Bill Totten's Weblog

America's Pending Collapse

2009-11-27T18:52:00.001+09:00

by Timothy V Gatto

countercurrents.org (November 20 2009)

The truth that most people realize but can't openly talk about is that America has seen better days and that the system of capitalism has long outlived its usefulness. The last part of that sentence, that capitalism has outlived its usefulness, is thoroughly the fault of the capitalists themselves.

For many years now, transnational corporations have sent much of America's manufacturing overseas in order to take advantage of low cost workers. About the only manufacturing this country does on a large scale is earth moving equipment (Caterpillar) and military equipment. Boeing, Northrop-Grumman, Raytheon, General Electric and firms like that are the major remnants of a once thriving industrial base that made America. Detroit is still trying to hang in there, but shortfalls in sales have left it up to the workers in these plants to take it on the chin as their pay and benefits get cut.

The Dow is trying to make a comeback but the way I see it, much of the rise of "blue-chip" stocks is really more wishful thinking than serious thought. The stocks being sold on the backs of some of these companies are being bought on speculation that the market will go higher based on the rise of the GDP. The question that I would like to ask, is how far can the GDP go when seventy percent of the GDP is based on consumer spending? Where is consumer spending going to come from when realistically over sixteen percent of the people in America aren't working?

In an essay, written by Richard Heinberg entitled "Should We Prop-up a Dying Economy" (October 19 2009), he argues that the economists and the people who follow physical science disagree sharply about where this economy is going. Peak Oil, whether it is present now or just years away, will mean that the economy will contract. The economists state that growth can happen in any environment, yet it is apparent that when oil prices spiked in 2008, the auto industry and the airline industry almost went belly-up. Shrinkage of energy means shrinkage in the economy, we have all been under the notion that we can borrow against a growing economy. The facts are that if the economy does not grow, there will be very little in the growth of capital to repay debts that are leveraged at an average of an average of 350% of debt to GDP ratio. Where will new capital come from?

As the price of petroleum becomes higher, imported goods will become more expensive. When our government fails to repay our foreign creditors, or pays them back in hyper-inflated dollars, there will be no credit issued to this country. This can be a significant problem because we currently use 25% of the world's oil supply and we buy that oil on credit. He says:

"We have entered a new economic era in which the former rules no longer apply. Low interest rates and government spending no longer translate to incentives for borrowing and job production. Cheap energy won't appear just because there is demand for it. Substitutes for essential resources will in most cases not be found. Over all, the economy will continue to shrink in fits and starts until it can be maintained by the energy and material resources that Earth can supply on ongoing basis."

That is frightening to say the least. I believe that what our government should be doing is to listen to the scientists and stop listening to the economists. We have already borrowed almost 24 billion dollars, that is $80,000 for every man, woman and child in the US. We are robbing our future to pay for an economy that is unsustainable. Without economic growth, the banks, the investment houses and the insurance companies are bound to fail anyway. We might as well let them fail and get on with the business of restoring a sustainable economy.

In a talk called "The Five Stages of Collapse", by Dmitry Orlov, a former Russian that watched the collapse of the Soviet Union, they are:

The Five Stages of Collapse:

1. Financial Collapse
2. Commercial Collapse
3. Political Collapse
4. Social Collapse
5. Cultural Collapse

This isn't the warning of a horror show, but unless we start to prepare for a full or partial collapse, it could be worse than it has to be. He envisions a breakdown of society gradually replaced by stronger knit communities that must depend on each other for basic needs or it could be a complete breakdown of utter anarchy.

Meanwhile the Eagle sits on its perch, fighting wars in foreign lands while spending billions of American dollars doing it. The average American will see no benefit or harm whether we win or lose against the Taliban in Afghanistan. What we will have done however, is strap Americans with more debt and more use of precious resources. The American eagle is getting a little bit wobbly on its perch and it wouldn't surprise me to see all American soldiers taken from all overseas assignments and brought back to this country just to deal with the economic collapse, and because we can no longer afford to keep them overseas.

We need to start thinking about where we live and how we will survive an economic collapse. When the federal government can no longer function, what will we do to replace it? How are individuals to survive when essential goods and services become extinct? This isn't a future scenario that will happen twenty or thirty years from now, no! We are already experiencing it.

We can continue to live our daily lives watching TV and the advertisements that lull us into a false sense of security that everything is well, or we can start making provisions to deal with the calamity that lies ahead. We can provision staples, use alternative energy sources to heat our homes or assist us in heating them, and we can start talking with each other and get to know the neighbor that lives across the street that we have never talked to.

I'm really not an alarmist, but I see the merit of what so many scientists are predicting. Not only will Peak Oil stop economic growth, but climate change according to a UN report will bring desertification to seventy percent of the planet by 2025. Maybe petroleum peaking out is in reality what may save our planet. Maybe a return to simpler ways to live and work will stop the carbon dioxide emissions, but I don't think so. Third world countries are surpassing the industrialized countries in carbon emissions by burning coal. What I would like to know is who is really minding this nation's business? What is the Federal government doing when scientific fact is thrown in their face? While Obama listens to Timothy Geitner and Ben Bernanke and other Goldman Sacks alumni, a company that produces nothing and makes money by buying low and selling high with government funds, where are the people that see what's happening? If I can understand the ramifications of what is happening in front of my face, what about the President of the United States? Is he really ignorant or does he just not wish to deal with it? I'm curious; maybe someone in the executive branch can give us answers. It would be in everyone's best interest to have people starting to deal with reality instead of putting their head in the sand. Maybe the American eagle should be replaced with the ostrich.

_____

Tim Gatto's new book Complicity to Contempt (2009) is available at Amazon, Barnes and Noble, Abe's and other fine bookstores now. Kimchee Days, a novel about an anti-aircraft Battery (reminiscent of M*A*S*H and CATCH-22) in Korea during the years 1969 to 1971 will be out soon. He can be reached at timgatto@hotmail.com.

Tim's blog is at http://liberalpro.blogspot.com.

http://www.countercurrents.org/gatto201109.htm

Bill Totten http://www.ashisuto.co.jp/english/index.html

The Economic Crisis

2009-11-27T07:33:00.001+09:00

and What Must Be Done

by Richard C Cook

futurefastforward.com (November 25 2009)

The United States does not control its own destiny. Rather it is controlled by an international financial elite, of which the American branch works out of big New York banks like J P Morgan Chase, Wall Street investment firms such as Goldman Sachs, and the Federal Reserve System. They in turn control the White House, Congress, the military, the mass media, the intelligence agencies, both political parties, the universities, et cetera. No one can rise to the top in any of these institutions without the elite's stamp of approval.

This elite has been around since the nation began, becoming increasingly dominant as the 19th century progressed. A key date was passage of the National Banking Act of 1863, when the system was put into place whereby federal government debt was used to collateralize bank lending. Since then we've paid the freight through our taxes for bank control of the economy. The final nails in the coffin came with the passage of the Federal Reserve Act of 1913.

In 1929 the bankers plunged the nation into the Great Depression by constricting the money supply. With Franklin D Roosevelt as president, the nation struggled through the decade of the 1930s but did not pull out of the Depression until the industrial explosion during World War Two.

After the war came the Golden Age of the US economy, when the working man, protected by strong labor unions, became a true partner in the prosperity of the industrial age. That era lasted a full generation. The bankers were largely spectators as Americans led the world in exports, standard of living, science and space exploration, and every measure of health, longevity, and culture.

Roosevelt had kept the bankers subservient to the interests of the economy at large. The Federal Reserve was part of the New Deal team, and interest rates were held at historic lows despite a large federal deficit. One main impact was the huge increase in home ownership. After World War Two, the GI Bill allowed home ownership to grow further and millions of veterans to attend college. The influx of educated graduates led to productivity growth and the emergence of new high-tech industries.

But the bankers were laying their plans. In the early 1950s they got the government to agree to allow the Federal Reserve to escape its subservience to the US Treasury Department and set interest rates on its own. Rates rose throughout the 1950s and 1960s. By the time of the interest rate hikes of 1968, the economy was slowing down. Both federal budget and trade deficits were beginning to replace the post-war surpluses. High interest rates were the likely cause.

In 1971, President Richard Nixon removed the dollar's gold peg, allowing the huge inflation resulting from oil price increases that the international bankers engineered through control of US foreign policy when Henry Kissinger was national security adviser and secretary of state. Nixon's opening to China resulted in early agreements, also overseen by banking interests, to begin to transfer US industry to overseas producers like China which had cheap labor costs.

By the mid-1970s, the US had been taken over by a behind the scenes coup-d'etat that included events in 1963 when President John F Kennedy was assassinated by a conspiracy that could only have been instigated by the highest levels of world financial control. In the election of 1976, David Rockefeller succeeded in placing fellow Trilateral Commission member Jimmy Carter in the White House, but Carter upset the banking community, thoroughly Zionist in orientation, by working toward peace in the Middle East and elsewhere.

I was working in the Carter White House in 1979-80. Unbeknownst to the president, Federal Reserve Chairman Paul Volcker, another Rockefeller protege, suddenly raised interest rates to fight the inflation the bankers had caused by the OPEC oil price deals, and plunged the nation into recession. Carter was made to look weak and uninformed and was defeated in the election of 1980 by Republican candidate Ronald Reagan. It was through the "Reagan Revolution" that the regulatory controls over the banking industry were lifted, mainly in allowing the banks to use their fractional reserve privileges in making mortgage loans.

Volcker's recession shattered American manufacturing and hastened the flight of jobs abroad. Under the "Reagan Doctrine", the US military embarked on an unprecedented mission of world conquest by attacking one small nation at a time, starting with Nicaragua. Global capitalism was also on the march, with the US armed forces its own private police force. With the invasion of Iraq under George H W Bush in 1991, mainland Asia was revealed as the principle target.

The economy was floated by productivity gains through computer automation and a huge sell-off of assets through the merger-acquisition bubble of the late 1980s which ended in a recession. This resulted in the defeat of Bush by Bill Clinton in the election of 1992. Clinton was able to create another bubble through a strong dollar policy that attracted foreign capital.

The dot-com bubble that resulted lasted all the way through to the crash of December 2000. Meanwhile, the US Air Force led the way in the destruction of the sovereign state of Yugoslavia, whereby the international bankers took over the resource wealth of the entire Balkan region, and the US military gained forward bases for further incursions into Asia.

Do we need to say that none of this was ever voted on by the American electorate? But they bought into it nevertheless, both with their silence and through participation in a generally favorable job market in the emerging service occupations, particularly finance.

By the time George W Bush was inaugurated president in January 2001, the US was facing a disaster. $4 trillion in wealth had vanished when the dot.com bubble collapsed. NAFTA caused even more American manufacturing jobs to disappear abroad. The Neocons who were moving into key jobs in the Pentagon knew they would soon have new wars to fight in the Middle East, with invasion plans for Afghanistan and Iraq ready to be pulled off the shelf.

But the US had no economic engine available to generate the tax revenues Bush would need for the planned wars. At this moment Chairman Alan Greenspan of the Federal Reserve stepped in. Over a two year period from 2001 to 2003 the Fed lowered interest rates by over 500 basis points. Meanwhile, the federal government removed all regulatory controls on mortgage lending, and the housing bubble was on. $4 trillion in new home loans were pumped into the economy, much of it through subprime loans borrowers could not afford.

The Fed began to put on the brakes in 2003, but the mighty work of re-floating a moribund economy had been accomplished. By late 2006 another recession loomed, but it would take two more years before the crisis of October 2008 brought the entire system down.

The impact on the job market was immediate and profound. By the time Barack Obama was elected president in November 2008, the US was mired in seemingly endless wars in Afghanistan and Iraq, and the worst recession since the Great Depression was picking up speed. In order to prevent total disaster, the Bush administration ended its eight years of catastrophic misrule with a flourish, by allocating over $700 billion in financial system bailouts to cover the bad loans the banks had been making since Greenspan gave the housing bubble the green light.

It is now November 2009. Since Barack Obama was inaugurated in January, unemployment has soared from 7.9 percent to 10.2 percent. A few hundred billion dollars were allocated for "stimulus" purposes, but most of that went to pay unemployment benefits and to keep state and local governments from laying off more employees.

A fraction has been distributed for highway improvements, but largely through the bank bailouts the federal deficit has been running at an annual rate of $1.5 trillion, by far the largest in history, with the national debt now topping $12 trillion. Ironically, those Americans who still have productive jobs continue to grow in efficiency, with productivity up over five percent in the last year.

So much federal money has been spent that the Obama administration has been struggling to make its health care proposals budget-neutral through a raft of new taxes, fees, and penalties, and by announcing in recent days that the government's first priority must now shift to deficit reduction. The word "austerity" has been mentioned for the first time since the Carter administration. Yet Congress voted $655 billion in military expenditures to continue fighting in the Middle East. A US military attack on Iran, possibly in conjunction with Israel, would surprise no one.

So where do we now stand?

At present, the Federal Reserve is trying to prevent a total economic collapse. Interest rates are near-zero, to the chagrin of foreign investors in US Treasury securities, and close to half of new Treasury debt instruments have been bought by the Federal Reserve itself as a way of providing free money for federal government expenditures.

But the US economy shows no signs of coming back, with no economic driver emerging that could bring it back. For all the talk about alternative energy, there has been no significant growth of any home-grown industry that could possibly make up so much lost ground in either the short or the long-term.

The industries in the US that are holding up are the military, including arms exports, universities that are attracting large numbers of students from abroad, especially China, and health care, especially for the aging baby boomer population. But the war industry produces nothing with a long-term economic benefit, and health care exists mainly to treat sick people, not produce anything new.

None of this provides a foundation that can bring about a restoration of prosperity to 300 million people when the jobs of making articles of consumption are increasingly scarce. On top of everything else, since government inevitably looks to its own requirements first, the total tax burden continues to increase to the point where the average employee now pays close to fifty percent of his or her income on taxes of all types, including federal and state income taxes, real estate taxes, payroll taxes, excise taxes, government fees, et cetera. Plus the cost of utilities continues to rise steadily and threatens to skyrocket if cap-and-trade legislation is passed.

The Obama administration has no plans to deal with any of this. They have projected a budget for fifteen years hence that shows the budget deficit decreasing and tax revenues going way up, but it is all lies. They have no roadmap for getting us there and no plans for following the roadmap if it portrayed a realistic goal. And yet the US military is still trying to conquer Asia. It is madness.

And it is madness because the big decisions are not made by the US, by Congress, or by the Obama administration. The US has, for half-a-century, been marching to the tune played by the international financial elite, and this fact did not change with the election of 2008. The financiers have put the people of this nation $57 trillion in debt, according to the latest reports, counting debt at the federal, state, business, and household levels. Interest alone on this debt is over $3 trillion of a GDP of $14 trillion. Failure of our political leadership to deal with this tragedy over the past three decades is nothing less than treason.

But then again, at some point the decision was made that the US and its population would be discarded by history, the economic status of the nation reduced to a shadow of what it once was, but that its military machine would be used for the financial elite's takeover of the world until it is replaced by that of some other nation. All indications are that the next country up to bat as military enforcer for the financiers is China.

There you have it. That, in my opinion, is the past, present, and future of this nation in a nutshell. Great evils have been done in the world in the last century, and there is nothing anyone can do about it.

Except ... and that's what each person caught up in these travesties must decide. What are you going to do about it?

In mulling over this question, it would be wise to recognize that the dominance of the financial elite has largely been exercised through their control of the international monetary system based on bank lending and government debt. Therefore it's through the monetary system that change can and must be made.

The progressives are wrong to think the government should go deeper in debt to create more jobs. This will just create an even deeper hole of debt future generations will have to crawl out of.

Rather the key is monetary reform, whether at the local or national levels. People have lost control of their ability to earn a living. But change could be accomplished through sovereign control by people and nations of the monetary means of exchange.

This control has been stolen. It is time to take it back. One way would be for the federal government to make a relief payment to each adult of $1,000 a month until the crisis lifted. This money could be earmarked for goods and services produced within the US and used to capitalize a new series of community development banks. I have called this the "Cook Plan".

The plan could be funded through direct payment from a Treasury relief account without new taxes or government borrowing. The payments would be balanced on the credit side by GDP growth or be used by individuals to pay off debt. It would be direct government spending as was done with Greenbacks before and after the Civil War without significant inflation.

Another method increasingly being used within the US today is local and regional credit clearing exchanges and the use of local currencies or "scrip". Use of such currencies could be enhanced by legislation at the state and federal levels allowing these currencies to be used for payment of taxes and government fees as well as payment of mortgages and other forms of bank debt. The credit clearing exchanges could be organized as private non-profit regional currency co-operatives similar to credit unions.

These would be immediate emergency measures. In the longer run, sovereign control of money and credit must be returned to the public commons and treated as public utilities. This does not mean exclusive government control to replace bank control. As stated previously, it would be done in partnership between government and private trade exchanges. Nor does it mean government takeover of business, industry, or the banking system, though all should be regulated for the common good and fairly taxed.

This program would lead to a new monetary paradigm where money and credit would be available by, as, when, and where needed, to facilitate trade between and among legitimate producers of goods and services. In this way trade and commerce will come to serve human freedom, not diminish it as is done with today's dysfunctional partnership between big government trillions of dollars in debt and big finance with the entire world in hock.

Such a change would be a true populist revolution.

http://futurefastforward.com/feature-articles/2840

Bill Totten http://www.ashisuto.co.jp/english/index.html

Red Alert: The Second Wave of The Financial Tsunami

2009-11-26T18:14:00.015+09:00

The wave is gathering force & could hit between the first & second quarter of 2010

by Matthias Chang

Future Fast Forward (November 22 2009)
Global Research (November 22 2009)

Many of my friends who have been receiving my e-mail alerts over the last two years have lamented that in recent weeks I have not commented on the state of the global economy. I appreciate their anxiety but they forget that I am not a stock market analyst who is paid to write articles to lure investors back into the market. My website is free and I do not sell a financial newsletter so there is no need for me to churn out daily forecasts or analysis.

However, when the data is compelling and supports an inevitable trend, it is time for another review. This Red Alert is to enable visitors to my website to take appropriate actions to safeguard their wealth and welfare of their families in the coming months.

Since the last quarter of 2008, unrelenting currency warfare has been waged by the key global economies and while this competition thus far has been non-antagonistic, it will soon be antagonistic because the inherent differences are irreconcilable. The consequences to the global economy will be devastating and for the ordinary people, massive unemployment and social unrest are assured.

The policy-makers of these countries faced with the total collapse of the international financial architecture have concluded that the solution, the only solution is quantitative easing (that is, massive injection of liquidity) to salvage the "too big to fail" banks and reflate their depressed economies. This is best reflected in Bernanke's candid remark that, "the US government has a technology, called the printing press (or today, its electronic equivalent), that allows it to produce as many US dollars as it wishes at essentially no cost".

This is the crux of the problem!

The Irreconcilable Differences

Some two decades ago, it was decided by the global financial elites that the framework for the global economy shall consist of:

(1) A global derivative-based financial system, controlled by the US Federal Reserve Bank and its associate global banks in the developed countries.

(2) The re-location from the West to the East in the production of goods, principally to China and India to "feed" the developed economies.

The entire system was built on a simple principle, that of a Fed-controlled global reserve currency which will be the engine for growth for the global economy. It is essentially an imperialist economic principle.

Once we grasp this fundamental truth, Bernanke's boast that the "US can produce as many US dollars as it wishes at no cost" takes on a different dimension.

I have talked to so many economists and when asked what is the crux of the present financial problem, they all respond in unison, "it is the global imbalances ... the West consumes too much while the East saves too much and consumes not enough". This is exemplified by the huge US trade deficits on the one part and China's massive surpluses on the other.

Incredible wisdom and almost everyone echoes this mantra. The recent concluded APEC Summit was no different. This mantra was repeated as well as the call for freer trade between trading nations.

This is a grand hoax. All the current leaders on the world's stage are corrupted to the rotten core and as such have no interest to call a spade a spade and expose the inherent contradictions within the existing financial system.

The call for a multi-polar world is meaningless when the entire global financial system is based on the unipolar US dollar reserve currency. This is the inherent contradiction within the present system and the problems associated with it cannot be resolved by another global reserve currency based on the IMF's Special Drawing Rights as advocated by some countries. It was stillborn, the very moment it was conceived!

The leaders of China, Japan and the oil producing countries of the Middle East are all cursing and pissing about the current situation, but they don't have the courage of their convictions to spell it out to their countrymen that they have been conned by the financial spin masters from the Fed acting on the instructions from Goldman Sachs.

Tell me which leader would dare admit that they have exchanged the nation's wealth for toilet papers?

The toilet paper currency pantomime continues.

We have now reached a stalemate in the current currency war, not unlike the situation of the Cold War between the NATO pact countries and the Warsaw pact countries. Both sides were deterred by the MAD (Mutually Assured Destruction) doctrine of nuclear wars. The costs to both sides were horrendous and it was only when the Soviet Union could not continue with the pace and cost of maintaining a nuclear deterrent and was forced into bankruptcy that the balance tilted in favour of the NATO alliance.

But it was a pyrrhic victory for the US and it allies. What kept the ability of the US to maintain its military might and outspend the Soviet Union was the right to print toilet paper currency and the acceptance of the US dollar by her allies as the world's reserve currency.

But why did the countries allied to the US during the Cold War accept the status quo?

Simple! They were all conned into believing that without the protection of Big Brother and its military outreach, they would be swallowed up by the communist menace. They agreed to march to the tune of the US Pied-Piper.

The next big question - why did the so-called "liberated" former communist allies of the Soviet bloc jump on the bandwagon?

Simple! They all believed in the illusion that was fostered by the global banks, led by Goldman Sachs, that trading and selling their goods and services for the toilet paper US reserve currency would ensure untold wealth and prosperity.

But the biggest game in town was the Asia gambit. Japan, after a decade of recession following the burst of her property bubble, did not have the means and the capacity to bring the game to the next level as envisaged by the financial architects in Goldman Sachs.

And China was the biggest beneficiary. The senior management of Goldman Sachs brokered a secret pact with China's leaders that in exchange for orchestrating the most massive injection of US dollar capital and wholesale re-location of manufacturing capacity in the history of the global economy, China would recycle their hard-earned US toilet paper reserve currency wealth into US treasuries and other US debt instruments.

This was the necessary condition precedent for the global financial casino to rise to the next level of play.

Why?

The New Game

The financial architects at Goldman Sachs had a master plan - to dominate the global financial system. The means to achieve this financial power was the Shadow Banking System, the lynchpin being the derivative market and the securitization of assets, real and synthetic. The stakes would be huge, in the hundreds of trillions of US dollars and the way to transform the market was through massive leverage at all levels of the financial game.

But there was an inherent weakness in the overall scheme - the threat of inflation, more precisely hyperinflation. Such huge amounts of liquidity in the system would invariably trigger the depreciation of the reserve currency and the confidence in the system.

Hence the need for a system to keep in check price inflation and the illusion that the purchasing power of the toilet paper reserve currency could be maintained.

This is where China came in. Once China became the world's factory, the problem would be resolved. When a suit which previously cost US$600 could be had for less than US$100, and a pair of shoes for less than US$5, the scam masterminds concluded that there would be no foreseeable threat to the largest casino operation in history.

China agreed to the exchange as it has over a billion mouths to feed and jobs for hundreds of millions needed to be secured, without which the system could not be maintained. But China was pragmatic enough to have two "economic systems" - a Yuan based domestic economy and a US$ based export economy, in the hope that the profits and benefits of the export economy would enable China to transform and establish a viable and dynamic domestic market which in time would replace the export dependent economy. It was a deal made with the devil, but there were no viable alternative options at the material time, more so after the collapse of the Soviet Union.

The Next Level of the Game

The next level of the game was reached when the toilet paper reserve currency literally went virtual - through the simple operation of a click of the mouse in the computers of the global banks.

The big boys at Goldman Sachs and other global banks were more than content to leave Las Vegas for the mafia and their miserable billions in turnover. The profits were considered dimes when compared to the hundreds of trillions generated by the virtual casino. It was a financial conquest beyond their wildest dreams. They even called themselves, "Master of the Universe". Creating massive debts was the new game, and the big boys could even leverage more than forty times capital! Asset values soared with so much liquidity chasing so few good assets.

However, the financial wizards failed to appreciate and or underestimate the amount of financial products that were needed to keep the game in play. They resorted to financial engineering - the securitization of assets. And when real assets were insufficient for securitization, synthetic assets were created. Soon enough, toxic waste was even considered as legitimate instruments for the game so long as it could be unloaded to greedy suckers with no recourse to the originators of these so-called investments.

For a time, it looked as if the financial wizards have solved the problem of how to feed the global casino monster.

Unfortunately, the music stopped and the bubble burst! And as they say the rest is history.

The Goldman Sachs Remedy

When losses are in the trillions of US dollars and whatever assets / capital remaining are in the billions of US dollars, we have a huge problem - a financial black-hole.

The preferred remedy by the financial masterminds at Goldman Sachs was to create another hoax - that if the big global banks were to fail triggering a systemic collapse, there would be Armageddon. These "too big to fail" banks must be injected with massive amount of virtual monies to recapitalize and get rid of the toxic assets on their balance sheet. The major central banks in the developed countries in cahoots with Goldman Sachs sang the same tune. All sorts of schemes were conjured to legitimize this bailout.

In essence, what transpired was the mere transfer of monies from the left pocket to the right pocket, with the twist that the banks were in fact helping the Government to overcome the financial crisis.

The Fed and key central banks agreed to lend "virtual monies" to the "too big to fail" global banks at zero or near zero interest rate and these banks in turn would "deposit" these monies with the Fed and other central banks at agreed interest rates. These transactions are all mere book entries. Other "loans" from the Fed and central banks (again at zero or near zero interest rates) are used to purchase government debts, these debts being the stimulus monies needed to revive the real economy and create jobs for the growing unemployed. So in essence, these banks are given "free money" to lend to the government at prior agreed interest rates with no risks at all. It is a hoax!

These "monies" are not even the dollar bills, but mere book entries created out of thin air.

So when the Fed injects trillions of US dollars into the banking system, it merely credits the amount in the accounts of the "too big to fail" banks at the Fed.

When the system is applied to international trade, the same modus operandi is used to pay for the goods imported from China, Japan et al.

For the rest of world, when buying goods denominated in US dollars, these countries must produce goods and services, sell them for dollars in order to purchase goods needed in their country. Simply put, they have to earn an income to purchase whatever goods and services needed. In contrast, all that the US needs to do is to create monies out of thin air and use them to pay for their imports!

The US can get away with this scam because it has the military muscle to compel and enforce this hoax. As stated earlier, this status quo was accepted especially during the Cold War and with some reluctance after the collapse of the Soviet Union, but with a proviso - that the US agrees to be the consumer of last resort. This arrangement provided some comfort because countries which have sold their goods to the US, can now use the dollars to buy goods from other countries as more than eighty per cent of world trade is denominated in dollars - especially crude oil, the lifeline of the global economy.

But with the US in full bankruptcy and its citizens (the largest consumers in the world) being unable to borrow further monies to buy fancy goods from China, Japan and the rest of the world, the demand for dollars has evaporated. The dollar status as a reserve currency and its usefulness is being questioned more vocally.

The End Game

The present fallout can be summarized in simple terms:

Should a bankrupt country (the US) be allowed to use money created out of thin air to pay for goods produced with the sweat and tears of hardworking citizens of exporting countries? Adding insult to injury, the same dollars are now purchasing a lot less than before. So what is the use of being paid in a currency that is losing rapidly its value?

On the other hand, the US is telling the whole world, especially the Chinese, that if they are not happy with the status quo, there is nothing to stop them from selling to the other countries and accepting their currencies. But if they want to sell to the mighty USA, they must accept US toilet paper reserve currency and its right to create monies out of thin air!

This is the ultimate poker game and whosoever blinks first loses and will suffer irreparable financial consequences. But who has the winning hand?

The US does not have the winning hand. Neither has China the winning hand.

This state of affairs cannot continue for long, for whatever cards the US or China may be contemplating to throw at the table to gain strategic advantage, any short term gains will be pyrrhic, for it will not be able to address the underlying antagonistic contradictions.

When the survival of the system is dependent on the availability of credit (that is, accumulating more debts) it is only a matter of time before both the debtor and creditor come to the inevitable conclusion that the debt will never be paid. And unless the creditor is willing to write off the debt, resorting to drastic means to collect the outstanding debt is inevitable.

It would be naive to think that the US would quietly allow itself to be foreclosed! When we reach that stage, war will be inevitable. It will be the US-UK-Israel Axis against the rest of the world.

The Prelude to the End Game

The US economy will be spiraling out of control in the coming months and will reach critical point by the end of the first quarter 2010 and implode by the second quarter.

The massive trillions of US dollars stimulus has failed to turn the economy around. The massive blood transfusion may have kept the patient alive, but there are numerous signs of multi-organ failure.

There will be another wave of foreclosures of residential and more importantly commercial properties by end December and early 2010. And the foreclosed properties in 2009 will lead to depressed prices once they come through the pipeline. Home and commercial property values will plunge. Banks' balance sheets will turn ugly and whatever "record profits" in the last two quarters of 2009 will not cover the additional red ink.

Given the above situation, will the Fed continue to buy mortgage-backed securities to prop up the markets? The Fed has already spent trillions buying Fannie Mae and Freddie Mac mortgages with no potential substitute buyer in sight. Therefore, the Fed's balance sheet is as toxic as the "too big to fail" banks that it rescued.

