Category Archives: financial derivatives

the price of everything

The following article is Chapter Nine of a book entitled Finishing The Rat Race which I am posting chapter by chapter throughout this year. Since blog posts are stacked in a reverse time sequence (always with the latest at the top), I have decided that the best approach is to post the chapters in reverse order.

All previously uploaded chapters are available (in sequence) by following the link above or from category link in the main menu, where you will also find a brief introductory article about the book itself and why I started writing it.

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When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals. We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues. We shall be able to afford to dare to assess the money-motive at its true value. The love of money as a possession — as distinguished from the love of money as a means to the enjoyments and realities of life — will be recognised for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease…”

John Maynard Keynes 1

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Have you ever wondered what it’s like to be rich? Here I don’t just mean well-off, with a paltry few tens of millions in the bank, I mean proper rich – megabucks! So much money that, as I heard one comedian put it (aiming his joke squarely at the world’s richest entrepreneur), if Bill Gates were to stuff all his cash under the mattress, then due to interest alone, if he fell out of bed he’d never hit the ground!

I suppose what I’m wondering is this – and perhaps you’ve found yourself thinking along similar lines – why are these super-rich guys always so intent on accruing ever greater wealth when they already possess more than enough funds to guarantee the needs of a small country. Think about it this way: Gates and the others are, barring a few very necessary legal constraints, completely at liberty to do whatever they choose at every moment of every day. They can eat the best food, drink the most delicious vintage wines, smoke the finest cigars, play golf morning, noon, and evening, and then after the sun goes down, and if it is their wont, have liaison with the most voluptuous women (or men) available. Quite literally, they have means to go anywhere and do everything to their heart’s content and all at a moment’s notice. Just imagine that. So why be bothering about sales at all? I mean wouldn’t you eventually get bored of simply accumulating more and more money when you’ve already got so much – and let’s face it, money itself is pretty boring stuff. So just what is it that keeps them all going after it? After all, there are only so many swimming pools, grand pianos, swimming pools in the shape of grand pianos, Aston Martins, Lear Jets, and acreages of real estate that one man (or woman) can profitably use (in the non-profit-making sense obviously). Economists would call this the law of diminishing marginal utility, although in this instance it is basic common sense.2

Presented with evidence of this kind, some will say that here is further proof of the essential greediness of human beings. That, as a species, we are simply never satisfied until we have the lot. Fine then, let us take on this modern variant of original sin, since it certainly holds more than a grain of truth. For the sake of argument, we might presume that all men and women are greedy to an almost limitless extent. That this is truly the natural order, from our conception having been evolutionarily programmed to grab as much as we can for ourselves – our most primeval reflex being to snatch.

So I shall not waste too much time here. Only to say that I do not find such unrestrained cupidity within the circles of people with whom I have chosen to associate, most being happy enough to share out the peanuts and fork out for the next round of beers, quite oblivious to outcomes in terms of commensurate returns. What comes around goes around… There is, of course, no doubting that most folks will, very naturally, if opportunity arises, take good advantage to feather their own nests. Making life a little more comfortable for themselves, and reserving the ample share of their fortune for their immediate family and closest friends. But then, why not…? Charity begins at home, right?

What most don’t do (at least in the circles I know best) is devote their whole lives to the narrow utilitarian project outlined above. And why? Because, though quite understandably, money and property are greatly prized assets, they offer lesser rewards than companionship and love. And, in any case, pure generosity is its own reward – and I do mean “is”, and not “has” or “brings” – the reward being an inseparable part of the act itself: a something received as it was given, like a hug, like a kiss. That said, if you still prefer to believe that we are all to a man, woman and child, innately and incurably selfish and greedy, then next time you take a look into the mirror, do consider those all-too beady eyes staring back. It’s very easy to generalise about mankind when you forget to count yourself in.

But if not intractably a part of human nature, then we must find other reasons to account for how our world is nevertheless so horribly disfigured by rampant and greedy exploitation. For if greed is not an inherently human trait, and here I mean greed with a capital Grrr, then this monomaniacal obsession is all too frequently acquired, especially in those who approach the top of the greasy pole. There is an obvious circularity in this, of course. That those whose progress has depended upon making a buck, very often become addicted. As money-junkies, they, like other addicts, then prioritise their own fix above all else. Whether or not these types are congenitally predisposed to becoming excessively greedy, we have no way of knowing. What we can be certain of is this: that by virtue of having acquired such great wealth, they disproportionately shape the environment they and we live in. So they are not merely money-junkies, but also money-pushers. If you’re not a money-junkie then you don’t know what you’re missing. There’s nothing new in this. This is the way the world has been for many centuries, and perhaps ever since money was first invented.

So here’s Oscar Wilde addressing the same questions about money and our unhealthy relationship to it; his thoughts leaping more than a century, during which time very little has apparently changed:

“In a community like ours, where property confers immense distinction, social position, honour, respect, titles, and other pleasant things of this kind, man, being naturally ambitious, makes it his aim to accumulate this property, and goes on wearily and tediously accumulating it long after he has got far more than he wants, or can use, or enjoy, or perhaps even know of. Man will kill himself by overwork in order to secure property, and really, considering the enormous advantages that property brings, one is hardly surprised. One’s regret is that society should be constructed on such a basis that man has been forced into a groove in which he cannot freely develop what is wonderful, and fascinating, and delightful in him – in which, in fact, he misses the true pleasure of joy and living.”3

Embedded below is a recent interview [from December 2013] Pulitzer Prize-winning journalist Chris Hedges gave on “The Real News” in which he talked about – based to a large extent on his own personal experience – how the super rich are isolated and disconnected from the rest of society. He explains how this creates a deluded sense of entitlement and a pathological callousness:

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Isn’t money funny stuff! Funny peculiar, I mean. We just take it so much for granted, almost as though it were a natural substance (disappointingly, of course, it doesn’t actually grow on trees). But when we do think about it, money has far stranger properties than anything in the natural world. And our relationship to it is more peculiar than our relationship to almost anything else.

Money, that’s what I want… sang the Beatles on one of their less celebrated tracks. But the truth will out. So just why did the Beatles want money, and, for that matter, why do I, and why do you? It doesn’t work, you can’t eat it, and it’s not, of a rule, a thing of special beauty. Money is absolutely useless in fact, right until you decide to swap it for what you actually want.

Money can’t buy me love, true again, but it might buy me a chocolate bar. Because money is really just a tool, a technology: a highly specialised kind of lubricant, that enables people to exchange their goods and services with greater ease and flexibility. The adoption of a money system enabling levels of parity for otherwise complex exchanges to be quickly agreed and settled. The great thing about money being, to provide a concrete illustration, that although £1 of tinned herring is probably equivalent to about thirty seconds of emergency plumbing (if you’re lucky), you won’t require crates of herring to pay for the call-out. So far so simple.

Except wait. We all know how the price of herring can go up as well as down, and likewise for the price of emergency plumbers. So why such a dynamic relationship? Well, there’s “the market”, a price-fixing system that arises spontaneously, regulating the rates of exchange between goods and services on the basis of supply adjusting to match demand. Thus by a stroke of good fortune, we find that money is not merely a lubricant for exchange, but also regulatory of useful production and services. This, at least, is the (widely accepted) theory.

Prices rise and fall in accordance with demand. Things that are in short supply become expensive, things that are abundant are cheaper. This is basic economic theory and it means, amongst other things, that in every transaction the “real value” of your money is actually relative, for the simple reason that the amount required depends not only on what you’re after, but also upon whether or not other people are after the same kind of thing. Money then, in terms of its “real value” to any individual or group, is something that is constantly varying. We might call this “the relativity of money”.

One consequence of the relative nature of money, is that the useful value of money overall can also rise and fall. It is possible that wholesale, retail and labour costs can all more or less rise or fall together, although the general tendency, as we all know from experience, is for overall rising costs. Indeed such “inflation” is regarded as normal and expected, and, as a consequence, it comes to seem just as natural as money itself. Yet since you always need more and more money to buy the same things then the value of your money must, in some important way, be constantly falling. But just why does money as a whole lose its value in this way? What makes yesterday’s money worth less than today’s? Well it turns out that this is a huge question and one that economists have argued long and hard about.

One partial account of inflation goes as follows: businesses and people in business are constantly looking for a little bit more. For how else can they maximise profits? In direct consequence, we, as customers, necessarily require more dosh to pay for the same goods or services. But to enlarge our budget, this automatically requires a commensurate increase in income, which means successfully negotiating for a larger salary. In the bigger picture then, the businesses supplying our wants and needs, are now needing to cover their larger wage-bills, which means higher prices to compensate. So prices and incomes rise together, with money becoming worth less and less precisely because everyone is trying to accumulate more and more of it. This endless tail-chasing escalation, which is given the fancy title of “the price/wage spiral”, serves as an excellent example of why money is really very odd stuff indeed.

And what is money in any case? The first traders most likely exchanged shells, precious stones, or other baubles to aid in bartering, but then naturally enough, over time these exchanges would have been formalised, agreements arising with regards to which objects and materials were most acceptable as currency. The material that became most widely accepted was eventually, of course, gold. But why gold? Well, no one actually knows but we can make some educated guesses.

Firstly, gold is scarce, and it is also rare in other ways – for instance, having a unique and unusual colour, which just happens to correspond to the colour of the Sun. The fact that it is almost chemically inert and so doesn’t tarnish, means that it also shines eternally, and so again is like the Sun. Indeed, Aldous Huxley, in Heaven and Hell (his sequel to The Doors of Perception) points out that almost every substance that humans have ever regarded as valuable shares this property of shininess. To Huxley this is evidence that even money owes it origins, in part at least, to a common spiritual longing. Our wish to own a precious piece of paradise.

But back to more mundane matters, if gold (or any other substance) is chosen as your currency, then there arises another problem. How to guarantee the quantity and quality of the gold in circulation? For if gold is worth faking or adulterating then it’s certain that somebody will try cheating.

Well, one answer could be the adoption of some kind of official seal, a hallmark, and this solution leads, naturally enough, to the earliest forms of coinage. But then, if the coins are difficult to counterfeit, why bother to make them out of gold in the first place? Just the official seal would be enough to ensure authenticity. And why bother with metal, which is bulky and heavy. So again it’s an obvious and logical leap to begin producing paper banknotes. The value of these coins and banknotes, although far less intrinsically valuable in material terms than the gold they represent, is still backed by the promise that they are redeemable into gold. But hang on, what’s so special about the gold anyway (aside from its shininess). And doesn’t the gold, which is now locked up in bullion reserves, in fact have real uses of its own? And doesn’t this mean that the gold also has a monetary value? So why not cut loose from the circularity and admit that the value of money can exist entirely independent from the gold or from any other common standard. Indeed, why couldn’t the issuing authority, which might be a government but is more often a central bank, simply make up a “legal tender”4 with no intrinsic or directly correlated value whatsoever and issue that? Not that the money issued need even correspond to the amount of real coins or paper banknotes in circulation – most of the world’s money being bits and bytes, ones and zeroes, orbiting out in cyber-space. Which brings us to just how funny money has now become.

The Pound Sterling, the various dollars, the Euro and every major currency on Earth are, to apply the correct terminology, “fiat currencies”5 With fiat currencies there is no parity to the value of any other commodities and so they are, if you like, new forms of gold. As such, and given their shifting relative values, these new fiat currencies can also be traded as another kind of commodity. Money, in the form of currency, becoming an investment in itself. Money is strange stuff indeed.

Yet money also remains as an instrument. And we use this instrument to measure just about everything. To establish the value of raw materials and manufactured items. The value of land and, by extension, the value of the space it occupies. The value of labour, and thus a value on the time used. And, since works of art are also bought and sold, money is even applied as a measure of such absolutely intangible qualities as beauty.

So money is basically a universally adaptable gauge, and this is its great strength. It is perhaps the big reason why its invention gradually caught on in such a fundamental way. From humble trading token, money has risen to become a primary measure of all things. But remember, remember… Money, whether fiat currency or gold standard, can never be real in the same way as tins of herring and plumbers are real, and neither is “monetary value” an absolute and intrinsic property, but only ever relative and acquired. Money, we ought to constantly remind ourselves (since we clearly need reminding) is nothing without us or without our highly structured civilisation – intrinsically, it is worthless. It is very strange stuff.

Perhaps the future benchmark for money will no longer be gold but ‘virtual gold’ in the form of cryptocurrencies – bitcoin being currently the most well-known of these. One advocate of these alternatives to traditional forms of money is financial expert Max Keiser. On February 3rd 2014, he spoke with coder, hacker and cryptocurrency specialist Andreas Antonopoulos about the regulation of bitcoin transactions; the advent of bitcoin derivatives, which he believes these are less of a threat than ordinary derivatives (a subject I’m coming to next); the fact that unlike gold, cryptocurrencies can be ‘teleported’; and a future in which bitcoin is used widely by businesses as much as by individuals. He says that a time is coming when the prevalent misgivings and doubts about bitcoin and other cryptos have long since been forgotten. Is he right? I don’t know and remain highly skeptical, but I find the debate an interesting one:

Incidentally, there are less radical and more tangible alternatives to the currencies we now have in circulation. “Treasury notes” are one such alternative and these have historical precedence in the form of both the American “greenback” and the UK’s Bradbury Pound. To read more about this and also for links to campaigns to reintroduce them please read the addendum at the end of the chapter.

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Little more than a century ago, and even in the richest corners of the world, there were no dependable mechanisms to safeguard against the vicissitudes of fortune. If you weren’t already poor and hungry (as most were), then you could rest assured that potential poverty and hunger were waiting just around the corner. Anyone with aspirations to scale the ladder to secure prosperity faced the almost insurmountable barriers of class and (a generally corresponding) lack of education. A lower class person of such ambitions would be very well aware that if they could step onto the ladder at all, there was very little in the way of protection to save them in the event of falling; errors of judgement or sheer misfortune resulting in almost certain and unmitigated personal disaster. This was the sorry situation for people at all levels of society aside from the highest echelons.

One tremendous advantage then, of living in a modern society, is that, aside from having slightly less restricted social mobility (not that we now live in the classless society we are told to believe in), there are basic safety nets in place, with additional protection that is optionally available. For those languishing at the bottom of the heap, there are the reliable though meagre alms provided through a welfare system, whilst for the ever-expanding middle classes there is plenty of extra cover in the form of saving schemes, pension schemes, and, in the event of the most capricious and/or calamitous of misfortunes, the ever-expanding option of insurance policies. If the Merchant of Venice had been set in today’s world then the audience would feel little sympathy for his predicament. Why had he ventured on such a risk in the first place, casting his fortune adrift on dangerous waters? Why hadn’t he protected his assets by seeking independent financial advice and taking out some preferential cover? It’s a duller story altogether.

Systems for insurance are essential in any progressive civilisation. Protection against theft, against damage caused by floods, fires and other agents of destruction, and against loss of life and earnings. Having insurance means that we can all relax a bit, quite a lot, in fact. But it also means that, alongside the usual commodities, there’s another less tangible factor to be costed and valued. That risk itself needs to be given a price, and that necessarily means speculating about the future.

Indeed, speculations about the future have become very much to the forefront of financial trading. As a consequence of this, at least in part, today’s financial traders have become accustomed to dealing in “commodities” that have no intrinsic use or value whatsoever. They might, for example, exchange government bonds for promises of debt repayment. Or, feeling a little more adventurous, they might speculate on the basis of future rates of foreign exchange, or in interest rates, or share prices, or rates of inflation, or in a multitude of other kinds of “underlying assets” (including that most changeable of underlying variables: the weather) by exchange of promissory notes known most commonly as “derivatives”, since they derive their value entirely on the basis of the future value of something else. And derivatives can be “structured” in any myriad of ways. Here are a just few you may have heard of :–

  • futures (or forwards) are contracts to buy or sell the “underlying asset” up until a future date on the basis of today’s price.
  • options allow the holder the right, without obligation (hence “option”), to buy (a “call option”) or to sell (a “put option”) the “underlying asset.”
  • swaps are contracts agreeing to exchange money up until a specified future date, based on the underlying value of exchange rates, interest rates, commodity prices, stocks, bonds, etc.

You name it: there are now paper promises for paper promises of every conceivable kind. Now the thing is that because you don’t need to own the “underlying asset” itself, there is no limit to the amounts of these paper promises that can be traded. Not that this is as novel as it may first appear.

Anyone who’s ever bought a lottery ticket has in effect speculated on a derivative, its value in this case being entirely dependent upon the random motion of coloured balls in a large transparent tumbler at an allocated future time. All betting works this way, and so all bets are familiar forms of derivatives. And then there are, if you like, negative bets. Bets you’d rather lose. For instance, £200 says my house will burn down this year, is presumably a bet you’d rather lose, but it is still a bet that many of us annually make with an insurance company. And general insurance policies are indeed another form of familiar derivative – they are in effect “put options”.

However there is one extremely important difference here between an ordinary insurance policy and a “put option” – in the case of the “put option”, you don’t actually need to own the “underlying asset”, which means, to draw an obvious comparison, you might take out house insurance on your neighbour’s property rather than your own. And if their house burns down, ah hum accidentally, of course, then good for you. Cash in your paper promise and buy a few more – who knows, perhaps your neighbour is also a terrible driver. There are almost numberless opportunities for insuring other people’s assets and with only the law preventing you, then why not change the law. Which is exactly what has happened, with some kinds of derivatives circumventing the law in precisely this way, and permitting profitable speculation on the basis of third party failures. When it comes to derivatives then, someone can always be making a profit come rain or shine, come boom or total financial meltdown.

