares” are not real loans, but “preferred stock.” As Mr. Paulson explained on Monday: “Government owning a stake in any private U.S. company is objectionable to most Americans – me included.” So the government’s shares are not even real stock, but a special “non-voting” issue. The public stock investment will not even have voting power! So the government gets the worst of both worlds: Its “preferred stock” issue lacks the voting power that common stock has, while also lacking the standing for repayment in case of bankruptcy that bondholders enjoy. Instead of leading to more public oversight and regulation, the crisis thus has the opposite effect here: a capitulation to Wall Street, along lines that pave the ground for a much deeper debt crisis to come as the banks “earn their way out of debt” at the expense of the rest of the economy, which is receiving no debt relief!

Mr. Paulson shed the appropriate crocodile tears on behalf of homeowners and the middle class, whose interest he depicted as lying in ever-rising housing and stock market prices. “In recent weeks, the American people have felt the effects of a frozen financial system,” he explained. “They have seen reduced values in their retirement and investment accounts. They have worried about meeting payrolls and they have worried about losing their jobs.” He almost seemed about to use the timeworn widows and orphans cover story and beg Americans please not to unplug Granny from her life support system in the nursing home. We need to preserve the value of her stocks, and help everyone retire happily by restoring normal Wall Street financial engineering to make voters rich again.

European executives who steered their banks into the debt iceberg have been fired. England wiped out shareholders in Northern Rock last summer, and more recently Bradford and Bingley. But in America the culprits get to stay on. No bank stockholders are being wiped out here, despite the negative equity into which the worst risk-taking banks have fallen or the prosecutions brought against them for predatory lending, consumer fraud and related wrongdoing.

Government aid will be used to pay exorbitant salaries to the executives who drove these banks into insolvency. “Institutions that sell shares to the government will accept restrictions on executive compensation, including a clawback provision and a ban on golden parachutes,” Mr. Paulson pretended – only to qualify it by saying that the rule would apply only “during the period that Treasury holds equity issued through this program.” The executives can stay on and give themselves the usual retirement gifts after all, prompting Democratic Congressman Barney Frank complained about how weak the Treasury restrictions are. “Compensation experts say that the provisions, though politically prudent to appease public anger, will probably have little real impact on how financial executives are paid in coming years. They predict banks will simply pay higher taxes and will find other creative ways of paying their executives as they see fit. Some say there could even be a sudden surge in compensation as soon as the government program ends, in a few years, leading to eye-popping numbers down the road. … When Congress limited the tax deductibility of cash salaries to $1 million, for example, it simply led to an explosion in stock options used as compensation and even higher total payouts.”[2]

And speaking of stock options, the government shortchanged itself here too, despite its promises to ensure that it will shares in the gains when banks recover. Senator Schumer went so far as to assure voters that “under any capital injection plan that Treasury pursues, dividends must be eliminated, executive compensation must be constrained, and normal banking activities must be emphasized.”[3] This was mostly hot air. England and other countries have insisted that banks not pay dividends until the government is reimbursed. The idea is to avoid using public money to pay dividends to existing shareholders and continued exorbitant salaries to their mismanagers! But the terms of the U.S. bailout is made simply call for banks not increase their dividend payouts – a policy they most likely would follow in any case in view of their earnings crunch.

Mr. Schumer verged on the ridiculous when he proclaimed: “We must operate in the same way any significant investor operates in these situations – when Warren Buffett invested in Goldman Sachs and General Electric in recent weeks, he demanded strict, but not onerous terms. The government must be similarly protective of taxpayer interests.” But Mr. Buffett obtained a much better deal for his $5 billion investment in Goldman Sachs, including warrants to buy its stock at a price below the going price when he helped rescue the company. Likewise in England, the government took stock ownership at low prices before the bailout, not at higher prices after it! But instead of exercising its warrants at the depressed prices where bank stocks stood at the time Mr. Paulson detailed the bailout terms, the U.S. Treasury would be able to exercise its warrants (equal to 15 percent of its investment) only at prices that were to be set after the banks had time to recover with the Treasury’s aid. Existing stockholders thus will benefit more than the government – which is why bank stocks soared on news of the bailout’s terms. So the government does not appear to be a good bargainer in the public interest. In fact, Mr. Paulson may be guilty of deliberate scuttling of the public interest that, as Treasury Secretary, he is supposed to defend.