In the circumstances, it makes no sense for anyone to assert that the worst is over and that the global economy is on the road to recovery.

And the surest sign that all is not well with the big banks is the recent speech by the President of the Federal Reserve Bank of New York, William Dudley at Princeton, New Jersey when he said that the Fed would curtail the risk of future liquidity crisis by providing a "backstop" to solvent firms with sufficient collateral.

This warning and assurance deserves further consideration. Firstly, it is a contradiction to state that a solvent firm with sufficient collateral would in fact encounter a liquidity crisis to warrant the need for a fall back on the Fed. It is in fact an admission that banks are not sufficiently capitalized and when the second wave of the tsunami hits them again, confidence will be sorely lacking.

Dudley actually said that, "the central bank could commit to being the lender of last resort ... [and this would reduce] the risk of panics sparked by uncertainty among lenders about what other creditors think".

To put it bluntly what he is saying is that the Fed will endeavour to avoid the repeat of the collapse of Bear Stearns, Lehman Brothers and AIG. It is also an indication that the remaining big banks are in trouble.

It is interesting to note that a Bloomberg report in early November revealed that Citigroup Inc and JP Morgan Chase have been hoarding cash. The former has almost doubled its cash holdings to US$244.2 billion. In the case of the latter, the cash hoard amounted to US$453.6 billion. Yet, given this hoarding by the leading banks, the New York Federal Reserve Bank had to reassure the financial community that it is ready to inject massive liquidity to prop up the system.

It should come as no surprise that the value of the dollar is heading south.

When currencies are being debased, volatility in the stock market increases. But the gains are not worth the risks and if anyone is still in the market, they will be wiped out by the first quarter of 2010. The S&P may have shot up since the beginning of the year by over 25 per cent but it has been out-performed by gold. The gains have also lagged behind the official US inflation rate. It has in fact delivered a total return after inflation of approximately minus 25 per cent. When Meredith Whitney remarked that, "I don't know what's going on in the market right now, because it makes no sense to me", it is time to get out of the market fast.

In a report to its clients, Societe Generale warned that public debt would be massive in the next two years - 105 per cent of GDP in the UK, 125 per cent in the US and in Europe and 270 per cent in Japan. Global debt would reach US$45 trillion.

At some point in time, all these debts must be repaid. How will these debts be repaid?

If we go by what Bernanke has been preaching and practising, it means more toilet paper currency will be created to repay the debts.

As a result, debasement of currencies will continue and this will further aggravate existing tensions between the competing economies. And when creditors have enough of this toilet paper scam, expect violent reactions!

_____

Matthias Chang's home page is http://www.futurefastforward.com/

Disclaimer: The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of the Centre for Research on Globalization. The contents of this article are of sole responsibility of the author(s). The Centre for Research on Globalization will not be responsible or liable for any inaccurate or incorrect statements contained in this article.

To become a Member of Global Research: http://www.globalresearch.ca/index.php?context=section&sectionName=membership

The CRG grants permission to cross-post original Global Research articles on community internet sites as long as the text & title are not modified. The source and the author's copyright must be displayed. For publication of Global Research articles in print or other forms including commercial internet sites, contact: crgeditor@yahoo.com

www.globalresearch.ca contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available to our readers under the provisions of "fair use" in an effort to advance a better understanding of political, economic and social issues. The material on this site is distributed without profit to those who have expressed a prior interest in receiving it for research and educational purposes. If you wish to use copyrighted material for purposes other than "fair use" you must request permission from the copyright owner.

For media inquiries: crgeditor@yahoo.com

(c) Copyright Matthias Chang, Future Fast Forward, 2009

(c) Copyright 2005-2007 GlobalResearch.ca

http://www.futurefastforward.com/component/content/article/2820
http://www.globalresearch.ca/index.php?context=viewArticle&code=CHA20091122&articleId=16218

Bill Totten http://www.ashisuto.co.jp/english/index.html

Age of cyber warfare is 'dawning'

2009-11-26T09:28:00.001+09:00

Cyber war has moved from fiction to fact, says a report.

Compiled by security firm McAfee, it bases its conclusion on analysis of recent net-based attacks.

BBC News (November 17 2009)

Analysis of the motives of the actors behind many attacks carried out via the internet showed that many were mounted with a explicitly political aim.

It said that many nations were now arming to defend themselves in a cyber war and readying forces to conduct their own attacks.

While definitions of what constitutes cyber war are not shared, it was clear that many nations were preparing for a future in which conflict was partly conducted via the net.

"There are at least five countries known to be arming themselves for this kind of conflict", said Greg Day, primary analyst for security at McAfee Europe.

The UK, Germany, France, China and North Korea are known to be developing their own capabilities.

"If it is someone stealing information or planting logic bombs, it's far more difficult to find them". -- Chris Wysopal, Veracode

The US is known to have an operating manual governing the rules and procedures of how it can use cyber warfare tactics. It is known to have used hack attacks alongside ground operations during the Iraq war and has continued to use this cyber capability while policing the nation.

Mr Day said there was evidence of a growing number of attacks that could be classed as "reconaissance" in advance of a future conflict. The ease with which the tools of such attacks can be gathered and used was worrying, said Mr Day.

"To go to physical war requires billions of dollars", he said. "To go to cyber war most people can easily find the resources that could be used in these kind of attacks".

The targets of such future conflicts were likely to be a nation's infrastructure, said Mr Day, because networks of all kinds were now so embedded in peoples' lives.

In response, he said, many nations now have an agency overseeing critical national infrastructure and ensuring that it is adequately hardened against net-borne attacks.

Chris Wysopal, chief technology officer at Veracode which advises many governments on security, said cyber war presented its own problems when it came to deciding motive and finding the perpetrators.

"In physical warfare it's pretty clear who has which weapon and how they are using them", he said. "In the networked world that attribution is incredibly difficult".

The same is true for cyber crime, he said, where following a trail of money can lead investigators back to a band of thieves.

"If it is someone stealing information or planting logic bombs, it's far more difficult to find them", he said.

Mr Wysopal said many governments had woken up to the threat and were starting to put in place systems and agencies that could help protect them.

However, he said, they still had some weaknesses.

"The thing about governments doing this is that they have a time horizon of many years", he said. "But the criminals are doing it in a matter of months".

http://news.bbc.co.uk/2/hi/technology/8363175.stm

Bill Totten http://www.ashisuto.co.jp/english/index.html

The Morality of Economics

2009-11-25T18:06:00.001+09:00

The Key Issue of the Twenty-First Century

by Richard C Cook

Global Research (July 29 2007)

Since January 2007, Global Research and other forums have published a series of articles by this writer on the urgent need for economic and monetary reform.

Some readers have commented on how distant these monetary reform recommendations are from current practice. The reason for this is simply that the recommendations derive from a starting point that is not customary.

This starting point is that human morality should be the essential factor in analyzing and making economic policy decisions. In other words, an economic system should reflect what is good and right, not just what those in power choose to dictate or the compromises that can be worked out by the balance of power in some political equation.

Economic decisions, as they are made presently within the United States and elsewhere, reflect the standpoint of a moral outlook that is critically defective. This is what must be changed, not just mechanics.

For the past quarter century, economic life, under the rubric of globalization, has increasingly been based on such overt or covert precepts as, "survival of the fittest", "privatization", "might makes right", "money talks", "whoever has the gold rules", and "let the buyer beware".

All are basically reflections of the profit motive versus any ideal of charity, compassion, or service. Indeed, mention of such lofty motivations is even likely to evoke sneers among self-anointed "realists". But the fact is that laws and practices have been increasingly marked by greed for gain by some at the expense of everyone else, which is an indicator of a society-wide relapse into barbarism.

These trends have been abetted by the contention that economics is a science, somehow similar to physics, which describes the behavior of "forces" that are essentially amoral. The primary such force, perhaps, is the postulated existence of an impersonal "market", the functioning of which, even when appearing ruthless, supposedly results in the common good.

A recent example may be found in a statement by Secretary of the Treasury Henry M Paulson to Fortune magazine predicting a global economic downturn. Paulson said, "It's just that we're not going to defy economic gravity". By placing his forecast on a par with the most relentless of all physical laws, Paulson lends an aura of inevitability to events which, if they occur, could be devastating to billions of people.

By implication, Paulson also denies the possibility of any political choice about the likely event, even though it would be at least partially a result of the housing bubble, the biggest such financial travesty in history, which the Federal Reserve, along with the last several presidential administrations, have contributed to creating in the absence of any genuine economic driver for the US economy.

But such "forces" as policy-makers buy into are usually manmade. Further, more than people realize, the way a nation's economy functions is a reflection of its moral choices and values. The "market" behaves as it is designed to behave and distributes its benefits accordingly. The upside of this observation is that an economic system can be altered to reflect a higher moral vision.

A glaring instance was the 600-plus-point drop in the Dow-Jones the week of July 23. The "causes" were the ongoing collapse of the housing market and the worldwide tightening of credit. Though many commentators have been predicting an economic decline, few are willing to say that the credit crunch is by design and represents a choice by the central banks, including the Federal Reserve, to favor the interests of creditors over debtors.

The most basic question to be addressed in analyzing the morality of economics is whether human beings have a right to life. Most people would say yes. Many would consider the answer so obvious that the question is unnecessary, even foolish. The basic principle of the Declaration of Independence is that human beings have an "unalienable right" to "life, liberty, and the pursuit of happiness".

Yet the actions of governments and individuals give the lie to this idea. Even after a century of the horrors of world war, governments continue to embrace war as an instrument of policy. This has applied particularly with regard to the United States, which has engaged in almost continuous warfare since 1941 and which today maintains military personnel or bases in over 130 countries.

Weapons of violence and warfare blanket the earth. Obviously many people believe that human beings have a right to life unless some government that is armed to the teeth decides otherwise. The most recent glaring example has been the US occupation of Iraq, which, based on whatever rationale, has resulted in the deaths of hundreds of thousands of civilian non-combatants. In this instance, the values of "life, liberty, and the pursuit of happiness" have clearly been viewed as secondary to other, perhaps unstated, priorities. One such priority, without doubt, is control of oil.

This is only one example whereby the basic precepts of human welfare have taken a back seat to more urgent imperatives. Decisions are constantly being made by some people that have a life or death result for others, including the one to maintain or even raise interest rates in the face of the pending economic decline.

There was a time when individuals and families were much better equipped than at present to live by means of their own labor, without regard to the economic decisions made by economists, financiers, military planners, or politicians. Tribal and agrarian societies, including much of the United States through at least the end of the nineteenth century, were based on technologies that allowed people to survive at a subsistence level with minimal interference by outside experts or authorities.

The same was true of the agricultural and peasant classes of Europe until recent times. Even during the so-called "Dark Ages", the masses of people were able to subsist off the land even as the warrior castes slaughtered each other.

All this changed through the mechanization of work brought about by the industrial revolution. Now more could be produced by fewer workers. The first of many epoch-making innovations was the application of steam power to the operation of machines. Observers believed naively that mankind had now evolved to such a degree that the curse of labor had been lifted and that the human race would now be free from merely having to earn a living and could devote itself to higher pursuits.

But it turned out that the benefits of industrialization flowed mainly to those who controlled the processes of production. Those who did the work, or those whose work was no longer needed, were left out. The system which imposed this paradigm was capitalism. It was opposed by a variety of ideologies, including various types of socialism and trade unionism, which argued that the gains in productivity really should be viewed as the property of the community, not just a handful of those with economic and political power.

In recent years, capitalism has conquered most of the world, even in countries that still may consider themselves socialist, such as China. The brand of capitalism that has become the most powerful is finance capitalism, based ultimately on the lending of money at interest. Backing up this system is the greatest arsenal of weapons of mass destruction ever seen.

There was a time when such lending, particularly at excessive rates of interest, was condemned as usury, but no more. Now it is even a matter of official policy that the central banks of the world may raise interest rates as high as they wish if they are able to make the claim that they are fighting inflation or making borrowers more responsible. The name for this policy is "monetarism". But this justification of lending practices that many ethical authorities in history have regarded as criminal is an excuse, not a reason.

As a result of capitalism, much of the world's population has increasingly been left out of the prosperity and material security that industrialization once seemed to promise. Around the world, the benefits clearly have accrued mainly to the upper income echelons, while the majority of people are left to struggle. The results increasingly are un- or under-employment, poverty, lack of adequate nutrition or health care, or even, in many countries, starvation.

Within the United States alone, thirty-five million people are malnourished and almost a million are homeless, including some war veterans. No one could possibly argue that all of these people are personally at fault and that none are suffering because of the type of economy we have chosen to embrace. Yet for many, poverty and homelessness are a death sentence, whether through ill health, exposure, or violence, because in economics, due process and equal protection of the laws no longer seem to apply.

Faced with such situations, another ideology has sprung up based on the idea that there are not enough resources on the earth to support the human population, so that many must simply die - with the exception, of course, of oneself, one's friends and family, one's co-religionists, or one's countrymen. Overly-pessimistic alarms about such phenomena as global warming also become part of the litany of doomsayers.

This latter-day Malthusianism is more prevalent than many are aware of. We are afflicted with a mind-set of scarcity in a Universe where there are so many signs of an infinity of abundance. It may be easier to comprehend a philosophy of abundance by realizing that the resources available to us may someday include not only those of the earth but those of surrounding space and the solar system as well.

People are drawn into the illusion of scarcity without giving much thought as to whether there might be better ways to distribute the prosperity of the modern technology-driven economy so that the world's population can be adequately maintained. But doing so must be a collective effort. What, then, does society have a moral obligation to provide to its members under today's conditions?

The most obvious is meaningful employment. Here United States policy makers have failed drastically by pursuing policies which have led to the collapse of our industrial base and the export of so many of our jobs. But even beyond creation of a robust producing economy, three additional measures come to mind.

One is a guaranteed income for all. Each individual should be granted, as a basic human right, a sufficient amount of money to survive at a subsistence level. Such an income should be made as a recurring cash payment by every government, or on a worldwide basis by the United Nations. Richer nations should provide poorer ones the means to do this if necessary. There is no reason except human ignorance why poverty worldwide could not be eliminated now through a basic income guarantee.

The second should be low-cost credit provided at the individual and consumer levels for grassroots economic development. Credit should be viewed as both a public utility and a human right and should be made available at minimal cost - no more than one percent interest payable to whatever public agency is charged with administering the program. Banks have the privilege of creating credit "out of nothing". Governments, which grant banks this privilege, should have it also and could and should exercise it to the benefit of their populations. Low-cost credit is essential for maintenance of dynamic local economies.

The third is a public infrastructure consisting of health, education, water, transportation, and waste disposal services that are provided without charge to all persons. Again, there is no reason except prejudice why governments should not be able to exercise the privilege of spending or lending money directly into circulation for these purposes without recourse to either taxation or borrowing. As America's greatest inventor, Thomas Edison, once observed, the government could as easily spend interest-free money into circulation for such purposes as sell bonds to banks then borrow the money back as an addition to the public debt.

An economic and monetary system that would provide these benefits is within reach, given the current state of development of technology and the world economy. Once the system is in place, society would have a firm basis on which a robust and creative private sector could be supported, including meaningful jobs available on demand. The first requirement for prosperity would have been met, which is a healthy, educated, and enterprising population.

In fact, more advanced economies could provide an additional cash dividend to their citizens in order to allow firms engaged in production to recover through their pricing sufficient earnings for investment in future growth and innovation. The term used by monetary reformers for such a stipend is a "National Dividend".

These measures could be instituted regardless of the type of political system a nation chooses to embrace. They would not only sustain the entire population but would also inject the purchasing power needed at the grassroots level to distribute what the global economy is able to produce. The number one unsolved economic problem the world faces today is that people lack purchasing power to buy what industry can create, so they must constantly go deeper into debt.

Such a program as described herein would go a long way toward satisfying the injunction contained in all the world's religions which is reflected in the Christian precept that we should strive to "love our neighbor as ourselves". This is what I believe should define the morality of economics. Our community life would then become a "house built on rock", rather than on the shifting sands of greed, profiteering, poverty, and debt.

We must realize that as long as a single person on earth is unfairly denied sustenance, we remain barbarians. Everywhere in the world people are waking up to the fact that the work of applying enlightened concepts of morality to economics is the key task which mankind faces in the twenty-first century. Unfortunately, as of this writing, there are signs that those in power are making plans for another wave of warfare and violence to hold the day of reckoning at bay. But they cannot do so forever.

_____

Richard C Cook is the author of We Hold These Truths: The Hope of Monetary Reform (2009) and Challenger Revealed: An Insider's Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age (2007). He is a Washington, DC-based writer and consultant who, in addition to NASA, taught history and worked in the US Civil Service Commission, the Food and Drug Administration, the Carter White House and spent 21 years with the US Treasury Department. His website is at www.richardccook.com.

Disclaimer: The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of the Centre for Research on Globalization. The contents of this article are of sole responsibility of the author(s). The Centre for Research on Globalization will not be responsible or liable for any inaccurate or incorrect statements contained in this article.

To become a Member of Global Research: http://www.globalresearch.ca/index.php?context=section&sectionName=membership

The CRG grants permission to cross-post original Global Research articles on community internet sites as long as the text & title are not modified. The source and the author's copyright must be displayed. For publication of Global Research articles in print or other forms including commercial internet sites, contact: crgeditor@yahoo.com

www.globalresearch.ca contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available to our readers under the provisions of "fair use" in an effort to advance a better understanding of political, economic and social issues. The material on this site is distributed without profit to those who have expressed a prior interest in receiving it for research and educational purposes. If you wish to use copyrighted material for purposes other than "fair use" you must request permission from the copyright owner.

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(c) Copyright Richard C Cook, Global Research, 2007

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Bill Totten http://www.ashisuto.co.jp/english/index.html

Courting Convulsion

2009-11-25T09:19:00.001+09:00

Clusterfuck Nation

by James Howard Kunstler

Comment on current events by the author of
The Long Emergency (2005)

www.kunstler.com (November 23 2009)

How infantile is American society? Last night's CBS "Business Update" (in the midst of its "60 Minutes" program) featured three items: (1) The New Moon teen vampire movie led the weekend box-office receipts; (2) Cadbury shares hit an all-time high; (3) Michael Jackson's rhinestone-studded white glove sold at auction for $350,000. Some in-house CBS-News producer is responsible for this fucking nonsense. How does he or she keep her job? Is there no adult supervision at the network.

Meanwhile, over at The New York Times this morning, Paul "Nobel Prize" Krugman writes:

"Most economists I talk to believe that the big risk to recovery comes from the inadequacy of government efforts; the stimulus was too small, and it will fade out next year, while high unemployment is undermining both consumer and business confidence".

Disclosure: I'm not one of the economists that Mr Krugman talks to (nor am I an economist). But it's sure interesting to know that the ones palavering with Mr Krugman imagine that that the US can possibly return to an economy based on the fraudulent securitization of reckless debt. Does Mr Krugman think that the production housing industry can resume paving over the nether exurbs with half-million-dollar houses (to be bought with no money down loans by the sheet-rockers working inside them)? Does he think all those people receiving cancellation notices from their credit card issuers are in a position to flash their plastic at the Gallerias this Friday? Or ever will be again? Is he perhaps misusing the term "recovery"? After all, that is generally taken to mean resuming a prior state, which is, in turn, presumed to be a healthy prior state. Is that what the economy of the past decade was? And, incidentally, what exactly is a "consumer"? And why, at the highest levels of journalism in this land, do we refer to citizens that way? As if the American people have no other purpose except to buy things? Or is that the only way an "economist" can imagine them?

I'm sorry to burden the reader with so many questions, but the idiots running the mainstream news media in this land are not doing it and somebody has to.

If a "recovery" is not in the cards, then what exactly is going on out there?

What's going on in the US economy is a slow-motion convulsion from which we will emerge as a very different nation with a different economy. The wild irresponsibility of the media in pretending otherwise is only going to make the convulsion worse, more painful, more socially and politically destructive. The convulsion can be described with precision as one of compressive contraction. Historic circumstances are requiring us to change our behavior, to make new arrangements for everyday life in all the major particulars: capital accumulation and deployment; food production; commerce; habitation; transport; education; and health care. These new arrangements must be organized at a smaller and finer scale, and on a much more local basis.

The main "historic circumstance" mandating these changes goes under the heading of "peak oil". We've come to the end of our ability in this world to increase energy inputs to the global economy. The routine "growth" in industrial activity and production that has been the basis of our financial arrangements for 200-odd years is no longer possible. Offsetting this decline in oil energy "input" with "alt.energy" is a dangerous fantasy because it distracts us from the urgent task of making new arrangements for trade, food production, et cetera - the very things that would provide jobs and social roles for our citizens in the future.

We are seeing a comprehensive failure of leadership in every sector and every level of American life - in politics, business, banking, education, news media, medicine, and the clergy. All are determined to pretend that we can somehow continue the habits and behaviors of the pre peak oil era. They are all unwilling to face reality, and are all engaged in mutually supporting each other's dangerous fantasies.

If we don't attend to the transformation of American life by downscaling our activities and changing the way they are carried out, and re-localizing them, we will see our society disintegrate - and I use the word "dis-integrate" with purposeful precision. Everything will come apart - our political arrangements, our households, our health and well-being.

At the moment, banking is disintegrating. It's happening because the end of regular, predictable, cyclical, industrial growth means the end of our ability to generate credit without limits, and in fact we passed this point by stealth some time ago leaving the banks in "Wile E Coyote" suspension above an abyss, where they have lately been joined by government at all levels and the indebted citizens of the land. The profound nausea spreading through the offices of America is the somatic recognition of exactly where we are in all this: off the cliff.

It's important to remind readers that so-called "capitalism" is not to blame. Capitalism is not an ideology. It refers to a set of laws governing the disposition of surplus wealth. There is going to be surplus wealth somewhere in the years ahead, even if our living standards fall substantially, even under the strictures of peak oil. All the communist experiments of the 20th century produced some kind of surplus wealth. All of them were subject to the phenomenon of compound interest. What matters in the disposition of capital are the rules created for accumulating and deploying it. In the USA the past two decades, we ignored the rules, repealed some of the critical laws, and failed to enforce the existing ones so that, when faced by the historic circumstances of peak oil, we allowed fraud and swindling to run wild - just at the moment when we should have taken the most care. That is why our money system ran off the rails.

We're now seeing worldwide a kind of race between the assertion of peak oil and the failures of capital management as to which will provoke a widespread convulsion first. They are obviously related and whichever gets us in the most trouble fastest, our destination is the same: the absolute necessity to reorganize how we live. Among the many elements of this is the fact that "globalism", in the Thomas Friedman sense of the word, is over. The urgent need to re-localize economies makes this self-evident. As a practical matter for us, this means committing to import replacement - making things we need in the US, probably much more regionally. "Globalism" now joins the many other fantasies that we can no longer indulge in.

At the moment, going into Thanksgiving 2009, America's leadership has dedicated itself to the worst action it could take under the circumstances: a campaign to sustain the unsustainable. This is what's embodied in the foolish term "recovery". The way we try to explain things to ourselves matters, if we don't want to be crushed by history. Go back to the top of this blog and look at the things we pay attention to. Aren't you ashamed?

_____

My 2008 novel of the post-oil future, World Made By Hand, is available in paperback at all booksellers.

(c) 2009 All Rights Reserved.

http://kunstler.com/blog/2009/11/courting-convulsion.html

Bill Totten http://www.ashisuto.co.jp/english/index.html

Upping the Stakes

2009-11-24T17:57:00.002+09:00

Playing for Keeps

Would we listen to nature if our lives depended on it?

by Derrick Jensen

Orion magazine (November / December 2009)

People who read my work often say, "Okay, so it's clear you don't like this culture, but what do you want to replace it?" The answer is that I don't want any one culture to replace this culture. I want ten thousand cultures to replace this culture, each one arising organically from its own place. That's how humans inhabited the planet (or, more precisely, their landbases, since each group inhabited a place, and not the whole world, which is precisely the point), before this culture set about reducing all cultures to one.

I live on Tolowa (Indian) land. Prior to the arrival of the dominant culture, the Tolowa lived here for 12,500 years, if you believe the myths of science. If you believe the myths of the Tolowa, they lived here since the beginning of time. This story may sound familiar, but its significance has, thus far, been lost on the dominant culture, so it bears repeating: when the first settlers arrived here maybe 180 years ago, the place was a paradise. Salmon ran in runs so thick you couldn't see the bottoms of rivers, so thick people were afraid to put their boats in for fear they would capsize, so thick they would keep people awake at night with the slapping of their tails against the water, so thick you could hear the runs for miles before you could see them. Whales were commonplace in the nearby ocean. Forests were thick with frogs, newts, salamanders, birds, elk, bears. And of course huge ancient redwood trees.

Now I count myself blessed when I see two salmon in what we today call Mill Creek. Another Tolowa staple, Pacific lampreys, are in bad shape. Just three years ago you could not hold a human conversation outside at night in the spring, and now I hear maybe five or six frogs at night. Salamanders, newts, songbirds, all are equivalently gone. The rivers are poisoned with pesticides and herbicides. All in less than two centuries.

Why? Or, perhaps more important, how?

Only the most arrogant and ignorant among us would say something that implies that all humans are destructive, and that the dominant (white) culture is the most destructive simply because somehow indigenous peoples around the world were too stupid to invent backhoes and chainsaws, too backward to dominate their human and nonhuman neighbors with the efficiency and viciousness of the dominant culture. They might even try to argue that the Tolowa weren't actually living sustainably, even though they lived here for at least 12,500 years. But when 12,500 years of living in place won't convince them, it becomes pretty clear that evidence is secondary, and that there are, rather, ideological reasons the person cannot accept that humans have ever lived sustainably. One of these ideological reasons is very clear: if you can convince yourself that humans are inherently destructive, then you allow yourself the most convenient of all excuses not to work to stop this culture from destroying the planet: it's simply in our nature to destroy, and you can't fight biology, so let's not fuss about all these little extinctions, and could someone please pass the TV remote? It's an odious position, but a lot of people take it.

If we want to stop this culture from killing the planet, we might instead try asking how so many indigenous cultures lived in place for so long without destroying their landbases.

There are many differences between indigenous and nonindigenous ways of being in the world, but I want to mention two here. The first is that the indigenous had and have serious long-term relationships with the plants and animals with whom they share their landscape. Ray Rafael, who has written extensively on the concept of wilderness, has said that Native Americans hunted, gathered, and fished "using methods that would be sustainable over centuries and even millennia. They did not alter their environment beyond what could sustain them indefinitely. They did not farm, but they managed the environment. But it was different from the way that people try to manage it now, because they stayed in relationship with it."

That last phrase is key. What would a society look like that was planning on being in that particular place five hundred years from now? What would an economics look like? If you knew for a fact that your descendants five hundred years from now would live on the same landbase you inhabit now, how would that affect your relationship to sources of water? How would that affect your relationship with topsoil? With forests? Would you produce waste products that are detrimental to the soil? Would you poison your water sources (or allow them to be poisoned)? Would you allow global warming to continue? If the very lives of your children and their children depended on your current actions - and of course they do - how would you act differently than you do?

The other difference I want to mention - and essentially every traditional indigenous person with whom I have ever spoken has said that it is the fundamental difference between western and indigenous peoples - is that even the most open Westerners view listening to the natural world as a metaphor, as opposed to something real. I asked American Indian writer Vine Deloria about this, and he said, "I think the primary thing is that Indians experience and relate to a living universe, whereas Western people, especially science, reduce things to objects, whether they're living or not. The implications of this are immense. If you see the world around you as made up of objects for you to manipulate and exploit, not only is it inevitable that you will destroy the world by attempting to control it, but perceiving the world as lifeless robs you of the richness, beauty, and wisdom of participating in the larger pattern of life." That brings to mind a great line by a Canadian lumberman: "When I look at trees I see dollar bills". If when you look at trees, you see dollar bills, you'll treat them one way. If when you look at trees, you see trees, you'll treat them differently. If when you look at this particular tree you see this particular tree, you'll treat it differently still. The same is true for salmon, and, of course, for women: if when I look at women I see objects, I'm going to treat them one way. If when I look at women I see women, I'll treat them differently. And if when I look at this particular woman I see this particular woman, I'll treat her differently still.

Here's where people usually ask, "Okay, so how do I listen to the natural world?" When people ask me this, I always begin by asking them if they have ever made love. If so, I ask whether the other person always had to say, "put this here", or "do that now", or did they sometimes read their lover's body, listen to the unspoken language of the flesh? Having established that one can communicate without words, I then ask if they have ever had any nonhuman friends (aka pets). If so, how did the dog or cat let you know that her food dish was empty? I used to have a dog friend who would look at me, look at the food dish, look at me, look at the food dish, until finally the message would get across to me.

How do we hear the rest of the natural world? Unsurprisingly enough, the answer is: by listening. That's not easy, given that we have been told for several thousand years that these others are silent. But the fact that we cannot easily hear them doesn't mean they aren't speaking, and does not mean they have nothing to say. I've had people respond to my suggestion that they listen to the natural world by going outside for five minutes and then returning to say they didn't hear anything. But how can you expect to learn any new language (remember, most nonhumans don't speak English) in such a short time? Learning to listen to our nonhuman neighbors takes effort, humility, and patience.