But, why stop there? Especially when the next step is so obvious that it almost seems inevitable. Yes, why not trade in speculations on the future value of the derivatives themselves? After all, treating the derivative itself as an “underlying asset” opens the way for multiple higher order derivatives, creating with it, the opportunity for still more financial “products” to be traded. Sure, these “exotic financial instruments” quickly become so complex and convoluted that you literally need a degree in mathematics in order to begin to decipher them. Indeed those on the inside make use of what are called “the Greeks”, and “the Higher Order Greeks”, since valuation requires the application of complex mathematical formulas comprised of strings of Greek letters, the traders here fully aware, of course, that it’s all Greek to the rest of us. Never mind – ever more financial “products” means ever more trade, and that’s to the benefit of all, right…?

Deregulation of the markets – kicked off in Britain by the Thatcher government’s so-called “Big Bang” and simultaneously across the Atlantic through the laissez-faire of “Reagonomics”6 – both enabled and encouraged this giddying maelstrom, allowing in the process the banking and insurance firms, the stockbrokerage and hedge funds that make up today’s “finance industry” to become the single most important “wealth creator” in the Anglo-American world. Meanwhile, declines in manufacturing output in Britain and America meant both nations were becoming increasingly dependent on a sustained growth in the financial sector – with “derivatives” satisfying that requirement for growth by virtue of their seemingly unbound potential. Indeed, having risen to become by far the largest business sector simply in terms of profit-making, many of the largest banks and insurance groups had become “too big to fail”7. Failure leading potentially to national, if not international, economic ruin. Which is how the very systems that were supposedly designed to protect us, systems of insurance, have, whether by accident or design, left us more vulnerable than ever.

And then came the bombshell, as we learnt that the banks themselves were becoming bankrupt, having gambled their investments in the frenzy of deregulated speculation. Turns out that some of the money-men didn’t fully understand the complexity of their own systems; a few admitting with hindsight that they’d little more knowledge of what they were buying into than the rest of us. They’d “invested” because their competitors “invested”, and, given the ever-growing buoyancy of the markets at the time, not following suit would have left them at a competitive disadvantage. A desperate but strangely appropriate response to the demands of free market capitalism gone wild.

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It is currently estimated that somewhere in the order of a quadrillion US dollars (yes, that’s with a qu-) has been staked on derivations of various kinds. Believe it or not, the precise figure is actually uncertain because many deals are brokered in private. In the jargon of the trade these are called “over the counter” derivatives, which is an odd choice of jargon when the only thing the average customer buys over the counter are drugs. Could it be that they’re unconsciously trying to tell us something again?

So just how big is one quadrillion dollars? Well, let’s begin with quadrillion. Quadrillion means a thousand trillion. Written at length it is one with a string of fifteen zeros. A number so humungous that it’s humanly impossible to properly comprehend: all comparisons fail. I read somewhere that if you took a quadrillion pound coins and put them side by side then they would stretch further than the edge of the solar system. The Voyager space programme was, of course, a much cheaper alternative. Or how about this: counting a number every second, it would take 32 million years to count up to a quadrillion… Now obviously that’s simply impossible – I mean just try saying “nine hundred and ninety-nine trillion, nine hundred and ninety-nine billion, nine hundred and ninety-nine million, nine hundred and ninety-nine thousand, nine hundred and ninety-nine” in the space of one second! You see it really doesn’t help to try to imagine any number as big as a quadrillion.

However, there are still useful ways to compare a quadrillion dollars. For instance, we can compare it against the entire world GDP which turns out to be a mere 60 trillion US dollars8. One quadrillion being nearly twenty times larger. Or we might compare it against the estimated monetary wealth of the whole world: about $75 trillion in real estate, and a further $100 trillion in world stock and bonds. So one quadrillion is a number far exceeding even the total monetary value of the entire world – material and immaterial! A little freaky to say the least! Especially when we discover that many of these derivatives are now considered to be “toxic assets”, which is a characteristically misleading way of saying they are worth nothing – yes, worthless assets! – whatever the hell that means!

So just like the Sorcerer’s Apprentice, it seems that the spell has gone out of control, and instead of these mysterious engines making new money out of old money, the system has created instead an enormous black hole of debt. A debt that we, the people, are now in the process of bailing out, with extremely painful consequences. Efforts to save us from a greater catastrophe having already forced the British and US governments to pump multiple hundreds of billions of public money into the coffers of the private banks. Yet the banks and the economy remain broken of course, because how is any debt larger than the monetary value of the entire world ever to be repaid?

Another tactic to halt descent into a full-blown economic meltdown has involved the issuance of additional fiat currency in both Britain and America; a “quantitative easing” designed to increase the supply of money by simply conjuring it up (a trick that fiat currency happily permits). Money may not grow on trees but it can most certainly be produced out of thin air. But here’s the rub. For in accordance with the most basic tenets of economic theory, whenever extra banknotes are introduced into circulation, the currency is correspondingly devalued. So you may be able to conjure money from thin air, but all economists will readily agree that you cannot conjure “real value”, meaning real purchasing power. Indeed this common mistake of confusing “nominal value” (i.e., the number of pounds written on the banknote) with “real value”, is actually given a name by economists. They call it: “the money illusion”. And it’s useful to remind ourselves again that money has only relative value.

To understand this, we might again consider money to be a commodity (which in part it is, traded on the currency markets). As such, and as with all other commodities, relative scarcity or abundance will alter its market value, and, in obedience to the law of supply and demand, more will automatically mean less. This is just as true for the value of money as it is for tins of herring, plumbers, scotch eggs and diamonds. So it seems that if too much of our quantitative is eased, then we’d better be prepared for a drastic rise in inflation, or much worse again, for hyperinflation. Printing too much money is how hyperinflation has always been caused.

Our future is bleak, they tell us. Our future is in the red. So much for security, so much for insurance. We’d apparently forgotten to beware of “the Greeks” and of the “higher order Greeks” when they’d first proffered gifts.

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I said earlier, just in passing, that money is actually pretty boring stuff, and it is… Truly, madly and deeply boring! So when I hear on the news how “the markets” are hoping that the latest round of “quantitative easing” will enable governments to provide the necessary “fiscal stimulus”, I am barely even titillated. Whilst explanations, both in the popular press and supposedly more serious media, that like to describe such injections of new money as in some way analogous to filling up my car with imaginary petrol provide me only with a far, far more entertaining distraction: to wit, a magical car that runs on air.

But then, of course, money isn’t really stuff at all! More properly considered, money is perhaps a sort of proto-derivative, since its worth is evidently dependent upon something other than the paper it’s (increasingly not) written on. So what is it that money’s worth depends upon? What underlies money? Well, the accepted answer to this question is apparently that money is a “store of value”. Although this leads immediately to the obvious follow-up question: in this context, what precisely is the meaning of “value”? But, here again there is a problem, since “value”, although a keystone to economic thinking, has remained something of an enigma. Economists unable to agree upon any single definitive meaning.

Is “value” a determinant of usefulness? Or is it generated by the amount of effort required in the production of things? Or perhaps there is some other kind of innate economic worth? For instance in a thing’s scarcity. And can this worth be attributed at the individual level or only socially imputed?

There are a wide variety of definitions and explanations of “value”, that, being so foundational, have then encouraged the various branches of economic theory to diverge. And here is another important reason why economics is in no way equivalent to the physical sciences. Ask any physicist what energy is, and they will provide both an unambiguous definition and, no less importantly, offer established methods for measurement. Because of this, if ever one physicist talks to another physicist about energy (or any other physical quantity) they can be absolutely certain that they are talking about the same thing. Which is very certainly not the case when economists talk about “value”.

“A cynic is a man who knows the price of everything and the value of nothing,” said Oscar Wilde, distinguishing with playful wisdom the difference in human terms between “price” and “value”. The great pity is that the overwhelming majority of today’s economists have become so cynical – but then perhaps they always were.

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As part of his on-going assault against religion, Richard Dawkins recently published a book called The God Delusion. It’s the old hobby-horse again; one that he shares with a great many millions of other broadly liberal, literate and intelligent people. That religion is an evil of which humanity must rid ourselves totally. And yes, much of religion has been dumb and dangerous, this I will very readily concede (and already have conceded in earlier chapters). But really and truly, is it “the God delusion” that we should be most concerned about in these torrid times? For regardless of Dawkins claims, it is quite evident that religion is a wounded animal, and for good or ill, the secular world is most certainly in the ascendant. Right throughout the world, aside from a few retreating pockets of resistance, faith in the old gods has been gravely shaken. It is not that human faith, by which I mean merely a belief and/or worship of something greater, is extinguished, for it never can be, but that it has been reattached to new idol-ologies. And in those parts of the world where the old religions have been most effectively disarmed or expelled, namely the West, one idol-ology above all others has gathered strength from Religion’s demise.

Richard Dawkins has said many times that instructing young children in religious obedience is a form of psychological child abuse and on this point I wholeheartedly support him. Children’s minds are naturally pliable for very sound developmental reasons. But is it less pernicious to fill their precious minds with boundless affection for let’s say Ronald McDonald? For this is merely one stark but obvious illustration of how a new fundamentalism has been inculcated in the young. Devotion to the brand. Love of corporations. Worship of the dollar and the pound.

This new kind of fundamentalism has long since swept across the world, but it is unusual, although not unique, in that it denies its own inherent religiosity whilst claiming to have no idols. This is the fundamentalism of free market neoliberal economics. The Father, Son and Holy Ghost having been forsaken, only to have been usurped by the IMF, the World Bank and the WTO. If you think I’m joking, or that this is mere hyperbole, then think again. When things are tough we no longer turn to the heavens, but instead ask what sacrifices can be made to “reassure the markets”. Sacrifices to make it rain money again.

By far and above, here is the most pernicious delusion of our age. And it has next to nothing to do with God, or Yahweh, or Allah, or even the Buddha. The prophets of our times talk of nothing besides profits or losses. They turn their eyes to the Dow Jones Index, trusting not in God, but only in money. So I call for Dawkins to leave aside his God delusion, for a moment, and pay a little attention to the rise and rise of “the money delusion”. If future historians reflect on our times, this is what they will see, and given the mess this “money delusion” is creating they will scratch their heads in disbelief and disgust.

*

I have already discussed the so-called “money illusion” – of mistaking nominal banknote value for real purchasing value – but this is merely one of many nested and interrelated illusions that make up “the money delusion”. Illusions that have become so ingrained within our permitted economic thinking that they are completely taken for granted.

Foundational is the belief that individuals always make rational choices. According to the definition of making rational choices, this requires that we all choose with consistency and always with the aim of choosing more over less. That a huge advertising industry now exists to tempt us into irrationality is never factored in. Nor are the other corrosive influences that so obviously deflect our rational intentions: the coercion of peer pressure, our widespread obsession with celebrities and celebrity endorsement, and that never-ending pseudo-scientific babble that fills up many of the remaining column inches and broadcast hours of our commercial media. We are always eager for the latest fashionable fads, and perhaps we always were. Yet this glaring fact, that people make wholly irrational choices time and again, whether due to innate human irrationality or by deliberate design, is of little concern to most economists. It is overlooked and omitted.

Likewise, a shared opinion has arisen under the name of neoliberalism that economics can itself be neutral, usefully shaping the world without the nuisance of having to rely on value judgements or needing any broader social agenda. If only individuals were left to make rational choices, as of course they do by definition, or so the idea goes, and the market could also be unshackled, then at last the people will be free to choose. Thus, goes the claim, individual freedom can only be guaranteed by having freedom within the marketplace. Freedom trickling down with the money it brings. “Wealth creation” alone must solve our problems by virtue of it being an unmitigated good.

Of course, back in the real world, one man’s timber very often involves the destruction of another man’s forest. Making profits from the sale of drugs, tobacco and alcohol has social consequences. Factories pollute. Wealth creation has its costs, which are very often hidden. There is, in other words, and more often than not, some direct negative impact on a third party, known to economists as “spillover” or “externalities”, that is difficult to quantify. Or we might say that “wealth creation” for some is rather likely therefore to lead to “illth creation” for others.

Illth creation? This was the term coined by romantic artist, critic and social reformer, John Ruskin, and first used in his influential critique of nineteenth century capitalism entitled Unto This Last. Ruskin had presumably never heard of “the trickle-down effect”:

“The whole question, therefore, respecting not only the advantage, but even the quantity, of national wealth, resolves itself finally into one of abstract justice. It is impossible to conclude, of any given mass of acquired wealth, merely by the fact of its existence, whether it signifies good or evil to the nation in the midst of which it exists. Its real value depends on the moral sign attached to it, just as sternly as that of a mathematical quantity depends on the algebraical sign attached to it. Any given accumulation of commercial wealth may be indicative, on the one hand, of faithful industries, progressive energies, and productive ingenuities: or, on the other, it may be indicative of mortal luxury, merciless tyranny, ruinous chicane.”9

*

We are in the habit of regarding all money as equal. Presuming that the pounds and pence which make up my own meagre savings are equivalent in some directly proportional manner to the billions owned by let’s say George Soros. A cursory consideration shows how this is laughable.

For instance, we might recall that on “Black Wednesday” in 1992, Soros single-handedly shook the British economy (although, the then-Chancellor of the Exchequer Norman Lamont was left to shoulder the blame)10. But to illustrate this point a little further, let me tell you about my own small venture into the property market.

Lucky enough to have been bequeathed a tidy though not considerable fortune, I recently decided to purchase a house to live in. The amount, although not inconsiderable by everyday standards (if compared say with the income and savings of Mr and Mrs Average), and very gratefully received, was barely sufficient to cover local house prices, except that I had one enormous advantage: I had cash, and cash is king.

For reasons of convenience, cash is worth significantly more than nominally equivalent amounts of borrowed money. In this instance I can estimate that it was probably worth a further 20–30%. Enough to buy a far nicer house than if I’d needed to see my bank manager. A bird in the hand…

Having more money also has other advantages. One very obvious example being that it enables bulk purchases, which being cheaper, again inflates its relative value. The rule in fact is perfectly straightforward: when it comes to money, more is always more, and in sufficient quantities, it is much, much more than that.

But then, of course, we have the market itself. The market that is supposedly free and thus equal. The reality being, however, that since money accumulates by virtue of attracting its own likeness, the leading players in the market, whether wealthy individuals or giant corporations, by wielding larger capital resources, can operate with an unassailable competitive advantage. These financial giants can and do stack the odds even higher in their favour by more indirect means, such as buying political influence with donations to campaign funds and by other insidious means such as lobbying – all of which is simply legally permitted bribery. The flaunted notion of a free market is therefore the biggest nonsense of all. There is no such thing as a free market: never has been and never will be.

The most ardent supporters of free market neoliberalism say that it is a non-normative system, which permits us finally to rid ourselves of disagreements over pesky value judgements. The truth, however, is very much simpler. By ignoring values, it becomes a system devoid of all moral underpinning. Being morally bankrupt, it is unscrupulous in the truest sense of the word.

*

If I had enough money and a whim, I might choose to buy all the plumbers and tins of herrings in Britain. Then, since money is (in part) a measure of scarcity, I could sell them back later with a sizeable mark-up. Too far-fetched? Well, perhaps, but only in my choice of commodity. The market in other commodities has without any question been cornered many times in the past. For instance, by the end of the 1970s, two brothers, Nelson Bunker and William Herbert Hunt, had accumulated and held what was then estimated to be one third of all the world’s silver. This led to serious problems both for high-street jewellers11 and for the economy more generally12, and as it happened, when the bubble burst on what became know as “Silver Thursday”, it also spelt trouble for the brothers’ own fortune. Fortunately for them, however, the situation was considered so serious that a consortium of banks came forward to help to bail them out13. They had lost, their fortune diminished, although by no means wiped out. As relatively small players they’d played too rough; meanwhile much larger players ensure that the markets are routinely rigged through such manufacture of scarcity. Going back as early as 1860, John Ruskin had already pointed out a different but closely-related deficiency in any market-driven capitalist system of trade:

“Take another example, more consistent with the ordinary course of affairs of trade. Suppose that three men, instead of two, formed the little isolated republic, and found themselves obliged to separate, in order to farm different pieces of land at some distance from each other along the coast: each estate furnishing a distinct kind of produce, and each more or less in need of the material raised on the other. Suppose that the third man, in order to save the time of all three, undertakes simply to superintend the transference of commodities from one farm to the other; on condition of receiving some sufficiently remunerative share of every parcel of goods conveyed, or of some other parcel received in exchange for it.

“If this carrier or messenger always brings to each estate, from the other, what is chiefly wanted, at the right time, the operations of the two farmers will go on prosperously, and the largest possible result in produce, or wealth, will be attained by the little community. But suppose no intercourse between the landowners is possible, except through the travelling agent; and that, after a time, this agent, watching the course of each man’s agriculture, keeps back the articles with which he has been entrusted until there comes a period of extreme necessity for them, on one side or other, and then exacts in exchange for them all that the distressed farmer can spare of other kinds of produce: it is easy to see that by ingeniously watching his opportunities, he might possess himself regularly of the greater part of the superfluous produce of the two estates, and at last, in some year of severest trial or scarcity, purchase both for himself and maintain the former proprietors thenceforward as his labourers or servants.”14

By restricting the choices of others, one’s power over them is increased, and it this that brings us to the real reason why money becomes such addiction, especially for those who already have more than they know what to do with. For truly the absolute bottom line is this: that money and power become almost inseparable unless somehow a separation can be enforced. And whilst wealth, especially when excessive, accumulates, as it almost invariably does, then along with it goes the accumulation of power. This is underlying and centralising mechanism has perhaps always operated at the heart of all civilisation. But even the power of money has its limits, as Ruskin points out:

“It has been shown that the chief value and virtue of money consists in its having power over human beings; that, without this power, large material possessions are useless, and to any person possessing such power, comparatively unnecessary. But power over human beings is attainable by other means than by money. As I said a few pages back, the money power is always imperfect and doubtful; there are many things which cannot be reached with it, others which cannot be retained by it. Many joys may be given to men which cannot be bought for gold, and many fidelities found in them which cannot be rewarded with it.