Given his financial experience, Mr. Paulson had to know how deceptive his promise was in placing such emphasis on the government’s stock options, the sweetener that has made so many executives fabulously wealthy: “taxpayers will not only own shares that should be paid back with a reasonable return, but also will receive warrants for common shares in participating institutions,” he explained. But the “reasonable return” is only 5% annually, just above what the government typically has to pay, not a rate reflecting anything like what the “free market” now charges Wall Street firms with negative equity. The government’s $250 billion in preferred stock will carry a dividend that rises to 9% after five years, with no limit on how long the loan may be outstanding.[4]

All I can say is, Wow! If only homeowners could get a similar break: a reduction in their interest rate to just 5%, rising to a penalty rate of just 9% – without the heavy penalties and late fees that Countrywide/Bank of America charges! By contrast, German banks that receive a public rescue will pay “a fee of at least 2% annually of the amount guaranteed. The U.K. will charge 0.50% plus the cost of default insurance on a bank's debt.”[5] A British banker wrote to me that “the government offers 12% preference shares, and ordinary shares at an absolutely huge discount to asset value to provide the cash.” But the U.S. Government agreed to exercise its stock options at the post-bailout price, not the price prior to rescue. It even gives up most of these options if the banks do repay the Treasury’s loan. On the excuse of encouraging private Wall Street investors to replace government “ownership” and “intrusion” into the marketplace, banks can “cut in half the number of common shares the government will eventually be able to purchase. That can be done if a bank sells stock by the end of 2009, and raises at least as much cash as the government is investing.”[6]

These bailout terms suggest that what Wall Street wants is pretty much what colonialist Britain achieved for so many years in India and Africa: puppet leaders with an imperial political advisor, in America’s case a Secretary of the Treasury and a vice-regent as head of the Federal Reserve System. But what the rest of the economy needs is a genuinely free leader able to impose better and more equitable laws to write down debt, not build it up and bail out more bad loans. Within the present administration itself, Sheila Bair, head of the Federal Deposit Insurance Corporation, complained in a Wall Street Journal interview that she didn’t understand “Why there’s been such a political focus on making sure we’re not unduly helping borrowers but then we’re providing all this massive assistance at the institutional level.” She “described painstaking efforts made by lawmakers in crafting the federal Hope for Homeowners program to make sure it limited resale profits for borrowers who received affordable home loans,”[7] by giving the government a share of the rising sales price.

The imbalance between creditor demands and debtors’ ability to pay is indeed the problem! Mr. Paulson claimed in his Monday address that he needed to get to the root of the economic problem. But in his view it is simply that the banks “are not positioned to lend as widely as is necessary to support our economy. Our goal is to see … that they can make more loans to businesses and consumers across the nation.” As he explained in his Financial Times interview (cited above), “for the first time you have seen an action that is systematic, that is getting at the root causes” of the financial crisis. But his perspective is remarkably narrow-minded. It denies that the problem is debt above and beyond the ability of the economy at large to pay, and higher than the market price of property and assets pledged as collateral.

Creating a system for the banks to “earn their way out of debt” means creating yet more interest-bearing debt for the economy at large. Mortgage loans are what is supposed to restore high housing prices and office costs – precisely what caused the debt meltdown in the first place! Despite Mr. Paulson’s and Ms. Bair’s characterization of the present crisis as merely a liquidity problem, it is really a debt problem. The volume of real estate debt, auto debt, student loans, bank debt, pension debts by municipalities and states as well as private companies exceed their ability to pay.

Shortly after Mr. Paulson’s Monday speech a Dutch economics professor, Dirk Bezemer, wrote me that: “In my thinking I liken it to a Ponzi game where in the final stages the only way to keep things going a bit longer is to pump in more liquidity. That is a solution in the sense that it restores calm, but only in the short run. This is what we now see happening and – despite the 10% stock market rally today – I am still bracing myself for the inevitable end of the Ponzi game – suddenly or as a long drawn out debt deflation.” He went on to explain what he and other associates of mine have been saying for many years now: “The actual solution is to separate the Ponzi from the non-Ponzi economy and let the pain be suffered in the first part so as to salvage what we can from the second. This means bailing out homeowners but not investment banks, etc. The qualification to this general approach is that those Ponzi game players whose demise is a real ‘system threat’ need support, but only with punitive conditionalities attached. And just like Third World countries, they won’t have a choice.”