The Tolowa believed the nonhuman world had something to say, and that what the nonhuman world had to say was vital to their own survival. Given that they were living here sustainably for 12,500 years, and given that we manifestly are not, perhaps the least we could do is acknowledge that they were on to something, and maybe even explore just what that kind of relationship might look and feel like.

http://www.orionmagazine.org/index.php/articles/article/5106/

Bill Totten http://www.ashisuto.co.jp/english/index.html

Giant Monsters

2009-11-24T08:02:00.001+09:00

by Dmitry Orlov

ClubOrlov (November 23 2009)

A few years ago I bought a sailboat from a fellow who I am sure wishes to remain unnamed, but who at the time made much of his boat restoration skills. He had made a number of alterations to the boat, some ambitious, some less so, while I was, at the time, quite inexperienced. In spite of my relative inexperience, I was already able to discern certain imperfections in the results of the seller's efforts. But I was very impressed with the boat itself (and the boat did turn out to be quite excellent) and so I chose to gloss over these slight imperfections in the seller's workmanship.

For such a large man, the seller had a very soft and gentle tone of voice. He did disclose some things along the way that should have alarmed me. I believe that the reason they didn't was because his tone of voice had a calming, soothing effect on me. For instance, he could have said something like "I ran out of caulk while installing this thing, so I mounted it on a slice of cheese from my lunchbox" and I probably would have thought "Mmm ... cheese ... lunch?" Also, the boat had recently returned from an extended ocean cruise, and the seller looked quite alive to me, leading me to think that none of these imperfections was life-threatening. And so I bought the boat.

As I already mentioned, it turned out to be an excellent boat, but I turned out to be overly nonchalant about the non-life-threatening nature of the seller's workmanship. During our shakeout cruise most things that could break did break, causing me to question many of the seller's practices and techniques. Is it proper to cut pieces out of random structural elements with a reciprocating saw in order to make room for one's head? (Apparently the seller was one or two inches taller than the boat's designer had considered it to be humanly possible.) Is a piece of Masonite an acceptable substitute when the manufacturer specifies that a block of hardwood should be used to mount the autopilot? Is it sufficiently safety-conscious to seal a disconnected through-hull by plugging it with a rubber stopper from the inside? The good part in all this was that I, in the process of tackling these questions, along with a multitude of similar ones, one by one or in combination, sometimes in circumstances when I had my hands full just sailing the boat, gained immeasurably in knowledge and in confidence.

Although confronting these questions one by one, sometimes in challenging circumstances, was an excellent (though sometimes unnerving) way to learn, eventually I realized that there was an important first question that I ought to ask of each thing on the boat: "Did the seller do it?" If he did it, then the next question would be, "What does it take it to rip out and replace it?" If it is neither very hard nor very expensive, then that is automatically the next step. If it is, then the third question becomes, "What's wrong with it?" If answering this question turns out to involve ripping it out and replacing it, then so be it, but leaving a stone unturned would not be conducive to either peace of mind or safety, because, although there are now very few of them left, I am yet to find A Thing He Did that does not have major issues.

To be fair, the seller did do one very good thing: he kept afloat and sold to me a very good boat. Also, I can't fault him for trying to maintain a boat on a shoestring (I actually have immense respect for people who are able to do that well). Whatever he does, and however he does it, it clearly works for him. I see him leaping about the spindrift-covered deck in the midst of a howling tempest clutching a hammer and a screwdriver. Maybe he is happy, maybe he is sad, who knows ...

As Ralph Waldo Emerson put it, consistency is "the hobgoblin of little minds". I agree, but I would go a step further and ardently wish that each and every little mind had such a hobgoblin to call its own. If someone's work is consistently excellent, that is better than sporadically excellent work. Although much excellent work can be undone by a single reputation-destroying, career-ending blunder, short of that, sporadic excellence is better than none at all. But if someone's work is more often than not of an abysmally ghastly quality and in general a monstrous travesty, then consistency can still be its one redeeming quality. If it is consistent, then one knows what to do with it, all of it, at once, and not waste any time trying to cherry-pick salvageable exceptions where none might exist.

Allow me to present an example. Suppose you are wondering whether a particular public institution has any particular merit that would serve to justify its continued existence. It might be the health care system, or national defense, or the tax code, or any number of other similar boondoggles. We might consider each institution in and of itself, apart from all the others, to see whether it is consistently bad, or whether it has some redeeming qualities. Or we might save ourselves a lot of time by asking ourselves just one simple question: "Is it Bolshevik?" Because if it is Bolshevik, then that tells us right away that it is just one element of a perfectly monstrous entity called the USSR. This particular monstrous entity is already defunct, and so there is no need for us to go out and slay it, but were it not, we would know immediately that none of its institutions are in need of reform, because what would be the point? Making a perfect monster into an imperfect monster does not seem like a worthy goal.

Allow me to present another example. Currently in the USA we now live surrounded by institutions that many of us readily concede are quite broken, but it still takes most of us considerable effort to declare any of them irredeemable. It is natural for us to look for redeeming qualities, to think that a certain negative outcome is the result of a mistake rather than the fullest possible expression of its true nature. It takes time and effort to collect enough evidence to be able to declare, based on a preponderance of evidence, that what we have here is something perfectly monstrous, and then to be ready to debate people who hold opposing viewpoints. Few of us are equipped to handle the task of outright condemnation. There are some experts whose job it is to condemn buildings, to decommission vessels, and to sentence people to death, and they sometimes have to exercise judgment, but mostly they just follow rules. And when there are no rules to follow, we are all helpless.

This is where monsters come in handy: we all know what we must do to them. Like so many things that bedevil our lives, they have a notional rather than a physical reality, but in spite of that the effect they have on our lives can be quite real. Take corporations: the term "corporation" is actually a clever misnomer, because a corporation is, in fact, incorporeal - lacking a body. It has many of the same rights as a person, but in place of a body it has a "corporate veil" which, once pierced, usually reveals some cringing nincompoop who screwed up the paperwork and is now personally liable for his corporation's debts and transgressions. Since a corporation has personhood but lacks a body, it is, in a technically precise way, a phantom. Like other kinds of monsters, it is immortal, and very specific steps must be followed in order to kill it. Now, not all phantoms are monsters, but I hope you will agree that the potential is there.

Just like us, monsters must follow certain rules. Vampires must drink human blood and stay out of the sun. Werewolves must turn into wolves and start mauling people at the sight of the full moon. Zombies must eat brains. Corporations must produce high share prices and dividends for their shareholders. This last one seems comparatively innocuous, but it is sufficiently abstract to make the transition between mere immortal phantomhood and complete monstrousness quite automatic, because usually there are both monstrous and non-monstrous ways to create value for shareholders, and the monstrous ways are often more profitable in the short run. Some corporations may not seem particularly monstrous at the moment, but given their monstrous propensities we can never let down our guard.

Monsters require different treatment from most other things out there. We don't generally try to reform them. There is hardly a point in teaching a vampire good hygiene (rinse between meals, please!) or in muzzling a werewolf and clipping its claws, or in making zombies eat a balanced diet and observe Lent. Rather, we generally prefer to slay them. There are specific ways to kill various monsters. A vampire is dispatched by driving an aspen stake through its heart. Werewolves are shot with silver bullets. Zombies require a shotgun blast to the head. Corporations dissolve upon being doused with red ink, a bit like the Wicked Witch of the West.

Now, a question arises with regard to the USA: is it more of a country (like, say, France) or is it more of a corporation (like, say AIG or GM or GS)? Looking at its politics, it is apparent that it is more of a country club than a country. Corporations are clearly the ones in charge, through electoral campaign donations, lobbyists, and the revolving door between corporate and government positions. The periodic electoral monkey-business and fake media frenzy are just there as an ad campaign to keep the brand fresh. It does seem more and more like a corporate entity, with a small and shrinking number of shareholders, whose latest scheme (now that the whole thing is spiraling the drain) is to have the government print lots of money just so that they can pocket huge sums of it.

Just as a vampire must drink blood, the USA is compelled by its corporate nature to produce value for its shareholders, and the only way it can do so in a collapsing economy is by printing money. Monstrous, isn't it? So, how many more buckets of red ink will it take before we all get to hear "I'm dissolving! I'm dissolving!"? If you are not quite ready to hear that, then I recommend that you run home immediately, bar the door and get busy with the garlic and the crucifixes. Slaying monsters is not for everyone, you know.

http://cluborlov.blogspot.com/2009/11/giant-monsters.html

Bill Totten http://www.ashisuto.co.jp/english/index.html

The Medieval Machine

2009-11-23T22:27:00.001+09:00

The Industrial Revolution of the Middle Ages

A book review by Danny Yee

dannyreviews.com (July 1993)

Economic history has a reputation for extreme dryness, and probably conjures up visions of statistical compilations in most people's minds. On the other hand works on the history of technology are few and far between. Jean Gimpel's The Medieval Machine (Pimlico 1992) is an unusual mixture of the two, being an extremely readable work aimed at a popular audience. It presents a potpourri of information about the technological successes and achievements of the Middle Ages, and should do much to correct the still stereotypical view of the Middle Ages as backward, superstition- ridden and technologically primitive. The basic thesis is that in the two centuries from around 1050 Western Europe went through a kind of industrial revolution that was as significant as that of the nineteenth century. (The evidence Gimpel presents is drawn largely from France and England, but Italy and Germany and to a lesser extent other countries also get a mention.) This is fitted into a thesis of wider scope, which I discuss at the end of this review.

The first three chapters deal with medieval "primary industry", with energy sources, agriculture and mining. The first chapter describes the crucial importance to the economy of different sources of energy: river, wind and tidal. Their most important use was in mills for grinding corn, but they were also used to drive machinery for many other purposes, including fulling cloth and pressing olives. The role of the Cistercian monasteries and the social factors leading to a more general acceptance of machines than in classical times are discussed. An interesting snippet is a brief history of the worlds first joint stock company - a French mill owners organisation formed in the late 14th Century that survived until nationalised after World War Two!

The next chapter looks at the agricultural revolution. The introduction of the modern harness (making horses more effective than oxen in plowing and pulling loads), the three year fallow system, the heavy wheeled plough and other innovations contributed to a large increase in food production. The effects of this on the diet and living standards of people were considerable, with records showing that students at a Paris school had diets that are almost impeccable when subjected to modern nutritional analysis. Another effect was a large population increase throughout the period. Gimpel is also concerned to demonstrate that medieval agriculture was to a large extent "scientific", with treatises on the subject being extremely popular.

Stone quarrying and iron were the most important mining industries in medieval Europe, but tin, lead and of course silver and gold were also very important. Again the Cistercian monasteries played a critical role. German miners attained a particular reputation for excellence and moved throughout Europe (this is reflected in the large proportion of words of German origin in mining vocabulary). The importance of mining was reflected in the prevalence of Crown rights over mineral wealth throughout much of Europe.

The next two chapters deal with the broader social aspects of medieval technology: one on environmental issues and one on working conditions in medieval industries. I was intrigued to discover that pollution and resulting concern about the quality of the environment are not modern phenomena - England had national anti-pollution laws as early as 1388! Working conditions differed drastically between industries: miners and mining communities were granted exceptional privileges while workers in the textile industry were under the tight control of financial and commercial interests, with working conditions foreshadowing those of the later industrial revolution. Working conditions in the building industry were better in the medieval period than in the seventeenth and eighteenth centuries, and strikes were not uncommon. Then there are chapters on two more specific aspects of medieval technology: one on the role of the great architect-engineers (focusing on Villard de Honnecourt) and their construction of the cathedrals that were the pinnacle of medieval achievement, and one on the development of the clock. The final chapter looks at medieval science and its relationship with medieval technology. Here Gimpel is concerned to point out that Leonardo and the other Renaissance humanists drew many of their ideas from earlier writers, who have got a bad press from history.

The general effect of all this is pretty convincing, but due to the selective and anecdotal nature of the account it is hard to tell what bias there may have been in the selection of facts. So I am a little wary about basing any generalisations on the content. However a more "objective" and statistically rigorous approach would certainly have detracted from the book's readability, so I can't really complain about this.

The last chapter is particularly controversial, as it is here Gimpel goes further and argues that the medieval "industrial revolution" was followed by a setback in the progress of technology. It is worrying that much of the evidence he presents in the other chapters for the forward-looking and progressive nature of medieval technology in fact dates to within the period he wants to describe as an "era of decay" (this can be seen by internal analysis - Gimpel isn't falsifying the evidence). It is also unclear how much bias there may have been in the selective use of statistical materials. The book contains many graphs showing wages, prices, and such-like varying in a fashion consistent with Gimpel's thesis, but perhaps there are others that could have been included that would have supported an alternative view.

If the final chapter is controversial, the meta-narrative (contained in the preface and the chapter-length epilogue) is even more adventurous (one might even say wildly speculative). Gimpel's central idea is that the modern United States is going through a similar cycle to medieval France and is now in process of decay. In so far as this is based on a theory of history as driven by two fundamental underlying properties of society (namely "technological evolution" and "psychological drive") and in so far as specific dates are given as the changeover points between phases, this seems massively oversimplistic to me. Some parts of the comparison, however, are quite interesting, and the bulk of the book can be read and appreciated even if one disagrees completely with the more general theory.

At any rate, while The Medieval Machine did manage to make me rethink my conception of medieval Europe, the most impressive thing about it was how much fun it was to read. I can heartily recommend it to anyone interested either in medieval history or in the history of technology, but it is the sort of book that will also be enjoyed by people who have no interest in either. As well as being clearly written, it is nicely illustrated with black and white photographs and makes good use of line drawings and graphs.

http://dannyreviews.com/h/The_Medieval_Machine.html

Bill Totten http://www.ashisuto.co.jp/english/index.html

How Relocalization Worked

2009-11-23T09:29:00.001+09:00

The Archdruid Report (November 18 2009)

Druid perspectives on nature, culture, and the future of industrial society

One of the points that I've tried to make repeatedly in these essays is the place of history as a guide to what works. It's a point that deserves repetition. A good many worldsaving plans now in circulation, however new the rhetoric that surrounds them, simply rehash proposals that were tried in the past and failed repeatedly; trying them yet again may thus not be the best use of our limited resources and time.

Of course there's another side to history that's more hopeful: something that worked well in the past can be a useful guide to what might work well in the future. I'd like to spend a little time discussing one example of this, partly because it ties into the theme of the current series of posts - the abject failure of current economic notions, and the options for replacing them with ideas that actually make sense - and partly because it addresses one of the more popular topics in the ongoing peak oil discussion, the need for economic relocalization as the age of cheap abundant energy comes to an end.

That relocalization needs to happen, and will happen, is clear. Among other things, it's clear from history; when complex societies overshoot their resource bases and decline, one of the things that consistently happens is that centralized economic arrangements fall apart, long distance trade declines sharply, and the vast majority of what we now call consumer goods get made at home, or very close to home. Now of course that violates some of the conventional wisdom that governs economic decisions these days; centralized economic arrangements are thought to yield economies of scale that make them more profitable by definition than decentralized local arrangements.

When history conflicts with theory, though, it's not history that's wrong, so a second look at the conventional wisdom is in order. The economies of scale and resulting profits of centralized economic arrangements don't happen by themselves. They depend, among other things, on transportation infrastructure. This doesn't happen by itself, either; it happens because governments pay for it, for purposes of their own. The Roman roads that made the tightly integrated Roman economy possible, for example, and the interstate highway system that does the same thing for America, were not produced by entrepreneurs; they were created by central governments for military purposes. (The legislation that launched the interstate system in the US, for example, was pushed by the Department of Defense, which wrestled with transportation bottlenecks all through the Second World War.)

Government programs of this kind subsidize economic centralization. The same thing is true of other requirements for centralization - for example, the maintenance of public order, so that shipments of consumer goods can get from one side of the country to the other without being looted. Governments don't establish police forces and defend their borders for the purpose of allowing businesses to ship goods safely over long distances, but businesses profit mightily from these indirect subsidies nonetheless.

When civilizations come unglued, in turn, all these indirect subsidies for economic centralization go away. Roads are no longer maintained, harbors silt up, bandits infest the countryside, migrant nations invade and carve out chunks of territory for their own, and so on. Centralization stops being profitable, because the indirect subsidies that make it profitable aren't there any more.

Ugo Bardi has written a very readable summary of how this process unfolded in one of the best documented cases, the fall of the Roman Empire {*}. The end of Rome was a process of radical relocalization, and the result was the Middle Ages. The Roman Empire handled defense by putting huge linear fortifications along its frontiers; the Middle Ages replaced this with fortifications around every city and baronial hall. The Roman Empire was a political unity where decisions affecting every person within its borders were made by bureaucrats in Rome. Medieval Europe was the antithesis of this, a patchwork of independent feudal kingdoms the size of a Roman province, which were internally divided into self-governing fiefs, those into still smaller fiefs, and so on, to the point that a single village with a fortified manor house could be an autonomous political unit with its own laws and the recognized right to wage war on its neighbors.

{*} http://europe.theoildrum.com/node/5528

The same process of radical decentralization affected the economy as well. The Roman economy was just as centralized as the Roman polity; in major industries such as pottery, mass production at huge regional factories was the order of the day, and the products were shipped out via sea and land for anything up to a thousand miles to the end user. That came to a screeching halt when the roads weren't repaired any more, the Mediterranean became pirate heaven, and too many of the end users were getting dispossessed, and often dismembered as well, by invading Visigoths. The economic system that evolved to fill the void left by Rome's implosion was thus every bit as relocalized as a feudal barony, and for exactly the same reasons.

Here's how it worked. Each city - and "city" in this context means anything down to a town of a few thousand people - was an independent economic center; it might have a few industries of more than local fame, but most of its business consisted of manufacturing and selling things to its own citizens and the surrounding countryside. The manufacturing and selling was managed by guilds, which were cooperatives of master craftsmen. To get into a guild-run profession, you had to serve an apprenticeship, usually seven years, during which you got room and board in exchange for learning the craft and working for your master; you then became a journeyman, and worked for a master for wages, until you could produce your masterpiece - yes, that's where the word came from - which was an example of craftwork fine enough to convince the other masters to accept you as an equal. Then you became a master, with voting rights in the guild.

The guild had the legal responsibility under feudal municipal laws to establish minimum standards for the quality of goods, to regulate working hours and conditions, and to control prices. The economic theory of the time held that there was a "just price" for any good or service, usually the price that had been customary in the region since time out of mind, and the municipal authorities could be counted on to crack down on attempts to push prices above the just price unless there was some very pressing reason for it. Most forms of competition between masters were off limits; if you made your apprentices and journeymen work evenings and weekends to outproduce your competitors, for example, or sold goods below the just price, you'd get in trouble with the guild, and could be barred from doing business in the town. The only form of competition that was encouraged was to make and sell a superior product.

This was the secret weapon of the guild economy, and it helped drive an age of technical innovation. As Jean Gimpel showed conclusively in The Medieval Machine (1977), the stereotype of the Middle Ages as a period of technological stagnation is completely off the mark. Medieval craftsmen invented the clock, the cannon, and the movable-type printing press, perfected the magnetic compass and the water wheel, and made massive improvements in everything from shipbuilding and steelmaking to architecture and windmills, just for starters. The competition between masters and guilds for market share in a legal setting that made quality and innovation the only fields of combat wasn't the only force behind these transformations, to be sure - the medieval monastic system, which put a good fraction of intellectuals of both genders in settings where they could use their leisure for just about any purpose that could be chalked up to the greater glory of God, was also a potent factor - but it certainly played a massive role.

The guild system has nonetheless been a whipping boy for mainstream economists for a long time now. The person who started that fashion was none other than Adam Smith, whose The Wealth of Nations (1776) castigates the guilds of his time for what we'd now call antitrust violations. From within his own perspective, Smith had a point. The guilds were structured in a way that limited the total number of people who could work in any given business in any given town, and of course the just price principle kept prices from fluctuating along with supply and demand. Thus the prices paid for the goods or services produced by that business were higher, all things considered, than they would have been under the free market regime Smith advocated.

The problem with Smith's analysis is that there are crucial issues involved that he didn't address. He lived at a time when transportation was rapidly expanding, public order was more or less guaranteed, and the conditions for economic centralization were coming back into play. Thus the very different realities of limited, localized markets did not enter into his calculations. In the context of localized economics, a laissez-faire free market approach doesn't produce improved access to better and cheaper goods and services, as Smith argued it should; instead, it makes it impossible to produce many kinds of goods and services at all.

Let's take a specific example for the sake of clarity. A master blacksmith in a medieval town of 5000 people, say, was in no position to specialize in only one kind of ironwork. He might be better at fancy ironmongery than anyone else in town, for example, but most of the business that kept his shop open, his apprentices fed and clothed, and his journeymen paid was humbler stuff: nails, hinges, buckles, and the like. Most of this could be done by people with much less skill than our blacksmith; that's why he had his apprentices make nails while he sat upstairs at the table with the local abbot and discussed the ironwork for a dizzyingly complex new cutting-edge technology, just introduced from overseas, called a clock.

The fact that most of his business could be done by relatively unskilled labor, though, left our blacksmith vulnerable to competition. His shop, with its specialized tools and its staff of apprentices and journeymen, was expensive to maintain. If somebody else who could only make nails, hinges, and buckles could open a smithy next door, and offer goods at a lower price, our blacksmith could be driven out of business, since the specialized work that only he could do wouldn't be enough to pay his bills. The cut-rate blacksmith then becomes the only game in town - at least, until someone who limited his work to even cheaper products made at even lower costs cut into his profits. The resulting race to the bottom, in a small enough market, might end with nobody able to make a living as a blacksmith at all.

Thus in a restricted market where specialization is limited, a free market in which prices are set by supply and demand, and there are no barriers to entry, can make it impossible for many useful specialties to be economically viable at all. This is the problem that the guild system evolved to counter. By restricting the number of people who could enter any given trade, the guilds made sure that the income earned by master craftsmen was high enough to allow them to produce specialty products that were not needed in large enough quantities to provide a full time income. Since most of the money earned by a master craftsman was spent in the town and surrounding region - our blacksmith and his family would have needed bread from the baker, groceries from the grocer, meat from the butcher, and so on - the higher prices evened out; since nearly everyone in town was charging guild prices and earning guild incomes, no one was unfairly penalized.

Now of course the guild system did finally break down; by Adam Smith's time, the economic conditions that made it the best option were a matter of distant memory, and other arrangements were arguably better suited to the new reality of easy transport and renewed economies of scale. Still, it's interesting that in recent years, the same race to the bottom in which quality goods become unavailable and local communities suffer has taken place in nearly the same way in most of small-town America.

A torrent of cheap shoddy goods funneled through Wal-Mart and its ilk, in a close parallel to the cheap blacksmiths of the example, have driven local businesses out of existence and made the superior products and services once provided by those businesses effectively unavailable to a great many Americans. In theory, this produces a business environment that is more efficient and innovative; in practice, the efficiencies are by no means clear and the innovation seems mostly to involve the creation of ever more exotic and unstable financial instruments: not necessarily the sort of thing that our society is better off encouraging.

Advocates of relocalization in the age of peak oil may thus find it useful to keep the medieval example and its modern equivalent in mind while planning for the economics of the future. Relocalized communities must be economically viable or they will soon cease to exist, and while viable local communities will be possible in the future - just as they were in the Middle Ages - the steps that will be necessary to make them viable may require some serious rethinking of the habits that now shape our economic lives.

_____

John Michael Greer, The Grand Archdruid of the Ancient Order of Druids in America (AODA), has been active in the alternative spirituality movement for more than 25 years, and is the author of more than twenty books, including The Druidry Handbook (Weiser, 2006) and The Long Descent: A User's Guide to the End of the Industrial Age (New Society, 2008). He lives in Cumberland, Maryland.

http://thearchdruidreport.blogspot.com/2009/11/how-relocalization-worked.html

Bill Totten http://www.ashisuto.co.jp/english/index.html

Paid Lying

2009-11-22T07:43:00.000+09:00

What Passes for Major Media Journalism

by Stephen Lendman

sjlendman.blogspot.com (November 09 2009)

Today's major media journalism is biased, irresponsible, sensationalist reporting that distorts, exaggerates or misstates the truth. It's misinformation or agitprop disinformation masquerading as fact to boost circulation, readership, viewers, or listeners, and on vital issues lie about or suppress uncomfortable truths to provide unqualified support for state and/or corporate interests - to the detriment of the greater good that's always sacrificed for profits and imperial aims.

As a result, major media sources produce a daily propaganda diet and what Project Censored calls "junk food news", and get most people to believe it. In their landmark book, Manufacturing Consent (1988), Edward Herman and Noam Chomsky explained the "propaganda model" that controls the public message by "filter(ing)" disturbing truths, "leaving (behind) only the cleansed residue fit to print" or air.

Today the media is in crisis and a free and open society at risk at a time fiction substitutes for fact, news is carefully controlled, dissent marginalized, and on-air and print journalists support powerful interests as paid liars, or what famed journalist George Seldes (1890 - 1995) called "prostitutes of the press".

As a result, imperial wars are called liberating ones. Civil liberties are suppressed for our own good. Major topics go unaddressed or are misrepresented. Government and business interests are endorsed wholeheartedly. America is always called "beautiful". Beneficial social change is considered heresy. The market works best, we're told, so let it, and patriotism means supporting lawlessness and corporate outlaws by shopping till we drop.

The New York Times - Its Lead Role in Distorting and Suppressing Truth

For many decades, The Times has been the closest thing in America to an official ministry of information and propaganda masquerading as real news, commentary and analysis.

Its unmatched clout once got media critic Norman Solomon to call its front page "the most valuable square inches of media real estate in the USA"; most everywhere, in fact, because its reports are widely circulated and followed globally.

The Paper of Record has a long history of:

-- supporting the powerful;

-- backing corporate interests;

-- endorsing imperial wars;

-- supporting CIA efforts to topple elected governments, assassinate independent leaders, prop up friendly dictators, secretly fund and train paramilitary death squads, practice sophisticated forms of torture, and menace democratic freedoms at home and abroad. For decades, in fact, some Times' foreign correspondents were covert Agency assets. Others today likely are as well as other prominent fourth estate members.

The Times management is also comfortable with:

-- Washington and corporate lawlessness;

-- an unprecedented and growing wealth gap;

-- Wall Street banksters looting the federal treasury;

-- a private banking cartel controlling the nation's money;

-- unmet human needs and increasing poverty, hunger, homelessness, and despair for growing millions in a nation run by rogue politicians who don't give a damn as long as they're re-elected;

-- a de facto one-party state;

-- deep corruption at the highest government and corporate levels;

-- democracy for the select few alone;

-- sham elections; and

-- a deepening social decay symptomatic of a declining state, yet The Times management won't use its clout to expose and help reverse it.

Of course, the same applies throughout the corporate media, the only variance being audience size, the ability to influence it, and the special impact of TV news and talk radio to arouse their faithful. Plus their power of round-the-clock persuasive repetition.

Examples of Journalism, New York Times Style

After a Washington staged February 29 2004 middle-of-the-night coup ousted democratically elected Haitian president Jean-Bertrand Aristide, The Times March 1 editorial lied by:

-- stating he resigned;

-- saying sending in Marines to abduct him "was the right thing to do";

-- claiming they only came after "Mr Aristide yielded power";

-- blaming him for "contribut(ing) significantly to his own downfall (because of his) increasingly autocratic and lawless rule ..."; and

-- accusing him of manipulating the 2000 legislative elections and not "deliver(ing) the democracy he promised".

In fact, he's a beloved democrat first elected in 1990 with 67% of the vote, ousted by a US-supported coup months later, returned to Haiti in 1994, then, because he couldn't succeed himself in 1996, ran in 2000 and was overwhelmingly re-elected with 92% of the vote. Today in exile, the great majority of Haitians want him back but paramilitary occupiers, under orders from Washington, won't let him.

Following Hugo Chavez's December 1998 election, The Times Latin American reporter, Larry Roher, wrote:

Regional "presidents and party leaders are looking over their shoulders (concerned about the) specter (they) thought they had safely interred: that of the populist demagogue, the authoritarian man on horseback known as the caudillo (strongman)" taking power.

Ever since, Times writers consistently:

-- turned a blind eye to Venezuelan democracy;

-- bashed Chavez as "divisive, a ruinous demagogue, provocative (and) the next Fidel Castro";

-- said he "militarized the government, emasculated the country's courts, intimidated the media, eroded confidence in the economy, and hollowed out Venezuela's once-democratic institutions": common conditions during decades of pre-Chavez rule that columnist Roger Lowenstein falsely said exist now in:

-- calling him anti-capitalist for sharing his nation's oil wealth with the people by providing essential social services, and for lifting the most needy out of poverty; and

-- denouncing his making foreign investors pay their fair share.

Lowenstein backed the aborted April 2002 coup by calling Chavez's ouster a "resignation", then saying Venezuela "no longer (would be) threatened by a would-be dictator".

After 9/11, the Times played the lead role in taking the nation to war by highlighting the "day of terror" and saying the "President Vows to Exact Punishment for 'Evil' ".

In the run-up to the Iraq war, Judith Miller was a weapon of mass deception with her daily front page Pentagon press release columns masquerading as real news, later exposed as manipulative lies, but they worked.

Following the September 15 2009 Goldstone Commission report, a same day Neil MacFarquhar column suggested that Israel's "disproportionate attack" followed Hamas provocations, so perhaps it was justified. While The Times gave Judge Goldstone op-ed space, it:

-- published scathing letters denouncing his "one-sidedness" and a September 18 piece saying "the Obama administration said (today) that a United Nations report accusing Israel of war crimes in Gaza was unfair to Israel and did not take adequate account of 'deplorable' actions by the militant group Hamas in the conflict last winter".