“Trite enough, – the reader thinks. Yes: but it is not so trite, – I wish it were, – that in this moral power, quite inscrutable and immeasurable though it be, there is a monetary value just as real as that represented by more ponderous currencies. A man’s hand may be full of invisible gold, and the wave of it, or the grasp, shall do more than another’s with a shower of bullion. This invisible gold, also, does not necessarily diminish in spending. Political economists will do well some day to take heed of it, though they cannot take measure.”15

Until such a time, every action and probable outcome must continue to be evaluated on the basis of strict cost and benefit estimates. Our “ponderous currencies” literally enabling a figure to be set against each human life – an application fraught with the most serious moral dilemmas and objections – and beyond even this, we have price tags for protecting (or else ruining) the natural environment all our lives depend upon. For only the market can secure our futures, optimally delivering us from evil, though inevitably it moves in mysterious ways. Which is how the whole world – land, water, air and every living organism – came to be priced and costed. Everything set against a notional scale that judges exclusively in terms of usefulness and availability, such is the madness of our money delusion.

We are reaching a crisis point. A thoroughgoing reappraisal of our financial systems, our economic orthodoxes, and our attitudes to money per se is desperately required. Our survival as a species may depend on it. Money ought to be our useful servant, but instead remains, at least for the vast majority, a terrible master. As a consequence, our real wealth has been too long overlooked. Time then for this genii called money to be forced back tight inside its bottle. Ceaselessly chasing its golden behind, and mistaking its tight fist for the judicious hand of God, is leading us ever further down the garden path. Further and further away from the land it promises.

Next chapter…

*

 Addendum: Q & A

Back in April 2012, I forwarded a draft of this chapter to friends in Spain (a nation already suffering under imposed “austerity measures”). They sent an extended reply which raised two interesting and important questions. Both questions along with my replies are offered below:

Q1: You seem to be saying that printing money (as the US and UK, who are in control of their own currency, are doing ) is as bad as dealing with the debt problem by means of austerity (the “Merkozy” approach). But the latter is surely definitely worse.

A. I think these are simply two sides of the same scam. The bankers create an enormous unpayable debt and then get governments to create new money to bail them out. This is sold to us as a way of bailing out a few chosen victims (Greece, Spain, Portugal, Ireland) although it simply means a huge transfer of wealth from public into private hands. To make that money useful to the bankers (and the rest of the ruling elite) ‘austerity measures’ are put in place which not only steal money off the average person but also permit the fire sale of national assets. Meanwhile, in Britain and America, the governments are helping to pay for these bailouts by creating money out of thin air, which means the real value of our money is reduced through inflation (effectively a hidden tax). If the money were invested in infrastructure or education or whatever, then this could potentially be a good thing (even though it still creates inflation), so certainly QE could have been beneficial but not when you use the money only to keep afloat a huge Ponzi scheme. But then you ask later…

Q2: ‘but how come the pound is high now and the euro low’

A. That’s a very good question and I won’t pretend that I understand this completely, but I gather there are plenty of ways for keeping currencies higher than they ought to be by manipulating the markets [incidentally, the Forex Scandal to manipulate and rig the daily foreign exchange rates did not come to light until Summer 2013]. The market is rigged in any case by virtue of the fact that the dollar remains the world’s reserve currency and that oil is traded entirely in dollars. But essentially what’s going on here is a huge currency war, and the euro is constantly under attack from speculators. I am fairly certain that the chickens will come home to roost sooner or later in America and Britain (and in Germany too), but meanwhile the governments simply go about cooking the books and telling us how inflation is only 4% or whatever when fuel prices, for instance, have rocketed during the past few years. In any case, we get ‘austerity’ too, not as hardline yet as the ‘austerity’ being imposed elsewhere, but it will come – of this I have no doubt. Either it will happen slowly, or worse, there will be a huge war and the ‘austerity’ will be brought into place to justify the expense of that. This is a deliberate attack by the bankers against the people of the world, and until the people of the world say that’s enough, and most of the debts are cancelled outright, I don’t see any way this can be reversed.

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Another topic I briefly touched upon in the chapter above is the matter of inflation. What is it and what causes it? My answers were sketchy, in part, because I wished to avoid getting too bogged down in technicalities beyond my training. But this question about the causes of inflation is, in any case, an extremely thorny one. Different schools of economists provide different explanations.

One less orthodox account that I have frequently come across is that our fractional reserve banking system when combined with a central bank’s issuance of a fiat currency is inherently inflationary. That in the long term, and solely because of these extant monetary mechanisms, inflation is baked into the cake. So I wrote to a friend who holds with the above opinion and asked if he would explain “in the briefest terms that are sufficient” why he and others believe that central bank issuance of currency and fractional reserve banking are the primary underlying cause of inflation. Here is his succinct but detailed reply:

In a central bank system, money is created in the first instance by governments issuing bonds to banks and banks “printing” money and handing it over to the government in return. The government then owe the banks the money plus interest. If they ever pay back any of the principal, then a corresponding amount of bonds are handed back, i.e. cancelled. In that case, the money repaid goes out of existence!

Before elaborating any further, let’s take a step back. Fractional reserve lending doesn’t require central banks, nor does it require governments to create money by issuing bonds in exchange for it. Fractional reserve lending is simply the act of taking someone’s money to “look after it”, then turning around and lending a fraction of it to someone else. If the lender has enough depositors, then sum of all the unlent fractions of each deposit should cover him if one of them suddenly comes through the door asking for all their money back in one go. As I’m sure you know, if too many turn up at once looking for their money, a run ensues. Fractional reserve banking doesn’t even require a government sanctioned paper currency to exist. Depositors can simply deposit something like gold and the lenders can issue receipts which become the paper currency.

In olden times, when depositors of gold first found out that the goldsmiths they were paying to store their gold safely were lending it out for a percentage fee, they were outraged. The goldsmiths appeased them by offering them a cut of the fee for their interest in the scam. Accordingly, this money became known as ‘interest’.

So where do central banks fit in? Countries like the Unites States prior to 1913 have operated without central banks. There were thousands of banks of all sizes. To compete with one another, they had to endeavour to offer higher interest to depositors, lower interest rates to borrowers or to cut the fraction of deposits that they kept in reserve. This latter aspect was what caused banks occasionally to go to the wall, to the detriment of their depositors.

Central banking avoids this risk because the same fractional reserve ratio applies to all the banks under a central bank’s jurisdiction. However, it is really a way to avoid competition and if the system ever does get into trouble, the government feel obliged to bail it out or risk collapse of the whole system.

Now to answer your question about inflation.

In a fractional reserve central bank system, money is created as I’ve described by the government issuing bonds to the bank, receiving money created out of thin air and having to pay interest on it. When they spend it by paying salaries of government employees, contractors, arms manufacturers and so on, that money goes straight into bank accounts and the bankers can’t wait to lend out as much of it as possible, up to the limit of whatever fractional reserve ratio applies. So now there is a double claim on the money. The government employee thinks their salary is sitting in the bank but 90 percent of it is in the pocket of a borrower who thinks it’s theirs as long as they keep up with interest. That borrower, will inevitably either put the borrowed sum in their own bank account or spend it. Either way it will end up in another bank account somewhere. Then the same thing happens again; up to 90 percent of it gets lent out (81 percent of the original government-created money) and so on…

We end up in a situation where all of the money in circulation has arisen from someone somewhere, signing the dotted line to put themselves in debt. The money isn’t backed by a commodity such as gold. Instead it is backed by the ability of the borrower to repay. All these borrowers, including the government are paying interest. If interest is to be paid on every penny in circulation, then it doesn’t take a genius to figure out that new money must be continuously ‘created’ to keep paying this. That occurs by governments constantly borrowing so that their debts keep on increasing and borrowers constantly borrowing more and more. This seems to work as long as prices, wages and asset values keep increasing. Generation after generation, workers can afford to pay more and more for the houses that they live in because the price of the house keeps going up so it looks like good collateral to the lender and also their wages keep going up, so the borrower can meet payments in the eyes of the lender.

Working out what the rate of inflation is at any given time is practically impossible. Government figures such as RPI and CPI are just another tool for the propagandists to use as they see fit at any given time. However for the banks to gain anything from the game, the rate of inflation must be:

  • less than the rate of interest paid by borrowers and;
  • greater than the rate of interest paid to savers.

This is why savers money is ‘eroded’ if they just leave it sitting in a bank account.
Now imagine a different system where:

  • governments issue paper money by printing it themselves;
  • the amount in circulation is absolutely fixed;
  • there is no central bank but there are plenty of independent banks.

In such a country, there is no need for the government to have any debt and there is ample historical evidence of nations that have existed without government debt for very long stretches of time. What borrowers there are have to find the interest by earning it from the fixed pool of currency that is in circulation. There is little need for anyone to borrow but that’s something that most people you speak to have difficulty accepting. That’s because they’ve only ever lived in a system where they spend their lives in the service of debt and cannot conceive of it being any different.

The bankers right at the top of the system aren’t out to grab hold of all the money in the world. They’re not after all the tangible in the world either. Their only goal is to ensure that as much human labour as possible is in the service of debt.

Now for something different. How can this whole thing go horribly wrong for the bankers? I don’t just mean a run on banks or a recession. That happens periodically and is known as the business cycle. People lose confidence and are reluctant to borrow for a number of years, then they regain confidence and start to borrow again and the whole thing picks up and the cycle repeats.

What can go horribly wrong is if, after generations and generations and generations of increasing prices and debts, everyone gets more spooked by debt than ever before and totally fixated on repaying it. They sell assets but there are so many folk doing that that asset prices start to decline. That spooks people further. A spiral is under way. Banks try to ‘stimulate’ the economy by lowering interest rates but there is very little confidence around, especially if asset prices are declining compared with debts and wages aren’t rising either (or may be in decline), so that the ability to repay debt is impaired. This decline can be long and protracted. Also there can be many ups and downs along the way, although the long term trend is down. Ups can be deceptive as they are perceived as “coming out of the recession” by those used to the normal business cycles we’ve experienced throughout the whole of the twentieth century. In this way, asset prices can bleed away until eventually they reach something like a tenth of of their peak value. This process can reach a very late stage before a lot of people recognise what’s really going on. This is just a scenario but one worth considering seriously. We could be in for long term deflation but it will be well under way and too late for many people in debt by the time it gets mainstream acknowledgement.

A closely-related question and one that automatically follows is why do countries bother having central banks at all? Instead of a government issuing bonds, why not directly issue the currency instead, thereby cutting out the middle men? It is an approach that actually has a number of historical precedents as pointed out in this open letter to Obama urging him to reissue ‘greenbacks’ and the campaign in Britain to print ‘treasury notes’ like the Bradbury Pound. So in a further reply to my friend I asked him, “do you think that the re-issuance of ‘greenbacks’ in America or the Bradbury Pound in the UK might offer a realistic solution to the current crisis?” His response:

The issue of greenbacks or whatever you call them (essentially government-issued money) would probably make no immediate difference. Already, the money created by quantitative easing is not working its way into the system, so why would money issued by any other means?

In the longer term, such a fundamental upheaval would make a huge difference as the government wouldn’t need to be in debt the whole time and people wouldn’t have to keep paying increasing prices for houses and cars on top of interest. Pensioners wouldn’t be on a treadmill, having to ‘invest’ their savings just in vain an effort to keep up with inflation.

There’s a risk that the government might be tempted to print more and more money, which is often cited as a point in favour of the present system. It is claimed that having to pay interest and ultimately repay the whole principal is a disincentive in this respect. However, the current system ensures constant “printing” all the time as there’s no way that everyone involved can pay interest otherwise.

There’s talk at the moment about banks charging people a few percent for holding their money on deposit, i.e “negative interest”. People think they’ll lose money as their account balances will go down over time. However, it’s no different to being paid say six percent interest at a time when inflation is at 9 percent and the cheapest loan you can get is 12 percent.

I’m amazed at how people in the alternative media can inform us that banks are going to charge us ‘negative interest’ for our deposits, express outrage and then in the next breath claim that we’re in a hyperinflationary environment. Low/negative interest is a sure sign of massive deflationary pressure. I don’t know what’s going to happen but I’m convinced that deflation’s the one to watch. It has the potential to catch people out.

Getting back to your original question, the direct issuing of money by the government would represent a seismic shift of power from bankers to governments; a shift in the right direction, no doubt. It’s only possible if everyone knows what’s exactly going on. We’re a very long way off yet. Peoples’ understanding of the banking scam is very very poor.

I would add that very much front and centre in that scam is the role of the central banks. These extraordinarily powerful commercial bodies that adopt the outward appearance of public institutions when in fact they work for commercial interests. The US Federal Reserve, for instance, is a de facto private corporation and all of its shareholders are private banks. The status of the Bank of England is more complicated. This is what the main wikipedia entry intriguingly has to tell us:

Established in 1694, it is the second oldest central bank in the world, after the Sveriges Riksbank, and the world’s 8th oldest bank. It was established to act as the English Government’s banker, and is still the banker for HM Government. The Bank was privately owned [clarification needed (Privately owned by whom? See talk page.)] from its foundation in 1694 until nationalised in 1946.[3][4] 

Original references retained.

Clarification needed indeed! Anyway, nowadays it is officially (since 1998) an ‘independent public organisation’. However, the BoE is not really as independent as it might first appear, since along with eighteen other central banks from around the world (including the US Federal Reserve) it is a member of the executive of “the central bank for central banks” – the little known Bank for International Settlements (BIS) based in Basel, Switzerland. To hear more about the history, ownership and function of this highly profitable (tax free and extraterritorial) organisation, I recommend listening to this interview with Adam LeBor, author of the recently released book The Tower of Basel:

For my own more detailed thoughts on effective remedies to the on-going financial crisis please read this earlier post.

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Please note that for the purposes of ‘publishing’ here I have taken advantage of the option to incorporate hypertext links and embed videos – in order to distinguish additional commentary from the original text all newly incorporated text has been italised.

*

1 From “The Future”, Essays in Persuasion (1931) Ch. 5, John Maynard Keynes, CW, IX, pp.329 — 331, Economic Possibilities for our Grandchildren (1930).

2 Adam Smith applied “the law of diminishing utility” to solve “the paradox of water and diamonds”. Water is a vital resource and most precious to life and yet it is far less expensive to purchase than diamonds, comparatively useless shiny crystals, which in his own times would have been used solely for ornamentation or engraving. The reason, Smith decides, is that water is readily abundant, such that any loss or gain is of little concern to most people in most places. By contrast, the rarity of diamonds means that, although less useful overall, any loss or gain of use is more significant, or to put it more formally the “marginal utility” is greater.

3 Extract taken from The soul of man under socialism by Oscar Wilde (first published 1891).

4 Legal tender is a technical legal term that basically means an offer of payment that cannot be refused in settlement of a debt.

5 Fiat (Latin), “let it be done” meaning that these currencies are guaranteed by government decree only.

6 Milton Friedman pays homage to Ronald Reagan’s record on deregulation in an essay entitled “Freedom’s friend” published in the Wall Street Journal on June 11, 2004. Drawing evidence from The Federal Register, “records the thousands of detailed rules and regulations that federal agencies churn out in the course of a year”, Friedman contrasts Reagan’s record with that of Presidential incumbents before and since: “They [the rules and regulations] are not laws and yet they have the effect of laws and like laws impose costs and restrain activities. Here too, the period before President Reagan was one of galloping socialism. The Reagan years were ones of retreating socialism, and the post-Reagan years, of creeping socialism.” For socialism read regulation. http://online.wsj.com/news/articles/SB108691016978034663

7 Definition of “too big to fail” taken from Businessdictionary.com: “Idea that certain businesses are so important to the nation, that it would be disastrous if they were allowed to fail. This term is often applied to some of the nation’s largest banks, because if these banks were to fail, it could cause serious problems for the economy. By declaring a company too big to fail, however, it means that the government might be tempted to step in if this company gets into a bad situation, either due to problems within the company or problems from outside the company. While government bailouts or intervention might help the company survive, some opponents think that this is counterproductive, and simply helping a company that maybe should be allowed to fail. This concept was integral to the financial crisis of the late 2000s.”