Neither the Treasury nor Congress is helping to resolve this problem. The working assumption is that giving newly created government debt to the banks and Wall Street will lead to more lending to re-inflate the real estate and stock markets. But who will lend more to the one-sixth of U.S. homes already said to have fallen into negative equity territory? As debt deflation eats into the domestic market for goods and services, corporate sales and earnings will shrink, dragging down stock prices. Wall Street is in control, but its policies are so shortsighted that they are eroding the underlying economy – which is passing from democracy to oligarchy, and indeed it seems to a bipartisan financial kleptocracy.

Michael Hudson is a former Wall Street economist specializing in the balance of payments and real estate at the Chase Manhattan Bank (now JPMorgan Chase & Co.), Arthur Anderson, and later at the Hudson Institute (no relation). In 1990 he helped established the world’s first sovereign debt fund for Scudder Stevens & Clark. Dr. Hudson was Dennis Kucinich’s Chief Economic Advisor in the recent Democratic primary presidential campaign, and has advised the U.S., Canadian, Mexican and Latvian governments, as well as the United Nations Institute for Training and Research (UNITAR). A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) He can be reached via his website, mh@michael-hudson.com

[1] Krishna Guha, “Action to address ‘root causes’” Financial Times, October 15, 2008.
[2] Reed Abelson, “Banks’ Bailout Unlikely to Crimp Executive Pay,” The New York Times, October 14, 2008.
[3] Charles Schumer, “How to Rescue the Banks,” Wall Street Journal, October 14, 2008.
[4] Deborah Solomon, Damian Paletta, Jon Hilsenrath and Aaron Lucchetti, “Bush Announces Plan to Buy Stakes in Largest Banks,” Wall Street Journal, October 14, 2008.
[5] Marcus Walker, Sara Schaefer Munoz and David Gauthier-Villars, “Next Move in European Bailouts: Paying for Them,” Wall Street Journal, October 14, 2008.
[6] Floyd Norris, “A Winner for Treasury? Time Will Tell,” The New York Times, October 14, 2008. He points out that the government’s “exercise price for the warrants will be the average common share price for the 20 days before the government makes its investment. That means that the price will reflect investor knowledge of the plan. If it continues to be favorably received by investors, that could mean the banks get higher prices for their shares than they would if the price were fixed today.”
[7] Damian Paletta, “FDIC Chief Raps Rescue for Helping Banks Over Homeowners,” Wall Street Journal, October 16, 2008.

Tips for New Paupers (a must read for non-Americans)

Unemployment. I thought I would never - ever- experience that. I had great Ivy League degrees, five languages, plenty of connections with the high and mighty and I was darn good at what I was doing. And then, one day, I got fired. Not for not doing my job, but for doing it. Doing it too well in fact.

That story still cannot be told, but I will sum it up like this: I was asked to analyze something by my boss, and analyze it I did. I even got it right, in fact. I warned the guys I was working for that they were in major and imminent danger of bad stuff happening to them. My boss passed my analysis to the higher ups and they absolutely *hated* it.

See, by its very nature my warning implied something which they really did not like: that I had seen something which they missed. And since their sacro-saint egos were just about the most important thing in the universe (at least to them), they got very angry at my boss who, as the spineless sniveling bitch that he was, immediately distanced himself from the analysis he had commissioned and signed and let me be the fall guy for the wrath of the folks at the top. They immediately fired me.

Things got a lot worse when within a short time my predictions fully materialized and some good people got killed in a very embarrassing event which got plenty of media coverage. Now my former bosses hated me even more: not only had I predicted something they totally denied, but I now knew that their incompetence had cost the lives of several good and innocent people and that the commission of inquiry they set up was bogus, little more than a deliberate cover-up.

I became a marked man once and forever. After several otherwise inexplicable events it became clear to me that I had been blacklisted (something two courageous friends actually confirmed to me later). I would never, ever find a job anywhere in Europe again. And from the social heights I had been used to I drop down to the bottomless abyss of unemployment. But unemployment "European style", not the obscene human rights violation which unemployment is in the USA.

My family was guaranteed a minimal income, enough to modestly make ends meet, I could keep our apartment, we were given free public transportation (which in Europe actually works rather well), our family was given free and *high quality* medical care (better than what most Americans *with* insurance get) and while we were not rich, we were not really poor either, at least not in a "destitute" sense.