The paper then imposed a near-blackout on its news and editorial pages to bury the story and kill it through silence - never mind its importance in documenting clear evidence of Israeli war crimes against a civilian population.

National Public Radio (NPR) and Public Broadcasting (PBS)

Founded in 1970 as an independent, private, non-profit member organization of US public radio stations, NPR promised to be an alternative to commercial broadcasters by "promot(ing) personal growth rather than corporate gain (and) speak with many voices, many dialects".

Having long ago abandoned its promise, and given its substantial corporate and government funding, NPR is indistinguishable from the rest of the corporate media, just as corrupted, and consider its former head, Kevin Klose.

He was president from December 1998 to September 2008 and CEO from 1998 to January 2009. Earlier he was US propaganda director as head of the Voice of America (VOA), Radio Liberty, Radio Free Europe, Radio Free Asia, Worldnet Television, and the anti-Castro Radio/TV Marti, so he fit easily into his new role.

On January 5 2009 Vivian Schiller succeeded him as president and CEO. Her official biography says she was previously with "The New York Times Company where she served as Senior Vice President and General Manager of NYTimes.com".

She'll oversee "all NPR operations and initiatives, including the organization's critical partnerships with our 800+ member stations, and their service to the more than 26 million people who listen to NPR programming every week". Most don't know they're getting the same corporate propaganda and "junk food news" or that NPR calls itself "public" to conceal its real agenda, and why critics call it "National Pentagon or Petroleum Radio" with good reason.

Created by the Public Broadcasting Act of 1967, the Corporation for Public Broadcasting (CPB) calls itself "a private, nonprofit corporation created by Congress ... and is the steward of the federal government's investment in public broadcasting. It helps support the operations of more than 1,100 locally owned and operated public television and radio stations nationwide, and is the largest single source of funding for research, technology, and program development for public radio, television and related online services."

Like NPR, it's heavily corporate and government funded and provides similar services for them. Under George Bush, former Voice of America director Kenneth Tomlinson was chairman of CPB's Board of Governors until an internal 2005 investigation forced him out for repeatedly breaking the law.

On September 16 2009, a CPB press release announced that "The board of directors (of the CPB) today elected Dr Ernest Wilson III (as) chairman and re-elected ... CEO Beth Courtney (as) vice-chair".

Wilson previously held senior policy positions as Director of International Programs and Resources on the National Security Council. He was also Policy and Planning Unit Director for the US Information Agency and a member of the Council on Foreign Relations (CFR).

Beth Courtney is a George Bush appointee, a past chairman of the board of America's Public Television Stations and present CPB vice chairman. Currently she also serves on the boards of Satellite Educational Resources Consortium, the Organization of State Broadcasting Executives, the National Forum for Public Television Executives, and the National Educational Telecommunications Association along with other appropriate credentials for her re-appointment.

In its May/June 2004 "Extra" report, FAIR (Fairness & Accuracy in Reporting) asked "How Public Is Public Radio? Writers Steve Rendall and Daniel Butterworth quoted past head Kevin Klose saying:

"All of us believe our goal is to serve the entire democracy, the entire country".

Not according to FAIR on "every on-air source quoted in June 2003 on four of (NPR's) news shows: All Things Considered, Morning Edition, Weekend Edition Saturday and Weekend Edition Sunday". Each guest was classified "by occupation, gender, nationality, and partisan affiliation". Combined, 2,334 sources from 804 stories were quoted.

FAIR found that NPR relies on the same dominant sources as the major media that include government officials, professional experts, and corporate representatives nearly two-thirds of the time.

Spokespeople for public interest groups accounted for seven percent of total sources, and ordinary people appeared mostly in "one-sentence soundbites".

Male guests outnumbered women about four to one, and those women quoted most often came from the same elite categories as men.

Overall, NPR represents the same dominant interests as the major commercial media - conservative, pro-business, pro-war, pro-Israel, and very much against the public interest while pretending to support it.

FAIR analyzed PBS's flagship NewsHour guest list and drew similar conclusions. Like NPR, it's ideologically right and usually censors progressive content and public interest programming. In a 1990 NewsHour evaluation, FAIR compared its content to ABC's Nightline and found that it presented "an even narrower segment of the political spectrum". It then conducted an October 2005 to March 2006 analysis of all of its programs, got similar results, and determined that NewsHour is even more ideologically right than NPR that tilts far in that direction itself.

FAIR concluded that NPR and NewsHour content "overwhelmingly represent those in power rather than the public" they're obliged to serve. While masquerading as public programming, they betray their listeners and viewers by offering the same propaganda and "junk food news" as the dominant corporate media. Considering their funding sources, what else would they do.

An October 6 NPR story is typical of most others. It charged Hugo Chavez with "Targeting Opponents For Arrest". Reporter Juan Forero claimed "dozens of university students" went on hunger strike outside OAS headquarters in Caracas on September 28 along with others "across the country ... in support of Julio Cesar Rivas, a student who was arrested during an anti-government demonstration in August ..."

Rivas is the coordinator and founder of Juventud Activa de Venezuela Unida (United Active Youth of Venezuela - JAVU). Earlier, he was part of a staged, violent street protest against Venezuela's new Education Law. The government says JAVU acts as "shock troops" in opposition protests and is liberally funded by the National Endowment of Democracy (NED), International Republican Institute (IRI), and US Agency or International Development (USAID) to disrupt internal Venezuelan affairs. It's a familiar scheme, repeated numerous times in the past, to discredit and disrupt the Chavez government in hopes of eventually ousting it.

JAVU has about 80,000 members in most Venezuelan states, and its blog site calls for bringing down the government and supporting the Honduran military coup.

Rivas was released on September 29, but must appear for trial. He's a Washington-funded provocateur, charged with resisting arrest, instigating crime, conspiracy, inciting rebellion, damaging public property, and using "generic" weapons.

While in custody, Venezuela Public Defender Gabriela Ramirez assured him in person that his full constitutional rights will be protected. Street protests still continue and have been countered by pro-Chavez ones calling for "peace and tolerance". According to the Federation of Bolivarian students' Carlos Sierra:

Opposition "students are being used and manipulated by the top leadership of the irrational opposition, which, via the (dominant) media, send them to generate violence and terrorism in the country" much like on previous occasions.

But according to NPR's Forero, Rivas was "sent to one of Venezuela's most infamous prisons" where other government opponents are held as political prisoners. Chavez "has been jailing dozens of key opponents - some of them students, some of them veteran politicians" in citing unnamed "human rights groups and constitutional experts (claiming) Venezuela is increasingly singling out and imprisoning its foes in politically motivated witch hunts".

Forero didn't mention that Rivas fomented violence. Others arrested also broke the law. No one is a political prisoner, and all Venezuelans get fair and equitable trials, unlike in America where real political arrests, prosecutions and convictions happen regularly against innocent targeted victims - a topic NPR and PBS won't touch except to vilify them publicly on-air.

Nor do they report truthfully on Occupied Palestine. On October 12 2009, on NPR's Morning Edition, reporter Renee Montagne practically extolled Israeli racism in stating:

"There is a new enemy for some Israelis: romance between Jewish women and Arab men, (so) vigilantes have banded together to fight it". She means from "Jewish settlements" that "have sprung up (in) traditionally Arab" East Jerusalem, but won't admit they're on stolen Palestinian land.

NPR's Sheera Frankel joined a patrol, implied Arabs are inferior to Jews, and suggested they pose a danger to Jewish women and girls. She described vigilantes on the lookout for "Arab-Jewish couples (to) break up their dates", suggesting it's the right thing to do, but never questioning the legitimacy of settlements, vigilante violence in East Jerusalem, its lawless disregard for the law, or great harm to innocent people. Instead she called "mixed couples a growing epidemic" of miscegenation - typical of NPR's racism and one-sided support for Israel.

The Wall Street Journal (WSJ)

The WSJ is Dow Jones & Company's flagship publication, now a News Corporation one since Rupert Murdoch bought it in August 2007. Stating its ideology up front, it says it supports "free markets and free people" as well as "free trade and sound money; against confiscatory taxation and the ukases (edicts) of kings and other collectivists; and for individual autonomy against dictators, bullies and even the tempers of momentary majorities".

In October 2007, FAIR bemoaned the Murdock takeover because of his "penchant for using his holdings as vehicles for his personal (views) and business interests". Earlier FAIR and the Columbia Journalism Review criticized its editorial page for inaccuracy, extreme bias, and dishonesty.

The Journal is unapologetic in saying its philosophy "make(s) no pretense of walking down the middle of the road. Our comments and interpretations are made from a definite point of view ... We oppose all infringements on individual rights, whether (from) private monopoly, labor union monopoly or from an overgrowing government. (We're) not much interested in labels but if we were to choose one, we would say we are radical."

Radical can be revolutionary and beneficial when it backs fundamental progressive change and reform. Webster defines it as:

"marked by a considerable departure from the usual and traditional: extreme; tending or disposed to make extreme changes in existing views, habits, conditions, or institutions; of, relating to, or constituting a political (or perhaps business) group associated with views, practices, and policies of extreme change; (or) advocating extreme measures to retain or restore a political state of affairs" such the radical right represented by the WSJ's management and editorial writers.

Critics agree that they're on the far right extremist fringe, a supporter of voodoo economics, tax cuts for the rich, a staunch defender of executive privilege, and disdainful of anything to the left of their views as witnessed daily by some of the most outlandish, one-sided, pro-business commentaries countenancing no alternatives, with the rarest of rare exceptions showing up to make the paper look fair, which it's not.

Consider editorial board member Mary O'Grady in her weekly Americas column on "politics, economics and business in Latin America and Canada". Her extremism is unmatched. Her style is agitprop; her space a truth-free zone; her language hateful and vindictive; her tone malicious and slanderous; her style bare-knuckled thuggishness; and her material calculating, mendacious, and shameless. Yet she's a WSJ regular and an award-winning op-ed writer, but surely no journalist according to Webster's definition:

"writing characterized by a direct presentation of facts or description of events without an attempt at interpretation".

O'Grady fails on both counts. She's a kind of print version of Fox News' Glenn Beck, who promotes himself on glennbeck.com looking arrogant in a uniform reminiscent of the Nazi SS.

Consider O'Grady's support for the Washington-backed June 28 Honduran coup ousting a democratically elected president. It was followed by months of mass arrests, disappearances, killings, targeting the independent media, suspending the Constitution, declaring martial law, and threatening the Brazilian embassy's sovereignty where President Manuel Zelaya took refuge after returning.

In one of her many pro-coup articles, O'Grady (on July 13) headlined "Why Honduras Sent Zelaya Away". In a "perfect world", according to her, he "would be in jail in his own country right now, awaiting trial. The Honduran attorney general (part of the coup regime) has charged him with deliberately violating Honduran law and the Supreme Court (stacked with pro-coup justices) ordered his arrest in Tegucigalpa on June 28", the day of the coup.

"But the Honduran military whisked him out of the country, to Costa Rica", to save itself the embarrassment of jailing a democratically elected leader whose lawful actions were endorsed by the majority of Hondurans wanting progressive constitutional change and a president willing to give it to them.

Yet according to O'Grady, "Mr Zelaya's detention was legal, as was his official removal from office by Congress ... Besides eagerly trampling the constitution, Mr Zelaya had demonstrated that he was ready to employ the violent tactics of 'chavismo' to hang onto power. The decision to pack him off immediately was taken in the interest of protecting both constitutional order and human life."

In fact, Zelaya neither espoused or practiced violence, and his call for a public June 28 vote on whether to hold a referendum for a new Constitutional Convention at the same time as the November elections lawfully asked for a "yes" or "no" on one question:

"Do you think that the November 2009 general elections should include a fourth ballot box (the other three were for candidates) in order to make a decision about the creation of a National Constitutional Assembly that would approve a new Constitution?"

According to Article 5 of the 2006 Honduran "Civil Participation Act", government officials may hold non-binding inquiries (referenda) to determine popular support for proposed measures. Gauging sentiment for a National Constituent Assembly for a new Constitution is legal.

Yet in her June 28 article titled, "Honduras Defends Its Democracy", O'Grady falsely claimed Zelaya planned "a constitutional rewrite (following) a national referendum" only the Congress can approve. In fact, Zelaya called for a vote to assess public sentiment, pro or con, on whether Hondurans want a Constitutional Convention, an act no different from a public opinion poll that's perfectly legal or should be anywhere. But according to O'Grady, Zelaya "decided he would run the referendum himself". It's typical O'Grady truth reversal that earns her weekly space on the WSJ's op-ed page.

The BBC's Long Tradition As An Imperial Tool

State-owned and funded, it's tradition is long, unbroken, and disturbing as the world's largest and most influential broadcaster reaching global audiences in 32 languages. From inception in 1925, it's been reliably pro-government and pro-business, or as its founder Lord Reith wrote the establishment: "They know they can trust us not to be really impartial". Neither he or his successors disappointed on topics mattering most, including war and peace, corporate crimes, US-UK duplicity, labor rights, democratic freedoms, human and civil rights, social justice, and Western imperialism.

They're consistently distorted, suppressed, marginalized or ignored throughout decades of misreporting despite claiming "honesty (and) integrity (is) what the BBC stands for (because it's) free from political influence and commercial pressure".

As a propaganda service, its record is uncompromisingly anti-union, pro-business, and dependably safe for Whitehall and its allies. It moralizes Western aggression, bashes independent democratic leaders, and cheerleads for the powerful at the expense of providing real news and information for millions believing BBC is credible. For over eight decades, it's record is solid and predictable - betraying the public trust to reliably serve the powerful. The tradition continues.

Prominent TV Demagogues

Among the many, consider a select few. For example, CNN's Lou Dobbs, "Mr Independent" he calls himself. Critics use more descriptive terms, yet according to his loudobbs.tv.cnn.com bio:

He's "anchor and managing editor of CNN's Lou Dobbs Tonight (and also anchor of) a nationally syndicated financial news radio report, The Lou Dobbs Financial Report ..." In addition, he writes a weekly CNN.com commentary, is an author and award-winning "journalist", most recently in 2005 when "the National Academy of Television Arts and Sciences awarded (him) the Emmy for Lifetime Achievement" for serving the usual special interests nightly on prime time TV.

In June 2004, he also won "the Eugene Katz Award for Excellence in the Coverage of Immigration from the Center for Immigration Studies for his ongoing series 'Broken Borders', which examines US policy towards illegal immigration". Little wonder in an August 2006 article, this writer called him CNN's Vice President of Racism. He's also a paid liar and in America wins awards.

In May 2008, a Media Matters Action Network report titled, "Fear & Loathing in Prime Time: Immigration Myths and Cable News" highlighted undocumented Latino hatemongering by Dobbs, Bill O'Reilly, and Glenn Beck, each claiming:

-- an alleged connection between undocumented Latinos and crime; in fact, clear evidence shows they're no more likely to break laws than American citizens;

-- how they exploit social services and don't pay taxes; in fact, undocumented immigrants are ineligible, without proof of legal status, for Medicaid, food stamps, State Children's Health Insurance (SCHIP) and welfare; they do pay income, payroll, property, sales and other taxes and are entitled to public education; according to the National Academy of Sciences, immigrants provide a net annual gain of up to $10 billion to US GDP; according to Rand Corporation economist James P Smith, the "net present value of the gains from those immigrants who arrived since 1980 would be $333 billion".

-- the "reconquista" myth about a supposed Mexican plot to take over the US Southwest; and

-- an epidemic of Latino voter fraud that, according to Dobbs' incessant drumbeat, puts America's "democracy absolutely in jeopardy".

He also propagates the myth that undocumented Latinos caused an increase in US leprosy (or Hansen's disease). In an on-air April 2005 report (among others), correspondent Christine Romans quoted "medical lawyer" Dr Madeleine Cosman saying:

"We have some enormous problems with horrendous diseases that are being brought into America by illegal aliens (including) leprosy ..." Romans added that, according to Cosman, "there were about 900 (US) cases of leprosy for forty years. There have been 7,000 in the past three years."

According to a May 2007 60 Minutes report, the National Hansen's Disease Program (NHDP) of the Department of Health and Human Services (HHS) reported that "7,000 is the number of leprosy cases over the last thirty years, not the past three, and nobody knows how many of those cases involve illegal immigrants". NHDP added that from 2002 to 2005 (the timeline of Cosman's claim), only 398 cases occurred. To that, Dobbs responded: "If we reported it, it's a fact".

Founded in 1971, the Southern Poverty Law Center (SPLC) is internationally known for its activism against hate groups and scoring legal victories against white supremacists. It says Dobbs regularly features inaccurate racist reports and features anti-immigrant hatemongers like:

-- Glenn Spencer, head of the anti-immigration American Patrol, whose web site highlights anti-Mexican vitriol and the idea that Mexico plans a secret takeover of the Southwest;

-- Joe McCutchen, head of the anti-immigration Protect Arkansas Now group, that Dobbs calls "a terrific group of concerned, caring Americans";

-- Paul Streitz, co-founder of Connecticut Citizens for Immigration Control, who once denounced Mayor John DeStefano, Junior for "turning New Haven into a banana republic";

-- Barbara Coe, leader of the California Coalition for Immigration Reform who routinely calls Mexicans "savages"; and

-- Chris Simcox, co-founder of the Minuteman Project and a leading anti-immigration figure.

SPLC explains that Dobbs "doggedly explores and supports the anti- immigration movement (and) won't report salient negative facts about anti- immigration leaders he approves of ..."

Instead, he falsely claims that:

-- "just about a third of the prison population in this country is estimated to be illegal aliens";

-- states have been "overwhelmed by criminal illegal aliens"; and

-- US borders are "unprotected" allowing "criminal illegal aliens (to) murder police officers".

In 2007 alone, the connection between illegal immigration and crime was discussed on 94 episodes of Lou Dobbs Tonight, and dozens more focused on an "army of invaders", immigrants not paying taxes, draining social services, and threatening our white Anglo-Saxon culture.

CNN reporters Casey Wian, Bill Tucker, Kitty Pilgrim and others present a steady diet of subtle and overt racism to incite viewers to believe it. Through constant repetition, it propagates the myth, and according to the Media Matters Action Network report:

Dobbs "is hailed by the entire spectrum of immigration opponents, from the reasonable to the unreasonable. And the degree to which extremist elements see (him) as an ally indicates at the very least that they believe he is helping their cause" because they feel he's a populist crusader.

Yet according to a July 30 New York Observer report, recent Nielsen data showed that after Dobbs began reporting (on July 15) that Barack Obama's birth certificate was fraudulent (an apparent stunt to increase ratings), his viewership dropped significantly - fifteen percent overall and 27% in the valued 25 - 54 age category.

Fox News Channel (FNC)

When it debuted in 1996, one of its on-air hosts said:

The "Channel was launched (because) something was wrong with news media ... somewhere bias found its way into reporting ... Fox ... is committed to being fair and balanced (covering) stories everybody is reporting - and ... stories ... you will see only on Fox".

Later the Columbia Journalism Review said several former Fox employees "complained of 'management sticking their fingers' in the writing and editing stories to cook the facts to make a story more palatable to right-of-center tastes". But it hasn't hurt ratings.

As of the First Quarter of 2009, Fox News Channel was the second highest rated cable channel in prime time total viewers. CNN ranked 17th and MSNBC 24th. The O'Reilly Factor has been Number One rated on cable news for 100 consecutive months and gained 27% more viewers year-over-year. Glenn Beck increased ninety percent over the previous year. Overall, Fox News Channel topped CNN and MSNBC combined in prime time total audience.

Fairness & Accuracy in Reporting (FAIR) said "Fox's signature political news show, Special Report with Brit Hume (now with Bret Baier) was originally created as a daily one-hour update devoted to the 1998 Clinton sex scandal". In the past year, it gained 39% more viewers.

As for accuracy and being "fair and balanced", FAIR (in summer 2001) called Fox News Channel "The Most Biased Name in News", yet according to Murdoch in March 2001:

"I challenge anybody to show me an example of bias in Fox News Channel".

In FAIR's Seth Ackerman article and later ones, Fox News Channel's blatant manipulation of the news is exposed. For example, Bret Baier's "Political Grapevine" is a right-wing "hot sheet" featuring a "series of gossipy items culled from other right-wing" sources. It and other reports are blatantly partisan propaganda against "liberal media bias", progressives, environmentalists, anti-war activists, civil rights groups, and others to the left of their views.

According to FAIR, the commentary on political punditry programs like The O'Reilly Factor, the Sean Hannity Show, and The Beltway Boys is so slanted that it's like watching "a Harlem Globetrotters game (knowing) which side is supposed to win".

Fox News Channel's Bill O'Reilly

His official bio calls The O'Reilly Factor "a unique blend of news analysis and hard hitting investigative reporting dropped each weeknight into 'The No Spin Zone". He also hosts a syndicated radio show, writes a weekly column carried in over 300 newspapers, and authored several books that according to New York Times writer Janet Maslin were "either (done) with a collaborator or (O'Reilly) was born with a ghostwriter's gift for filling space with platitudes ..." With good reason, Maslin called him "one of the most controversial human beings in the world ..."

In an October 2008 report titled "Smearcasting", FAIR called him an "Islamophobe" for spreading "fear, bigotry and misinformation" along with eleven other popular figures, including Glenn Beck, Sean Hannity, Michelle Malkin (another Fox News Channel regular), David Horowitz, and Pat Robertson.

After 9/11, FAIR said O'Reilly proposed attacking a list of Muslim countries "if they did not submit to the US - starting with Afghanistan".

On air he said:

"The US should bomb the Afghan infrastructure to rubble - the airport, the power plants, their water facilities and the roads ... If they don't rise up against this primitive country, they starve, period".

Iraq must also be destroyed he said, and "the population made to endure yet another round of intense pain". As for Libya, "Nothing goes in, nothing goes out ... Let them eat sand".

FAIR called his penchant for attacking Muslim countries "an O'Reilly trademark", and "his disregard for Muslim civilians is matched by the anti-Muslim sentiments he frequently expresses on both his nationally syndicated radio show, the Radio Factor", reaching 3.5 million listeners, and his top-rated Fox News Channel show.

Some of his hateful comments include saying:

-- areas of London are "just packed with just dense Muslim neighborhoods, which breed this kind of contempt for Western society. Why do they let them in";

-- "We're at war with Muslim fanatics. So all young Muslims should be subject to (special) scrutiny, (saying it's not racial, just) "criminal profiling";

-- "the most unattractive women in the world are probably in Muslim countries"; and

-- in Iraq, he blamed killing on Islam: "They're all Muslims, and they're doing what they do. They're killing each other. And they're killing Americans."

O'Reilly is equally racist about Latino immigrants with frequent comments like:

"The extreme elements in this country want open borders, blanket amnesty, and entitlement for foreign nationals who have come here illegally, and generally want to change the demographics in the USA so political power can be assumed by the left. That is the end game". He also argues that "Low-skilled immigrant labor costs the taxpayers today $19,000 to (subsidize) people who are using the hospitals (and) the education system ... These are rock-solid stats", but O'Reilly won't say from where.

They're blatantly false and may be from a May 2007 Robert Rector / Christine Kim (right-wing think tank) Heritage Foundation paper titled, "The Fiscal Cost of Low-Skill Immigrants to State and Local Taxpayers".

O'Reilly spreads daily misinformation, innuendo, and hateful demagoguery to millions of his daily faithful. Like the others above, they're paid liars delivering what passes for today's major media journalism. It's why so much of the public is misinformed and the reason more hate groups than ever proliferate.

According to the Southern Poverty Law Center (SPLC), they numbered 926 in 2008, up from 602 in 2000 and are "animated by the national immigration debate". Since Obama took office, they're also driven by their hatred of a black president, exacerbated by a growing economic crisis that's easy to blame on the undocumented and a non-white head of state.

These groups are ideologically vicious and extremely dangerous when motivated by racist right-wing media commentators reaching far larger audiences than more saner voices drowned out. It's more evidence of social decay and the urgent need for change.

The Right-Wing Media Attack ACORN

Founded in 1970, ACORN (Association of Community Organizations for Reform Now) "is the nation's largest grassroots community organization of low and moderate income people with over 400,000 member families organized into more than 1,200 neighborhood chapters in about 75 cities across the country".

As the nation's preeminent community organizing group, it backs a living wage, opposes predatory lending and foreclosures, supports affordable housing, better public schools, welfare reform, voting rights, rebuilding New Orleans, and other social and economic justice issues.

For many months as a result, right-wing extremists have tried to discredit its successes online and through the media. Led by Fox News, Lou Dobbs, and others, it's accused of financial corruption, massive voter fraud, and other indiscretions, mostly fabricated to destroy the group's credibility, cut off its funding, and harm other community organizing efforts. However, compared to corporate fraud and abuse scandals, ACORN's occasional missteps are minor, insignificant, and undeserving of inflammatory media headlines.

Nonetheless recent news stories featured false accusations that ACORN engages in prostitution nationwide. The supposed evidence came from two right-wing filmmakers (Hannah Giles and James O'Keefe) posing as prostitute and pimp, conveniently videotaped for airing. In prime time especially, Fox News, Lou Dobbs and others featured it nightly.

On September 14, Dobbs reported "another pimp and prostitute scandal at the left-wing activist organization ACORN. For the third time, ACORN workers for the left-wing advocacy group (got) caught on hidden camera breaking the law. Now calls from Congress to investigate and cut off public funding are growing."

According to Fox News Bill O'Reilly, "With more than thirty criminal 'convictions' on its resume, the organization cannot be trusted". Based on no credible evidence, other Fox News Channel reports accuse ACORN of "operat(ing) as a criminal enterprise", including prostitution, running a prostitution ring, filing false documents with taxing and other government authorities, bank fraud, violating immigration laws, transporting women and children to America for immoral purposes, and impairing the welfare of minors.

More evidence of reprehensible innuendo, distortion, deceit, and misinformation from major media paid liars. It's why web sites like this one gain followers.

_____

Stephen Lendman is a Research Associate of the Centre for Research on Globalization. He lives in Chicago and can be reached at lendmanstephen.blogspot.com.

Also visit his blog site at sjlendman.blogspot.com and listen to The Global Research News Hour on RepublicBroadcasting.org Monday - Friday at 10 am US Central time for cutting-edge discussions with distinguished guests on world and national issues. All programs are archived for easy listening.

http://republicbroadcasting.org/Global%20Research/index.php?cmd=archives.year&ProgramID=33&year=9

http://sjlendman.blogspot.com/2009/11/paid-lying-what-passes-for-major-media.html

Bill Totten http://www.ashisuto.co.jp/english/index.html

The Crashing US Economy Held Hostage

2009-11-21T06:47:00.000+09:00

Our Economy is on an Artificial Life-support System

by Richard C Cook

Global Research (July 07 2007)

Remember when the US was the world's greatest industrial democracy? Barely thirty years ago the output of our producing economy and the skills of our workforce led the world.

What happened? It's hard to believe that in the space of a generation our character and capabilities just collapsed as, for example, did our steel and automobile industries and our family farming. What then are the causes of the decline?

Here's how I would put it today: our economy is on an artificial life-support system, a barely-breathing hostage in a lunatic asylum. That asylum is the US and world financial systems which are on the verge of collapse.

The inmates are the world's central bankers, along with most of the financial magnates big and small. The fact is that the economy of much of the world is in a decisive downward slide which the financiers cannot stop because the systems they operate are the primary cause. As often happens, the inmates rule the asylum.

The problems aren't confined to the US. Unemployment worldwide is increasing, debt is rampant, infrastructures are crumbling, and commodity prices are rising.

In such an environment, crime, warfare, terrorism, and other forms of violence are endemic. Only the most naive, self-centered, and deluded jingoist could describe such a scenario in terms of the freedom-loving Western democracies being besieged by the "bad guys".

Rather what is happening highlights the growing failures of Western globalist finance whose impact on political stability has been so corrosive. As many responsible commentators are warning, we are likely to see major financial shocks within the next few months. The warnings are even coming from high-flying institutional players like the Bank of International Settlements and the International Monetary Fund.

We may even be seeing the end of an era when the financiers ruled the world. At a certain point, governments or their military and bureaucratic establishments are likely to stop being passive spectators to the onrushing disorder. It is already happening in Russia and elsewhere.

The countries that will be least able to master their own destiny are those like the US where governments have been most passive to economic decomposition from actions of their financial sectors. The financiers are the ones who for the last generation have benefited most from economies marked by privatization, deregulation, and speculation, but that may be about to change. Whether the change will be constructive or catastrophic is yet to be seen.

The Housing Bubble Sets the State for US Collapse

Within the US, foreign investors, above all Communist China, have been propping up our massive trade and fiscal deficits with their capital. To keep them happy, interest rates - after six years of "cheap credit" - must now be kept relatively high. Otherwise the Chinese, et al , might bail out, leaving us to fend for ourselves with our hollowed-out shell of an economy.

Even so, these investors are increasingly uneasy with their dollar holdings and are bailing out anyway. Foreign purchase of US securities has plummeted. And our debt-laden economy, where our manufacturing base has been largely outsourced, is no longer capable of providing our own population with a living by utilizing our own productive resources.

For a while we were floating on the housing bubble, but those days are now history when, according to a Merrill-Lynch study, the artificially pumped-up housing industry, as late as 2005, accounted for fifty percent of US economic growth.