8 According to IMF economic database for October 2010, World GDP is $61,963.429 billion (US dollars).

9 Unto This Last is based on a collection of four essays first published in the monthly Cornhill Magazine, 1860, and then reprinted as Unto This Last in 1862. This extract is drawn from his second essay: “The Veins of Wealth”

10 George Soros proudly explains the events of “Black Wednesday” on his official website: “In 1992, with the economy of the United Kingdom in recession, Quantum Fund’s managers anticipated that British authorities would be forced to break from the European Exchange Rate Mechanism (ERM) then in force and allow the British pound to devalue in relation to other currencies, in particular the German mark. Quantum Fund sold short (betting on a decline in value) more than $10 billion worth of pounds sterling. On September 16, 1992—later dubbed “Black Wednesday”—the British government abandoned the ERM and the pound was devalued by twenty percent.” http://www.georgesoros.com/faqs/archive/category/finance/

11Last year [1979] Bunker and his syndicate began buying silver again, this time on a truly gargantuan scale. They were soon imitated by other speculators shaken by international crises and distrustful of paper money. It was this that sent the price of silver from $6 per oz. in early 1979 to $50 per oz. in January of this year. Chairman Walter Hoving of Tiffany & Co., the famous jewelry store, was incensed. Tiffany ran an ad in the New York Times last week asserting: ‘We think it is unconscionable for anyone to hoard several billion, yes billion, dollars worth of silver and thus drive the price up so high that others must pay artificially high prices for articles made of silver from baby spoons to tea sets, as well as photographic film and other products.’” Extract taken from “He Has a Passion for Silver”, article published in Time Magazine, Monday 7April, 1980. http://content.time.com/time/magazine/article/0,9171,921964-2,00.html

12Many Government officials feared that if the Hunts were unable to meet all their debts, some Wall Street brokerage firms and some large banks might collapse.” Extract taken from “Bunker’s busted silver bubble”, article published in Time Magazine, Monday 12 May, 1980. http://content.time.com/time/magazine/article/0,9171,920875,00.html

13What may deal the Hunt fortune a fatal blow is the fallout from the brothers’ role in the great silver-price boom and bust of 1980. Thousands of investors who lost money in the debacle are suing the Hunts. On Saturday the brothers lost a civil case that could set an ominous precedent. A six-member federal jury in New York City found that the Hunts conspired to corner the silver market, and held them liable to pay $63 million in damages to Minpeco, a Peruvian mineral-marketing company that suffered heavy losses in the silver crash. Under federal antitrust law, the penalty is automatically tripled to $189 million, but after subtractions for previous settlements with Minpeco, the total value of the judgment against the Hunts is $134 million.” Extract taken from “Big bill for a bullion binge”, article published in Time Magazine, Monday 29 August, 1988. http://content.time.com/time/magazine/article/0,9171,968272-1,00.html

14 Extract also taken from the second essay, entitled: “The Veins of Wealth” of Unto This Last by John Ruskin.

15 Ibid.

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Filed under analysis & opinion, « finishing the rat race », financial derivatives, Max Keiser, neo-liberalism

Greg Palast on the other “Summers memo” and the decriminalisation of rogue banking

‘Dirty’ Industries: Just between you and me, shouldn’t the World Bank be encouraging MORE migration of the dirty industries to the LDCs [Less Developed Countries]?

wrote Larry Summers when he was Chief Economist at the World Bank. The words are contained in a memo to Brazil’s then-Secretary of the Environment Jose Lutzenberger on December 12th 1991 that became known as the “Summers memo”.

This memo (which was apparently ghost-written by Lant Pritchett who worked under Summers, and signed by Summers himself) then went on to suggest three reasons why dumping toxic waste in the poorest regions of the world is a great idea; reasons that are summarised below:

1) “…a given amount of health impairing pollution should be done in the country with the lowest cost, which will be the country with the lowest wages… I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that.”

2) “I’ve always thought that under-populated countries in Africa are vastly UNDER-polluted, their air quality is probably vastly inefficiently low compared to Los Angeles or Mexico City.”

3) “The demand for a clean environment for aesthetic and health reasons is likely to have very high income elasticity… Clearly trade in goods that embody aesthetic pollution concerns could be welfare enhancing. While production is mobile the consumption of pretty air is a non-tradable.”

Summers adding that:

The problem with the arguments against all of these proposals for more pollution in LDCs (intrinsic rights to certain goods, moral reasons, social concerns, lack of adequate markets, etc.) could be turned around and used more or less effectively against every Bank proposal for liberalization.

You can read more about the “Summers memo” here.

Lutzenberger later wrote a response to Summers as follows (although I believe that his reply came after the memo itself had been leaked):

“Your reasoning is perfectly logical but totally insane… Your thoughts [provide] a concrete example of the unbelievable alienation, reductionist thinking, social ruthlessness and the arrogant ignorance of many conventional ‘economists’ concerning the nature of the world we live in… If the World Bank keeps you as vice president it will lose all credibility. To me it would confirm what I often said… the best thing that could happen would be for the Bank to disappear.”

You can read this alongside the Summers memo at the satirical website whirledbank.org

If this first leaked memo was, well let’s just say more than a little embarrassing for the World Bank and Larry Summers, then what turned up recently looks altogether more incriminating again. This second memo – a document that fell into the hands of investigative reporter Greg Palast and who says he expended great efforts to affirm its authenticity – “confirmed”, as Palast put it in his recent article for Vice Magazine, “every conspiracy freak’s fantasy: that in the late 1990s, the top US Treasury officials secretly conspired with a small cabal of banker big-shots to rip apart financial regulation across the planet.”

When a little birdie dropped the End Game memo through my window, its content was so explosive, so sick and plain evil, I just couldn’t believe it. […]

The Treasury official playing the bankers’ secret End Game was Larry Summers. Today, Summers is Barack Obama’s leading choice for Chairman of the US Federal Reserve, the world’s central bank. If the confidential memo is authentic, then Summers shouldn’t be serving on the Fed, he should be serving hard time in some dungeon reserved for the criminally insane of the finance world.

Since Palast wrote his piece, it transpires that Summers will not be replacing Ben Bernanke as Fed Chairman, but instead the job looks likely to go to Timothy Geithner1 – Geithner being the author of this latest memo, which (to quote Palast again) “begins with Summers’ flunky, Timothy Geithner, reminding his boss to call the then most powerful CEOs on the planet and get them to order their lobbyist armies to march”:

“As we enter the end-game of the WTO financial services negotiations, I believe it would be a good idea for you to touch base with the CEOs….”

So just what was this “end-game” that Tim Geithner is referring to in his memo sent in late November 1997? Well, it’s complicated but here’s Palast again picking up the story:

It’s not the little cabal of confabs held by Summers and the banksters that’s so troubling. The horror is in the purpose of the “end game” itself.

Let me explain:

The year was 1997. US Treasury Secretary Robert Rubin was pushing hard to de-regulate banks. That required, first, repeal of the Glass-Steagall Act to dismantle the barrier between commercial banks and investment banks. It was like replacing bank vaults with roulette wheels.

Second, the banks wanted the right to play a new high-risk game: “derivatives trading.” JP Morgan alone would soon carry $88 trillion of these pseudo-securities on its books as “assets.”

Deputy Treasury Secretary Summers (soon to replace Rubin as Secretary) body-blocked any attempt to control derivatives.

But what was the use of turning US banks into derivatives casinos if money would flee to nations with safer banking laws?

The answer conceived by the Big Bank Five: eliminate controls on banks in every nation on the planet in one single move. It was as brilliant as it was insanely dangerous.

How could they pull off this mad caper? The bankers’ and Summers’ game was to use the Financial Services Agreement, an abstruse and benign addendum to the international trade agreements policed by the World Trade Organization.

Until the bankers began their play, the WTO agreements dealt simply with trade in goods–that is, my cars for your bananas. The new rules ginned-up by Summers and the banks would force all nations to accept trade in “bads” – toxic assets like financial derivatives.

Until the bankers’ re-draft of the FSA, each nation controlled and chartered the banks within their own borders. The new rules of the game would force every nation to open their markets to Citibank, JP Morgan and their derivatives “products.”

And all 156 nations in the WTO would have to smash down their own Glass-Steagall divisions between commercial savings banks and the investment banks that gamble with derivatives.

The job of turning the FSA into the bankers’ battering ram was given to Geithner, who was named Ambassador to the World Trade Organization.

After further background surrounding the nature of the “WTO financial services negotiations” Geithner is alluding to in his memo to Summers, Palast then adds:

Does all this evil and pain flow from a single memo? Of course not: the evil was The Game itself, as played by the banker clique. The memo only revealed their game-plan for checkmate. 2

Click here to read Greg Palast’s full article entitled “Larry Summers and the secret ‘End-Game’ Memo”, which was published on August 22nd 2013.

You can also watch an interview with Palast on Tuesday’s [Sept 17th] Keiser Report in which he talks more about the “End-Game” memo:

Going back to the original “Summers memo” and we discover that in their defence both Lant Pritchett (the self-confessed author) and Summers himself said later that their suggestion for dumping toxic waste in third world countries was just meant sarcastically – so in other words just a great big insider joke, ha, ha, ha… stop me because my sides are splitting!

Presumably then, this more recently discovered “End-Game” memo will turn out to be just another example of the boys at the US Treasury, the WTO and the heads of the major banks larking around. Playing at being mobsters with a wink and a nudge – you know, like Bugsy Malone or something. Destroying the global economy with toxic derivative “products”, ha, ha, ha… like that could ever happen!

1 From an article entitled “Federal Reserve:Who will replace Ben Bernanke?” published by BBC news on September 16, 2013:

“There are three candidates being discussed as possible replacements to Ben Bernanke, chairman of the Federal Reserve, the US central bank. They are vice-chair of the Federal Reserve Janet Yellen, previous vice-chair Donald Kohn and former Treasury Secretary Timothy Geithner.” […]

The 52-year-old was heralded by watchers of the Fed as the man to replace Ben Bernanke. He is a confidante of Mr Obama, and a White House favourite. But he has ruled himself out of the race.

Chris Orndorrf, senior portfolio manager at Western Asset Management, told the BBC he thought Mr Obama would try to persuade Mr Geithner to take the job.

“He [Mr Geithner] said he doesn’t want it but stranger things have happened in Washington. I would say maybe a 25% chance,” Mr Orndorrf said.

There is no doubt that Mr Summers had been Mr Obama’s preferred choice to lead the post. ”

http://www.bbc.co.uk/news/business-24105985

2 From an article entitled “Larry Summers and the Secret ‘End-Game’ Memo” written by Greg Palast, published by Vice Magazine on August 22, 2013. http://www.vice.com/en_uk/read/larry-summers-and-the-secret-end-game-memo

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independence for Catalonia?

An introductory note:

The following is the translation of an article written by journalist and political activist Esther Vivas after the recent September 11th demonstrations for Catalan independence.

The Catalan independence issue is a complex one, and so I also sent the original article to a Catalan friend who has helpfully explained some of the more technical terms. I have since re-edited the original version and added my friend’s remarks in the form of footnotes (with links) to provide a little guidance for those of us less familiar with politics of the region.

What is perhaps especially interesting to outsiders is the birth of a new political movement. The movement, which is known as Procés Constituent – approximately translates to mean “constitutional process” – was started by a nun by the name of Sister Teresa Forcades and a fellow activist called Arcadi Oliveres.

*

Catalonia: independence from Spain, independence from capitalism

Esther Vivas

Hundreds of thousands turned out last September 11 to demand independence for Catalonia. Some decided to surround the Caixa, form a human chain around the largest bank in Catalonia and third largest in Spain, to demand not only independence from Spain, but from capitalism.

Some in that crowd will say that independence comes first, and then we’ll see. That independence itself will end unemployment, poverty, and hunger. As if independence were a divine manna. This, however, is falsehood. Just ask people in Greece, Portugal, Ireland, Cyprus and all of us now living in Spain. Instead, gaining real independence must mean that we escape from, well, the grip of the Troika*, since it is the European financial powers which now stand in the way of real freedom for the people. After all, there can be no real independence under the burden of debt, the blackmail of the risk premium and the “markets” .

Others in the crowd will claim “Madrid robs us ”, and so if we say “Farewell to Spain”, then our problems are solved. But nothing is further from reality… Where are we going with a country in the hands of just 400 families1 forever? Moving towards real independence, involves asking: independence for what and for whom.

The open debate in Catalonia today is an opportunity to rethink the foundations for a new model of society. It may be independent, yes, but it must be open to a ‘constitutional process’2 that allows us to decide together what kind of country we want… Always remembering that it has been the banks which are most responsible for this crisis, with La Caixa being the largest bank in Catalonia. And that to save these financial institutions we have been sunk into absolute misery. So we will never be free nor independent, if we are still subject to policies that only serve to prop up the banks.

It is also common knowledge that La Caixa does not want a referendum on independence. “Social peace” [or “let’s not rock the boat”]3 being the final guarantor of its sustained profits, and with the Spanish State always its biggest source of business…. Its true loyalties evident from the scandal involving the royal family… La Caixa ensuring a golden retirement for the Infanta Cristina in Switzerland4, as head of the International Department of the La Caixa Fundación, her salary increasing to 320,000 euros per year…

So which country will we have after independence if our largest bank still evicts families and rips us off through ‘preferred shares’5? What will our independence amount to if we are still in the hands of thieves…?

* This is an extract from an article published by Esther Vivas in Spanish in Publico.es, 12/11/2013.

Originally translated by http://revolting-europe.com.

+info: http://esthervivas.com/

*

Footnotes:

* The following is a previous article published by Esther Vivas at Publico.es, June 1, 2013:

United against the Troika
Esther Vivas

Who is the Troika? A year ago few knew the answer to this question. We knew it by reference, to its stay in Greece, and it wasn’t good. The Troika was synonymous with austerity, adjustment and cuts, hardship, hunger and unemployment.

But it was not until the arrival in Spain of the much denied rescue, in June 2012, that the “men in black” and “Troika” became a household name. Today, a year later, people, sick and tired, are coming out into the streets to say loud and clear: “Troika, go home”.

History repeats itself. And just as many countries of the South in the 1990s and 2000s saw mass demonstrations against the International Monetary Fund and the World Bank, whom the people accused of reducing them to misery, now people here speak out against the Troika: the International Monetary Fund, the European Commission and the European Central Bank. The bank is different. But the logic is more of the same.

Centre-periphery relations at a global level are now repeated in the European Union. And the countries of the periphery of the Continent, we have become the new colonies, markets or sources of financial capital. Where once, in the South, structural adjustment plans were applied, in order, it was said, to make debt more sustainable, as if the misery and poverty to which they could be subjected was sustainable. Now they speak to us of “aid” and “bailouts “… and they reduce us all to misery.

Debt remains the yoke imposed on the poor. A mechanism of control and subjugation of peoples. An infallible instrument to transfer resources, or to be more precise, of plunder, from South to North, either global or at a European scale. And an argument for reducing the rights of the majority and generate more profits to capital, cutting and privatizing public services covertly. The debt imposed on us, which, incidentally, is not ours, is the perfect excuse to implement what is a long plan. Thus, the scam is called the crisis, the theft is the debt.

We have quickly learned the meaning of the Troika, but also that of other concepts such as anger, rebellion and disobedience. And today we rise in more than 100 cities across Europe as the “peoples united against Troika”. Because we can.

* Article published at Publico.es, June 1st, 2013.
** Translated by http://revolting-europe.com.

1400 families”: I don’t know exactly when this phrase was coined, but it has been current in the media in recent years to refer to the Catalan ruling elite, whose members are often descended from the industrial bourgeoisie of the past. The phrase became popular in 2009 when Fèlix Millet, a well-connected businessman from this particular class, confessed to embezzling large amounts of money from the Palau de la Música foundation. He has also been accused of conniving in the illegal funding of Convergència Democràtica de Catalunya, the political party in power in the autonomous government, many of whose leaders happen to belong to the “400 families”. But despite his confession and the public outrage that followed, the court case keeps being delayed and Millet has only spent a few days in prison so far.

According to La Vanguardia, in an interview he referred to himself as belonging to a group of 400 influential Catalans, some related to each other and others not, “who meet everywhere and are always the same” (sorry, I haven’t found a link in English:

http://www.lavanguardia.com/politica/noticias/20090924/53791233174/uno-de-los-nuestros-felix-millet-orfeo-catala-omnium-cultural-montserrat-estado-liceu-joan-anton-mar.html).

2constitutional process”: this refers to the writing of a socially progressive Catalan constitution in the future, which is advocated by a group called “Procés Constituent” started by Teresa Forcades (the nun who became famous on Youtube exposing the pharmaceutical industry in connection with the swine flu vaccine) and a fellow Christian activist called Arcadi Oliveres.

This group is not a political party and both founders have said from the start that they are not going to stand in elections. Their aim is allegedly to set up a movement that will eventually lead to a “constituent assembly” for the new Catalan state. The group organized the alternative human chain around la Caixa that is mentioned in the article, to signal their differences with the independentist “Via Catalana” chain.

They are pro-independence but believe that a Catalan republic will be pointless unless it’s built on radically different principles, so for example in their manifesto they advocate, among other things, nationalising banks, refusing to pay “odious debt” and extending the welfare state (which is the reason Vivas supports them; I also signed my support when they first published their manifesto, which felt pretty odd given my feelings about Catholics –Forcades and Oliveres seem well-meaning, though). So when Vivas refers to the “constituent process”, I think she’s referring to the idea that social rights should be written into the future Catalan constitution.

To read more about Sister Teresa Forcades and her movement, “Procés Constituent”, I recommend a BBC news article entitled “ Sister Teresa Forcades: Europe’s most radical nun”, written by Matt Wells, published on September 14, 2013. The article outlines her 10-point programme, drawn up with economist Arcadi Oliveres, as follows:

• A government takeover of all banks and measures to curb financial speculation

• An end to job cuts, fairer wages and pensions, shorter working hours and payments to parents who stay at home

• Genuine “participatory democracy” and steps to curb political corruption

• Decent housing for all, and an end to all foreclosures

• A reversal of public spending cuts, and renationalisation of all public services• An individual’s right to control their own body, including a woman’s right to decide over abortion

• “Green” economic policies and the nationalisation of energy companies

• An end to xenophobia and repeal of immigration laws

• Placing public media under democratic control, including the internet

• International “solidarity”, leaving Nato, and the abolition of armed forces in a future free Catalonia

http://www.bbc.co.uk/news/magazine-24079227

3Social peace”: this is a direct translation of a euphemism that is often used here by politicians, bankers and businessmen alike, so when there’s a demonstration or a strike or any kind of protest by the people, those in power will say that this is undesirable because it disrupts “social peace”, by which they mean that the protests threaten to disrupt the status quo.

4ensuring a golden retirement for the Infanta…”: this refers to a financial scandal involving the Infanta, her husband, the king and various Partido Popular politicians and regional governments. It’s a long soap opera so I’ll spare you the details. The latest thing is that after being let off the hook by the corrupt justice system, the Infanta has been given a cosy and highly lucrative job in Switzerland by La Caixa, the bank mentioned in the article.