But unemployment was still hell. Psychologically. This is something that I do not wish on my worst enemy. In fact, unemployment is *dangerous* as a lot of unemployed people end up sick, depressed, dependent on substances and many commit suicide. To escape this hell my family and I left Europe and moved to the USA were at least I could be a 'nobody' and disappear once and forever from the ever watchful eyes of my former bosses (who were more than happy to get rid of me).

My wife and I switched jobs. She works and I am now a full time homeschooling father of three (great) kids. We live close to the wonderful nature of Florida and my past has become mostly something which I only see in nightmares from time to time. I can live with that. We barely make ends meet, but at least we are far far away from the powerful of this world. Hopefully they will forget about us.

But this is not about me. This is about all the millions of Americans who have lost their jobs. Not only do they have to go through the hell which unemployment always is (and that is something which only a person who lived through it can fully understand), but they risk everything which we, in Europe, never risk loosing: healthcare, hygene, a decent place to live, etc. Add to this the social stigma of "living of government handouts" (how f**cking stupid that idea is: unemployment benefits are nothing more than a form of insurance which you pay for with your taxes) while being expected to "pull themselves up by their bootstraps" (another idea only worthy of a Neanderthal). I have seen many Americans who lost their jobs and my heart goes out to them as they experience a tragedy which nobody else in the developed world ever has to face: the loss of a job entails the loss of basic human rights.

I just read this piece by John Dolan on the Exiled website and I want to share it, in particular with my non-American readers who probably cannot imagine what unemployment and poverty means in the USA.

Oscar Wilde once remarked that "America is the only country that went from barbarism to decadence without civilization in between". From a social point of view this is absolutely true. The way the USA treats its poor, its sick, its unemployed and its prisoners is fundamentally un-civilized. The USA is the only developed country in the world which basically treats the poor, sick, unemployed as as people undeserving of respect, protection, care and support. The way the USA treats its prisoners makes the Taliban look outright progressive and civilized.

Anyway, let me get off my soapbox here and share with you the piece by John Dolan. Having lived in the USA for a total of 11 years now and having seen how the poor are treated here I can confirm the veracity of everything he writes here.

The Saker
-------


Little did I know that when I lost everything last year, I was doing research. At the time I thought it was just stupidity or bad luck or both. But now that the economy’s crashing, it turns out I’ve been out there gathering valuable tips for millions of new paupers.

And let me clarify, I’m talking real poverty.

My wife and I fell through many layers of poverty in a few months. First we revisited the genteel poverty known to grad students, the sort of poverty where you have scary dreams about the rent and eat a simple, wholesome diet towards the end of the month. But we fell right through that into the sort of Dickensian privation spoiled first-worlders like me never expected to experience. That’s the kind of poverty a lot of people are going to be experiencing soon—because I’m here to tell you, it can happen here and it can happen to you. And it’s remarkably unpleasant. You may be saying “Duh!” here but you’re probably not imagining the proper sort of unpleasantness. So I’ll try to lay out what to watch for, how to hunker down when it’s not just a matter of cutting back or selling your second car but having no car at all, having no money for heat or food.

All the things we learned are going to seem pretty obvious, but remember that it’s very hard to think clearly when your life has collapsed. These are what they call the old verities, the truths of life before the middle class was (briefly) in session:

Warmth. Above all you need to have a dry warm place to sleep. We had only an unheated boat, and that was not enough. We woke up to the thump of sea ice banging against the hull and realized that the old world was still very much in session. When we finally fled to stay with family, we stayed in our blankets up against their gas fireplace for weeks. You won’t even want food much after a while. You’ll want heat itself, not the chemical middle man. You are going to realize that cold is the most frightening thing in the world. In older English dialects, “to starve” meant “to freeze.” You will see why.

Car. Got one? Maybe you should sell it. Cars drain the last dollars out of you. And there’s something worse: cops can smell desperation, and they hate the poor. I didn’t use to hate cops much, except drug cops, but God, I hate them now. The real purpose of cops is to keep poor people off the roads. That’s their only real goal. On my way to an interview for a job that could have gotten us out of the gutter, a cop stopped me because my insurance was two weeks overdue—for the simple reason we didn’t have money to pay it. She gave me a $600 ticket for that, plus $120 for not having an updated address on my driver’s license. Then she called for a tow truck and told me, “So, a lesson learned here today!” as I watched my car towed away and trudged off with our terrified dog down a typical Western suburban road: four lanes of fast traffic with no sidewalks. Are you poor? The cops are your enemy now. Accept it. The car is how they’ll try to get you. Sell it if you can—which is to say, if there’s any decent public transportation—hah!—where you live.