As everyone knows, the Federal Reserve under Chairman Alan Greenspan used the housing bubble, like a steroid drug, to pump liquidity into the economy. This worked, at least for a while, because consumers could borrow huge amounts of money at relatively low interest rates for the purchase of homes or for taking out home equity loans to pay off their credit cards, finance college education for their children, buy new cars, et cetera.

When the final history of the housing bubble is written, its beginnings will be dated as early as 1989 to 1990, when credit restrictions on the purchase of real estate first began to be eased. According to mortgage industry insiders interviewed for this article, they began to be taught the methods for getting around consumers' weak credit reports and selling them homes anyway in the mid to late 1990s.

The Fed started inflating the housing bubble in earnest around 2001, after the collapse of the dot.com bubble, which failed with the stock market decline of 2000 and 2002. Then, over a trillion dollars of wealth, including working peoples' retirement savings, simply vanished.

Also according to mortgage specialists, it was in March 2001, two months after George W Bush became president, that a "wave of intoxicated fraud" started. Mortgage companies began to be instructed, by the creditors / lenders, on how to package loan applications as "master strokes of forgery", so that completely unqualified buyers could purchase homes.

There could not have been a sudden onset of industry-wide illegal activity without direction from higher-up in the money chain. It could not have continued without reports being filed by whistleblowers with regulatory agencies. Today the government is prosecuting mortgage fraud, but they certainly had to know about it while it was actually going on.

The bubble was coordinated from Wall Street, where brokerages "bundled" the "creatively-financed" mortgages and sold them as bonds to retirement and mutual funds and to overseas investors. Portfolio managers were directed to buy subprime bonds as other bonds matured. It's the subprime segment of the industry that has now collapsed, triggering, for instance, the recent highly-publicized demise of two Bear Stearns hedge funds.

And it's not just lower-income home purchasers who are affected. The Washington Post has reported that for the first time in living memory foreclosures are happening in Washington's affluent suburban neighborhoods in places like Fairfax, Loudon, and Montgomery Counties.

The subprime bonds were known to be suspect. One reason was that they were based on adjustable rate mortgages that were actually time bombs, scheduled to detonate a couple of years later with monthly payments hundreds of dollars a month higher than when they were written. Many of these mortgages will reset to higher payments this October.

Purchasers were lied to when they were told they could re-sell their homes in time to escape the payment hikes. Now the collapse of the market has made further resale at prices high enough to escape without losses impossible.

One way the system worked was for mortgage lenders to maximize the "points" buyers were required to finance, making the mortgages more attractive to Wall Street. Of course bundling and selling the mortgages relieved the banks which originated the loans from exposure, pushing a considerable amount of the risk onto millions of small investors. This was in addition to the normal sale of mortgages to quasi-public agencies like Freddie Mac and Fannie Mae.

Was it a scam? Of course. Did the Federal Reserve know about it? They had to. Did Congress exercise any oversight? No.

What did the White House know?

Amy Gluckman, an editor of Dollars and Sense, reported in the November / December 2006 issue: "During the Clinton administration, Greenspan was relatively 'unembedded' - averaging only one meeting per month at the White House ...

"But when George W Bush moved into 1600 Pennsylvania Avenue, Greenspan's behavior changed. During 2001, he averaged 3.3 White House visits a month, more than triple his rate under Clinton and much more often with high-level officials like Vice President Cheney. His visits rose to 4.6 a month in 2002 and 5.7 in 2003.

"Whatever White House officials were whispering in Greenspan's ear, it worked: Greenspan abruptly changed his tune on tax cuts, lending critical support to Bush's massive 2001 and 2003 tax giveaways, and he loosened the reins by cutting Fed-controlled interest rates repeatedly beginning in January 2001, a gift to the Republicans in power."

Along the way, the bubble caused housing prices to inflate drastically, which officialdom touted as economic "growth". Even today, periodicals like Barron's naively boast that this inflation boosted American's "wealth".

But this source of liquidity for everyday people has been maxed out, like our credit cards, and there is nothing to replace it. There is no cash cushion anymore, because years ago people stopped earning enough money for personal or household savings.

As purchasers lose their homes to foreclosure, the real estate is being grabbed at bankruptcy prices by the banks and by any other investors with ready money. Whole neighborhoods of cities like Cleveland or Atlanta are turning into boarded-up ghost towns.

What we are seeing are the results of an economic crime on a fantastic scale that implicates the highest levels of our financial and governmental establishments. It spanned three presidential administrations - Bush One, Clinton, and Bush Two - though the worst of it came with the surge of outright lending fraud after 2001.

As usual when hypocrisy is rampant only the small fry are being called to account. Commentators, including a sleepwalking Congress, have self-righteously railed at consumers who got in over their heads. The Mortgage Bankers Association is even lobbying Congress to allocate $7 million more to the FBI to go after the supposedly rogue brokers within their own industry who are being scapegoated.

The Bubbles are only Symptoms

But there's much more to it than that. These bubbles are symptoms. They are created because our wage and salary earners lack purchasing power due to stagnant incomes and various structural causes. These causes include the outsourcing of our manufacturing industries to China and other cheap labor markets and the super-efficiency of the remaining US industry which is able to manufacture products with ever-fewer workers.

Also, our farming, mining, and other resource-based industries are in a long-term slide. This and the decline of hard manufacturing have been going on since our oil production peaked in the 1970s, followed by the Federal Reserve-induced recession of 1979 to 1983. Next came the deregulation of the financial industry. It was all part of the economic disintegration that led to today's "service economy".

Now, for the first time in modern US history, there are no new economic engines at all. The last real engine was the internet which has now reached maturity with marginal players being weeded out.

Our biggest sources of new private-sector jobs today are food service, processing of financial paperwork, health care for the growing numbers of retirees, and menial low-paying jobs, like landscaping and building maintenance. These are increasingly being performed by immigrants who are also underpricing US citizens in many service jobs like childcare and auto repair.

Today the rank-and-file of our population must increasingly turn to borrowing in order to survive. Only the banks and the credit card companies are the beneficiaries. The total societal debt for individuals, businesses, and government is over $45 trillion and climbing. This is happening even while the real value of wages and salaries is decreasing.

What I have just been saying is bad enough, but here's where the real lunacy enters in.

A major factor connected to the decline in the value of employee earnings is dollar devaluation in the overarching financial economy due to the proliferation of huge quantities of bank credit being used to keep the stock market afloat and to fuel the speculative games of equity, hedge, and derivative funds.

In other words, while our factories continue to shut down, the Wall Street gambling casino - like its Las Vegas counterpart - is running full-bore, 24/7. This, along with financing of the massive federal deficit, is what critics are talking about when they speak of the Federal Reserve "printing money".

The main growth factors for federal spending are Middle East war expenditures and interest on the national debt. But within the private sector it's leveraged loans to businesses which The Economist recently said "mirror ... interest-only and negative-amortization mortgages" in the subprime market. But here's the big difference: in the leveraged business economy, the amount of assets at stake are even greater than with the housing bubble.

The financial world, which Dr Michael Hudson calls the FIRE economy - Finance, Insurance, and Real Estate - has been producing millionaires and billionaires among those who know how to play the game.

The Wall Street hedge funds stand out as the most irresponsible financial scams in history. Unregulated and secretive, they account for a third of all stock trades, own $2 trillion in assets, and pay their individual managers over $1 billion a year. Think about this the next time someone you know has their job outsourced to China or when his adjustable rate mortgage resets and drives up his monthly house payment past the level of affordability.

The hedge funds borrow huge sums from the banks which generate loans under their Federal Reserve-sanctioned fractional reserve privileges. Often this money is used by the hedge funds to "short the market", thereby earning profits when stock prices decline.

In other words, the hedge funds and their banking enablers use banking leverage to bet against the producing economy. In doing so, they may actually drive stock prices down, causing ordinary investors to lose a portion of their own wealth. Can this be called anything other than a crime?

The livelihood of much of the US workforce and perhaps half of the rest of the world's population - maybe three billion people - is being threatened by such financial lawlessness. The justification that was first used for financial deregulation and tax cuts for the rich was that the trickle-down effect of wealthy peoples' earnings would spill over to the rank-and-file.

The Reagan administration ushered in these policies in the 1980s under the heading of "supply-side economics". But the opposite has happened. The system has institutionalized an increasingly stratified worldwide culture of haves and have-nots.

The Root Cause of the Catastrophe

How did today's looming tragedy come to pass?

Looking for causes is like peeling an onion. What we are really seeing are the terminal throes of a failed financial system almost a century old. It's happening because, since the creation of the Federal Reserve System in 1913 - even during the period of the New Deal with its Keynesian economics aimed at full employment - our economy has been based almost entirely on fractional reserve banking.

This means that under the regime of the world's all-powerful central banking systems, money is brought into existence only as debt-bearing loans. Interest on this lending tends to grow exponentially unless overtaken by real economic growth.

Remember that every instance of bank lending, from purchase of Treasury Bonds, to credit cards, to home mortgages, to billion-dollar loans to hedge funds for leveraged buyouts or sheer speculation, must eventually be paid back somewhere, somehow, sometime, by somebody, with interest. In the end, it all comes back to people who work for a living, whether in the US or elsewhere, because that is the only way the world community ever creates real wealth.

In an anemic economy like that of the US, growth cannot catch up with interest in a deregulated financial marketplace where interest rates are high. Rates may not seem high compared with, say, the twenty percent-plus rates of the early 1980s, but they are high in an economy with, at best, a two percent GDP growth rate.

And they have been high on average since the 1960s, as the banking industry became increasingly deregulated. Interestingly, since 1965, the US dollar has lost eighty percent of its value, which tends to validate the contention by some observers that higher interest rates not only do not reduce inflation, as the Federal Reserve contends, but actually cause it.

The situation today is worse in many respects than 1929, because the debt "overhang" versus real economic value is much higher now than it was then. The US economy was in far better shape in the 1920s, because so much of our population was gainfully employed in factories or on farms.

The question is not when will the system start to come down, because this has already begun. It's shown most clearly by the fact that according to Federal Reserve data, M1, the part of the money supply most readily available for consumer purchases, is not only lagging behind inflation but has actually decreased in eleven of the last twelve months. This means that the producing economy is already in a recession.

The federal government is trying to figure out what to do. Their biggest concern is that foreign investors have started to pull out of dollar-denominated markets.

The government's "plunge protection team" - known officially as the President's Working Group on Financial Markets - is trying to engineer what they call a "soft landing". It's been likened to the process by which you cook a frog in a pot where you raise the temperature one degree a day. The frog doesn't hop out because the heat goes up gradually, but before long it's too late. The frog has been cooked.

Even if the plunge protection team succeeds, and the frog cooks slowly, there will be a massive de facto default on dollar-denominated debt and a long-term degradation of the US standard of living. The inside word is that we are likely to see major monetary shocks and a possible stock market crash as early as December 2007.

The worst off will be people locked into retirement funds which have a heavy load of mortgage-related securities. Entire investment portfolios are likely to disappear overnight.

The banks, along with the bank-leveraged equity and hedge funds, are preparing for the biggest fire sale in at least a generation. Insiders are going liquid to get ready. If you think Enron was "the bomb", you won't want to miss this one.

What Can Be Done?

There are so many flaws in the system that it's time for real change.

As I have been pointing out in articles over the last several months, the key to a rational solution would be immediate monetary reform leading to a fundamental shift in how the world conducts its financial business. It would mean taking control of the world's economy out of the hands of the private bankers and giving it back to democratically elected governments.

I spent twenty-one years working for the US Treasury Department and studying US monetary history. For much of our history we were a laboratory for diverse monetary systems.

During and after the Civil War (1861-5) we had five different sources of money that fueled our economy. One was the Greenbacks, an extremely successful currency which the government spent directly into circulation. Contrary to financiers' propaganda, the Greenbacks were not inflationary.

Another was gold and silver coinage and specie-backed Treasury paper currency. The third was notes lent into circulation by the national banks. The fourth was retained earnings - individual savings and business reinvestment of profits - which was the primary source of capital for industry. The fifth was the stock and bond markets.

After the Federal Reserve Act was passed by Congress in 1913, the banks and the government inflated the currency through war debt and destroyed most of the value of the Greenbacks and coinage. The banks never entirely displaced the capital markets but eventually took them over during the present-day era of leveraged mergers, acquisitions, and buyouts, while the Federal Reserve created and deflated asset bubbles.

The banking system which rules the economy through the Federal Reserve System has produced the crushing debt pyramid of today. The system is a travesty. Banks, which can be useful in facilitating commerce, should never have this much power. Many intelligent people have called for the Federal Reserve to be abolished, including former chairmen of the House banking committee Wright Patman and Henry Gonzales and current Republican presidential candidate Ron Paul.

Some might call such a program a revolution. I prefer to call it a restoration - of national sovereignty. Central to the program would be the elimination of the Federal Reserve as a bank of issue and restoration of money-creation to the people's representatives in Congress. This is what our Constitution says too. It's the system we had before 1913.

The Monetary Prescription

The fundamental objectives of monetary policy should be to secure a healthy producing economy and provide for sufficient individual income. The objectives should not be to produce massive profits for the banks, fodder for Wall Street swindles, and a blank check for out-of-control government expenditures.

Note I referred to income. I did not say "create jobs". That is the Keynesian answer, because Keynes was a collectivist, and the main thing collectivists like to come up with is to give everyone more work to do, even if it's just grabbing a shovel and digging ditches like they did with the WPA during the Depression.

It's what President Clinton did with his welfare-to-work program that threw hundreds of thousands of mothers off the welfare rolls and into a job market where sufficient work at a living wage did not exist. It's another reason the government is constantly borrowing more money to fuel the military-industrial complex by creating more military, bureaucratic, and contractor jobs.

Back to income. The idea of "income", as opposed to "jobs", is a civilized and humane idea. When are we going to realize that everyone doesn't need a paying job in order for an industrial economy to provide all with a decent living? When are we going to realize that the productivity of the modern economy is part of the heritage of all of us, part of the social commons?

Why can't mothers have the choice of staying home with the kids like they could a generation ago? Why can't some people choose to do eldercare? Why can't others comfortably go into lower-paying occupations like teaching or the arts? Why can't some just opt to study or travel for a while or learn new skills or start a business without facing financial ruin as they often must today? Why can't retirees enjoy their retirement instead of having to stay in the job market or worrying about Social Security going broke?

The US and world economies are on the brink of collapse due to the lunacy of the financial system, not because we can't produce enough.

Contrary to so many doomsayers, the mature world economy is capable of providing a decent living for everyone on the planet. It cannot because the monetary equivalent of its bounty is skimmed by interest-bearing debt.

These are things that monetary reformers have known about for decades. The first steps within the US would be (1) a large-scale cancellation of debt; (2) a guaranteed income for all at about $10,000 a year, not connected to whether a person has a job; (3) an additional National Dividend, fluctuating with national productivity, that would provide every citizen with their rightful share in the benefits of our incredible producing economy; (4) direct spending of money by the government for infrastructure and other necessary costs without resort to taxation or borrowing; (5) creation of a new system of private lending to businesses and consumers at non-usurious rates of interest; (6) re-regulation of the financial industry, including the banning of bank-created credit for speculation, such as purchase of securities on margin and for leveraging buyouts, acquisitions, mergers, hedge funds, and derivatives; and (7) abolishment of the Federal Reserve as a bank of issue with retention of its functions as a national financial transaction clearinghouse.

While these proposals are basically simple, the overall program is so different from what we have today with our financier-controlled system that it takes careful reading and a great deal of thought to understand exactly how it would work. One way to approach it is to look at the likely effects.

These measures would immediately shift the basis of our economy from borrowing from the banks to a mixed system that would include the direct creation of credit at the public and grassroots level. The size of government would shrink, our producing economy would be reborn, debt would come down, economic democracy would become a reality, and the financial industry could be right-sized. Finally, the international situation could be stabilized because we would no longer be driven to a constant state of warfare to seize other nations' resources as with Iraq and to prop up the dollar as a reserve currency abroad.

Such a system would work by creating indigenous sources of credit needed to mobilize the natural wealth and productivity of the nation. There are people who could implement this program. Systems to do so could be installed within the US Treasury and the Federal Reserve within a matter of months.

Fundamental monetary reform implemented to restore economic democracy is what America's real task should be for the twenty-first century. One thing is for certain. The out-of-control financial system that has wrecked the US and world economies over the last generation cannot be allowed to continue.

How the outcome will play out may well depend on whether there is a Jefferson, Lincoln, or Roosevelt waiting in the wings. The success of each of these great leaders was due to one critical factor: their ability to implement monetary reform at a time of national emergency.

_____

Richard C Cook is the author of We Hold These Truths: The Hope of Monetary Reform (2007). A retired federal analyst, his career included service with the US Civil Service Commission, the Food and Drug Administration, the Carter White House, and NASA, followed by twenty-one years with the US Treasury Department. His articles on monetary reform, economics, and space policy have appeared on Global Research, Economy in Crisis, Dissident Voice, Arizona Free Press, Atlantic Free Press, and elsewhere. He also is author of Challenger Revealed: An Insider's Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age. His website is at www.richardccook.com. He appears frequently on internet radio at www.themicroeffect.com on Saturday mornings at 11 am Eastern.

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http://www.globalresearch.ca/index.php?context=va&aid=6239

Bill Totten http://www.ashisuto.co.jp/english/index.html

The Debt Economy

2009-11-20T18:36:00.002+09:00

by James Surowiecki

The New Yorker (November 23 2009)

John Kenneth Galbraith wrote that all financial crises are the result of "debt that, in one fashion or another, has become dangerously out of scale". The recent financial crisis was no exception, with everyone - homeowners, private-equity investors, our biggest banks - taking on enormous amounts of debt. If it's frustrating that the government is footing the bill to clean up the mess, it's even worse that the government helped pay for the debt binge that created the mess in the first place, thanks to a tax system that actually subsidizes borrowing. Debt didn't get dangerously out of scale because the system was broken. It got out of scale, in part, because the system worked.

The government doesn't make people go into debt, of course. It just nudges them in that direction. Individuals are able to write off all their mortgage interest, up to a million dollars, and companies can write off all the interest on their debt, but not things like dividend payments. This gives the system what economists call a "debt bias". It encourages people to make smaller down payments and to borrow more money than they otherwise would, and to tie up more of their wealth in housing than in other investments. Likewise, the system skews the decisions that companies make about how to fund themselves. Companies can raise money by reinvesting profits, raising equity (selling shares), or borrowing. But only when they borrow do they get the benefit of a "tax shield". Jason Furman, of the National Economic Council, has estimated that tax breaks make corporate debt as much as forty-two per cent cheaper than corporate equity. So it's not surprising that many companies prefer to pile on the leverage.

There are a couple of peculiar things about these tax breaks - which have been around as long as the federal income tax. The first is that they're unnecessary. Few people, after all, can save enough to buy a home with cash, so home buyers naturally gravitate toward mortgages. And businesses like debt because it offers them tremendous leverage, making it possible to put down a little money and potentially reap a huge gain. Even in the absence of the deductions, then, there would be plenty of borrowing. The second thing about these breaks is that their social benefits are pretty much nonexistent. Advocates of the mortgage-interest deduction, for instance, claim that it increases homeownership rates. But it doesn't: in countries where mortgage deductions have been eliminated, homeownership rates haven't dropped. Instead, the deduction simply inflates house prices. The business-interest deduction, meanwhile, may lower an individual company's taxes, but it also means that the over-all corporate tax rate is higher, so its real impact is to give companies with lots of debt an unjustified advantage.

If the benefits are illusory, the costs are all too real. Economies work best, generally speaking, when people are making decisions based on economic fundamentals, not on tax considerations. So, as much as possible, the tax system should be neutral between debt and equity, and between housing and other investments. It's not, and, worse still, as we've seen in the past couple of years, debt magnifies risk: if companies or individuals rely on large amounts of leverage, it's much easier for bad decisions to lead to insolvency, with significant ripple effects in the wider economy. A debt-ridden economy is inherently more fragile and more volatile. This doesn't mean that the tax system caused the financial crisis; after all, the tax breaks have been around for a long time, and the crisis is new. But, as a recent IMF study found, tax distortions likely made the total amount of debt that people and companies took on much bigger. And that made the bursting of the housing bubble especially damaging. So encouraging people to take on debt qualifies as a genuinely bad idea.

But it's not an easy situation to change. In 2005, a special Presidential panel on tax reform actually proposed eliminating the business-interest deduction and severely restricting mortgage-interest tax breaks. Those proposals, predictably, went nowhere. But we're in a different historical moment now: the perils of too much borrowing have never been clearer. And there are precedents, on a smaller scale, for these kinds of changes. In the US, people used to be able to write off the interest they paid on credit cards. That tax break was abolished in 1986, and, the same year, the mortgage-interest deduction, which used to be unlimited, was capped. Great Britain, meanwhile, abolished its mortgage tax break in 2000. Similarly, there are a number of countries, including Brazil and Belgium, that don't give corporate debt a tax advantage over equity, while, just last year, both Germany and Denmark cut back sharply on their business-interest tax breaks, limiting how much interest companies can write off. Given the weak state of the economy and of housing prices, a wholesale rewriting of the tax code may be a bridge too far right now, but there are plenty of reforms - capping deductions, phasing them out over time, restricting their use by heavily leveraged companies - that would move in the right direction.

The clearest hurdle to these changes may be political, but the bigger hurdle is, in a way, psychological: because tax breaks on debt have been around so long, we can hardly imagine what it would be like if we changed them, and we tend to underestimate their influence in shaping our behavior. Subsidizing debt seems harmless simply because we've always done it. But the fact that you've had a bad habit for a long time doesn't make it less dangerous.

http://www.newyorker.com/talk/financial/2009/11/23/091123ta_talk_surowiecki

Bill Totten http://www.ashisuto.co.jp/english/index.html

Tax the Rich

2009-11-20T08:24:00.002+09:00

How to Reduce Unemployment, Rebuild the Middle Class and Free Ourselves From Wall Street

by Moshe Adler

CounterPunch (October 28 2009)

Ten percent of Americans are unemployed, and many doubt that President Obama's stimulus will create enough jobs to reduce this rate significantly. But given the structure of our labor force, more jobs is not necessarily what we need anyway. Our workforce includes 13.5 million people who don't belong in it at all. Permitting them not to work would free up jobs and raise the wages of millions of workers who belong in the middle class. It would also free all of us of our dependence on Wall Street.

Currently, four million children under the age of eighteen work, filling the equivalent of two million full time jobs. (The actual number is higher. Even though the law permits the employment of children over the age of fourteen, the Census Bureau only collects data about workers who are older than sixteen.) Ten million college-age youth (between the ages of eighteen and twenty one) also work, and they fill the equivalent of eight million full time jobs. Five million of these college-age youth do not attend college at all. Finally, there are also four and a half million workers who are sixty six years or older, and they fill the equivalent of three and a half million full time jobs. The questions before us are then: Should these workers be removed from the workforce? How much would this cost? Can we afford it? And finally, what will our lives look like after all these workers stop working?

That high school students don't belong in the workforce does not require an explanation. Of course, the families of these children need the money they earn, but their earnings are very small, just $19 billion in 2007, and they could be replaced by child subsidies to low income families.

That high school grads belong in college is also pretty obvious. Today, workers must have a college education in order to do well. In 1950 the difference between the wage of a college graduate and a high school graduate was 27%. But by 2000 this gap grew to 75%. Nevertheless, just as the importance of having a college education has been increasing, it has become dramatically less affordable. Between 1981 and 2005 tuition in state universities increased four times faster than personal incomes did. Making college education free would both increase the number of youth who go to college and decrease the need of those who are already in college to work.

Of course, providing all interested high school graduates with a free college education plus stipends cost will not be cheap. The average yearly tuition in public colleges is currently $6,585 and this figure covers forty percent of the total cost of education. If all young adults chose to go to college, and assuming that tuition was entirely free, the additional cost to taxpayers would be $164 billion a year. The salaries and wages that all college age workers earned, both students and non-students, in 2007, was $135 billion. If the lost earnings are fully replaced by student-stipends, the total cost of providing college education to all would be some $300 billion.

That old people ought to be able to retire shouldn't be controversial. But the social security payment of the median retiree amounts to just forty-two percent of the income she earned while working, and it is not surprising that many workers are forced to continue working even when they are old. Doubling retiree benefits would cost an additional $505 billion a year, and it is the most expensive item in our proposal.

No doubt, not all young adults who are offered the opportunity to go to college will take advantage of it, and not all older Americans will retire even with higher social security payments. But for argument's sake if we assume that all these individuals will in fact leave, the cost of removing thirteen and a half million workers from the workforce, and giving all young adults free college education would come to $825 billion a year. This may sound like a large sum, but it is actually just eleven percent of the total income that households earn, excluding the wages and salaries of the workers who will no longer work.

Can we afford an average increase of eleven percent in taxes (a higher increase for the rich, smaller increase for the poor)? Let's recall that between 1913, the year in which the income tax became constitutional, and 1981, the first year of the Reagan presidency, the highest marginal tax rate was on average 68%. Today it is 35%.

What will our lives be like if millions of low-wage workers stop working? The most visible effect will probably be a drastic reduction in the number of stores that are open 24 hours a day, because it is the abundance of workers that keeps these stores open in the wee hours of the night, when there is nary a customer.

But the most significant change will come from the shift to government financed higher education and retirement. Our lives will be remarkably more secure when we will no longer have to entrust our fate and the fate of our children to retirement and college savings invested in stocks. And when this happens, the incomes and the political power of stock brokers will decline precipitously; Main Street will no longer be in the clutches of Wall Street.

Inequality would decline dramatically as well. With five million fewer retail and restaurant workers, a million fewer construction and a million fewer manufacturing workers, and a six million reduction in the numbers of workers available for work in all other industries, wages will rise significantly. Furthermore, the number of positions seeking workers will increase too, because in order to accommodate five million additional students, the number of jobs on colleges will have to increase by three and a half million. And if millions of old workers will be able to retire, the services that cater to them will also have to increase.

The current crisis inflicts great harm on middle class and low-wage workers. But what we don't want is to return to the world as it was before the crisis. That world deprived millions of children of childhood and the chance for a good education; it prevented millions of youth from being able to attend college; and it deprived millions of old people from being able to retire. It also made all of us dependent on Wall Street. Instead, let's make sure that families have enough money to support their children, that high school grads can afford to go to college, and that older workers who want to retire can.

_____

Moshe Adler teaches economics in the Department of Urban Planning at Columbia University and his book, Economics for the Rest of Us: Debunking the Science that Makes Life Dismal, will be published in January 2010 by the New Press. He can be reached at: ma820@columbia.edu

http://www.counterpunch.org/adler10282009.html

Bill Totten http://www.ashisuto.co.jp/english/index.html

The Tobin Tax Lives Again

2009-11-19T20:48:00.001+09:00

by Dani Rodrik

project-syndicate.org (2009)

Something happened in late August that I never thought I would see in my lifetime. A leading policymaker in the Anglo-American empire of finance actually came out in support of a Tobin tax - a global tax on financial transactions.

The official in question was Adair Turner, the head of the United Kingdom Financial Services Authority, the country's chief financial regulator. Turner, voicing his concerns about the size of the financial sector and its frequently obscene levels of compensation, said he thought a global tax on financial transactions might help curb both.

Such a statement would have been unthinkable in the years before the sub-prime mortgage meltdown. Now, however, it is an indication of how much things have changed.

The idea of such a tax was first floated in the 1970s by James Tobin, the Nobel laureate economist, who famously called for "throwing some sand in the wheels of international finance". Tobin was concerned about excessive fluctuations in exchange rates. He argued that taxing short-term movements of money in and out of different currencies would curb speculation and create some maneuvering room for domestic macroeconomic management.

The idea has since become a cause-celebre for a wide range of non-governmental organizations and advocacy groups that see in it the double virtue of cutting finance down to size and raising a big chunk of revenue for favored causes -foreign aid, vaccines, green technologies, you name it. It has also been endorsed by some French (predictably!) and other continental European leaders. But, until Turner mentioned the idea, you would not have been able to identify a single major policymaker from the United States or the UK, the world's two leading centers of global finance, with anything nice to say about it.

The beauty of a Tobin tax is that it would discourage short-term speculation without having much adverse effect on long-term international investment decisions. Consider, for example, a tax of 0.25% applied to all cross-border financial transactions. Such a tax would instantaneously kill the intra-day trading that takes place in pursuit of profit margins much smaller than this, as well as the longer-term trades designed to exploit minute differentials across markets.

Economic activity of this kind is of doubtful social value, yet it eats up real resources in terms of human talent, computing power, and debt. So we should not mourn the demise of such trading practices.

Meanwhile, investors with longer time horizons going after significant returns would not be much deterred by the tax. So capital would still move in the right direction over the longer term. Nor would a Tobin tax stand in the way of financial markets punishing governments that grossly mismanage their economies.

Moreover, it is undeniable that such a tax would raise a great deal of money. Revenue estimates for a small tax on international currency transactions run into hundreds of billions of dollars per year. The receipts would be even greater if the base is extended, as was implied by Turner, to all global financial transactions. Whatever the precise amount, it is safe to say that the numbers in question are huge - larger than, say, foreign-aid flows or any reasonable assessment of the gains from completing the Doha Round of trade negotiations.

Predictably, Turner came in for severe criticism from City of London bankers and the British Treasury. Much of that criticism misses the mark. A Tobin tax would raise the cost of short-term finance, some argued, somehow missing the point that this is in fact the very purpose of a Tobin tax.