5preferred shares”: this is a complex, high-risk ‘financial product’ that a few years ago was fraudulently sold by Spanish banks to thousands of unwitting citizens, mostly elderly and uneducated, who didn’t have a clue what they were buying. When the crisis set in, the buyers lost everything (in fact I know someone whose elderly mother lost her savings this way). The victims are still fighting to get their money back. If you want to read more about this, you can have a look here: http://www.arabtimesonline.com/NewsDetails/tabid/96/smid/414/ArticleID/194380/reftab/96/Default.aspx

I would like to thank Esther Vivas for allowing me to reproduce these articles.

Not all of the views expressed are necessarily views shared by ‘wall of controversy’.

*

Update:

The following is a subsequent article on progress of the ‘Constituent Process’ published on October 27th 2013:

Catalonia: a Constituent Process to decide everything
Esther Vivas

Nobody said that it would be easy, but it is necessary to try. And this is precisely what is being done through the Constituent Process in Catalonia, led by the Benedictine nun Teresa Forcades and the economist Arcadi Oliveres, along with many other people. To create social consciousness, to mobilize, to promote civil disobedience and to raise a political alternative that defies those who monopolize power.

Its objective is to construct a new politico-social instrument, based on popular self-organization, loyal to those of at the bottom and able to contribute, in diversity, to the social and political left as a whole. On the horizon, if things work out, it expresses the will to compete in the next elections to the Catalan Parliament, with a broad candidacy, the result of the necessary confluence of many people, some currently inside and others outside the Process, that aspires to transform social discontent into a political majority and to establish the bases to promote a constituent process, that allows us to collectively equip ourselves with a new political framework in the service of the majority.

Some will say that this is utopian, but it is more utopian, from my point of view, to think that those who have led to us to the present situation of crisis, from which, by the way, they obtain substantial benefits, will get us out of it. Breaking with scepticism, apathy and fear is the challenge that we have ahead. Knowledge that “we can” is the first step to obtaining concrete victories.

Ever since the Constituent Process went public last April, the support received has been wide The Process has connected with broad sectors of society who perceive, in the present context of crisis, the urgent necessity of changing things. Many people without too much political or organizational experience have identified with a discourse that appeals to something as essential as can be: justice.

Other social activists have seen in the Process an instrument to go beyond social mobilization per se and to consider a political-organizational perspective of change. Two years after the emergency of 15M, many perceive that no matter how much we occupy banks, empty houses, supermarkets, hospitals… those in power continue applying a series of measures that sink us into absolute misery. Resting on the essential struggle on the street, without which there is no possible change, the Constituent Process raises, at the same time, a challenge to the political-economic regime, as well as in the institutions. And to change the system by “occupying” these instances and giving them back to the social majority via a constituent process.

For sure there are no magical formulas but experiences like the constituent processes in Latin America (Ecuador, Bolivia, or Venezuela) or, closer to home, Iceland, in spite of their debatable evolutions, are experiences to consider deeply, not to imitate but to learn from their successes and errors. In Catalonia, the debate on the national question and independence opens an opportunity, as we could never have imagined, to be able to decide… and to decide on everything.

High participation

The high participation in public presentations of the Constituent Process, some led by Teresa Forcades and others by Arcadi Oliveres, with an average of between 400 to 700 people in municipalities like Vic, Sabadell, Santa Coloma de Gramenet, Lleida, Girona, Vilanova i la Geltrú, Balaguer, Figueres, Blanes, Granollers, Terrassa, or even small municipalities like Santa Fe del Penedès or Fals, shows the capacity of attraction of this initiative, which has, in a few months, made more than one hundred presentations across the Catalan territory.

And more importantly, the interest of those who approach the Process does not reside only in listening to its two main promoters but in participating actively in the construction of this politico-social instrument. In this way, more than 80 local assemblies have already been set up across Catalonia. Also specific assemblies around such issues as education, health, feminism and immigration have started up. All of them are coordinated in a general assembly known as the Promotional Group, which meets monthly.

The forms of action of the Constituent Process also reflect this “other politics”. At most public events makeshift money boxes are passed around to collect what it costs to rent the PA apparatus, photocopies and so on. The presentations serve also to attract those present to attending local meetings and assemblies. The groups in the territory are organized according to their own priorities and are coordinated nationally. The Constituent Process still has some way to go, but it shows the potential of a political initiative able to connect with major social unrest. Although obviously there is still much to be done, perhaps the most difficult part: to consolidate the process and improve the coordination of the assemblies. This is a work in progress.

From bottom to top

The confidence generated by its principal promoters, Teresa Forcades and Arcadi Oliveres, is key to its success. But we know that this is an initiative that will only succeed if it is built from the bottom up. I was told the day both presented the proposal: “We two alone cannot do much”. Correct. Today, the Constituent Process has more than 44,000 people attached and multiple local and sector meetings. Teresa Forcades and Arcadi Oliveres, as has been said many times, do not want to be leaders of anything, but agree to put their credibility at the service of a just cause.

Criticisms of the Christian profile of both have been made, despite the secular nature of the Process. Which in part is not surprising. The social mobilization of the left, both in Catalonia and in the Spanish state, would not be understood, in part, without the contribution of ordinary Christians. Without going any further, one of the founders of the Field Workers Union was none other than the priest of the poor, Diamantino Garcia. Denying this reality means ignoring this part of our collective history. And both Teresa Forcades and Arcadi Oliveres have spoken repeatedly and at length before the Constituent Process, against the ecclesiastical hierarchy, for the separation of church and state and in defence of the right of women to decide on their bodies. Which, incidentally, has earned them widespread criticism by reactionary sectors of the church and its hierarchy.

Last October 13, the main event of the Constituent Process was being held in Barcelona, just six months after its introduction. I still remember how before the proposal someone commented: “Why go ahead with such a project. This is going to fail”. A colleague said: “Failure would be not to try.” How right she was.

*Translated by International View Point.

+info: http://esthervivas.com/english

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Filed under analysis & opinion, austerity measures, Esther Vivas, financial derivatives, Spain

look who’s coming into the cross-hairs next…

I’ve now been writing this blog for just about two years, and this will be my 200th post. Being something of an anniversary then, I’ve been wondering how to mark the occasion. How about some kind of a retrospective, for instance… reviewing my earlier reports on the decline of the world’s economy as an inevitable consequence of systemic fraud and failure; or the rise of the surveillance state with the introduction of fingerprinting of kids in Britain and of drones over America; or the serious environmental threat from nuclear power and fracking (this ultra-destructive ‘technology’ coming to Britain almost immediately after I first heard and wrote about it!); mixed in perhaps with another reminder of how the neo-imperialist wars of the twenty-first century are being expanded into Africa and why the civil war in Syria is really just a proxy war with the al-Qaeda-led rebel forces being covertly supported by their own sworn enemy, America. (To read posts on any of the above just follow the relevant links from the main menu or use the search tool.)

However, to do justice to such a monumental post would possibly have taken a month or more. All the troubles I have written about, and sadly with very few exceptions, worsening during the past two years; our descent into chaos and tyranny happening quicker now than before I began.

More wars; more environmental devastation in the name of environmental protection; greater infringement of our civil liberties and human rights; and an economy that is teetering on the very edge of total collapse. Indeed, the economic situation is now so bad that on BBC2’s Newsnight a few nights ago [Tuesday 19th], Jeremy Paxman was reduced to interrogating an MP from Cyprus. And just think about that for a moment, and bear in mind that Cyprus (and I mean no offence to Cypriots when I say this) is an economic gnat. Yet we are seriously contemplating how the effects of a debt problem in Cyprus might undo the entire Eurozone. All of which is actually a measure of how broken the banking system has become.

Yes, the financial system of much of the world (and especially our region of it) is bankrupt, and has been for some time. The reason is the multiple hundreds of trillions of dollars of so-called ‘toxic’ derivatives that have still yet to be deleted. But instead of cancelling the odious debts and prosecuting a corrupt banking establishment, the proposed solution is instead to openly steal money from personal bank accounts in order to keep the Ponzi scheme up and running just a little longer. This brazen theft being described in places like the BBC as “a haircut” or “a tax on savings”. You just can’t make it up any more! And sooner or later, we must expect that all of this will be coming to a bank nearby…

Those who have listened carefully to people really in the know, like former regulator William K Black, are aware not only of the real cause of this crisis (and the resulting depression which the mainstream media have also helped to play down) but also precisely who is really to blame – and let’s name names here: hands up Moody’s, Standard & Poor’s, and Fitch! The three credit rating agencies who gave triple-A’s to toxic trash on the basis of mere opinion and yet continue to downgrade the credit worthiness of nation states in a deepening crisis which they were instrumental in starting… you really can’t make this up! And hands up Goldman Sachs, J.P Morgan, Citibank, Barclays, HSBC, and all the cronies in government, at the ECB, the Bank of England, the Federal Reserve, the IMF, and not forgetting the FSA and other supposed “regulatory agencies”. Agencies working for whom and to what ends, we may all reasonably demand.

It is the greed, incompetence and malfeasance across the whole of the financial sector that has brought us to this brink. It was never the fault of “the lazy Greeks” and it’s not the fault of pesky Cypriots either, but the mainstream media still hesitates at telling the people the truth – and why? Just how deep does the cronyism run…?

I hate to say this but quite frankly our world, by which I mean our civilisation, is going to hell in a handbasket. Because just as our economies collapse, and the social structures we rely upon follow, at very same time the controls on us are being tightened one notch at a time, and at an accelerating rate. This is another big theme I have returned to time and again. How in America there was Obama’s introduction of the NDAA “indefinite detention act”, and how in Britain we look set to get our own secret trials too. How in America (and most probably in Britain, although here the available evidence is less certain) there is already universal surveillance of internet activity and soon (certainly if Obama gets his way) of bank accounts too.1

These are the considered thoughts of veteran investigative journalist John Pilger, writing almost a year ago an article on his own website entitled “You are all suspects now. What are you going to do about it?”:

You are all potential terrorists. It matters not that you live in Britain, the United States, Australia or the Middle East. Citizenship is effectively abolished. Turn on your computer and the US Department of Homeland Security’s National Operations Center may monitor whether you are typing not merely “al-Qaeda”, but “exercise”, “drill”, “wave”, “initiative” and “organisation”: all proscribed words. The British government’s announcement that it intends to spy on every email and phone call is old hat. The satellite vacuum cleaner known as Echelon has been doing this for years. What has changed is that a state of permanent war has been launched by the United States and a police state is consuming western democracy.

What are you going to do about it?

In Britain, on instructions from the CIA, secret courts are to deal with “terror suspects”. Habeas Corpus is dying. The European Court of Human Rights has ruled that five men, including three British citizens, can be extradited to the US even though none except one has been charged with a crime. All have been imprisoned for years under the 2003 US/UK Extradition Treaty which was signed one month after the criminal invasion of Iraq. The European Court had condemned the treaty as likely to lead to “cruel and unusual punishment”. One of the men, Babar Ahmad, was awarded 63,000 pounds compensation for 73 recorded injuries he sustained in the custody of the Metropolitan Police. Sexual abuse, the signature of fascism, was high on the list. Another man is a schizophrenic who has suffered a complete mental collapse and is in Broadmoor secure hospital; another is a suicide risk. To the Land of the Free, they go – along with young Richard O’Dwyer, who faces 10 years in shackles and an orange jump suit because he allegedly infringed US copyright on the internet. 2

Click here to read John Pilger’s full article.

Meanwhile, of course, the neo-imperialist adventuring remains not only unchecked, but is actually gathering momentum. The war racket pressing full-steam ahead and flattening all before it. It doesn’t matter that we don’t have money to fix our broken hospitals, or to build houses and renew infrastructure, or that in America there are fifty million people already on food stamps – and if you picture those people in sepia forming a queue then you’ll see how this depression has already reached 1930s levels. But in spite of these hardships at home, no amount of money is ever spared when it comes the next country on our checklist for “humanitarian intervention” – and more thoughts on this in my next post.

So these days I am finding every post I write is harder than the last. How many ways are there to say that nuclear power and fracking are a menace not only to human beings but to most other life on the planet (cockroaches aside perhaps)? How many times do you need to say that “austerity measures” are not merely ideological in design but that they serve no useful purpose other than to wreck economies (as the IMF and World Bank have done in so many other countries across the globe) whilst redistributing wealth from the relatively poor to the mega-rich? How many times does it need pointing out that America is backing al-Qaeda when it suits their ends? – when, after all, al-Qaeda owes its origins to Zbigniew Brzezinski and the CIA and their dirty campaign to overthrow the Soviets in Afghanistan. So it is genuinely painful to have to repeat these things, and totally depressing to be shown to be right – that our collective future really is becoming so absolutely bleak, and unremittingly brutalised. Sooner rather than later, I want to be proved wrong – this hope is the only thing that actually keeps me writing this damned blog.

Now if any of the above sounds to you like craziness, then let me confirm that on one level it really is, though the craziness is not mine. For, in a sense, this is simply the way things have always worked: policies of expedience, of realpolitik. It is how ruling elites prefer to govern the masses, and all that stuff and nonsense about “freedom and democracy” and “saving the planet” is for the proles and “the gentlemen” (as neo-con political philosopher Leo Strauss called them) – those in the higher-up echelons who truly believe in the goodness of the system, but whose real job is to protect the interests of the powers that be. But the difference now is that the ruling elites are ready to assume a more complete dominion over all of their underlings. And it will be achieved by a scientifically-driven programme of social engineering that is already well underway: bringing us into the scientific dictatorship that globalist bigwig Zbigniew Brzezinski famously called “the Technetronic Era”:

“In the Technetronic society the trend seems to be toward aggregating the individual support of millions of unorganized citizens, who are easily within the reach of magnetic and attractive personalities, and effectively exploiting the latest communication techniques to manipulate emotion and control reason.” [..]

“Another threat, less overt but no less basic, confronts liberal democracy. More directly linked to the impact of technology, it involves the gradual appearance of a more controlled and directed society. Such a society would be dominated by an elite whose claim to political power would rest on allegedly superior scientific knowhow. Unhindered by the restraints of traditional liberal values, this elite would not hesitate to achieve its political ends by using the latest modern techniques for influencing public behavior and keeping society under close surveillance and control.” 3

Do Brzezinski’s words represent a warning or a blueprint… this ambiguity remains only because Brzezinski quite deliberately never makes his position clear:

The Technetronic age is that which is created by the (theoretical) Technetronic Revolution. It is always fairly ambiguously presented as to whether Brzezinski is actually predicting this revolution based on observation/trends, or whether he is abstractly philosophizing. It certainly is not a work of political science. With this in mind, his concluding line in the book, ‘In the technetronic era, philosophy and politics will be crucial’ serve to confuse the reader further rather than give some closure. 4

The quote above is taken from a rather favourable review of Brzezinski’s book written by Stephen McGlinchey in 2011. The book itself has been out of print for three decades.

There is plenty of speculation about Brzezinski’s real intent when he wrote the book, but does this even matter – especially as we have good reasons to be suspicious given his record in other more tangible ways – the more important point is that the direction he outlines is evidently the direction our world has taken. And I would like to think that my own ant-sized efforts to halt the progress of this imposed revolution, alongside the efforts of countless other out-spoken ants, all trying so hard to speak up with truth to power is having some effect. That we may be small and struggling to be heard above the largely controlled, mainstream din, with tiny readerships and such small spheres of influence, but that our combining ripples are building in amplitude and spreading wider…. And then I read an article and I think that yes indeed, tiny as we are, we really must be having some effect, because it seems that the government is suddenly intent on shutting voices like mine down altogether.

Never letting any good crisis go to waste, the government it seems has twisted the whole Leveson Inquiry around to its own advantage – in a fashion reminiscent of what happened with the Hutton Inquiry (from which, of course, the BBC has never properly recovered). The Leveson Inquiry, we should remember, was set up to deal with crimes, and specifically the crime of phone hacking, perpetrated by media giants (most prominently Rupert Murdoch’s News International), and to also look into the role played by the London Metropolitan Police, yet in consequence, the results of that inquiry look likely to close down parts of the alternative media instead. Here’s an extract from Tuesday’s Guardian:

Bloggers could face high fines for libel under the new Leveson deal with exemplary damages imposed if they don’t sign up to the new regulator, it was claimed on Tuesday.

Under clause 29 introduced to the crime and courts bill in the Commons on Monday night, the definition of “relevant” bloggers or websites includes any that generate news material where there is an editorial structure giving someone control over publication. […]

Kirsty Hughes, the chief executive of Index on Censorship, which campaigns for press freedom around the world, said it was a “sad day” for British democracy. “This will undoubtedly have a chilling effect on everyday people’s web use,” she said.

She said she feared thousands of websites could fall under the definition of a “relevant publisher” in clause 29.

Hughes said: “Bloggers could find themselves subject to exemplary damages, due to the fact that they were not part of a regulator that was not intended for them in the first place.” 5

Click here to read the full article.

My belief has always been (and remains) that the best way to lose your freedom of speech is by refusing to use it, and so this ludicrous regulatory overreach is more reason to keep offering some small alternative to the mainstream behemoths. And rest assured that I certainly won’t be signing up to any regulatory body.

Finally then, and if the authorities ever do decide to go after me for daring to disagree with mainstream authority, then I ask in advance for your support – why? Because I’m the little guy, the ant, the gnat, the gadfly. The main difference between you and I, in this respect, is merely that I have perhaps put my head a little higher above the parapet. So once I’m firmly in the cross-hairs, assuming this should happen, then you can be absolutely certain it’ll be your turn next, and rather sooner than you might suppose…

1“The Obama administration is drawing up plans to give all U.S. spy agencies full access to a massive database that contains financial data on American citizens and others who bank in the country, according to a Treasury Department document seen by Reuters.

“The proposed plan represents a major step by U.S. intelligence agencies to spot and track down terrorist networks and crime syndicates by bringing together financial databanks, criminal records and military intelligence. The plan, which legal experts say is permissible under U.S. law, is nonetheless likely to trigger intense criticism from privacy advocates.”