Shame. As in, forget about it. Shame is an affectation. I don’t even need to say this, really. Once you’ve experienced actual cold and hunger, your good old Ouldivai Gorge mammal body and brain will take over, and believe me, shame won’t be a problem.

You’ll also find that most of the social stuff is easier than you’d expect. These people are in show biz in a way; they have to be, just to survive. Makes them lively. And though I suppose it all depends on where you are when you lose out, in my experience they’re not especially violent. They talk about it a lot, but so do all the white jocks I ever met, and in neither case does anything actually happen. They’re flinchy people, mainly, who spend a lot of time waiting for things. When you’re waiting, you get very frustrated but you don’t want to shake things up. So they’re tense, bitter, sociable, gossipy and treacherous—a fine cross-section of the population. After waiting around with them in line at the local food bank, sharing “how I ended up here” stories and hanging out with them around a propane heater trying to stay warm, I relaxed a lot. They’re not going to mug you. They are going to try to get any cash you have, and God did they get a huge chunk of our last resources, but it was friendly, schmooze-based extortion, just like in the middle-class world. All that was missing was the deodorant.

Food Banks. These places, usually in the basement of a church (because churches are the only public institutions in the new suburbs of western North America) hand out baskets of groceries every week or, more often, two weeks. You have to wait a long time, so learn your refugee skills. Come early, get a number first, and be nice-but-pushy. It’s a delicate operation being nice-but-pushy, but you’ll learn it. The “nice” part is because you need to ask people for help and advice; you’re not rich enough to be solitary any more. The pushy part is simple: it’s to prevent you from being ignored. So always talk to people, but never show money or mention it, if you have any.

Antidepressants. Get on them right away, if you’re not already. If you are, up your dose. Because it’s going to hurt. Doesn’t matter how much Marxist theory you’ve absorbed, doesn’t matter that you can put your fall into global context; it’s happening to YOU now, and it’s going to hurt like you wouldn’t believe. You’re an American, and you share that culture’s values whether you like it or not. So you define yourself by your job, car and house. When they go, you’re going to hate yourself. Don’t even bother arguing about it. It’s going to happen. Just take the damn Prozac. Would you refuse a coat in Siberia? Refusing Prozac after falling into poverty makes about as much sense. Tom Cruise can go fuck himself. Prozac saved our lives. I won’t go into the sordid details but really, I don’t think we’d be here now if Saint Prozac hadn’t extended a sacred hand to us.

So the second you slip beneath genteel poverty toward the street, find the nearest Free Clinic, and don’t be deterred by the smell of the crowd in the waiting room. Smell is going to be a problem for you at first but after a few weeks you won’t mind, because you smell too and so does everyone around you. If you want a break from the relentless olfactory fact of being around unwashed large mammals, sidle up to somebody who smokes. That’s the one good thing about cigarettes, and it may be why losers all smoke. Don’t smoke just for that, though. Cigarettes are insanely expensive and turn lots of poor people into cringing beggars.
How do you tell your story? That’s going to matter, because you’ll be brooding about what went wrong 24/7.whether you want to or not. And you’ll find that explaining one’s great fall is a vital skill among the fallen, as well as a deeply satisfying pastime. This raises the issue of denial, a vital and deeply misunderstood mechanism. Denial, like Kurtz said about Terror, is your friend…or it is an enemy to be feared. You need some denial to keep your ego from being crushed completely. Your ego is going to get very sick, now that you’re nobody. It’s easy to be polite and self-deprecating when you’re winning. I used to be like that. You can’t afford that when you’re being crushed. Like the Cable Guy says, it’s prison rules. You have to demand respect if you expect to get it. The alternative is to dwindle away and disappear. Those antidepressants will help you deny the facts, but don’t be shy about doing ego-exercises, boasting practice, to reawaken that playground ego that so many of us polite middleclass types allowed to atrophy. You’re going to need it.