Others argued that such a tax fails to target the underlying incentive problems in financial markets, as if we had an effective, well-proven alternative to achieve that end. It would threaten the role of London as a financial center, some complained, as if the proposal was meant to apply just in London and not globally. It can easily be evaded by relying on offshore banking centers, some pointed out, as if not all financial regulations face that very same challenge.

In any case, as Dean Baker of the Center for Economic and Policy Research in Washington observed, there are many imaginative ways in which a Tobin tax could be made harder to dodge. Suppose, he argues, that we give finance workers who turn in their cheating bosses ten percent of the receipts that the government collects. That would be quite an incentive for self- monitoring.

What the Tobin tax does not do is help with longer-term misalignments in financial markets. Such a tax would not have prevented the US-China trade imbalance. Neither would it have stopped the global saving glut from turning into a ticking time bomb for the world economy. It would not have protected European and other nations from becoming awash in toxic mortgage assets exported from the US. And it would not dissuade governments intent on pursuing unsustainable monetary and fiscal policies financed by external borrowing.

For all of these problems we will need other macroeconomic and financial remedies. But a Tobin tax is a good place to start if we want to send a strong message about the social value of the casino known as global finance.

_____

Dani Rodrik, Professor of Political Economy at Harvard University's John F Kennedy School of Government, is the first recipient of the Social Science Research Council's Albert O Hirschman Prize. His latest book is One Economics, Many Recipes: Globalization, Institutions, and Economic Growth (2008).

Copyright: Project Syndicate, 2009. www.project-syndicate.org

http://www.project-syndicate.org/commentary/rodrik35/English

Bill Totten http://www.ashisuto.co.jp/english/index.html

Tax the Traders!

2009-11-19T08:54:00.001+09:00

A Little Populist Retribution: Making Wall Street Pay Its Fair Share

by Ellen Brown

webofdebt.com (November 11 2009)

"Regular people know that they got done in by excesses on Wall Street, and they see a Democratic administration shoveling trillions of dollars to the same Wall Street banks that caused the mess ... What is overdue is a little bit of populist retribution against the people who brought down the system - and will bring it down again if the hegemony of the traders is not constrained".
- Economist Robert Kuttner arguing for a "Tobin tax"

In the midst of the worst recession since the Great Depression, Goldman Sachs is having a banner year. According to an October 16 article by Colin Barr on CNNMoney.com:

"While Goldman churned out $3 billion in profits in the third quarter, the economy shed 768,000 jobs, and home foreclosures set a new record. More than a million Americans have filed for bankruptcy this year, according to the American Bankruptcy Institute. A September survey of state finances by the Center on Budget and Policy Priorities think tank found that state governments faced a collective $168 billion budget shortfall for fiscal 2010. Goldman, by contrast, is sitting on $167 billion in cash ..."

Barr writes that Goldman's "eye-popping profit" resulted "as revenue from trading rose fourfold from a year ago". Really. Revenue from trading? Didn't we bail out Goldman and the other Wall Street banks so they could make loans, take deposits, and keep our money safe?

That is what banks used to do, but today the big Wall Street money comes from short-term speculation in currency transactions, commodities, stocks, and derivatives for the banks' own accounts. And here's the beauty of it: the Wall Street speculators have managed to trade in practically the only products left on the planet that are not subject to a sales tax. While parents in California are now paying nine percent sales tax on their children's school bags and shoes, Goldman is paying zero tax to sustain its gambling habit.

That helps explain Goldman's equally eye-popping tax bracket. What would you guess - fifty percent? Thirty percent? Not even close. In 2008, Goldman Sachs paid a paltry one percent in taxes - less than clerks at WalMart.

Speeding Tickets to Slow Day Traders?

The fact that Wall Street's speculative trades remain untaxed suggests a tidy way taxpayers could recover some of their billions in bailout money. The idea of taxing speculative trades was first proposed by Nobel Prize winning economist James Tobin in the 1970s. But he acknowledged that the tax was unlikely to be implemented, because of the massive accounting problems involved. Today, however, modern technology has caught up to the challenge, and proposals for a "Tobin tax" are gaining traction. The proposals are very modest, ranging from .005% to one percent per trade, far less than you would pay in sales tax on a pair of shoes. For ordinary investors, who buy and sell stock only occasionally, the tax would hardly be felt. But high-speed speculative trades could be slowed up considerably. Wall Street traders compete to design trading programs that can move many shares in microseconds, allowing them to beat ordinary investors to the "buy" button and to manipulate markets for private gain.

Goldman Sachs admitted to this sort of market manipulation in a notorious incident last summer, in which the bank sued an ex-Goldman computer programmer for stealing its proprietary trading software. Assistant US Attorney Joseph Facciponti was quoted by Bloomberg as saying of the case:

"The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways".

The obvious implication was that Goldman has a program that allows it to manipulate markets in unfair ways. Bloomberg went on:

"The proprietary code lets the firm do 'sophisticated, high-speed and high-volume trades on various stock and commodities markets', prosecutors said in court papers. The trades generate 'many millions of dollars' each year."

Those many millions of dollars are coming out of the pockets of ordinary investors, who are being beaten to the punch by sophisticated computer programs. As one blogger mused:

"Why do we have a financial system? I mean, much of its activity looks an awful lot like gambling, and gambling is not exactly a constructive endeavor. In fact, many people would call gambling destructive, which is why it is generally illegal ...

"What makes Goldman Sachs et al so evil is that they offer vast wealth to our society's best and brightest in exchange for spending their lives being non-productive. I want our geniuses to be proving theorems and curing cancer and developing fusion reactors, not designing algorithms to flip billions of shares in microseconds."

Gambling is an addiction, and the addicted need help. A tax on these microsecond trades could sober up Wall Street addicts and return them to productive labor, and transform Wall Street from an out-of-control casino back into a place where investors pledge their capital for the development of useful products.

The Tobin Tax Gains Momentum

Various proposals for a Tobin tax have received renewed media attention in recent months. President Obama gave indirect support for the tax in a Press briefing on July 22, when he recommended that the government consider new fees on financial companies pursuing "far out transactions". UK Prime Minister Gordon Brown, who has resisted pushes for a Tobin tax in the past, said at the G20 meeting in Scotland on November 7 that a tax on financial trading could prevent excessive risk-taking and fund future bank rescues. It "cannot be acceptable", he said, that banks enjoy the rewards of their successful trades yet leave taxpayers to pick up the cost of their failures. Governments spent more than $500 billion in the past year bailing out banks. US Treasury Secretary Tim Geithner opposed the tax, but the fact that it was being seriously considered was a major development. The French finance minister said, "It's not so exotic and it even seems reasonable".

In the US, a bill called "Let Wall Street Pay for Wall Street's Bailout Act of 2009", proposing to tax short-term speculation in certain securities, was introduced by Representative Peter DeFazio (Democrat, Oregon) last February; and a different bill to regulate derivative trades was approved by the Financial Services Committee in October. Derivatives are essentially bets on whether the value of currencies, commodities, stocks, government bonds or virtually any other product will go up or down. Derivative bets can cause shifts in overall market size reaching $40 trillion in a single day. Just how destabilizing short-term speculation can be - and just how lucrative a tax on it could be - is evident from the mind-boggling size of the market. The Bank for International Settlements estimates that in 2008, annual trading in over-the-counter derivatives amounted to $743 trillion globally - more than ten times the gross domestic product of all the nations of the world combined. Another arresting fact is that just five super-rich commercial banks control 97% of the US derivatives market: JPMorgan Chase & Co, Goldman Sachs Group Inc, Bank of America Corp, Citigroup Inc and Wells Fargo & Co.

Promoters of international development have suggested that a mere .005% tax could raise between $30 billion and $60 billion per year, enough for the G7 countries to double international aid. Other proponents favor the larger one percent tax originally proposed by James Tobin. The much-needed income from a US tax could be split between federal and state governments.

Pros and Cons

Opponents of the tax, led by the financial sector, argue that it would kill bank jobs, reduce liquidity, and drive business offshore. Supporters respond that Tobin tax profits could be used to create new jobs, and that while the speculative market would shrink, the small size of the tax would hardly affect overall cash flows. More than raising money, the tax could be an effective tool for discouraging short-term traders, who often make money on very small margins. Dani Rodrik, Professor of Political Science at Harvard, writes:

"The beauty of a Tobin tax is that it would discourage short-term speculation without having much adverse effect on long-term international investment decisions. Consider, for example, a tax of 0.25% applied to all cross-border financial transactions. Such a tax would instantaneously kill the intra-day trading that takes place in pursuit of profit margins much smaller than this, as well as the longer-term trades designed to exploit minute differentials across markets ... Meanwhile, investors with longer time horizons going after significant returns would not be much deterred by the tax".

Besides technical questions about how to implement the tax internationally, the offshore argument probably presents the most serious challenge. Should a Tobin tax pass in the US, investors would be likely to move to other markets beyond the reach of taxation. The US could penalize traders for doing business abroad, but governments in major markets like Germany and London would no doubt need to endorse the tax for any meaningful shift to be seen. Some experts have argued that the Tobin tax would be best implemented by an international institution such as the United Nations. But other observers see any international tax as a move toward further strengthening the power of the global financial oligarchs. Just the fact that the United Nations, the G20, and the Bank for International Settlements are discussing this option, however, suggests that we the people need to jump in and stake out our claim, before we lose the tax money to international bodies controlled by global bankers. The tax needs to be collected by the US Treasury and go into US coffers. It needs to reach Main Street, where it can be used to stimulate local business and investment.

Officials from the International Monetary Fund insist that implementing a Tobin tax would be logistically impossible. But Joseph Stiglitz, a Nobel Prize winning economist and former World Bank leader, disagrees. In Istanbul in early October, he said that a Tobin tax was not only necessary but, thanks to modern technology, would be easier to implement than ever before. "The financial sector polluted the global economy with toxic assets", he said, "and now they ought to clean it out".

Economist Hazel Henderson proposes a computerized system for imposing a graduated tax that is designed to kill "bear raids" (organized attacks by short sellers). Bear raids directed at vulnerable currencies have been known to collapse whole economies. She writes:

"Such a currency exchange tax would be simple to collect using a computerized system, which can be installed on trading screens, such as the Foreign Exchange Transaction Reporting System (FXTRS). This system operates like an electronic version of Wall Street's venerable 'uptick rule' ... to curb naked short-selling. The FXTRS computerized uptick rule would gradually raise the tax up to a maximum of one percent whenever a bear raid starts attacking a weak currency. Such bear raids are rarely to 'discipline' a country's policies, as traders claim, but rather to make quick profits."

Henderson notes that world economies have become so interlinked that such win-lose strategies are no longer sustainable:

"In systems terms, the global economy, by virtue of its real-time technological inter-linkages, has become a de facto global commons, a common resource of all its users. Such commons require win-win agreements, rules and standards applicable to all users. If normal competitive behavior (win-lose) continues, the result is lose-lose as competition between players leads to sub-optimization and the system itself absorbs risks and eventually can break down, as witnessed in the current crisis."

The financial rescue operations to date have been win-lose, with Main Street being sacrificed at the altar of Wall Street. Some 48 states have faced budget crises in the past year, forcing them to cut libraries, schools, and police forces, and to raise taxes on income and sales. A sales tax on the exotic financial products responsible for precipitating the economic crisis could help level the playing field and put some points on the populist side of the scoreboard.

_____

Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt (2007), her latest book, she turns those skills to an analysis of the Federal Reserve and "the money trust". She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her earlier books focused on the pharmaceutical cartel that gets its power from "the money trust". Her eleven books include Forbidden Medicine (1998), Nature's Pharmacy (1998), co-authored with Dr Lynne Walker, and The Key to Ultimate Health (2000), co-authored with Dr Richard Hansen. Her websites are www.webofdebt.com and www.ellenbrown.com.

(c) Copyright 2007 Ellen Brown. All Rights Reserved.

http://www.webofdebt.com/articles/populist_retribution.php

Bill Totten http://www.ashisuto.co.jp/english/index.html

If Nothing Else, Save Farming

2009-11-18T20:02:00.001+09:00

It's probably too late to prepare for peak oil, but we can at least try to salvage food production.

by George Monbiot

The Guardian (November 16 2009)

I don't know when global oil supplies will start to decline. I do know that another resource has already peaked and gone into freefall: the credibility of the body that's meant to assess them. Last week two whistleblowers from the International Energy Agency alleged that it has deliberately upgraded its estimate of the world's oil supplies in order not to frighten the markets {1}. Three days later, a paper published by researchers at Uppsala University in Sweden showed that the IEA's forecasts must be wrong, because it assumes a rate of extraction that appears to be impossible {2}. The agency's assessment of the state of global oil supplies is beginning to look as reliable as Mr Greenspan's blandishments about the health of the financial markets.

If the whistleblowers are right, we should be stockpiling ammunition. If we are taken by surprise; if we have failed to replace oil before the supply peaks then crashes, the global economy is stuffed. But nothing the whistleblowers said has scared me as much as the conversation I had last week with a Pembrokeshire farmer.

Wyn Evans, who runs a mixed farm of 170 acres, has been trying to reduce his dependency on fossil fuels since 1977. He has installed an anaerobic digester, a wind turbine, solar panels and a ground-sourced heat pump. He has sought wherever possible to replace diesel with his own electricity. Instead of using his tractor to spread slurry, he pumps it from the digester onto nearby fields. He's replaced his tractor-driven irrigation system with an electric one, and set up a new system for drying hay indoors, which means he has to turn it in the field only once. Whatever else he does is likely to produce smaller savings. But these innovations have reduced his use of diesel by only around 25%.

According to farm scientists at Cornell University, cultivating one hectare of maize in the United States requires forty litres of petrol and 75 litres of diesel {3}. The amazing productivity of modern farm labour has been purchased at the cost of a dependency on oil. Unless farmers can change the way it's grown, a permanent oil shock would price food out of the mouths of many of the world's people. Any responsible government would be asking urgent questions about how long we have got.

Instead, most of them delegate this job to the International Energy Agency. I've been bellyaching about the British government's refusal to make contingency plans for the possibility that oil might peak by 2020 for the past two years {4, 5}, and I'm beginning to feel like a madman with a sandwich board. Perhaps I am, but how lucky do you feel? The new World Energy Outlook published by the IEA last week expects the global demand for oil to rise from 85 million barrels a day in 2008 to 105 million in 2030 {6}. Oil production will rise to 103 million barrels, it says, and biofuels will make up the shortfall {7}. If we want the oil, it will materialise.

The agency does caution that conventional oil is likely to "approach a plateau" towards the end of this period {8}, but there's no hint of the graver warning that the IEA's chief economist issued when I interviewed him last year: "we still expect that it will come around 2020 to a plateau ... I think time is not on our side here". {9} Almost every year the agency has been forced to downgrade its forecast for the daily supply of oil in 2030: from 123 million barrels in 2004, to 120 million in 2005, 116 million in 2007, 106 million in 2008 and 103 million this year. But according to one of the whistleblowers, "even today's number is much higher than can be justified and the IEA knows this". {10}

The Uppsala report, published in the journal Energy Policy, anticipates that maximum global production of all kinds of oil in 2030 will be 76 million barrels per day. Analysing the IEA's figures, it finds that to meet its forecasts for supply, the world's new and undiscovered oil fields would have to be developed at a rate "never before seen in history". {11} As many of them are in politically or physically difficult places, and as capital is short, this looks impossible. Assessing existing fields, the likely rate of discovery and the use of new techniques for extraction, the researchers find that "the peak of world oil production is probably occurring now".

Are they right? Who knows? Last month the UK Energy Research Centre published a massive review of all the available evidence on global oil supplies {12}. It found that the date of peak oil will be determined not by the total size of the global resource but by the rate at which it can be exploited. New discoveries would have to be implausibly large to make a significant difference: even if a field the size of all the oil reserves ever struck in the USA were miraculously discovered, it would delay the date of peaking by only four years {13}. As global discoveries peaked in the 1960s {14}, a find like this doesn't seem very likely.

Regional oil supplies have peaked when about one third of the total resource has been extracted {15}: this is because the rate of production falls as the remaining oil becomes harder to shift. So the assumption in the IEA's new report, that oil production will hold steady when the global resource has fallen "to around one-half by 2030" {16} looks unsafe. The UKERC review finds that just to keep oil supply at present levels, "more than two thirds of current crude oil production capacity may need to be replaced by 2030 ... At best, this is likely to prove extremely challenging". {17} There is, it says "a significant risk of a peak in conventional oil production before 2020". {18} Unconventional oil won't save us: even a crash programme to develop the Canadian tar sands could deliver only five million barrels a day by 2030. {19}

As a report commissioned by the US Department of Energy shows, an emergency programme to replace current energy supplies or equipment to anticipate peak oil would need about twenty years to take effect {20}. It seems unlikely that we have it. The world economy is probably knackered, whatever we might do now. But at least we could save farming. There are two possible options: either the mass replacement of farm machinery or the development of new farming systems, which don't need much labour or energy. There are no obvious barriers to the mass production of electric tractors and combine harvesters: the weight of the batteries and an electric vehicle's low-end torque are both advantages for tractors. A switch to forest gardening and other forms of permaculture is trickier, especially for producing grain; but such is the scale of the creeping emergency that we can't afford to rule anything out.

The challenge of feeding seven or eight billion people while oil supplies are falling is stupefying. It'll be even greater if governments keep pretending that it isn't going to happen.

www.monbiot.com

References:

1. http://www.guardian.co.uk/environment/2009/nov/09/peak-oil-international-energy-agency

2. Kjell Aleklett et al, 2009. The Peak of the Oil Age - analyzing the world oil production Reference Scenario in World Energy Outlook 2008. Energy Policy. http://www.tsl.uu.se/uhdsg/Publications/PeakOilAge.pdf

3. David Pimentel, Marcia Pimentel and Marianne Karpenstein-Machan, 1999. Energy Use In Agriculture: An Overview. Agricultural Engineering International: The CIGR EJournal, Volume I. http://www.cigrjournal.org/index.php/Ejounral/article/viewFile/1044/1037

4. I first began pestering the government about this in May 2007, as you can see here: http://www.monbiot.com/archives/2007/05/29/what-if-the-oil-runs-out/

After that, I lodged an FoI request, and returned to the theme in these articles:

5. http://www.monbiot.com/archives/2008/02/12/the-last-straw/

http://www.monbiot.com/archives/2008/05/27/majesty-we-have-gone-mad/

http://www.monbiot.com/archives/2008/12/15/at-last-a-date/

http://www.monbiot.com/archives/2009/04/14/cross-your-fingers-and-carry-on/

6. International Energy Agency, 2009. World Energy Outlook 2009. Page 73.

7. Figure 1.5, page 82.

8. page 87

9. http://www.guardian.co.uk/environment/video/2008/dec/15/fatih-birol-george-monbiot

10. http://www.guardian.co.uk/environment/2009/nov/09/peak-oil-international-energy-agency

11. Kjell Aleklett et al, 2009. The Peak of the Oil Age - analyzing the world oil production Reference Scenario in World Energy Outlook 2008. Energy Policy. http://www.tsl.uu.se/uhdsg/Publications/PeakOilAge.pdf

12. Steve Sorrell et al, 2009. Global Oil Depletion: An assessment of the evidence for a near-term peak in global oil production. UK Energy Research Centre. http://www.ukerc.ac.uk/support/Global%20Oil%20Depletion

13. page 134

14. See Figure 2.8. page 24

15. page 7

16. International Energy Agency, 2009, ibid, page 80.

17. Steve Sorrell et al, 2009, page 169.

18. page 164.

19. page 18.

20. Robert L Hirsch, Roger Bezdek and Robert Wendling, February 2005. Peaking Of World Oil Production: Impacts, Mitigation & Risk Management. US Department of Energy. Available at http://www.hubbertpeak.com/us/NETL/OilPeaking.pdf

Copyright (c) 2006 Monbiot.com

http://www.monbiot.com/archives/2009/11/16/if-nothing-else-save-farming/

Bill Totten http://www.ashisuto.co.jp/english/index.html

We simply do not know!

2009-11-18T08:24:00.000+09:00

by John Gray

London Review of Books (November 19 2009)

Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George Akerlof and Robert Shiller (Princeton, 2009), ISBN 978 0 691 14233 3

The last two years, in which capitalism has suffered one of its periodic shocks, have given John Maynard Keynes a new lease of life. Events have demonstrated the limits of the theory that economies can be relied on to be stable if they are lightly regulated and otherwise left to themselves. There is now much talk of the paradox of thrift, whereby the rational choices of individuals can prove collectively ruinous, and of the need for government to counteract the inherently anarchic tendencies of markets. Keynes has been revived because he understood that markets are very often irrational. Unfortunately, few of those who urge that we go back to him seem to have understood why he believed this.

Apart from a brief postscript to one of the chapters and a few remarks in the preface, George Akerlof and Robert Shiller's Animal Spirits was written before the current crisis. Yet, based on research undertaken over many years, it can be read as prefiguring the current disillusionment with economics. The trouble with prevailing theories, in Akerlof and Shiller's view, is that they assume human beings are more rational than they actually are. 'This book, which draws on an emerging field called behavioural economics, describes how the economy really works', they claim. 'It accounts for how it works when people really are human, that is, possessed of all-too-human animal spirits'.

They point to five different ways in which these 'animal spirits' can affect economic behaviour. First, the state of the economy depends on the level of confidence we feel about the future, but confidence 'is not just a rational prediction. It is the first and most crucial of our animal spirits.' Second, a concern for fairness 'can trump economic motivations': elementary economics teaches that a rise in demand for shovels after a snowstorm should result in higher prices for shovels; but most people - 82 per cent of correspondents in a survey conducted by two behavioural economists - believe that raising the price would be unfair. Third, the actions of predatory corporations can have an impact on the entire economy: the belief that Enron had acted in bad faith led to people being 'fed up with financial markets in general' a shift of a kind that is 'clearly within the realm of pure animal spirits'. Fourth, people make many of their economic decisions without taking account of inflation: instead of acting to maximise their real (inflation-adjusted) income, they succumb to 'money illusion'. Finally, human behaviour is heavily influenced by stories, narratives with a dramatic logic that drives people to action. The internet boom at the start of the millennium was not just a response to the development of a new technology; it expressed a view of the world, including the belief that a new era had arrived in which the economic cycles of the past had ceased to operate.

As Akerlof and Shiller represent them, each of these manifestations of animal spirits shows behaviour being driven by forces other than reason. None of them offers rational grounds for action in any sense that most economists would recognise. Even so, the authors insist, these responses must enter into any account of how economies actually work. If economists have failed to explain repeated crises, it is because they have interpreted economic activity through an unreal model of rational decision-making. Thinking of human behaviour in this way allows them to claim a high degree of precision for their discipline, which is presented as a kind of applied mathematics. But they have left psychology out of their equations.

A cogent critique of the theoretical excesses of mainstream economics, Animal Spirits is well argued and also - no small virtue among economists - pleasingly written. At the same time, it is hardly the revolution in thinking that its authors claim. The observation that markets are prone to violent swings of emotion, recurrent illusions and powerful stories is a piece of perennial wisdom that was summarised in Charles Mackay's Memories of Extraordinary Popular Delusions and the Madness of Crowds, published in 1841. More recently, George Soros has insisted that market behaviour is a reflexive process intrinsically liable to lead to cycles of boom and bust, as the beliefs and decisions of participants are reinforced by a desire to go with the trend until the market becomes unsustainable.

The fact that markets are flawed seems novel only in the context of the economic orthodoxy that prevailed between the wars, and in the run-up to the recent crisis. It is wrong to imply, as Akerlof and Shiller do, that the classical economists believed otherwise. 'Just as Adam Smith's invisible hand is the keynote of classical economics', they write, 'Keynes's animal spirits are the keynote to a different view of the economy - a view that explains the underlying instabilities of capitalism'. Here they are endorsing the caricature of Smith propagated by neoliberal ideologues anxious to confer a distinguished patrimony on an illegitimate intellectual offspring. Certainly, the 'invisible hand' is one of Smith's central ideas, but he never saw it as working in a mechanical fashion. A network of hidden adjustments whereby conflicting interests could be reconciled, in a complex process that always involved human emotions, the invisible hand was neither all-powerful nor uniformly benign. It could be thwarted by collusion among businessmen, and when given free rein its social effects could be seriously harmful. Like other thinkers of the Scottish Enlightenment, Smith understood the imperfectability of human institutions. He was concerned about the ways in which free markets detached people from communities, and some of these worries fed into the theory of alienation developed by that other celebrated classical economist, Karl Marx.

If Akerlof and Shiller's grip on the history of economic thought is shaky, they also fail to grasp why Keynes rejected the idea that markets are self-stabilising. Throughout Animal Spirits they portray him as reintegrating psychology with economic theory. No doubt this was one of Keynes's goals, but it is not his most fundamental revision of economic orthodoxy. Among his other accomplishments he was the author of A Treatise on Probability (1921), in which he tried to develop a theory of 'rational degrees of belief'. By his own account he failed, and in his canonical General Theory of Employment, Interest and Money (1936) he concluded that there was no way anyone could make forecasts. Future interest rates and prices, new inventions and the likelihood of a European war cannot be predicted: there is no 'basis on which to form any calculable probability whatever. We simply do not know!' For Keynes, markets are unstable less because they are driven by emotion than because the future is unknowable. To suggest that the source of market volatility is unreason is to imply that if people were fully rational markets could be stable. But even if people were affectless calculating machines they would still be ignorant of the future, and markets would still be volatile. The root cause of market instability is the insuperable limitation of human knowledge.

Later economists have made much of a distinction between risk, which can be assessed in terms of quantifiable likelihood, and uncertainty, where probabilities cannot be attached to possible outcomes. The trouble is that when attempting to forecast the course of the economy we often cannot confidently distinguish between the two. Even our list of possible outcomes may turn out to have omitted the ones that are most important in shaping events. Such an omission was one of the factors that led Long-Term Capital Management, a highly leveraged hedge fund set up by two Nobel Prize winning economists, to fail in 1998-2000. The information used in applying the formula did not include the possibility of such events as the Asian financial crisis and Russia's default on its sovereign debt, which destabilised global financial markets and helped destroy the fund. The orthodoxy that came unstuck with the collapse of LTCM was not faulty because it neglected the vagaries of human moods; its mistake was to think that the unknown future could be turned into a set of calculable risks and, in effect, conjured out of existence, which was impossible. Several centuries earlier, Pascal - one of the founders of probability theory - had come to the same conclusion, when in the Pensées (1670) he asks ironically: 'Is it probable that probability brings certainty?'

The central flaw of the economic orthodoxy against which Keynes fought in the 1930s was to imagine that an insoluble problem - human ignorance of the future - had been solved. The error was repeated in the 1990s, when economists came to believe that complex mathematical formulae could tame uncertainty in the murky world of derivatives. Steeped in history as they were, this was a delusion that none of the classical economists entertained. It began to shape economics only towards the end of the 19th century, with the rise of Positivism, according to which the natural sciences are the only legitimate repository of human knowledge. It was the formative influence of this philosophy on the Chicago School that enabled the orthodoxy of the 1930s to re-emerge triumphant, and the result was an immense boost to the prestige of economics as a discipline. Economists could claim to be scientists, who with the aid of their mathematical magic could pierce the veil that conceals the future.

The hegemony of Positivism in economics obscured Keynes's scepticism about probabilistic knowledge, his most important contribution to the discipline. G L S Shackle set Keynes's argument out systematically in his neglected masterpiece Epistemics and Economics: A Critique of Economic Doctrines (1972). Shackle is probably the only significant economist to have been influenced both by Keynes and by his arch-rival, F A Hayek. He knew both of them well, but argued that neither had digested the full implications for economics of our ignorance of the future. Hayek said that governments could never know enough to plan the economy successfully - a claim vindicated by the miserable record of central planning in Communist countries. At the same time, he attributed near omniscience to markets, and never doubted that if left to its own devices the economy would liquidate mistaken investments and return to equilibrium. Against this, Keynes had shown that there is no market mechanism that ensures revival; economic contraction can be self-reinforcing, and only government action can then create a way out.

Shackle took Keynes's argument a step further, and showed that no economic policy can ensure economic stability indefinitely. 'Keynesian' policies are no exception to this rule. Deficit financing and monetary expansion may have worked well in the conditions that existed after the Second World War. It is not clear that they will be so effective today, when globalisation has brought a freedom of capital movements that did not exist then. The lesson of Shackle is that we must be resourceful in devising new remedies, while not losing sight of the fact that none of them works for long.

Akerlof and Shiller claim that their account of the role of psychology helps to explain the financial crisis. 'Our theory of animal spirits', they say, 'provides an answer to a conundrum: why did most of us utterly fail to foresee the current economic crisis? How can we understand this crisis when it seems to have come out of the blue with no cause?' They are right that part of the answer lies in an intellectual default within economics, but they seem oblivious of the role of ideology in producing this default. The deformation of economics was not the result only of factors internal to the discipline, it was also part of the short-lived Western triumphalism that followed the end of the Cold War.

Those were the years when slackers throughout the world were enjoined to submit themselves to the rigours of 'the Washington consensus' - a mix of dogmatic policy prescriptions and hypocritical rhetoric that enjoyed the support of the great majority of economists. According to that consensus, the market regime that was installed in Britain, the US and a few other countries from the 1980s onwards could not only ensure stability and promote steady growth there but was a model - the only possible model - for countries everywhere. The one truly rational economic regime, free market capitalism, was also the most productive. As such it was bound to drive every other system out of existence, and would eventually be adopted worldwide. This faith in the universal spread of free markets animated much of the thinking of the American-led institutions overseeing the world economy, such as the IMF. Along with economists in university departments in much of the world, these institutions succumbed to a quasi-religious belief that the free market was the germ of a single, universal economic system.