From an article entitled “Obama Administration Proposing To Let U.S. Spy Agencies Have Access To Massive Financial Database”, written by Emily Flitter, Stella Dawson and Mark Hosenball, (from Reuters) published by Huffingtonpost. http://www.huffingtonpost.com/2013/03/13/obama-spy-agencies_n_2868389.html

2 From an article entitled “You are all suspects now. What are you going to do about it?” written by John Pilger and posted on his own website on April 26, 2012. http://johnpilger.com/articles/you-are-all-suspects-now-what-are-you-going-to-do-about-it

3 Both quotes taken from Between Two Ages: America’s Role in the Technetronic Era, written by Zbigniew Brzezinski, published in 1970 (although out of print since 1982).

4 Taken from a review of Between Two Ages: America’s Role in the Technetronic Era, written by Stephen McGlinchey and published July 22, 2011. The full review can be found here: http://www.e-ir.info/2011/07/22/review-between-two-ages-america%E2%80%99s-role-in-the-technetronic-era/

5 From an article entitled “Press regulation deal sparks fears of high libel fines for bloggers: Websites could have to pay exemplary damages if they don’t sign up to new regulator, claim opponents of Leveson deal”, written by Lisa O’Carroll, published by the Guardian on March 19, 2013. http://www.guardian.co.uk/media/2013/mar/19/bloggers-libel-fines-press-regulation

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the Chicago School is dangerously wrong: I’m with Michael Hudson

On Thursday’s episode of the Keiser Report [March 8th], Max Keiser spoke with Dr. Michael Hudson from the University of Missouri, Kansas City. Hudson explained how neo-liberal economic theories have become dominant simply by virtue of the fact that they fail to accommodate any antithetical viewpoint:

We’re the unspeakable ones. We’re the people that liberals like [Paul] Krugman won’t talk about. We’re the people that the University of Chicago – in the magazines that it’s put its editors in – will not permit discussion. So basically the free-marketers are censors; they don’t believe in a free market of ideas. They believe in what they did in Chile. Remember, the first thing the Chicago Boys did in Chile was close down every economics department in the country except the one they controlled…

Hudson also explained to Keiser, how these ideas, which are most associated with Milton Friedman and the University of Chicago (more thoughts on Friedman are provided in an appended article at the bottom of this post), have quite literally inverted the original free market thinking of its founders Adam Smith and J.S. Mill:

The idea of ‘free market’ to classical economics was to bring prices in line with the actual technologically necessary costs of production… Monopolies were either to be regulated to keep their prices in line with the actual costs – like America regulates the bills that electrical utilities can charge – or, that most monopolies would be, as in Europe, kept in the public domain and operated as public utilities. And if there was something basic like education, or roads, these should be provided freely in order to minimise the economy’s cost of production, and make it more competitive. This was the whole philosophy of the industrial revolution, and it was the ‘free market’ idea that the Classical economists had. […]

But [the modern] idea of a ‘free market’ was free for predators. Free for monopolists. Free for landlords to gouge whatever rents they could get, and to free themselves from taxation, so that the government had to tax labour and to tax industry. And the result is that the American economy today under the so-called ‘free market’ has such a high cost of living, and a high cost of production, that labour can’t compete internationally. That’s why America’s balance of trade has moved so far into deficit.

So ‘free market’ is what is killing the American economy and it’s not free at all… not the kind of ‘free market’ that Adam Smith talked about.

You can read more about Michael Hudson’s economic thinking along with the views of his fellows at the University of Missouri-Kansas City (including an insider perspective from former financial regulator William Black) at the ‘new economic perspectives’ blog http://www.neweconomicperspectives.org/.

*

Milton Friedman was professor at the University of Chicago. There he helped to found the acclaimed Chicago School of Economics – a group that produced a number of Nobel Prize winners. Friedman himself received the Nobel Prize for Economics in 1976, whilst The Economist once described him as “the most influential economist of the second-half of the twentieth century.”1

It was the economic ideology formulated and promulgated by Friedman and his Chicago School, with its emphasis on market deregulation and free trade, that exercised such great influence during the eighties with the ‘hands off’ economic policies of Reagan and Thatcher. Indeed the legacy of those years has persisted throughout the administrations led by Major, then Blair and Brown, and now Cameron and Clegg (Quelle différence?), and today’s political consensus offers little alternative but the full acceptance of Friedman’s old deal, with economic differences between New Labour and Conservative being merely a matter of degrees. Friedman seems to have won, for the time being at least. So what exactly is the rationale behind his winning formula?

Broadly he came to his theories from two angles. Firstly, he distanced himself from the sorts of social reformers who saw state control as a necessary element of modern civilisation. Regarding welfare legislation, such as minimum wage laws as self-defeating (because they would supposedly prevent those without skills from finding gainful employment), he was equally dismissive of the meddling trade unions, and sought ultimately to banish all social security programmes.

Whereas previously, economists like Keynes, and also Adam Smith, had got themselves all tangled up on what sorts of policies were better or worse for the general welfare, Friedman carefully side-stepped such messy complications. As far as Friedman was concerned, government is mostly a stifling and wasteful inconvenience (which, in fairness, is all too often the case). But here Friedman goes to extremes: left to its own devices, he says, all government must undoubtedly veer toward some form of tyranny. The best thing then is to clip its wings completely. Instead of government making decisions, the people should be left to choose for themselves. But how? Well, by forcing government to give way to the market.

Secondly, and in common with many cool-headed intellectuals, Friedman regarded human beings with a deeply felt suspicion. “Mankind is selfish and greedy,” he said in a television interview. But when asked by the interviewer whether in admitting this, he’s not inadvertently making a good case for more control rather than less, he quickly dismissed such Hobbesian objections, replying: “Therefore, we have to put power into the hands of other selfish and greedy men.”2 It’s an odd and revealing answer for one who purported to be a liberal rather than a conservative, and who always wrapped himself in the flag of Freedom.

So here is Milton Friedman, the high evangelist of a radical lassez-faire “limited government”, fast talking and slick, and preaching ever less intervention, less regulation, and less central control. Less is more. Less interference makes more profits, and more profits equates with more goods, and goods are of course, by definition, good.

Work hard, make money: this was the heart of his doctrine – and leave it to the individual to make all the right choices. Trying to do good with “other people’s money” is simply fallacy – Friedman liked the term “other people’s money” (though nowadays he’d almost undoubtedly say “taxpayer’s money”; same difference):

“If I want to do good with other people’s money I’d first have to take it away from them. That means that the welfare state philosophy of doing good with other people’s money, at its very bottom, is a philosophy of violence and coercion. It’s against freedom, because I have to use force to get the money.” [about 11:30 min into part 1]

Phew, it certainly sounds bad when you put it like that. All that collecting of taxes and then divvying the money out for housing, schools, hospitals and caring for the old folk, sure is some serious violation of our inalienable human rights. Friedman, characteristically, takes such reasoning to its logical and ultimate extremes. Indeed, he is actually prepared to estimate just how many people might reasonably be done-away-with to ensure that we remain free from the sorts of deplorable ‘violence and coersion’ that are all too familiar when it comes to tax collection:

“But let’s look at that a little farther,” he says,”Suppose that five percent of the elderly would not be able to provide for themselves. Does it make sense to impose a programme on a hundred percent of the people in order to do something about five percent? Does that really make sense? You see, that’s the great defect in this line of thinking – ” [about 1:30 min into part 2]

Although why stop at five percent, when it makes economic sense to sacrifice a few more of the useless-eaters…

As for the new role of economists themselves, and with the tricky problem of people dismissed, their attention can be properly focused on complex theories of monetary policy: intricate models of how money and the markets function in and by themselves. Here is enough to be getting on with, says Friedman, and the new economists agree. Why? No doubt in part, because it grants them a legitimacy that previously only attached to the expertise of the scientist. It offers an intellectual purity.

But how can anyone objectively divorce economics from society (even if they would choose to), and draw such clear divisions between money and its effects on people? Economics, if it is a science (and there are extremely good grounds for saying that it isn’t), might conceivably be a science like psychology, but it can never be anything like, say, physics. The reason being that money is inherently a people thing; a human construct, bearing only a superficial resemblance to other kinds of natural phenomenon, which it most definitely isn’t. Nor are markets freely-floating entities immune to all human frailty, but composed of analysts and traders: people who are driven at least as much by fear as by good reason. Constantly jittery; every now and then ‘the markets’ totally crap their pants. Yet Friedman desperately wants to cut all this out of his equation, whilst insisting that all other economists eventually join him in his perfect economic bubble.

And following Friedman’s prescription has led us to a perfect economic bubble. A debt bubble that has swollen to such an extent that it currently exceeds the value of everything else on earth.3 We should not be surprised. This is what’s likely to happen when you entirely decouple economics from social needs. When money becomes the main ‘product’ in the world. When high frequency trading involving the use of computer algorithms forces commodity and share prices to rise and fall in fractions of second, whilst outside in the real world nothing about those commodities or businesses has altered in anyway – the values being driven instead by feedback loops of speculation. When markets are also rigged by insider knowledge – an anathema to the ‘free market’ and yet, thanks to deregulation, easier than ever. And when ‘the markets’ in themselves are bloated by the never-ending creation of ‘financial products’, quite apart from any judgment of how all these new paper contracts might blight the real economy. No value judgments are allowed. No distinction between profits earned from the supply of real goods and services as opposed to profits made by profiteers and financial predation. Money making more and more money being an inherent good.

In truth, Friedman was never really a liberal, but a libertarian of sorts (and saying this does a disservice to the better half of libertarianism). The neo-con intellectual apologist Francis Fukuyama is another libertarian of a similar sort, and Fukuyama undoubtedly derives a great deal from Friedman. Liberty, in the eyes of both men, is inextricably tied to the freedom to buy and sell. Indeed, Friedman once claimed that: “underlying most arguments against the free market is a lack of belief in freedom itself.”4

In defence of this extremist position, Friedman has often pointed to history. History, he tells us, has long been constructed along collectivist principles, which is indeed the normal state of humankind. The trouble is that collectivism doesn’t work, and so, although the system of minimal collective intervention may appear, at least on the surface, to be crueller and more selfish, the results it yields are for the betterment of most, if not all. We should judge much better by the consequences rather than from the objectives, he always insisted, looking at the ends rather than the means. Okay then let’s do just that. And let’s be fair here, and judge Friedman on the basis of his most acclaimed success.

On September 11th of 1973 the democratically elected government of Salvador Allende was overthrown by a CIA backed military coup and replaced by a junta government led by Augusto Pinochet. What immediately followed is common knowledge. Imprisonment of political opponents, torture, and the “disappearance” of thousands of innocent victims. The record of atrocities committed by the Pinochet regime is well documented. But perhaps what is less well remembered is the parallel economic measures imposed by the so-called Chicago Boys during Pinochet’s reign of terror.

Sweeping deregulatory reforms that involved the abolition of the minimum wage, the removal of food subsidies, the suppression of trade union activity, and the privatisation of just about everything in sight. The pension system, the banks and assets of state-ownership, all greedily seized and sold off. This kind of “shock treatment”, as Friedman unflinchingly referred to it, resulted in a real wage drop of more than forty percent, a doubling in levels of poverty, and a staggering one in five of the working population (a five-fold increase within a decade) forced into desperate unemployment and left to fend for themselves .5 Yet Friedman regarded all of this as merely the price of success, and described the transformation from Allende’s democratic socialism to Pinochet’s hard-line, totalitarian capitalism as “the miracle of Chile”. Individual suffering was simply a small price for Friedman’s greater ‘liberty’, and back in 1975, in the discussion with Heffner, he staked out that position too, albeit a little clumsily:

“I want people to take thought about their condition and to recognize that the maintenance of a free society is a very difficult and complicated thing. And it requires a self-denying ordinance of the most extreme kind. It requires a willingness to put up with temporary evils on the basis of the subtle and sophisticated understanding that if you step in to try to do them [do what? the temporary evils?], you not only may make them – [hesitation as he corrects himself] – to do something about them – you not only may make them worse, but you will spread your tentacles and get bad results elsewhere.” [about 6:00 min into part 2]

Milton Friedman spread his own tentacles pretty much everywhere, and the world has long been poisoned by his ‘free market’ phoney liberalism. Friedman’s Chicago School branch of economics having not merely served as justification for the continued exploitation of workers, but also, and by virtue of its mantra for deregulation, encouraged the rampant, cancerous growth of a crony capitalist elite. Fundamentalist ‘free market’ thinking isn’t just cruel, it has been calamitous. Milton Friedman, its high priest, was so very dangerously wrong.

1 From an article entitled “Milton Friedman, a giant among economists” published November 23rd, 2006, The Economist.

2 All otherwise uncredited quotes in this section have been drawn from an interview with Richard D. Heffner, broadcast on Sunday December 7th, 1975 as part of the TV series “Open Mind” , produced by WPIX, Channel 11, New York, in cooperation with Saturday Review (based on a transcription found at http://www.theopenmind.tv/tom/searcharchive_episode_transcript.asp?id=494).

Friedman’s full answer to Heffner’s question is this: “Therefore, we have to put power into the hands of other selfish and greedy men. Now I want to apologize for what I said. The great bulk of mankind. There are always conspicuous exceptions, not everybody. And also for each person there is an exception. People are selfish and greedy in one aspect of their activity. They are unselfish and generous in another.” [about 8:00 min into part 2]

3 The underlying cause of the current crisis is the worldwide trade in “derivatives”. It is currently estimated that in the order of a quadrillion US dollars (yes, that’s with a qu-) has been staked on derivations of various kinds. We can compare this with the entire world GDP which turns out to be a mere 60 trillion US dollars [According to IMF economic database for October 2010, World GDP is $61,963.429 billion (US dollars)]. One quadrillion being more than twenty times larger. Or we might compare it against the estimated monetary wealth of the whole world: about $75 trillion in real estate, and a further $100 trillion in world stock and bonds. So one quadrillion is a number exceeding even the absolute monetary value of the entire world! Warren Buffett once described derivatives as “financial weapons of mass destruction”, and he should know because he trades in them.

4 “A major source of objection to a free economy is precisely that it … gives people what they want instead of what a particular group thinks they ought to want. Underlying most arguments against the free market is a lack of belief in freedom itself.” Taken from chapter 1 of “The Relation Between Economic Freedom and Political Freedom“, 2002 edition, page 15.

5 From 1973-83 unemployment rose from 4.3% to a staggering 22%, whilst by all measures, the average worker was worse off in 1989 than in 1970, labor’s share of national income having fallen from 52.3 to 30.7 percent. Statistics courtesy of James Petras and Fernando Ignacio Leiva with Henry Veltmeyer, from “Democracy and Poverty in Chile: The Limits to Electoral Politics“, Boulder: Westview Press, 1994.

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Filed under analysis & opinion, Britain, Chile, financial derivatives, Max Keiser, neo-liberalism, USA

“austerity” is too good for the bankers: their punishment should fit their crimes

Ever since I began writing this blog and long before that, one thing has been at the forefront of the political agenda:– “Austerity measures”. The quotation marks are ugly but essential. Those annoying little curly tadpoles hopefully raising the question: what does this phrase actually mean and what is it hiding? Perhaps a dictionary might help us:

Austere: grave, sober, or serious; self-disciplined, abstemious, or ascetic; severely simple or plain. Austerity is then, more often than not, considered ennobling; the word even carries implicitly wholesome religious connotations. The life of a monk is austere. The saints too practiced austerity. And Christ himself is said to have led an austere life. The religious justification is that obsessing about material comforts misses the bigger spiritual picture, but I am not intending to argue either for or against that opinion. My contention here being simply that the meaning of “austerity measures” relies heavily although unconsciously on these traditional ideals. In more purely secular terms, tightening the belt being very often regarded as a good thing.

There is, of course, a constantly expanding menagerie of euphemisms and doublespeak. Civilian casualties in war are now simply “collateral damage”; war itself becoming “kinetic action”; “enemy combatant” meaning a prisoner of war denied their rights; “theater” the war zone; whilst kidnap and torture have been reduced to “extraordinary rendition”. All of these are designed to hide the indefensible truth. But “austerity measures” achieves more again. It doesn’t merely hide the truth, but almost reverses it.

First, let me translate “austerity measures” into useful Standard English: “austerity measures” means enforced poverty. There are no ugly tadpoles required here, because this is quite literally the meaning of the phrase. With the proper words in place, the spell is undone and the truth becomes unavoidable and as clear as day. “Austerity” means being pushed down. Being forced to submit. In short, there is nothing edifying nor ennobling about stripping ordinary people of their very basic and essential public services and economic rights.

“Austerity measures” — what are they good for? Absolutely nothing! You cannot rescue any economy during a depression by impoverishing the people of that country. We can understand this through applying basic economics, or we can find the empirical proof in so many cases where the IMF and the World Bank have applied such “measures” in the past. By making people poorer, personal debt increases as does government debt. As people stop spending, others are forced out of work. The economy shrinks and tax revenues are driven down. Eventually the debt repayments become impossible to maintain. It is a downward death spiral, as the latest report from Greece on Democracy Now! shows all too clearly:

Click here to watch the video or read a full transcript of the same report [from Feb 14th] on the Democracy Now! website.

Greece has now been brought to its knees by imposed “austerity”, and so long as its main political parties continue taking the same course, the situation will quickly worsen. Society is already breaking down and sooner or later the whole political system will surely follow. A revolution in Greece of one kind or another is coming. We can only pray that it’s a good one.