On a practical level, the question is what to jettison. And I’m not just talking about things. If you have kids…well, God help you; I can’t give advice here, because luckily we didn’t. But we did, unfortunately, have a dog, a big clumsy puppy we got just before everything fell apart. We probably should have given her up. Growing up in an atmosphere of terror and cold and self-hatred, she turned out to be a very weird, unhappy dog. I’ve had lots of dogs before this, back when I was comfy, and they were all nice suburban dogs, Frisbee-catching pals. This one’s a feral freak. Now that we have a warm place to live it’s almost fun watching her reactions, the way she flinches and sniffs at every noise, smell or flash of color, but I know she’d have been happier getting adopted by some family that complains about what a pain it is having just four bedrooms.

Besides, if you have a dog you’re cutting down on your chances of getting a job. This one howls when she’s left alone, another legacy of her traumatic puppyhood, so one of us had to stay with her most of the time. It was like being handcuffed to the wretched unheated ex-fishing boat we were living on.

The boat was another contributor to our debacle; it was something else we should have sold off right away, even at a 90% loss. The idea behind that damn boat was that instead of paying the insanely high west-coast rents, we’d live on the boat for free. This is a very bad idea. Any idea you have of retreating to some simple, free habitation should be regarded with deep doubt. The thing is, you can’t get back to the comfortable, heated world from a place like that boat. No internet. You need the net if you’re ever going to claw your way back. You need a working shower, which that boat lacked. Otherwise you develop that look, that smell you first encountered in the Free Clinic waiting room. It’s not a good look, job-wise. Maybe if we’d gotten rid of the dog I’d have had a chance.

But you lose more than that. You change completely, more than you realize, to the point that even if you get a break you can’t grab it. After months of applying for teaching jobs without even getting answers, the perfect job opened up for me at a local college. It was half creative writing, half teaching literature and composition, all my specialties. But when the interview started I realized I was no longer someone who could talk the quiet, polite, oblique version of self-promotion demanded by academic hiring committees. I was too deeply, permanently spooked by our condition. I was just plain wrong, unhireably wrong in every way. No hot water on the boat, and I needed to shave the graying wisps of hair on my big bald head, so I’d shaved in the McDonald’s men’s room on the way to the interview, with a cheap Bic shaver. You can guess the results: it looked like a bobcat had tried to roost on my scalp, and been evicted after a violent struggle. The used sport coat we’d spent our last $20 of Visa credit on at Value Village didn’t seem to fit nearly so well, once I was inside that humming, immaculate classroom where the interview was held. And I had become a louder, more desperate, excessive person. When I tried to sound positive, it came out furious. When they asked me, as I’d known they would, why someone who’d taught at bigger universities wanted to come to this small rural campus, I said truthfully, “I’d rather teach here in the forest than at Stanford.” It didn’t come out enthusiastic, it came out strident. After months of being a bum, I was the wrong volume, the wrong temperature. I could feel the job slipping away, and in fact they hired a local guy who was friends with the director, even though my cv kicked his cv’s ass.

You’ll find that if you want to get back into that quiet, odor-free, polite world, you’re going to have to decompress for a few months. What happened to us is that we fled, found a basement apartment on borrowed money, and stayed there, keeping the heat on high for months. Then we were ready to try again for a job.

It took that long to calm down, quiet down, lose a little of the bitterness. Yes, you’re going to be very bitter. You can’t hate yourself all the time; you have to switch off now and then and blame somebody else. In fact, somebody else may damn well be to blame. Just make sure the bitterness doesn’t keep you awake. To enable yourself to sleep, take long walks. Shout curses at the world if you need to, just keep walking. And no matter what, don’t sell your sleeping bag. I had a North Face down bag, and learned to love it way, way more than I loved myself.

Sleep is an antidepressant almost as good as Prozac. And it’s free. The time to worry is when you wake up after a couple of hours screaming. That happened to me after five months, and that’s when I broke down and asked my brother for a loan. That’s where this story diverges from a real street story: I had an out. And believe me, I took it. Should have taken it sooner, in fact.

If you have an out—a relative or friend who can lend you money to find a place to live—take it now. And as soon as you get an offer—some old friend has a ski cabin nobody’s using, or a small unit behind their house—take it, as long as it’s heated.

The old world is very much alive, and has it in for you. Do anything to keep it from killing you. The only reason I haven’t endorsed crime here is that from what I saw, paupers are not in a good position to try it. Like so much else, crime is for the big people.

This article first appeared in AlterNet.