Not everyone swallowed this creed. It was not accepted in China, which then as now displayed a well-founded contempt for Western advice - an attitude that has much to do with its astonishing economic success. Whether in the face of global recession China can continue to grow at the same rate is unclear - as Keynes would have put it, we simply don't know. Nonetheless, its emergence as an economic superpower poses questions for economics that are harder to answer than is generally recognised. Economists do not always take the neoliberal party line, according to which growth can be sustained only in a regime of deregulated capitalism; the evidence of history precludes any such simple-minded view. Liberal capitalism has achieved striking results (though in the US, often against the background of trade protection), but so have many varieties of dirigisme, from rapid growth in late tsarist Russia to Asian market economies in the decades after 1945. Economic historians whose minds are not befogged by ideology accept that there are many routes to growth. At the same time, nearly all Western-trained economists insist that sustained growth is impossible in the absence of a legal system that allows the independent rule of law and secure rights to private property. Without this framework, they believe, there will not be the incentives required for long-term saving and investment.

But China has achieved the largest and fastest industrialisation in history without having such a legal system. Until recently, Western economists, along with other Western observers, were adamant that China would continue to be successful only to the extent that it mimicked Western practice. Now that Western economies are in trouble this confidence has been shaken, and China is once again being perceived as alien and dangerous. There is no real attempt to try to understand the sources of its success. Like other branches of the study of society, economics remains culturally parochial, and its underlying concepts based on a few centuries of Western experience.

To their credit, Akerlof and Shiller do discuss how motives not normally regarded as economic have contributed to China's growth. An appeal to patriotism helped persuade villagers to contribute to the regime's plans for economic growth in the 1970s, so that 'a national story began to grip the imagination of the people of China, a story of individual effort and sacrifice'. One may doubt whether this is the whole story, but it is suggestive, because it illustrates the unreality of the notion that the behaviour of markets is governed by strictly 'economic' motivations. Much of Akerlof and Shiller's analysis is an implicit criticism of this notion, and yet - in conformity with the narrow explanatory model of market behaviour they aim to criticise - they invoke it whenever they suggest that deviations from economic rationality account for instability in markets. They don't appear to realise that the assumption of a categorical distinction between 'economic' and 'non-economic' motives is one of the chief reasons recent economic theory has been so consistently remote from reality.

Keynes and the classical economists before him knew that there is no realm of market exchange that obeys laws of the kind that can be formulated in the natural sciences. Economics and politics are not separate branches of human activity, and economic life cannot be studied independently of social divisions and political conflicts among populations, along with their cultures and religions. Familiar to Keynes and most of the economists of his generation, these truisms have been forgotten, or rejected, by many economists today. The result is an economic imperialism that tries to explain every human activity in terms of a conception of rational action that does not work even when applied to the behaviour of markets.

Of course, there is a standard response to these observations, which is that unrealism in economic theories doesn't matter. As developed by Milton Friedman, among others, this is in effect a version of instrumentalism, a tenable position in the philosophy of science. For instrumentalists, the goal of science is not a true representation of the world; it is to organise our observations into a theoretical framework that serves practical goals, such as prediction and control. But what practical goals have been served by the type of economics dominant over the past two decades? It has been useful neither in making predictions nor in responding to unforeseen developments.

Akerlof and Shiller intend their analysis to contribute to an intellectual reformation in economics, as a consequence of which the discipline will become more useful to policy-makers. It must be doubted, though, that the authors will succeed in persuading economists of the inadequacy of the conception of rational action. The profession is one of the few areas of human activity in which that conception is applicable. In its intra-academic varieties, at any rate, economics is insulated from the world not only by its narrow explanatory methodology but also because it rewards the mathematical modelling that resulted in nearly all of its members failing to anticipate the financial crisis. As institutionalised in universities, the notion of rational decision-making is self-perpetuating. Economics as currently practised may have only a slight grip on market behaviour, but it seems to be powerfully predictive of the behaviour of economists.

_____

John Gray’s False Dawn: The Delusions of Global Capitalism, first published in 1998, was reissued in October with a new section on the global financial crisis.

ISSN 0260-9592 Copyright (c) LRB Ltd, 1997-2009

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Bill Totten http://www.ashisuto.co.jp/english/index.html

The Fate of the Yeast People

2009-11-17T18:13:00.003+09:00

Clusterfuck Nation

by James Howard Kunstler

Comment on current events by the author of
The Long Emergency (2005)

www.kunstler.com (November 16 2009)

Every time I do a Q and A after a college lecture, somebody says (with a fanfare of indignation) - so as to reveal their own brilliance in contrast to my foolishness - "You haven't said anything about overpopulation!"

Right. I usually don't bother. Their complaint, of course, implies that we would do something about overpopulation if only we would recognize it. Which is absurd. What might we do about overpopulation here in the USA? Legislate a one-child policy? Set up an onerous set of bureaucratic protocols forcing citizens to apply for permission to reproduce? Direct the police to shoot all female babies? Use stimulus money to build crematoria outside of Nashville?

It's certainly true that the planet is suffering from human population overshoot. We're way beyond "carrying capacity". Only the remaining supplies of fossil fuels allow us to continue this process, and not for long, anyway. In the meantime, human reproduction rates are also greatly increasing the supply of idiots relative to resources, and that is especially problematic in the USA, where idiots rule the culture and polity.

The cocoon of normality prevents us from appreciating how peculiar and special recent times have been in this country. We suppose, tautologically, that because things have always seemed the way they are, that they always have been the way they seem. The collective human imagination is a treacherous place.

I'm fascinated by the dominion of moron culture in the USA, in everything from the way we inhabit the landscape - the fiasco of suburbia - to the way we feed ourselves - an endless megatonnage of microwaved Velveeta and corn byproducts - along with the popular entertainment offerings of Reality TV, the Nascar ovals, and the gigantic evangelical church shows beloved in the Heartland. To evangelize a bit myself, if such a concept as "an offense in the sight of God" has any meaning, then the way we conduct ourselves in this land is surely the epitome of it - though this is hardly an advertisement for competing religions, who are well-supplied with morons, too.

Moron culture in the USA really got full traction after the Second World War. Our victory over the other industrial powers in that struggle was so total and stupendous that the laboring orders here were raised up to economic levels unknown by any peasantry in human history. People who had been virtual serfs trailing cotton sacks in the sunstroke belt a generation back were suddenly living better than Renaissance dukes, laved in air-conditioning, banqueting on "TV dinners", motoring on a whim to places that would have taken a three-day mule trek in their grandaddy's day. Soon, they were buying Buick dealerships and fried chicken franchises and opening banks and building leisure kingdoms of thrill rides and football. It's hard to overstate the fantastic wealth that a not-very-bright cohort of human beings was able to accumulate in post-war America.

And they were able to express themselves - as the great chronicler of these things, Tom Wolfe, has described so often and well - in exuberant "taste cultures" of material life, of which Las Vegas is probably the final summing-up, and every highway strip, of twenty-thousand strips from Maine to Oregon, is the democratic example. These days, I travel the road up the west shore of Lake George, in Warren County, New York, and see the sad, decomposing relics of that culture and that time in all the "playful" motels and leisure-time attractions, with their cracked plastic signs advertising the very things that they exterminated in the quest for adequate parking - the woodand vistas, the paddling Mohicans, the wolf, the moose, the catamount - and I take a certain serene comfort in the knowledge that it is all over now for this stuff and the class of morons that produced it.

A very close friend of mine calls them "the yeast people". They were the democratic masses who thrived in the great fermentation vat of the post World War Two economy. They are now meeting the fate that any yeast population faces when the fermentation process is complete. For the moment, they are only ceasing to thrive. They are suffering and worrying horribly from the threat that there might be no further fermentation. The brewers running the vat try to assure them that there's more sugar left in the mix, and more beer can be made from it, and more yeasts can be brought into this world to enjoy the life of the sweet, moist mash. In fact, one of the brewers did happen to dump about a trillion-and-a-half teaspoons of sugar into the vat during 2009, and that has produced an illusion of further fermentation. But we know all too well that this artificial stimulus has limits.

What will happen to the yeast people of the USA? You can be sure that the outcome will not yield to "policies" and "protocols". The economy that produced all that amazing wealth is contracting, and pretty rapidly, too, and the numbers among the yeast will naturally follow the downward arc of the story. Entropy is a harsh mistress. In the immediate offing: a contest for the table scraps of the twentieth century. We've barely seen the beginning of this, just a little peevishness embodied by yeast shaman figures such as Sarah Palin and Glen Beck. As hardships mount and hardened emotions rise, we'll see "the usual suspects" come into play: starvation, disease, violence. We may still be driving around in Ford F-150s, but the Pale Rider is just over the horizon beating a path to our parking-lot-of-the-soul.

It's a sad and tragic process and, all lame metaphors aside, there are real human feelings at stake in our prospects for loss of every kind, but especially in the fate of people we love. The human race has known catastrophe before and come through it. There's some credible opinion that "this time it's different" but who really knows? We have our 2012 apocalypse movies. The people of the fourteenth century, savaged by the Black Death, had their woodcuts of dancing skeletons. Feudalism was wiped out in that earlier calamity but, whaddaya know, less than a century after that the Renaissance emerged in a wholly new culture of cities. Maybe we will emerge from our culture of free parking to a new society of living, by necessity, much more lightly on the planet and for a long time, perhaps long enough to allow the terrain to recover from all the free parking.

_____

My 2008 novel of the post-oil future, World Made By Hand, is available in paperback at all booksellers.

(c) 2009 All Rights Reserved.

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Bill Totten http://www.ashisuto.co.jp/english/index.html

It's Official

2009-11-17T09:17:00.002+09:00

The Crash of the US Economy has begun

by Richard C Cook

Global Research (June 14 2007)

It's official. Mark your calendars. The crash of the US economy has begun. It was announced the morning of Wednesday, June 13 2007, by economic writers Steven Pearlstein and Robert Samuelson in the pages of the Washington Post, one of the foremost house organs of the US monetary elite.

Pearlstein's column was titled, "The Takeover Boom, About to Go Bust" and concerned the extraordinary amount of debt versus operating profits of companies currently subject to leveraged buyouts.

In language remarkably alarmist for the usually ultra-bland pages of the Post, Pearlstein wrote, "It is impossible to predict when the magic moment will be reached and everyone finally realizes that the prices being paid for these companies, and the debt taken on to support the acquisitions, are unsustainable. When that happens, it won't be pretty. Across the board, stock prices and company valuations will fall. Banks will announce painful write-offs, some hedge funds will close their doors, and private-equity funds will report disappointing returns. Some companies will be forced into bankruptcy or restructuring."

Further, "Falling stock prices will cause companies to reduce their hiring and capital spending while governments will be forced to raise taxes or reduce services, as revenue from capital gains taxes declines. And the combination of reduced wealth and higher interest rates will finally cause consumers to pull back on their debt-financed consumption. It happened after the junk-bond and savings-and-loan collapses of the late 1980s. It happened after the tech and telecom bust of the late 1990s. And it will happen this time."

Samuelson's column, "The End of Cheap Credit", left the door slightly ajar in case the collapse is not quite so severe. He wrote of rising interest rates, "As the price of money increases, borrowing and the economy might weaken. The deep slump in housing could worsen. We could also discover that the long period of cheap credit has left a nasty residue."

Other writers with less prestigious platforms than the Post have been talking about an approaching financial bust for a couple of years. Among them has been economist Michael Hudson, author of an article on the housing bubble titled, "The New Road to Serfdom" in the May 2006 issue of Harper's. Hudson has been speaking in interviews of a "break in the chain" of debt payments leading to a "long, slow economic crash", with "asset deflation", "mass defaults on mortgages", and a "huge asset grab" by the rich who are able to protect their cash through money laundering and hedging with foreign currency bonds.

Among those poised to profit from the crash is the Carlyle Group, the equity fund that includes the Bush family and other high-profile investors with insider government connections. A January 2007 memorandum to company managers from founding partner William E Conway, Junior, recently appeared which stated that, when the current "liquidity environment" - that is, cheap credit - ends, "the buying opportunity will be a once in a lifetime chance".

The fact that the crash is now being announced by the Post shows that it is a done deal. The Bilderbergers, or whomever it is that the Post reports to, have decided. It lets everyone know loud and clear that it's time to batten down the hatches, run for cover, lay in two years of canned food, shield your assets, whatever.

Those left holding the bag will be the ordinary people whose assets are loaded with debt, such as tens of millions of mortgagees, millions of young people with student loans that can never be written off due to the "reformed" 2005 bankruptcy law, or vast numbers of workers with 401(k)s or other pension plans that are locked into the stock market.

In other words, it sounds eerily like 2000 to 2002 except maybe on a much larger scale. Then it was "only" the tenth worse bear market in history, but over a trillion dollars in wealth simply vanished. What makes today's instance seem particularly unfair is that the preceding recovery that is now ending - the "jobless" one - was so anemic.

Neither Perlstein nor Samuelson gets to the bottom of the crisis, though they, like Conway of the Carlyle Group, point to the end of cheap credit. But interest rates are set by people who run central banks and financial institutions. They may be influenced by "the market", but the market is controlled by people with money who want to maximize their profits.

Key to what is going on is that the Federal Reserve is refusing to follow the pattern set during the long reign of Fed Chairman Alan Greenspan in responding to shaky economic trends with lengthy infusions of credit as he did during the dot.com bubble of the 1990s and the housing bubble of 2001 to 2005.

This time around, Greenspan's successor, Ben Bernanke, is sitting tight. With the economy teetering on the brink, the Fed is allowing rates to remain steady. The Fed claims their policy is due to the danger of rising "core inflation". But this cannot be true. The biggest consumer item, houses and real estate, is tanking. Officially, unemployment is low, but mainly due to low-paying service jobs. Commodities have edged up, including food and gasoline, but that's no reason to allow the entire national economy to be submerged.

So what is really happening? Actually, it's simple. The difference today is that China and other large investors from abroad, including Middle Eastern oil magnates, are telling the US that if interest rates come down, thereby devaluing their already-sliding dollar portfolios further, they will no longer support with their investments the bloated US trade and fiscal deficits.

Of course we got ourselves into this quandary by shipping our manufacturing to China and other cheap-labor markets over the last generation. "Dollar hegemony" is backfiring. In fact China is using its American dollars to replace the International Monetary Fund as a lender to developing nations in Africa and elsewhere. As an additional insult, China now may be dictating a new generation of economic decline for the American people who are forced to buy their products at Wal-Mart by maxing out what is left of our available credit card debt.

About a year ago, a former Reagan Treasury official, now a well-known cable TV commentator, said that China had become "America's bank" and commented approvingly that "it's cheaper to print money than make cars anymore". Ha ha.

It is truly staggering that none of the "mainstream" political candidates from either party has attacked this subject on the campaign trail. All are heavily funded by the financier elite who will profit no matter how bad the US economy suffers. Every candidate except Ron Paul and Dennis Kucinich treats the Federal Reserve like the fifth graven image on Mount Rushmore. And even the so-called progressives are silent. The weekend before the Perlstein and Samuelson articles came out, there was a huge progressive conference in Washington, DC, called "Taming the Corporate Giant". Not a single session was devoted to financial issues.

What is likely to happen?

I'd suggest four possible scenarios:

1. Acceptance by the US population of diminished prosperity and a declining role in the world. Grin and bear it. Live with your parents into your forties instead of your thirties. Work two or three part-time jobs on the side, if you can find them. Die young if you lose your health care. Declare bankruptcy if you can, or just walk away from your debts until they bring back debtor's prison like they've done in Dubai. Meanwhile, China buys more and more US properties, homes, and businesses, as economists close to the Federal Reserve have suggested. If you're an enterprising illegal immigrant, have fun continuing to jack up the underground economy, avoid business licenses and taxes, and rent out group houses to your friends.

2. Times of economic crisis produce international tension and politicians tend to go to war rather than face the economic music. The classic example is the worldwide depression of the 1930s leading to World War Two. Conditions in the coming years could be as bad as they were then. We could have a really big war if the US decides once and for all to haul off and let China, or whomever, have it in the chops. If they don't want our dollars or our debt any more, how about a few nukes?

3. Maybe we'll finally have a revolution either from the right or the center involving martial law, suspension of the Bill of Rights, et cetera, combined with some kind of military or forced-labor dictatorship. We're halfway there anyway. Forget about a revolution from the left. They wouldn't want to make anyone mad at them for being too radical.

4. Could there ever be a real try at reform, maybe even an attempt just to get back to the New Deal? Since the causes of the crisis are monetary, so would be the solutions. The first step would be for the Federal Reserve System to be abolished as a bank of issue and a transformation of the nation's credit system into a genuine public utility by the federal government. This way we could rebuild our manufacturing and public infrastructure and develop an income assurance policy that would benefit everyone.

The latter is the only sensible solution. There are monetary reformers who know how to do it if anyone gave them half a chance.

_____

Richard C Cook is the author of We Hold These Truths: The Hope of Monetary Reform (2009) and Challenger Revealed: An Insider's Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age (2007). He is a Washington, DC-based writer and consultant who, in addition to NASA, taught history and worked in the US Civil Service Commission, the Food and Drug Administration, the Carter White House and spent 21 years with the US Treasury Department. His website is at www.richardccook.com.

Disclaimer: The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of the Centre for Research on Globalization. The contents of this article are of sole responsibility of the author(s). The Centre for Research on Globalization will not be responsible or liable for any inaccurate or incorrect statements contained in this article.

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Whistleblower: There’s a Lot Less Oil ...

2009-11-16T17:27:00.001+09:00

... Than We Think and US Has Been Trying to Cover It Up

by Terry Macalister, The Guardian

AlterNet (November 12 2009)

The world is much closer to running out of oil than official estimates admit, according to a whistleblower at the International Energy Agency who claims it has been deliberately underplaying a looming shortage for fear of triggering panic buying.

The senior official claims the US has played an influential role in encouraging the watchdog to underplay the rate of decline from existing oil fields while overplaying the chances of finding new reserves.

The allegations raise serious questions about the accuracy of the organisation's latest World Energy Outlook on oil demand and supply to be published tomorrow - which is used by the British and many other governments to help guide their wider energy and climate change policies.

In particular they question the prediction in the last World Economic Outlook, believed to be repeated again this year, that oil production can be raised from its current level of 83 million barrels a day to 105 million barrels. External critics have frequently argued that this cannot be substantiated by firm evidence and say the world has already passed its peak in oil production.

Now the "peak oil" theory is gaining support at the heart of the global energy establishment. "The IEA in 2005 was predicting oil supplies could rise as high as 120 million barrels a day by 2030 although it was forced to reduce this gradually to 116 million and then 105 million last year", said the IEA source, who was unwilling to be identified for fear of reprisals inside the industry. "The 120 million figure always was nonsense but even today's number is much higher than can be justified and the IEA knows this.

"Many inside the organisation believe that maintaining oil supplies at even ninety million to 95 million barrels a day would be impossible but there are fears that panic could spread on the financial markets if the figures were brought down further. And the Americans fear the end of oil supremacy because it would threaten their power over access to oil resources", he added.

A second senior IEA source, who has now left but was also unwilling to give his name, said a key rule at the organisation was that it was "imperative not to anger the Americans" but the fact was that there was not as much oil in the world as had been admitted. "We have [already] entered the 'peak oil' zone. I think that the situation is really bad", he added.

The IEA acknowledges the importance of its own figures, boasting on its website: "The IEA governments and industry from all across the globe have come to rely on the World Energy Outlook to provide a consistent basis on which they can formulate policies and design business plans".

The British government, among others, always uses the IEA statistics rather than any of its own to argue that there is little threat to long-term oil supplies.

The IEA said tonight that peak oil critics had often wrongly questioned the accuracy of its figures. A spokesman said it was unable to comment ahead of the 2009 report being released tomorrow.

John Hemming, the MP who chairs the all-party parliamentary group on peak oil and gas, said the revelations confirmed his suspicions that the IEA underplayed how quickly the world was running out and this had profound implications for British government energy policy.

He said he had also been contacted by some IEA officials unhappy with its lack of independent scepticism over predictions. "Reliance on IEA reports has been used to justify claims that oil and gas supplies will not peak before 2030. It is clear now that this will not be the case and the IEA figures cannot be relied on", said Hemming.

"This all gives an importance to the Copenhagen [climate change] talks and an urgent need for the UK to move faster towards a more sustainable [lower carbon] economy if it is to avoid severe economic dislocation", he added.

The IEA was established in 1974 after the oil crisis in an attempt to try to safeguard energy supplies to the west. The World Energy Outlook is produced annually under the control of the IEA's chief economist, Fatih Birol, who has defended the projections from earlier outside attack. Peak oil critics have often questioned the IEA figures.

But now IEA sources who have contacted the Guardian say that Birol has increasingly been facing questions about the figures inside the organisation.

Matt Simmons, a respected oil industry expert, has long questioned the decline rates and oil statistics provided by Saudi Arabia on its own fields. He has raised questions about whether peak oil is much closer than many have accepted.

A report by the UK Energy Research Centre (UKERC) last month said worldwide production of conventionally extracted oil could "peak" and go into terminal decline before 2020 - but that the government was not facing up to the risk. Steve Sorrell, chief author of the report, said forecasts suggesting oil production will not peak before 2030 were "at best optimistic and at worst implausible".

But as far back as 2004 there have been people making similar warnings. Colin Campbell, a former executive with Total of France told a conference: "If the real [oil reserve] figures were to come out there would be panic on the stock markets … in the end that would suit no one".

_____

Terry Macalister is the Guardian's energy editor.

(c) 2009 The Guardian All rights reserved.

http://www.alternet.org/story/143890/

Bill Totten http://www.ashisuto.co.jp/english/index.html

A Gesture from the Invisible Hand

2009-11-16T09:12:00.000+09:00

by John Michael Greer

The Archdruid Report (November 11 2009)

Druid perspectives on nature, culture, and the future of industrial society

It's been a long road, but we've finally reached the point in these essays at which it's possible to start talking about some of the consequences of the primary economic fact of our time, the arrival of geological limits to increasing fossil fuel production. That's as challenging a topic to discuss as it will be to live through, because it cannot be understood effectively from within the presuppositions that structure most of today's economic thinking.

It's common, for example, to hear well-intentioned people insist that the market, as a matter of course, will respond to restricted fossil fuel production by channeling investment funds either in more effective means of producing fossil fuels, on the one hand, or new energy sources on the other. The logic seems impeccable at first glance: as the price of oil, for example, goes up, the profit to be made by bringing more oil or oil substitutes onto the market goes up as well; investors eager to maximize their profits will therefore pour money into ventures producing oil and oil substitutes, and production will rise accordingly until the price comes back down.

That's the logic of the invisible hand, first made famous by Adam Smith in The Wealth of Nations more than two centuries ago (1776), and still central to most mainstream ideas of market economics. That logic owes much of its influence to the fact that in many cases, markets do in fact behave this way. Like any rule governing complex systems, though, it is far from foolproof, and it needs to be balanced by an awareness of the places where it fails to work.

Energy is one of those places: in some ways, the most important of all. Energy is not simply one commodity among others; it is the ur-commodity, the foundation for all economic activity. It follows laws of its own - the laws of thermodynamics, notably - which are not the same as the laws of economics, and when the two sets of laws come into conflict, the laws of thermodynamics win every time.

Consider an agrarian civilization that runs on sunlight, as every human society did until the rise of industrialism some three centuries ago. In energetic terms, part of the annual influx of solar energy is collected via agriculture, stored in the form of grain, and transformed into mechanical energy by feeding the grain to human laborers and draft animals. It's an efficient and resilient system, and under suitable conditions it can deploy astonishing amounts of energy; the Great Pyramid is one of the more obvious pieces of evidence for this fact.

Such civilizations normally develop thriving market economies in which a wide range of goods and services are exchanged. They also normally develop intricate social abstractions that manage the distribution of these goods and services, as well as the primary wealth that comes through agriculture from the sun, among their citizens. Both these, however, depend on the continued energy flow from sun to fields to granaries to human and animal labor forces. If something interrupts this flow - say, a failure of the harvest - the only option that allows for collective survival is to have enough solar energy stored in the granaries to take up the slack.

This is necessary because energy doesn't follow the ordinary rules of economic exchange. Most other commodities still exist after they've been exchanged for something else, and this makes exchanges reversible; for example, if you sell gold to buy marble, you can normally turn around and sell marble to buy gold. The invisible hand works here; if marble is in short supply, those who have gold and want marble may have to offer more gold for their choice of building materials, but the marble quarries will be working overtime to balance things out.

Energy is different. Once you turn the energy content of a few million bushels of grain into a pyramid, say, by using the grain to feed workers who cut and haul the stones, that energy is gone, and you cannot turn the pyramid back into grain; all you can do is wait until the next harvest. If that harvest fails, and the stored energy in the granaries has already been turned into pyramids, neither the market economy of goods and services or the abstract system of distributing goods and services can make up for it. Nor, of course, can you send an extra ten thousand workers into the fields if you don't have the grain to keep them alive.

The peoples of agrarian civilizations generally understood this. It's part of the tragedy of the modern world that most people nowadays do not, even though our situation is not all that different from theirs. We're just as dependent on energy inputs from nature, though ours include vast quantities of prehistoric sunlight, in the form of fossil fuels, as well as current solar energy in various forms; we've built atop that foundation our own kind of markets to exchange goods and services; and our abstract system for managing the distribution of goods and services - money - is as heavily wrapped in mythology as anything in the archaic civilizations of the past.

The particular form taken by money in the modern world has certain effects, however, not found in ancient systems. In the old agrarian civilizations, wealth consisted primarily of farmland and its products. The amount of farmland in a kingdom might increase slightly through warfare or investment in canal systems, though it might equally decrease if a war went badly or canals got wrecked by sandstorms; everybody hoped when the seed grain went into the fields that the result would be a bumper crop, but no one imagined that the grain stockpiled in the granaries would somehow multiply itself over time. Nowadays, by contrast, it's assumed as a matter of course that money ought automatically to produce more money.

That habit of thought has its roots in the three centuries of explosive economic growth that followed the birth of the industrial age. In an expanding economy, the amount of money in circulation needs to expand fast enough to roughly match the expansion in the range of goods and services for sale; when this fails to occur, the shortfall drives up interest rates (the cost of using money) and can cause economic contractions. This was a serious and recurring problem in the late nineteenth century, and led the reformers of the Progressive era to reshape industrial economies in ways that permitted the money supply to expand over time to match the expectation of growth. Once again, the invisible hand was at work, with some help from legislators: a demand for more money eventually give rise to a system that produced more money.

It's been pointed out by a number of commentators in the peak oil blogosphere that the most popular method for expanding the money supply - the transformation of borrowing at interest from an occasional bad habit of the imprudent to the foundation of modern economic life - has outlived its usefulness once an expanding economy driven by increasing fossil fuel production gives way to a contracting economy limited by decreasing fossil fuel production. This is quite true in an abstract sense, but there's a trap in the way of putting that sensible realization into practice.

The arrival of geological limits to increasing fossil fuel production places a burden on the economy, because the cost in energy, labor, and materials (rather than money) to extract fossil fuels does not depend on market forces. On average, it goes up over time, as easily accessible reserves are depleted and have to be replaced by those more difficult and costly to extract. Improved efficiencies and new technologies can counter that to a limited extent, but both these face the familiar problem of diminishing returns as the laws of thermodynamics, and other physical laws, come into play.

As a society nears the geological limits to production, in other words, a steadily growing fraction of its total supply of energy, resources, and labor have to be devoted to the task of bringing in the energy that keeps the entire economy moving. This percentage may be small at first, but it's effectively a tax in kind on every productive economic activity, and as it grows it makes productive economic activity less profitable. The process by which money produces more money consumes next to no energy, by contrast, and so financial investments don't lose ground due to rising energy costs.

This makes financial investments, on average, relatively more profitable than investing in the kinds of economic activity that use energy to produce nonfinancial goods and services. The higher the burden imposed by energy costs, the more sweeping the disparity becomes; the result, of course, is that individuals trying to maximize their own economic gains move their money out of investments in the productive economy of goods and services, and into the paper economy of finance.

Ironically, this happens just as a perpetually expanding money supply driven by mass borrowing at interest has become an anachronism unsuited to the new economic reality of energy contraction. It also guarantees that any attempt to limit the financial sphere of the economy will face mass opposition, not only from financiers, but from millions of ordinary citizens whose dream of a comfortable retirement depends on the hope that financial investments will outperform the faltering economy of goods and services. Meanwhile, just as the economy most needs massive reinvestment in productive capacity to retool itself for the very different world defined by contracting energy supplies, investment money seeking higher returns flees the productive economy for the realm of abstract paper wealth.

Nor will this effect be countered, as suggested by the well-intentioned people mentioned toward the beginning of this essay, by a flood of investment money going into energy production and bringing the cost of energy back down. Producing energy takes energy, and thus is just as subject to rising energy costs as any other productive activity; even as the price of oil goes up, the costs of extracting it or making some substitute for it rise in tandem and make investments in oil production or replacement no more lucrative than any other part of the productive economy. Oil that has already been extracted from the ground may be a good investment, and financial paper speculating on the future price of oil will likely be an excellent one, but neither of these help increase the supply of oil, or any oil substitute, flowing into the economy.