Wherever severe “austerity” moves to next, whether it is Portugal, Ireland, Spain, Italy or here in Britain, the same results must be expected. Oh, and if you think that Greece has a more serious debt problem than anywhere else, then it’s time to think again. Japan has a far higher level of public debt than Greece (see here), and if you also include business and bank debts, then the picture looks very different again. This graphic, published on zerohedge.com [from November 2011] shows very clearly which nation is currently leading in the global debt race to the bottom (and it’s not Greece – not by a long chalk):

Owe your banker £1000 and you are at his mercy; owe him £1 million and the position is reversed. The economist John Maynard Keynes called this ‘the old saying’. So old that it seems to have been long since forgotten. These days, as Keynes would no doubt be surprised to learn, there are some banks deemed simply ‘too big to fail’. Which is, of course, precisely how we got into this mess in the first place, as well as the reason we remain stuck in it.

The ‘megabanks’ have failed, trading poorly, making bad investments and decisions, whilst influencing economic policies in ways that are now proven to be destructive and against the interests of most on the planet, and all the time conducting their operations way beyond their actual means. They are all bankrupt, having “invested” in a load of completely worthless paper which they prefer to call “toxic assets”. And here it is important to understand that in the topsy-turvy world of finance, all debts held are considered to be ‘assets’, even if those debts cannot be repaid, in which case they are regarded as ‘toxic’, whilst remaining as ‘assets’ nonetheless!

The question now being asked is will the latest 130 billion euro bailout save the Greek economy, and the answer to that question is a resounding no. It will no more save the Greek economy than the 110 billion euro bailout did less than two years ago, back in May 2010. Greece will default eventually. Meanwhile the Greek people will have received no benefit from any of these huge bailouts, since the money is only ever used to pay off the bankers’ losses. And yet, when we trace back those losses, what we discover is that they were a product of unquestionably criminal practices. William Black, a highly respected former financial regulator, has explained more than once how the whole financial system became a Ponzi Scheme — and Black is far from a lone voice. Click here to read an earlier post on William Black.

Yet the bankers have so far remained immune from any prosecution. Instead of prison they are receiving continued bailouts, whilst also picking up private perks in the form of bonuses. So how do they get away with it? Simple – they run the show. And evidence of this banker occupation is all around. Goldman Sacks, for instance, are everywhere.

They have not only ‘conquered Europe’, as an extraordinary article in the Independent put it, but long since embedded themselves in other positions of power and influence including, perhaps most significantly, the White House. More recently, they have openly installed unelected puppets to run Greece and Italy. Which is how the Ponzi Scheme that Black and others have uncovered remains officially unchallenged, unhampered and unabated. The bailouts keeping the crooked casino afloat a little longer, whilst the debt contagion spreads far and wide, generating renewed opportunity for asset-stripping along the way. The Greeks are the scapegoats, and also the first victims.

Two years ago, speaking on Al Jazeera, Max Keiser pointed out [7:30 minutes in] that Goldman Sacks had illegally colluded with the Greek government in order to hide debts in their bid for entry into the Eurozone:

The same collusion was more recently picked over in this detailed BBC report from Nick Dunbar, author of “The Devil’s Derivatives”. According to Dunbar’s version of events, however, the secret deal that had been fraudulently cooked up to conceal the true level of Greek government debt was “perfectly legal”:

In his latest book Vultures’ Picnic, investigative journalist, Greg Palast, also delves into Goldman Sacks chicanery. Hidden within documents that he took great pains to authenticate, he discovers evidence that the dodgy deal was a deliberate plan to force the Greek nation into bankruptcy and a fire-sale:

Greece’s economy blew apart because a bunch of olive-spitting, ouzo-guzzling, lazy-ass Greeks refuse to put in a full day’s work, retire while they’re still teenagers, pocket pensions fit for a pasha; and they’ve gone on a social-services spending spree using borrowed money. Now that the bill has come due and the Greeks have to pay with higher taxes and cuts in their big fat welfare state, they run riot, screaming in the streets, busting windows and burning banks.

I don’t buy it. I don’t buy it because of the document in my hand marked, “RESTRICTED DISTRIBUTION.”

I’ll cut to the indictment: Greece is a crime scene. The people are victims of a fraud, a scam, a hustle and a flim-flam. And––cover the children’s ears when I say this––a bank named Goldman Sachs is holding the smoking gun.

You can read a little more about Palast’s investigation, and what it reveals about the Greek crisis here and also on page 27 of chapter one.

There has been a loud call (one that I have also joined in) for the bankers to pay their way in the form of Toban Taxes and so forth, but frankly this is not enough. “Austerity” is too good for bankers. Nothing short of a full criminal investigation is actually needed, with a debt moratorium imposed for as long as that investigation takes. A cancellation of all odious debts should then follow.

Until that time, and as the people of Greece and elsewhere continue to suffer, we would be wise to stand shoulder to shoulder with them. They are the unfortunate recent victims in an ever-expanding and increasingly merciless financial war. For “bailouts” read “more debt”, whilst “austerity measures” means nothing other than economic “shock and awe”.

On the positive side, even parts of the mainstream media are finally beginning to awaken to the crisis now taking hold in Greece and elsewhere. Here, for instance, is Paul Mason, the economics editor for BBC‘s Newsnight, taking a break from his usual duties to speak on Democracy Now! (and to plug his book, obviously) last Wednesday [Feb 22nd]:

Paul Mason appears to be under the unfortunate delusion that only he and Glenn Beck (of all people) are making the connection between the deepening financial crisis and the rise of popular movements across Europe, North Africa and America. If only Mason had figured out how to navigate the internet, he’d be so much better informed.

Click here to watch the video or read a full transcript on the Democracy Now! website.

Additional:

As for the truth about just how lazy the Greek’s really are, here’s a BBC news article from Feb 26th:

But the statistics suggest the country has not lost its way due to laziness. If you look at the average annual hours worked by each worker, the Greeks seem very hard-working.

Figures from the Organisation for Economic Co-operation and Development (OECD) show that the average Greek worker toils away for 2,017 hours per year which is more than any other European country.

Out of the 34 members of the OECD, that is just two places behind the board leaders, South Korea.

On the other hand, the average German worker – normally thought of as the very epitome of industriousness – only manages 1,408 hours a year. Germany is 33rd out of 34 on the OECD list (or 24th out of 25 looking at the European countries alone).

Europe’s top 10 and bottom 10

Most hours worked Most productive Least hours worked Least productive
1 Greece Luxembourg Netherlands Poland
2 Hungary Norway Germany Hungary
3 Poland Ireland Norway Turkey
4 Estonia Belgium France Estonia
5 Turkey Netherlands Denmark Czech Rep
6 Czech Rep France Ireland Portugal
7 Italy Germany Belgium Slovakia
8 Slovakia Denmark Austria Greece
9 Portugal Sweden Luxembourg Slovenia
10 Iceland Austria Sweden Iceland

Looking though the table above, you might notice a negative correlation between long working hours and increased productivity. This exposes another pernicious myth, as we can clearly see that it’s far better to work clever than to work hard.

Click here to read the full article which is entitled “Are Greeks the hardest workers in Europe”, written by Charlotte McDonald.

*

Click here to add your signature to the statement of solidarity with the people of Greece backed by trade union leaders, members of Parliament and campaigners published in the Guardian.

The people of Greece face an unprecedented economic and political crisis. They are being driven to poverty and mass unemployment by the demands of the so-called Troika – the European Union, the European Central Bank, and the International Monetary Fund which has imposed Lucas Papademos, formerly of Vice-President of the ECB, as Prime Minister.

Hospitals in Greece are running out of basic medicines, nearly half of all young people are unemployed, workers in some sectors have not been paid for months, and many are forced to resort to soup kitchens or scavenge from rubbish dumps.

Now the Troika demands a cut of 23% to the minimum wage, the sacking of tens of thousands of public sector workers and the decimation of pensions which have already lost nearly 50% of their value. International capital is asset stripping an entire country and ripping apart its social fabric.

Greece is at the cutting edge of the austerity measures that are being introduced across Europe. All the evidence shows that while these measures may protect the interests of the rich, they just make matters worse for the majority of the population. What happens in Greece today we will see in Portugal tomorrow and in Ireland the day after. In Britain, the Coalition government is pursuing similar measures which will see workers earnings cut, working longer for a smaller pension, and the dismantling of the NHS along with other public services.

Mikis Theodorakis, famous Greek composer of Zorba’s Dance, and Manolis Glezos, veteran resistance fighter against the Nazi occupation who took down the swastika from the Acropolis during the 2nd World War and replaced it with the Greek flag, have issued a statement calling for a European Front to defend the people of Greece and all those facing austerity.

The Coalition of Resistance and the People’s Charter have decided to support this call and agreed to work with trades unions, campaigns and parties across Europe to establish a European Solidarity Campaign to defend the people of Greece. The campaign aims to organise solidarity and raise practical support for the people of Greece; they cannot be made to pay for a crisis for which they are not responsible.

 

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William Black on how our financial system became a Ponzi scheme

William Black, Associate Professor of Economics and Law at the University of Missouri-Kansas City, is a former financial regulator and a white-collar criminologist, who helped to expose Congressional corruption during the Savings and Loan Crisis in the late 1980s, by accusing then-house speaker Jim Wright and five US Senators, subsequently known as the Keating Five (who included John Glenn and John McCain), of doing favors for the S&L’s in exchange for contributions and other kickbacks. Although the senators only received a slap on the wrist, Charles Keating — after whom the so-called “Keating Five” were named — had sent a memo that read, in part, “get Black — kill him dead.”

Based on his experiences, Black wrote a book entitled: “The Best Way to Rob a Bank is to Own One.

In April 2009, William Black was interviewed by Bill Moyers on PBS. He explained how the banks and the credit ratings agencies were together committing fraud, with the result that the financial system “became a Ponzi scheme”:

BILL MOYERS: So if your assumption is correct, your evidence is sound, the bank, the lending company, created a fraud. And the ratings agency that is supposed to test the value of these assets knowingly entered into the fraud. Both parties are committing fraud by intention.

WILLIAM K. BLACK: Right, and the investment banker that — we call it pooling — puts together these bad mortgages, these liars’ loans, and creates the toxic waste of these derivatives. All of them do that. And then they sell it to the world and the world just thinks because it has a triple-A rating it must actually be safe. Well, instead, there are 60 and 80 percent losses on these things, because of course they, in reality, are toxic waste.

BILL MOYERS: You’re describing what Bernie Madoff did to a limited number of people. But you’re saying it’s systemic, a systemic Ponzi scheme.

WILLIAM K. BLACK: Oh, Bernie was a piker. He doesn’t even get into the front ranks of a Ponzi scheme…

BILL MOYERS: But you’re saying our system became a Ponzi scheme.

WILLIAM K. BLACK: Our system…

BILL MOYERS: Our financial system…

WILLIAM K. BLACK: Became a Ponzi scheme. Everybody was buying a pig in the poke. But they were buying a pig in the poke with a pretty pink ribbon, and the pink ribbon said, “Triple-A.”

He also pointed out that the policies of Obama administration remained in violation of the law:

BILL MOYERS: Yeah. Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong?

WILLIAM K. BLACK: Absolutely.

BILL MOYERS: You are.

WILLIAM K. BLACK: Absolutely, because they are scared to death. All right? They’re scared to death of a collapse. They’re afraid that if they admit the truth, that many of the large banks are insolvent. They think Americans are a bunch of cowards, and that we’ll run screaming to the exits. And we won’t rely on deposit insurance. And, by the way, you can rely on deposit insurance. And it’s foolishness. All right? Now, it may be worse than that. You can impute more cynical motives. But I think they are sincerely just panicked about, “We just can’t let the big banks fail.” That’s wrong.

Click here to read a complete transcript of the interview.

Two and a half years on, William Black says on Democracy Now! that nothing has changed:

AMY GOODMAN: What do you think has to happen now? And what does this have to do with the Occupy Wall Street protests that have expanded here in Kansas City and across the globe? There are more than a thousand demonstrations that have been held in the last weeks.

WILLIAM BLACK: Well, we have companion problems. We’ve got to stop this dynamic that’s producing recurrent, intensifying crises. I mean, this one has devastated the nation. The next one would probably be equivalent to the Great Depression. And part of that answer—but only part of it—is to hold the folks accountable, especially the most elite, who caused this crisis. And they did it through fraud, and they did it through fraud in what we call the “C-suites” —the CEOs, the COOs — so, the absolute top.

AMY GOODMAN: And how would these powerful financial entities be held accountable? What exactly should happen?

WILLIAM BLACK: It all starts with the regulators, which is why it’s all not started here, because we have, of course, the wrecking crew, Bush’s wrecking crew, what Tom Frank called them, in charge, and they stopped making criminal referrals. So our agency, in the savings and loan crisis, made over 10,000 criminal referrals to the FBI. That same agency, in this crisis, made zero criminal referrals. If you don’t get people pointing the way and pointing to the top of the organization, you don’t get effective prosecutions. So, in the peak of the savings and loan crisis, we had a thousand FBI agents. This crisis has losses 70 times larger than the savings and loan crisis. And the savings and loan crisis, when it happened, was considered the largest financial scandal in U.S. history. So we’re now 70 times worse. And as recently as 2007, we had 120 FBI agents—one-eighth as many FBI agents for a crisis 70 times larger. And they looked not at the big folks, but almost exclusively at the little folks.

AMY GOODMAN: William Black, you mentioned Bush’s wrecking crew, but we live in the time of President Obama.

WILLIAM BLACK: And we’ve been living for some years in the time of President Obama, and he has done absolutely nothing to reestablish the criminal referral process. And as a result, there are virtually no prosecutions of any elites.

He was also asked about what the message from Occupy Wall Street should be:

Well, first, of course, I don’t speak for that movement, and indeed they don’t have official spokespersons with clear plans. So that part is true. They think of that as one of the great strengths of democracy now, right? That things bubble up, and they have different ideas. However, if you look, not just nationwide, but worldwide, you will see some pretty consistent themes developing.

And those themes include: we have to deal with the systemically dangerous institutions, the 20 biggest banks that the administration is saying are ticking time bombs, that as soon as one of them fails, we go back into a global crisis. Well, we should fix that. Right? There’s no reason to have institutions that large. That’s a theme.

That accountability is a theme, that we should keep—put these felons in prison, and there’s no action on that.

That we should get jobs now, and that we should deal with the foreclosure crisis. So those are four very common themes that you can see in virtually any of these protest sites. And they have asked me, for example, to come to New York to talk about some of these things. So, I think, over time, you won’t necessarily have some grand written agenda, but you’ll have, as I say, increasing consensus. And it’s a very broad consensus. It’s not left, it’s not right; it’s not Republican, it’s not Democrat.

Click here to read the full transcript.

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how the markets make famine

The Food Crisis Strikes Again

Esther Vivas

The threat of a new food crisis is already a reality. The price of food began to rise to record levels again, according to the FAO Food Price Index of February, 2011, which does a monthly analysis of global prices of a basic food basket made up of grains, seed oils, dairy products, meat and sugar. The Index came to a new historic maximum, the highest since the FAO began to study food prices in 1990. In the past months, prices have leveled off but analysts predict more hikes in the coming months.

This increase in the cost of food, especially basic grains, has serious consequences for southern countries with low incomes and dependency on food imports, and for the millions of families in these countries that devote between 50 and 60 percent of their income to food—a figure that rises to 80 percent in the poorest countries. In these countries, the rise in the price of food products makes them inaccessible.

We are approaching a billion people—one out of every six on the planet—that today do not have access to adequate food. World Bank president, Robert Zoellick, affirmed that the current food crisis has increased the number of persons who suffer chronic hunger by 44 million. In 2009, this number was surpassed, reaching 1.023 billion people undernourished on the planet, a figure that went down slightly in 2010, but without returning to the levels before the food and economic crisis of 2008 and 2009.

The present crisis takes place in the context of an abundance of food. Food production has multiplied over the three decades since the sixties, while the world population has merely doubled since then. There’s plenty of food. Contrary to what international institutions like the FAO, World Bank and World Trade Organization say, it’s not a problem of production, but rather a problem of access to food. These organizations urge an increase in production through a new Green Revolution, which would only make the food, social and ecological crises worse.

Popular Rebellions

The popular rebellions in northern Africa and the Middle East had among the many catalysts the rise in food prices. In December of 2010, in Tunis, the poorest of the population occupied the frontline of the conflict, demanding, among other things, access to food.

In January of 2011, youth demonstrated in Algeria blocking highways, burning stores and attacking police stations to protest for the rise of prices in basic foods. Similar cases were seen in Jordan, Sudan and Yemen. Egypt is the largest importer of wheat in the world, and depends on food imports.

Evidently other factors came into play in the uprisings: high unemployment, lack of democratic freedoms, corruption, lack of housing and basic services, etc. In any case, the rise in food prices was one of the initial catalysts.

A Central Cause

What are the causes of the new spike in the cost of our meals? Although international institutions and experts have pointed to several elements such as meteorological phenomena that affect harvests in produce countries, the increase in the demand in emerging countries, financial speculation, the growing production of agrofuels, among others—various indices point to speculation with raw food materials as one of the main reasons for food price increases.

In 2007-2008 the world experienced a profound food crisis. Basic foods prices such as wheat, soy and rice rose by 130%, 87% and 74% respectively. Then, as now, several causes converged, but the most important were production of agrofuels and the growing speculative investment in the food futures markets. But this increase in the price of food leveled off in 2009, in part probably due to the economic crisis and a reduction in financial speculation.

By mid 2010, with international financial markets calmed down and huge sums of public money injected into the private banks, food speculating struck again and the price of foods began to rise. To “save the banks”, after the financial crisis of 2008-2009, it is estimated that the governments of rich countries gave a total of $20 trillion dollars to stabilize the banking system and lower interest rates.