One intriguing detail of this scenario is that it has already affected the first major oil producer to reach peak oil - yes, that would be the United States. It's unlikely to be accidental that in the wake of its own 1972 production peak, the American economy has followed exactly this trajectory of massive disinvestment in the productive economy and massive expansion of the paper economy of finance. Plenty of other factors played a role in that process, no doubt, but I suspect that the unsteady but inexorable rise in energy costs over the last forty years or so may have had much more to do with the gutting of the American economy than most people suspect.

If this is correct, now that petroleum production has encountered the same limits globally that put it into a decline here in the United States, the same pattern of disinvestment in the production of goods and services coupled with metastatic expansion of the financial sector may show up on a much broader scale. There are limits to how far it can go, of course, not least because financiers and retirees alike are fond of consumer goods now and then, but those limits have not been reached yet, not by a long shot. It's all too easy to foresee a future in which industry, agriculture, and every other sector of the economy that produces goods and services suffer from chronic underinvestment, energy costs continue rising, and collapsing infrastructure becomes a dominant factor in daily life, while the Wall Street Journal (printed in Shanghai by then) announces the emergence of the first half dozen quadrillionaires in the "derivatives of derivatives of derivatives" market.

Perhaps the most important limit in the way of such a rush toward economic absurdity is the simple fact that not every economy uses the individual decisions of investors pursuing private gain to allocate investment capital. It may not be accidental that quite a few of the world's most successful economies just now, with China well in the lead, make their investment decisions based at least in part on political, military, and strategic grounds, while the nation that preens itself most proudly on its market economy - yes, that would be the United States again - is lurching from one economic debacle to another.

It is unfortunately also the case that many of the nations that have extracted their investment decisions from the hands of a self-terminating market system are not exactly noted for their delicate care for human rights. If that proves to be the wave of the future - and it may be worth noting that Oswald Spengler, among others, predicted that outcome - then the invisible hand may end up giving us all the finger.

_____

John Michael Greer, The Grand Archdruid of the Ancient Order of Druids in America (AODA), has been active in the alternative spirituality movement for more than 25 years, and is the author of more than twenty books, including The Druidry Handbook (Weiser, 2006) and The Long Descent: A User's Guide to the End of the Industrial Age (New Society, 2008). He lives in Cumberland, Maryland.

http://thearchdruidreport.blogspot.com/2009/11/gesture-from-invisible-hand.html

Bill Totten http://www.ashisuto.co.jp/english/index.html

Failure written into 'too big' policy

2009-11-15T21:13:00.001+09:00

by Henry C K Liu

www.atimes.com (November 10 2009)

The potential failure of banks deemed too big to fail (TBTF) presents unsolvable challenges for policymakers. The unacceptability of the systemic impact of such failures on the financial, economic and social order necessitates government intervention in a market crisis.

Thus far, the official response to the TBTF threat has been focused on unlimited government protection of big bank creditors from losses they otherwise would face from big bank failures. Yet creditor expectation of TBTF protection actually encourages big banks to take more risk, thus pushing them closer to the cliff of failure, resulting in significant recurring net costs to the economy and society.

The Barack Obama administration and the US Congress are now trying to address the fundamental issue of TBTF, generally acknowledged as a key contributing factor to the near collapse of the global financial system in 2008. Yet, government bailout programs for big financial institutions have resulted in banks becoming even bigger than before the crisis. Apparently, the administration’s solution to "too big to fail" is to make banks bigger.

JP Morgan Chase is reportedly holding more than $1 of every $10 on deposit in the US. The four biggest super banks (JP Morgan Chase, Bank of America, Wells Fargo and Citibank) now issue one of every two mortgages and about two of every three credit cards in the US. Since the financial crisis, these four super banks are each allowed to hold more than ten percent of the nation's deposits, having been exempted from a longstanding rule barring such market dominance. In several metropolitan regions, these new super banks are now permitted to take market share beyond what the Department of Justice's anti-trust guidelines previously allowed.

The American banking system is now one of a handful of large global trading companies pretending to be banks, taking huge profits from high-risk proprietary trades with government-backed money, instead of one of a network of small conservative local institutions serving their domicile communities merely as intermediaries of money through local deposits for nominal fees.

Sheila C Bair, chairman of the Federal Deposit Insurance Corp, described the TBTF problem as such, "It fed the crisis, and it has gotten worse because of the crisis".

The US financial system is looking more like a financial trust of a small number of super banks operating with deliberate moral hazard backed by ever-ready government bailouts, while consumers are increasingly faced with fewer choices for financial services from competitive providers.

The Obama administration's efforts to introduce a new regulatory regime to prevent recurring financial crises triggered by TBTF institutions leans towards imposing higher capital standards on these super financial institutions and empowering the Federal Reserve as a super regulator to take over a wider range of troubled financial firms to wind down their businesses in an orderly way with minimum loss to depositors.

While adequate capital is necessary for sound banking, the problem with the banking system today is that it is infested with high-risk propriety trading that conventional bank capital requirements cannot possibly handle.

Treasury Secretary Timothy Geithner declares the dominant public policy imperative motivating reform as "to address the moral hazard risk created by what we did, what we had to do in the crisis to save the economy". Yet there is little evidence that moral hazard is being reduced or the economy is being saved. What has been saved is the elite segment of the banking and financial industry at the expense of the long-term health of the economy, while moral hazard is now the accepted operating mode for super banks.

Latest FDIC data reveal that the new super banks now can borrow more cheaply than their smaller peers because creditors assume these large institutions to be fail-safe. This trend will leave the financial market dominated by a gigantic trust of interlocking super banks.

Such concentration of market share will hurt consumers in two ways. It will keep the cost of credit high to borrowers for lack of competition, even when the costs of funds for banks remain artificially low. It will also push bank reserves upward to force banks to pass on costs to borrowers.

The White House plan as outlined so far would allow these super banks, whose failure would put the financial system and the economy at risk, to continue to exist, but would make it much more costly for them to provide financial services to the public. The plan would force such institutions to hold more funds in reserve and make it harder for them to borrow too heavily against their assets. The plan would require that these super banks come up with their own procedure to be disentangled in the event of a crisis, a plan that administration officials say ought to be made public in advance, presumably to impose market discipline on the largest and most interconnected companies.

Since banks exist to make profits, the bottom line is that the costs of banking services will increase for both corporate borrowers and the general public.

The administration's plan merely passes the cost of moral hazard to consumers. What needs to be done is to break up these super banks and the trading firms that pretend to be banks into regional institutions separated by financial firebreaks to prevent systemic contagion, and to impose strict limits on circular hedging. But the administration and its congressional allies continue to reject such proposals.

Mervyn King, governor of the Bank of England, and Paul A Volcker, former US Fed chairman, have separately suggested sweeping steps to force the nation's largest financial institutions to divest their riskier affiliates. King called for the revival of the Glass-Steagall Act, a New Deal piece of legislation that separated investment banks from commercial banks.

The solution to the "too big to fail" dilemma intuitively lies in preventing institutions from getting too big. Yet because of the interconnection of markets, even failure of small entities in large numbers can trigger systemic failure. This gives even entities of similar risk profile, but not too big individually, the ability to cause systemic failure.

In mathematics, the theory of large numbers includes the phenomenon of exponential growth which occurs when the growth rate of a mathematical function is exponentially proportional to the function's current value. Such exponential growth is mathematically unsustainable and will eventually implode.

Multilevel marketing is designed to create a large marketing force by compensating not only for the sales it generates, but also for the sales of other marketing forces introduced to the company, creating a limitless down-line of distributors and a hierarchy of multiple levels of compensation in the form of a pyramid, such as that employed by Amway Corp. The crisis in subprime mortgages was caused by massive network marketing, even as each subprime mortgage individually was only a small contract.

No bank, however big and well capitalized, can withstand the onslaught of a systemic breakdown of market-wide counterparty exposure built by multilevel marketing of liabilities, such as subprime mortgages and their securitization.

Thus the problem of systemic market failure is caused not merely by unit bigness, but also by the absence of firebreaks to prevent unsustainable exponential growth in risk exposure and the resultant systemic contagion effect of large number failures from chained counterparty reaction.

It is hard to understand why policymakers are not cognizant of this obvious fact sufficiently to focus on the need for firebreaks in interconnected financial markets both to prevent the buildup of risk chain reaction and to contain systemic failure contagion.

_____

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

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http://www.atimes.com/atimes/Global_Economy/KK10Dj04.html

Bill Totten http://www.ashisuto.co.jp/english/index.html

Poverty in America

2009-11-15T08:13:00.001+09:00

Progressive Schemes to Reduce Poverty Will Fail Without Monetary Reform

by Richard C Cook

Global Research (June 07 2007)

The Center for American Progress, a think tank headed by John D Podesta, President Bill Clinton's chief of staff, has come up with a plan it says would reduce poverty by half over the next decade. But as with other progressive schemes being floated in anticipation of the possible election of a Democrat as president in 2008, the plan doesn't even come close to addressing the real causes and consequences of a national catastrophe.

The study came after the government reported that thirty-seven million people are living below the official poverty threshold of $19,971 a year for a family of four. This is one out of every eight Americans.

Bob Herbert of the New York Times, in commenting on the study, wrote that in addition to those in poverty, "More than ninety million Americans, close to a third of the entire population, are struggling to make ends meet on incomes that are less than twice the official poverty line. In my book, they're poor."

He added, "… The number of poor people in America has increased by five million over the past six years, and the gap between rich and poor has grown to historic proportions. The richest one percent of Americans got nearly twenty percent of the nation's income in 2005, while the poorest twenty percent could collectively garner only a measly 3.4 percent."

Poverty in the US has grown tragically since George W Bush became president. It is a spreading national scourge among all races and even more so in center cities, rural areas, and on Indian reservations.

To understand what we could be doing about it, let's look at history. There was a time when the need to overcome poverty was something politicians and economists took seriously.

By the late 1950s, the robust economy we'd inherited from the World War Two era was slipping. By 1963 jobs had started to come back from a recession through President John F Kennedy's tax policies, but poverty was still recognized as a major national problem.

After JFK was assassinated, President Lyndon B Johnson's War on Poverty led to a host of programs that would eventually include Medicare, Medicaid, Food Stamps, Aid to Families with Dependent Children, and others. Added to Social Security, these entitlements would eventually consume half the federal budget.

What the government failed to do was enact a basic income guarantee for all citizens. Free-market economist Milton Friedman had recommended a negative income tax in his 1962 book Capitalism and Freedom, and in 1967 a National Commission on Guaranteed Incomes confirmed the idea. In 1969, President Richard Nixon announced a Family Assistance Plan that would pay $1,800 a year to any family of four with no outside earnings. The program passed the House of Representatives with two-thirds of the vote but was rejected by the conservatives who controlled the Senate.

This was the high water mark for any serious effort to eliminate poverty altogether by action at the national level, though it helped when in 1975 tax policy was changed with the Earned Income Tax Credit for lower income working families. But after the conservative shift that came with the election of Ronald Reagan as president in 1980, the emphasis became one of looking exclusively toward the private sector to deal with income issues.

It was the time of trickle-down economics. The Reagan supply-side tax cuts for the upper brackets were supposed to produce jobs that would benefit workers at all income levels. Market fundamentalists said the tax cuts would "lift all boats" and that deregulation of the financial industry would produce an "ownership society" that would benefit everyone.

It didn't work. The US economy had been devastated by the recession of 1979 to 1983 when our manufacturing infrastructure was shattered by the Federal Reserve's skyrocketing interest rates causing unemployment to shoot up by sixty-five percent in four years. The industrial job base never came back as the "service economy" was ushered in. By the end of the 1980s the economy was in another recession, leading to the election of Bill Clinton over President George H W Bush in 1992.

Clinton was a new kind of Democrat who would work with the private sector to benefit working people. The investment boom of the 1990s was fueled by foreign capital lured in by the Treasury's strong dollar policies. Jobs were created as the dot.com bubble expanded, trade barriers fell, and utility trading giants like Enron took off. NAFTA was enacted to promote free trade, welfare-to-work brought low-income women into the job market, and the Earned Income Tax Credit was extended.

The party ended when the stock market crashed in December 2000 and millions of people lost their retirement savings and other investments. Recession was returning even as George W Bush was being declared president by the US Supreme Court in December 2000. The economic crisis deepened after the September 11 2001, attacks when $1.4 trillion in wealth vanished during the worst five days of the stock market since the Great Depression.

Today, poverty is becoming a national catastrophe even while the highest income brackets prosper. From 2002 through 2006 the economy was floated by the housing bubble, with many lower income people getting into homes of their own through the proliferation of subprime mortgages.

But that market is crashing now too, leaving much of the nation with inflated home prices and no way to pay for them. Despite low official unemployment numbers from service economy jobs, continued manufacturing decline and a huge per capita debt load are contributing to a slippage of real family disposable income not seen in decades. And most politicians no longer seem to care.

So would the recommendations of the Center for American Progress change any of this? Absolutely not.

The first provision, as stated in Herbert's New York Times report, is that, "The task force recommended that the federal minimum wage, now $5.15 an hour, be raised to half the average hourly wage in the US, which would bring it to $8.40".

Next, "The earned-income tax credit, which has proved very successful in supplementing the earnings of low-wage working families, should be expanded to cover more workers. [The report] also recommended expanded coverage of the federal child care tax credit, which is currently $1,000 per child for up to three children."

Next would be "an all-out effort to ensure that workers are allowed to form unions and bargain collectively".

Other recommendations include "proposals to ease access to higher education for poor youngsters, to help former prisoners find employment, to develop a more equitable unemployment compensation system, and to establish housing policies that would make it easier for poor people to move from neighborhoods of concentrated poverty to areas with better employment opportunities and higher-quality public services".

The proposal with the greatest impact would be to raise the minimum wage. Of course no one could argue with that - it's shamefully low at present. But the idea is a little too glib, because the burden would fall mainly on small businesses such as fast-food restaurants.

These would likely respond by cutting the total number of jobs or by passing on the costs to consumers - many of them poor - through higher prices. Raising the minimum wage should be done, but even when earning $8.40 an hour, a person is poor. The measure would provide no help at all to the unemployed or the homeless.

What these recommendations fail to do, moreover, is address any of the causes of poverty.

The first problem is a chronic deficiency in purchasing power that is created within an advanced economic system by the fact that wages, salaries, and dividends paid to employees and shareholders never come close to matching all of the factors that contribute to the pricing of products. The causes of this imbalance are complex but center around the need for corporations to retain earnings and provide for their infrastructure and maintenance in ways that are never paid out to wage and salary earners.

The existence of this imbalance has been known for decades. On a macroeconomic scale attempts have been made to compensate by a positive foreign trade balance, economic growth policies, or even deliberate, and probably unconstitutional, government efforts to devalue/inflate the currency.

Both Keynesian economic policy, a result of which was World War Two, and the "free-market" monetarism that replaced it in the 1970s were failed attempts to rebalance an inherently unstable economic fact-of-life. Today, now that everything else has failed, the imbalance is being addressed only through borrowing by consumers to purchase the necessities of life. Borrowing is what people, businesses, and governments are increasingly forced to do, resulting in a total societal debt burden of over $48 trillion.

But the borrowing has its own cost - bank interest charges. Economists and politicians don't say so, but it is the transfer of wealth through interest charges from the people who work to those who lend money that is a major cause of the growing poverty.

The "borrow in order to live" syndrome ultimately makes the bankers and financiers rich but impoverishes the rest of the nation, with the burden falling most heavily on those who are already poor, unable to work, or discriminated against. The most rapidly growing and profitable industry in America today is the financial one which furnishes the loans people need just to survive.

Particularly devastating to the poor is predatory lending at high interest rates which has become a major problem in low-income urban areas. Much of the already low incomes of the poor and the working poor is paid as interest to providers of payday loans, check cashing, and other financial services.

Chain stores also suck cash out of neighborhoods without replacing it with adequate employment. Inflated rents to usually absentee landlords do the same. The effect on the population of already depressed localities where public assistance programs have been slashed may be devastating.

Also, workers everywhere suffer further as automation displaces them or as jobs are shipped overseas to cheaper labor markets. Again, the burden falls disproportionately on those less fortunate, including those already poor.

Jobs are not available because we buy so many of the goods we need for daily life from countries like China, which uses the dollars they earn to buy Treasury securities that float our out-of-control national debt. This is what is known as "dollar hegemony", which works directly against our own poor and working classes who are unable to find decent work.

Further, in an advanced mechanized economy, fewer workers are needed to produce the same amount of goods. This should result in a societal "leisure dividend" but instead puts people out of work and forces them to compete for the remaining service economy jobs. There are estimates that by 2030 robots will take over fifty percent of the jobs in the US economy.

Another problem is the shortage or non-existence of low cost credit needed to start and operate small businesses. There is also the escalating cost of higher education and the huge number of loans to students which saddle them with massive amounts of debt even before they start earning a living.

Meanwhile, government is unable to provide funding for meaningful anti-poverty programs because of the enormous interest on the existing national debt, the high cost of borrowing for infrastructure programs at the state and local level, the huge amount of spending on the military machine and the wars in Afghanistan and Iraq, and the already high costs of entitlement programs such as Medicare and Medicaid.

The government itself is increasingly poor, due in part to tax cuts for the rich. In fact, conservative commentators have urged that the political right-wing deliberately eviscerate the ability of government to meet social needs, and they are well on their way to doing so.

The dismal state of public finance has led to calls among economists and politicians to reduce spending on entitlements, including Social Security. The Social Security privatization scheme proposed by the Bush administration would shed government responsibility by risking people's retirement incomes in the stock market.

Social programs for the poor are being cut further in the 2008 federal budget to pay for higher interest costs on the debt and greater military expenditures. Reduced Medicaid expenditures starting in September 2007 may even close many of the nation's emergency rooms, making health care more expensive and less effective nationally.

While all this is going on, the people who run our financial industry, including the managers and executives of banks, brokerage firms, equity and hedge funds, et cetera, make millions of dollars a year and live like princes in the midst of an economy that is collapsing around them.

Much of their profits derive from derivatives, leveraged buyouts, and other forms of financial speculation in the gigantic gambling casino known as Wall Street. There are all abuses of the banking system's fractional reserve lending privileges. This lending is capitalized by government debt, computerized "cash management" practices, and, some allege, laundering of illegal drug profits.

Finally, we may be entering a period of hyperinflation, where the purchasing power of all but the most wealthy is eroding daily. The housing bubble has affected rents along with home prices. The same is happening in commercial real estate. Gasoline prices may soon hit four dollars a gallon. We have already seen a long wave of inflation affecting health care costs. Even food prices are rising rapidly as more corn is diverted to ethanol production.

The government has concealed the real pace of inflation by manipulating the consumer price index in order to avoid increased cost-of-living allowances to retirees. This has been done through substituting lower quality products in the basket of commodities the CPI measures. Inflation is also fed by the ongoing devaluation of the dollar against foreign currencies.

Despite the official estimates, inflation has probably been exceeding ten percent annually, which, compounded, can destroy much of the producing economy in a few years. Those most at risk, again the poor, children, and elderly, suffer the most. The culmination of hyperinflation is deflation and depression.

The assault on the lower income levels in the US produces stress and ill health. One response has been heavy administration by doctors of anti-depressant medication, another cost burden. Poor living conditions also result in alcoholism and illegal drug use, with their attendant social and personal costs.

All things considered, the effects of current economic and monetary policies are starting to approach the level of genocide against large segments of society, if not in their intention, at least in their effects. Crime, health, and income statistics identify vast areas of both urban and rural environments as what have aptly been called "death zones".

The recommendations of the Center for American Progress don't address a single one of these critical, life-threatening issues, particularly the rapid growth of unpayable debt. They propose Clinton-like solutions that have failed before, perhaps in the hope that another Clinton will be president soon and provide jobs to the progressive analysts who write such studies.

Interestingly, Hillary Clinton and the other Democratic front-runners for the 2008 nomination are raking in millions of dollars in campaign contributions from the Wall Street investment bankers, attorneys, and brokerage houses that are such a big part of the monetary problem.

Also, the growing poverty is not confined to the US. It is worldwide. According to the International Labor Organization, world unemployment was at an all-time high in 2006. The crushing debt load is increasing everywhere, even in developed countries like England and the other European nations.

At this point, the reader is referred to other articles by this author which have appeared recently on Global Research and other internet sites. The key to any real change is a fundamental program of monetary reform that would restore balance to the economic system.

This would involve the shifting of credit creation from the banks to the people acting through our constitutional system whereby Congress is authorized to create money and regulate its value. This should start with definition of credit as a public utility which should be controlled by central governments rather than the private financiers of the world who rule the global economy.

They do this through central banks which are actually agencies of the private monetary controllers. The banks then lend money created "out of thin air" to both to the people and their governments. The people must pay for the privilege of borrowing their own money through compound interest and heavy taxation.

It was a system born on a national scale with the Bank of England in 1694 then imposed on the United States through the Federal Reserve Act of 1913. Hand-in-hand went the Sixteenth Amendment to the Constitution and the creation of the income tax system to pay interest on the debt. The best-kept secret on earth is how easily this system could be changed, not only in the US but in any nation that applied the concept of treating credit as a pubic utility.

The needed changes can be made through a program that is simple in concept though profoundly different from what we have now in its operations and effects. The two main features of this program would be as follows:

1. We should spend sufficient credit into existence to supply the basic operating expenses of government at all levels without recourse to either taxes or borrowing. At least ninety percent of all taxes could be eliminated under such a program with government services scaled back to what is essential. The only taxes that should be retained would be those in the form of user fees for infrastructure operations and maintenance. Capital expenses for infrastructure construction at the federal, state, and local levels could be financed through a self-capitalized national infrastructure bank lending at zero-interest. Operating on a national scale, such a bank could begin immediately to rebuild our manufacturing job base. Similar investment banks could easily be set up and operated by states and municipalities, capitalized by long-term public bonds.

2. The financial gap between production and purchasing power referenced at the start of this article as a problem which national economies have never really solved can and should be filled by a non-taxable National Dividend of two types. One would be a cash stipend paid to all citizens which would also serve the purpose of eliminating poverty by providing everyone with a basic income guarantee. The remainder of the National Dividend would consist of an overall pricing subsidy, whereby a designated proportion of all purchases, including home building expenses, would be rebated to consumers. The total average National Dividend per person in the US today would probably exceed $12,000 per year. It would be a calculated value charged against a government ledger but would be off-budget, with no need to finance it with taxation or borrowing.

The theory of this program derives from two principal sources. One is the worldwide National Dividend movement founded almost a century ago by Scottish engineer Major C H Douglas. The other is the program of monetary reform based on direct government spending set forth by groups like the American Monetary Institute in its model legislation known as the American Monetary Act, to which the author of this article has contributed.

Make no mistake about it. There is an assault on the income security of much of our population unmatched in ferocity since the days of the Robber Barons in the late 1800s. The same is happening around the world, where perhaps half the world's population is being left out of the benefits of the global economy by monetary systems run by private financiers primarily for their own benefit.

When we realize that the basic purpose of a monetary system is to deliver purchasing power to those who need it to acquire the necessities of life, it becomes obvious how badly existing practices have failed. A main reason they have failed is that modern industrial methods make it possible for the world's workforce to produce these necessities without full employment, but nations have not adopted distributive methods such as the National Dividend to compensate. The needed changes can be made only if political systems remove from the financial controllers their stranglehold on the creation of new credit.

The scheme laid out by the Center for American Progress is so weak in concept that not only will it never be enacted but it would fail to make a dent in our growing poverty if it were. It is too late in the game for band-aid approaches when the monetary fundamentals of our economy and that of the world are so destructive.

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Richard C Cook is the author of We Hold These Truths: The Hope of Monetary Reform (2009) and Challenger Revealed: An Insider's Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age (2007). He is a Washington, DC-based writer and consultant who, in addition to NASA, taught history and worked in the US Civil Service Commission, the Food and Drug Administration, the Carter White House and spent 21 years with the US Treasury Department. His website is at www.richardccook.com.

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Bill Totten http://www.ashisuto.co.jp/english/index.html

Ten Years After Glass-Steagall

2009-11-14T19:56:00.001+09:00

Maniacal Deregulation

by Robert Weissman

CounterPunch (November 12 2009)

Today marks the ten-year anniversary of the passage of the repeal of the 1933 Glass-Steagall Act and related legislation. It is an anniversary worth noting for what it teaches us about forestalling financial crises, the consequences of maniacal deregulation, and the out-of-control political power of the megafinancial institutions.

The repeal of Glass-Steagall removed the legal prohibition on combinations between commercial banks on the one hand, and investment banks and other financial services companies on the other. Glass-Steagall's strict rules originated in the US government's response to the Depression and reflected the learned experience of the severe dangers to consumers and the overall financial system of permitting giant financial institutions to combine commercial banking with other financial operations.

Glass-Steagall protected depositors and prevented the banking system from taking on too much risk by defining industry structure: Commercial banks could not maintain investment banking or insurance affiliates (nor affiliates in non-financial commercial activity).

As banks eyed the higher profits in higher risk activity, however, they began in the 1970s to breach the regulatory walls between commercial banking and other financial services. Starting in the 1980s, responding to a steady drumbeat of requests, regulators began to weaken the strict prohibition on cross-ownership.

Despite herculean efforts by Wall Street throughout the 1990s, Glass-Steagall remained law because of intra-industry and intra-regulatory agency disagreements.

Then, in 1998, in an act of corporate civil disobedience, Citicorp and Travelers Group announced they were merging. Such a combination of banking and insurance companies was illegal under the Bank Holding Company Act, but was excused due to a loophole that provided a two-year review period of proposed mergers. The merger was premised on the expectation that Glass-Steagall would be repealed.

Citigroup's co-chairs Sandy Weill and John Reed led a swarm of industry executives and lobbyists who trammeled the halls of Congress to make sure a deal was cut. But as the deal-making on the bill moved into its final phase in Fall 1999, fears ran high that the entire exercise would collapse. (Reed now says repeal of Glass-Steagall was a mistake.)

Robert Rubin stepped into the breach. Having recently stepped aside as Treasury Secretary, Rubin was at the time negotiating the terms of his next job as an executive without portfolio at Citigroup. But this was not public knowledge at the time. Deploying the credibility built up as part of what the media had labeled "The Committee to Save the World" (Rubin, Fed Chair Alan Greenspan and then Deputy Treasury Secretary Lawrence Summers, so named for their interventions in addressing the Asian financial crisis in 1997), Rubin helped broker the final deal.

The Financial Services Modernization Act, also known as the Gramm-Leach-Bliley Act of 1999, formally repealed Glass-Steagall. Among a long list of deregulatory moves large and small over the last two decades, Gramm-Leach-Bliley was the signal piece of financial deregulation.

Repeal of Glass-Steagall had many important direct effects but the most important was to change the culture of commercial banking to emulate Wall Street's high-risk speculative betting approach.

"Commercial banks are not supposed to be high-risk ventures; they are supposed to manage other people's money very conservatively", writes Nobel Prize-winning economist Joseph Stiglitz. "It is with this understanding that the government agrees to pick up the tab should they fail. Investment banks, on the other hand, have traditionally managed rich people's money - people who can take bigger risks in order to get bigger returns. When repeal of Glass-Steagall brought investment and commercial banks together, the investment-bank culture came out on top. There was a demand for the kind of high returns that could be obtained only through high leverage and big risk-taking."

This is a very important part of the story of what created the financial crisis.

What lessons should be learned from the ten-year debacle?

First, Glass-Steagall's key insight was in the need to treat regulation from an industry structure point of view. Glass-Steagall's authors did not set out to establish a regulatory system to oversee companies that combined commercial banking and investment banking. They simply banned the combination of these enterprises. Cleaning up the current mess, we need strategies that focus on industry structure - meaning, especially, that we must break up the big banks - as well as more traditional regulation.

Second, we need to return to Glass-Steagall's more particular understanding: depository institutions backed by federal insurance protection cannot be involved in the risky, speculative betting of the investment banking world. (Notably, the Glass-Steagall problem is now worse than it was before the financial crisis, following JP Morgan's acquisition of Bear Stearns, and Bank of America's takeover of Merrill Lynch.) Moreover, we need not just to reinstate Glass-Steagall, but infuse its underlying principles throughout the financial regulatory scheme. Commercial banks should not be in the business of speculation. They have a job to do in providing credit to the real economy. They should do that. Their job is not to engage in betting on derivatives and other exotic financial instruments.

Third, giant financial institutions exercise too much political power, and for that reason alone must be broken up.

Fourth, we need broad reform in the area of money and politics. We need public financing of Congressional regulations, even stronger lobbyist reforms, and tight restrictions to close the revolving door through which individuals spin as they travel between positions in government and industry.

A year ago, as the financial crisis was unfolding, it seemed very plausible that these reforms would be seriously debated in Congress. Three months ago, it appeared that Wall Street had successfully maneuvered to keep them off the table. But in Congress a recognition is now settling in that regulatory reforms on the table are failing to deal with the problems of size and industry structure - and that there may be a severe political price to be paid for such failure. Suddenly, it seems that common sense may again be politically viable.

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Robert Weissman is president of Public Citizen.

http://www.counterpunch.org/weissman11122009.html

Bill Totten http://www.ashisuto.co.jp/english/index.html