With the influx of money, speculators saw incentives to acquire new loans and buy merchandise that predictably would rise rapidly in value. The same banks, high-risk funds, etc. that caused the subprime mortgage crisis are currently responsible for speculation in raw materials and the rise in the price of food, taking advantage of unregulated global commodity markets.

The food crisis is intimately linked to the economic crisis and the logic of a system that promotes, for example, plans to bail out Greece and Ireland while sacrificing their sovereignty to international institutions, just as it sacrifices food sovereignty of the peoples to the interests of the market.

A Grower’s Guarantee or a Speculator’s Bonanza?

There has always been some speculation in the price of foods and this is the logic behind futures markets. In their current form, futures markets date back to the mid-1900s when they began in the United States. These are legal standardized agreements to buy and sell physical merchandise in a previously established time period in the future and have been a mechanism to guarantee a minimum price to the producer faced with the oscillations of the market.

It works like this: Farmers sell their production to traders before harvest to protect themselves from uncertainties in the weather, for example, and to guarantee a future price. The trader also benefits. When the harvest is bad, the farmer still gets a good income and when the harvest is optimal, the trader benefits even more.

This same mechanism is used by speculators to make money off the deregulation of the raw materials markets that was spurred in the mid-nineties in the United States and Great Britain by banks, free-market politicians and high-risk funds in the context of the process of deregulation of the world economy. The contracts to buy and sell food became “derivatives” that could be traded independently of the real agricultural transactions. A new business was born—food speculation.

Speculators today have more weight in the futures markets, even though these transactions have nothing to do with real supply and demand. Mike Masters, manager of Masters Capital Management, points out that in 1998 speculative financial investment in the agricultural sectors was around 25% and today it is close to 75%. These transactions are carried out in the markets, the most important of which on the world level is the commodities market in Chicago, while in Europe food and raw materials are traded in the futures markets of London, Paris, Amsterdam and Frankfurt.

A “100% Natural Deposit”

In 2006/2007, following the fall in the high-risk mortgage loan market in the United States, institutional investors like banks, insurance companies and investment funds sought safer and higher yield places to invest their money. Food and raw materials became a popular alternative. As the price of food soared, investments in the food futures markets rose, pushing the price of grains up and worsening inflation in food prices.

In Germany, the Deutsche Bank announced easy earnings if invested in rising agricultural products. And similar business deals were promoted by the major European bank BNP Paribas. Catalunya Caixa urged its clients in January 2011 to invest in raw materials under the slogan a “100% natural deposit”.

What did they offer? A guarantee of 100% of capital with the possibility of obtaining profits of up to 7% annually. How? According to the ads, based on “the evolution of yields in three food products: sugar, coffee and corn”. To assure such high yields, the ads pointed out that prices of these three products had increased at 61%, 34% and 38% respectively over the past months due to “growing demand that is increasing above the rate of production”, because of the increase in world population, and agrofuels production.

Catalunya Caixa left out important information, however: food speculation that provided such handsome profits increases the price of food, makes it inaccessible to large parts of the population in the global South and condemns thousands of people to hunger, poverty and death in these countries.

Oil Dependency

Another element that exacerbated the food crisis is the heavy dependency on oil of the current model of food production and distribution. The rise in the price of oil had a direct impact on the similar rise in the cost of basic foods. In 2007 and 2008 the price of oil and the price of foods reached record levels. Between July of 2007 and June of 2008, crude oil went from 75 dollars a barrel to 140 dollars, while the price of basic foods went from 160 dollars to 225, according to the FAO Food Index.

Food and agriculture have become heavily dependent on oil. Following the Second World War and with the Green Revolution in the sixties and seventies, and with the supposed increase in production, an intensive and industrial model of agriculture was adopted. In the current system, our food travels thousands of kilometers before it arrives on our tables; production requires the intensive use of farm machinery, chemicals pesticides, herbicides and fertilizers. This model could not exist without oil.

The rise in the price of oil and the strategy of governments to combat climate change has led to a growing investment in the production of alternative fuels, agrofuels, such as biodiesel and bioethanol, made from sugar, corn and other crops. But this production has entered into direct competition with food production for consumption and is now another cause of the rise in food prices.

The World Bank recognizes that when the price of oil goes over fifty dollars a barrel, a 1% increase causes a 0.9% increase in the price of corn, since “for every dollar that the price of oil rises the profitability of ethanol rises and consequently the demand for corn grows.”

Since 2004, two-thirds of the rise in world production of corn was destined to satisfy the North American demand for agrofuels. In 2010, 35% of the corn harvest in the United States, which is 14% of world production, was used to produce ethanol. And the tendency is on the rise.

But beyond the causes such as food speculation and the rise in oil prices that has an impact on the growing investment in agrofuels, leading to competition among grain production for consumption and for transportation, the food and agriculture system is profoundly vulnerable and in the hands of the market. The growing liberalization of the sector in the last decades, the privatization of natural resources (water, land, seed), the imposition of a international model of trade at the service of private interests, etc., has led to the current crisis.

As long as agriculture and food continue to be considered merchandise in the hands of the highest bidder, and business interests prevail over food needs and the limits of the planet, our food security and the welfare of the earth are far from assured.

*Esther Vivas is a member of the Center for the Study of Social movements (Centro de Estudios sobre Movimientos Sociales) in the Universidad Pompeu Fabra (Barcelona). She is the author of “En pie contra la deuda externa” (El Viejo Topo, 2008) among other publictions, and a contributor to the CIP Americas Program www.cipamericas.org.

I would like to thank Esther Vivas for allowing me to reproduce this article.

+info: http://esthervivas.wordpress.com/english

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the answer to TINA… is TRISH!

Let’s start with TINA…

There is no alternative (shortened as TINA) was one of Margaret Thatcher’s favourite slogans. Those who repeat this slogan today, do so in defence of the same neoliberal agenda that Thatcher’s policies first helped to establish during the 1980s. They believe that only the  “freedom of the markets” is sacrosanct, and oblivious to the hardship and brutal oppression which such policies have brought to so many countries around the world, they stand firm in their conviction that we are living under the best of all possible economic orders. In this sense, they are fundamentalists. Whilst those who use it to defend calls for the latest round of “austerity measures” are also saying that making savage cuts to government spending is the only way to rescue ourselves in these times of economic crisis. That we must sacrifice everything in order to satisfy the market. Yet all of this is dependent upon accepting an ideology that refuses to admit it is an ideology, and all of this is socioeconomic nonsense.

A background to austerity

Inter-governmental institutions, such as the International Monetary Fund (IMF), have for many years demanded a commitment from governments of impoverished nations to accept the imposition of austerity measures in exchange for functioning as a lender of last resort. The terms for such IMF bailouts are technically known as “conditionalities”.

Conditionalities generally involve a number of requirements and some of these may indeed be beneficial. The IMF may, for example, insist upon anti-corruption measures. But mostly the IMF will insist upon “free market reforms”, which means, in short, a tough austerity package to dismantle the nation’s welfare system, with the forced privatisation of key public services, along with the imposition of “trade liberalisation” and deregulation. Under such a programme, with the country being required, in effect, to give up it economic sovereignty, it is suddenly open to vulture capitalism, and ready to be asset-stripped by global corporations.

This package of conditionalities, or “market-friendly policies”, was known as the Washington Consensus, although it might more aptly have been renamed the “Chicago Concensus” given that these rules for “economic reform” were predicated on the hardline neoliberal dogma developed by the Chicago School, and then first tested by the so-called Chicago Boys, who imposed them as economic “Shock Therapy” during the terrible years of the Pinochet dictatorship in Chile. In any case, the name Washington Consensus became so sullied that the IMF have dropped it altogether. But only the tone of the IMF has been softened, as the demands being made of Greece and Portugal now show. They are still in the business of dismantling welfare systems and the wholesale privatisation of nations.

The results of austerity

“The experience of austerity measures imposed on developing countries should sound alarm bells for us all. These measures are not a new innovation; they were cooked up by Thatcher and Reagan in the 1980s and forced onto developing countries by the IMF and World Bank. The effects were devastating: inequality, poverty and injustice increased as public services and welfare spending were slashed.

“Recently, such policies have been completely discredited; even the World Bank and IMF held their hands up and said they got it wrong. Countries, like Malaysia and Vietnam, that resisted the austerity measures remained far less vulnerable than those that had to succumb to these failed economic prescriptions. If we don’t resist this illogical thinking, the outcome will lead to a truly broken Britain.”

says Deborah Doane, director of the World Development Movement.

In the same article, which is entitled “Neoliberal policies have no place in the post-crash world”, Doane also gives a concise and well-informed overview of the effects of imposed austerity on the basis of recent historical cases.1

Why austerity cannot help us

“The deficit isn’t caused by profligate government spending to support an over-bloated welfare state, but by a massive bank bailout, shrinking government revenues, and a decline in corporate taxation. As in the developing world, maintaining public spending is what we need for long-term support to our economy, and to our populations.”

says Deborah Doane in the same article.

The maths is actually quite simple here. If you cut government spending, especially during times when the private sector economy is also struggling, then the knock-on effect is that tax revenues are reduced, and this then increases the deficit. The outcome being precisely the opposite to that demanded. But austerity isn’t simply doomed to failure, it is doomed to devastating failure. It leaves the country concerned with nothing but mass unemployment and even greater debts to repay.

Why we must fight this together

“For decades, Europe has been held up as a paragon for how social democracy can work, by providing free healthcare or education, and ensuring people have a high quality of life at the same time. The legacy of the Chicago School is invading this last battleground for social justice. Fighting the austerity agenda at home is a truly globally relevant campaign.”

says Deborah Doane in the same article.

It took a century for the people of Europe to win our economic rights, but we are now on the verge of throwing that inheritance away. People all around the world aspire to enjoy the same rights. We should not let them down.

And now over to TRISH

In an attempt to offer an alternative to TINA, I have put together this five-point alternative plan. I believe that something of this sort needs to be agreed upon by all groups who now stand opposed to the government (and IMF supported) programme of austerity measures. I would very much welcome any constructive comments, amendments, or corrections; and if you are interested in helping to take the idea further then do please get in touch.

The basic proposals can be summarised as follows: Take on the bankers, Re-regulate the markets, Increase tax revenues, Stop the wars, and Help for ourselves. Hence, TRISH:

Take on the bankers

The current crisis didn’t just happen for no reason. If it were simply a part of some kind of quasi-natural but ultimately mysterious boom and bust cycle, then we might hope to simply grit our teeth and ride it out. There is, unfortunately, no evidence that supports such a conviction.

The current crisis did not originate because of fiscal mismanagement and government overspending. The problems in Greece, for instance, did not arise simply because of their long-standing problems with tax receipts, any more than the recession in America began with subprime mortgages and the housing bubble. The individual crises of these various nation states are merely symptoms of more than two decades of unregulated greed and corruption in Wall Street and The City of London. The results of a systemic failure, which cannot be resolved therefore until the current financial system is itself overhauled.

The current crisis has happened because the speculators and financiers gathered so much power that they have taken control of our senior politicians. This is why Obama is surrounded by a coterie of advisers from Goldman Sachs. It is also why Peter Mandelson and George Osborne were found cosying up together aboard a Russian oligarch’s yacht at one of Nathan Rothschild’s lavish parties. For no dog can have two masters. To make sure they are working for us then, such obscene cronyism has to be rooted out, and, so far as it’s possible, legislated against.

Ever since the crash of 2008, the banks have been playing the suicide card. Holding us hostage with a gun pointed to their own heads. Give us your money or everything goes down with us, they threaten, and their close friends in the media and government play along, perpetuating the myth that they are simply “too big to fail”. They want us to forget about their malpractice and criminal fraud that caused the crisis, and to carry on stumping up the interest for debts so enormous they can never be repaid.

We need an investigation. We need an international debt moratorium followed by cancellation of all debt found to be odious. The endless bailouts only serve the bankers and these must end. Meanwhile private savings and pension funds need to be protected. But if Goldman Sachs closes down then so be it. We’ll pick up the pieces later.

Re-regulate the markets

This current crisis really owes its origins to the policies of Thatcher and Reagan. Everything would have been avoided if it hadn’t been for the deregulation of the markets which began back in the 1980s. Allowing the bankers to police themselves turned out to be a bad idea. We might have guessed.

The underlying cause of the current crisis is the worldwide trade in “derivatives”. It is currently estimated that in the order of a quadrillion US dollars (yes, that’s with a qu-) has been staked on derivations of various kinds. We can compare this with the entire world GDP which turns out to be a mere 60 trillion US dollars2. One quadrillion being more than twenty times larger. Or we might compare it against the estimated monetary wealth of the whole world: about $75 trillion in real estate, and a further $100 trillion in world stock and bonds. So one quadrillion is a number exceeding even the absolute monetary value of the entire world! Warren Buffett once described derivatives as “financial weapons of mass destruction”, and he should know because he trades in them.

We must place a ban, if not on all derivatives, then certainly on the most toxic varieties such as credit-default swaps. There should also be a criminal investigation that looks into the sale of so many “toxic assets” and considers the role of the credit ratings agencies which graded them triple-A. The very same rating agencies that are now downgrading countries such as Greece, Portugal and Ireland.

A separation of investment banking from depository banking would at least have protected ordinary savers from the whims of the speculators. In America such a separation had existed since the Banking Act of 1933, known as the Glass-Steagall Act, until Bill Clinton repealed the law in 1999. Legislation along the lines of Glass-Steagall needs to be brought back.

Increase tax revenues

Tax is a dirty word but if the deficit is to be redressed then government revenue will need to be increased. Politicians talk a great deal about fairness and we should hold them to this. The people who caused the crisis should now be bailing us out. There has been some talk of a Tobin tax on all transactions in the financial markets, and even at the very low rates of 0.05% being proposed by some groups, hundreds of billions of pounds would be raised annually. So why not levy a Tobin tax at a higher rate, say 1% (which is a tiny fraction when compared to any tax the rest of us pay) and then use that money to repay the national debt?

Gordon Brown came into office on the promise of closing tax loopholes but did nothing of the kind. Major corporations simply don’t pay their fair share. They move their operations offshore by taking advantage of the many tax havens available, the majority of which are British dependencies. It is estimated that tax havens drain the UK economy of around £25bn annually through their role in tax avoidance and evasion, and that hundreds of billions are lost globally each year.3 Money that should be paying for education and healthcare.

We should resist any rises in the sorts of stealth taxes on the poor and the middle class which the government are likely to propose, no matter how temptingly packaged they may appear. “Quantitative Easing”, which is a deliberately impressive and misleading term for what is simply the printing of extra money, is an inherently inflationary strategy. It is, therefore, the most insidious stealth tax of all. Let’s find the money in fairer ways, by forcing the corporations and the super-rich to pay their dues.

Stop the wars

Wars cost money, lots of money. Defence Secretary Liam Fox has recently revealed that the estimated cost for our involvement in the NATO-led Libya campaign will be in the region of £120m, assuming the conflict continues into the autumn as expected. A further £140m then being needed to replace missiles and munitions, which makes £260 million in total.4 However, less conservative estimates of costs to the British taxpayer raise the figure to as much as £1bn. 5

Meanwhile, the wars in Afghanistan and Iraq have already cost British taxpayers more than £20billion, and this does not even include the salaries of soldiers or paying for their long-term injuries and mental health care.6 Acute care for the troops most seriously injured in Afghanistan is costing the government more than £500,000 every week.7 And all for what?

Putting an end to these imperialist adventures is not only a moral imperative, it is an economic necessity.

Help for ourselves and others

Running a nation’s economy is not the same as running a household budget. Making cuts in government spending may save money, but with reduced investment there must come an inevitable kick-back. The economy will shrink and with less tax revenue available the deficit then grows. And this becomes a vicious cycle.

In order to stop such a debt spiral turning into depression, the government needs to spend rather than save. This is what the post-war Attlee government did when it expanded the welfare state and founded the National Health Service. Reinvestment in public services and infrastructure can put money in people’s pockets again. Meanwhile, investment in manufacturing and industry would help to reduce our balance of payments deficit.

During times of depression government investment becomes essential. We need investment to revive Britain’s once strong manufacturing base. This can involve tax or other incentives and will most certainly require significant cash injections to support established industries and encourage new production and innovation. In the meantime, we should roll back the privatisation of our public sector, of schools and prisons (how outrageous that companies can profit from locking people up), and most urgently, of the NHS.

In a fully privatised world, which is the dream of neoliberal economists, we all fall prey to the markets. So let’s abandon our current obsession with private enterprise and move back to a more mixed-economy, adopting a policy of dirigisme. In this spirit, we might decide to take state control of any struggling key industries, as well as re-nationalising the natural monopolies of water and energy supply.

It is high time to rebuild our infrastructure, since this is the bedrock for all social and economic progress: and examples of the sorts of projects we should consider include the long overdue upgrading of our railway system; the installation of countrywide fibre-optic broadband; the construction of new power plants including the proposed tide power barrage across the Severn estuary, which alone could supply more than 5% of our current electricity demands; and then there are more ambitious schemes, such as protecting ourselves against future water shortages by building a national water grid. We need to seize this as an opportunity to do all the things we ought to have done years ago because the future will belong to those who invested wisely – which means funneling our money into rebuilding industry, reconstructing our infrastructure, and supporting new areas of scientific research and development instead of frittering it away on banker bailouts and bonuses. Let’s build a country that’s fit and proper for the twenty-first century.

Such a New Deal programme was how Franklin Roosevelt rescued the US economy during the last Great Depression. Between 1933 and 1936, Roosevelt implemented the “3 Rs”: Relief for the unemployed and poor, Recovery of the economy to normal levels, and Reform of the financial system to prevent a repeat depression. Roosevelt’s New Deal is perhaps the best example of the kind of forward-thinking programme of economic measures that is so desperately needed today.

2 According to IMF economic database for October 2010, World GDP is $61,963.429 billion (US dollars)

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