Located in semi-rural Sonoma County in Northern California, this small town has fewer than 8000 residents. Fierce resistance from the community has met the Chase/CVS effort to develop a drive-through mall at the busiest intersection in town, as well as some support from the business community.

The City Council, Planning Commission, and Design Review Board (DRB) have all rejected their plans. One citizens group, Committee for Small Town Sebastopol, has sued on environmental grounds. Occupy Sebastopol organized a recent rally at its remaining large tent on the plaza and then a march to where Chase/CVS wants to relocate.

JPMorgan/Chase’s recent loss of over $3 billion in derivatives trading further threatens the powerful bank’s chances of having its development approved. The next DRB meeting on this development is May 30 and the City Council meets May 29. Activists plan to speak at both.

What if a bank had been convicted numerous times of predatory banking practices and a pharmacy had been convicted of failing to clean up its toxic wastes? Would you let that bank and pharmacy move downtown into the commons?  Or would you consider the potential harm to the community and reject the proposal on ethical and moral grounds? Would you insist that they stay on the outskirts of town? Or are their “private property rights” more important than the greater good of the community? These are questions that Sebastopol faces.

Chase and CVS have each paid billions of dollars in fines for their many illegal activities. Such violations are considered customary business expenses to such white-collar criminal elements of the ruling banking/pharmaceutical/attorney/bought-politicians complex.

By developing a vacant automobile dealer’s site at the busiest corner in town, they would increase traffic and draw more money from local citizens out of the county and into the hands of the global 1%. Occupy Sebastopol and various community groups, like GoLocal, claim that it is time to reverse globalization and trumpet re-localization.

The U.S. Justice Department recently launched a criminal investigation into JPMorgan/Chase’s trading loss of over $3 billion by continuing their casino capitalism gambling with derivatives. This practice is what initiated the current extreme economic downturn.

JPMorgan/Chase has about $2.5 trillion in total assets. That’s roughly 20% of the U.S. economy, according to MIT professor Simon Johnson, former chief economist of the International Monetary Fund. It “is too big to fail,” Johnson said in an interview with Bill Moyers called “Are JPMorgan’s Losses a Canary in a Coal Mine?”

Even the corporate media has raised questions about Chase CEO Jamie Dimon. The daily Press Democrat here, until recently owned by the New York Times, describes him as part of “Wall Street royalty.” The arrogant Dimon is experiencing “some poetic justice,” its editorial noted.

“How the mighty have fallen” captions a May 21 Newsweek photo of Dimon, linking him to Jon Corzine of MF Global and Kweku Adoboli of UBS. Which other members of the 1% may soon to fall?

Even after the announcement of the bank’s staggering losses, shareholders confirmed Dimon’s $24 million dollar annual pay package. He seems to have been rewarded for gambling big, even when he lost, noted an Occupy Santa Rosa activist.

“Huge banks have been using their enormous wealth for years to buy off politicians and regulators,” said Moyers. “Chase just had to pay almost three quarters of a billion dollars in settlements and surrendered fees to settle one case alone, that of bribery and corruption in Alabama. It’s also paid billions to settle other cases of perjury, forgery, fraud and sale of unregistered securities.”

Is that the kind of predatory operation one would want to anchor their lovely downtown where people gather? In addition to being private property, downtowns are part of the commons, constructed by taxpayers with plazas and other places to gather, celebrate, have fun, shop, and pass through without having their pockets picked by corporations.

CEO Dimon, by the way, happens to be on the board of the Federal Reserve Bank of New York, which is supposed to regulate banks. A conflict of interest?

“Some reports say that he (Dimon) meets with President Obama with some regularity. The political access and connections of Mr. Dimon are second to none,” Johnson reveals. This is why some in Occupy Wall Street consider Obama to be “the number one manager of the 1%.”

On ABC’s “The View” after the announcement of the stunning loss, Obama praised his friend as “one of the smartest bankers we got” and JPMorgan/Chase as “one of the best-managed banks there is.” Best managed for whom, other than its managers?

Dimon is close friends with Sandy Weill, Citigroup’s retired CEO, which already has a bank in downtown Sebastopol, as do Wells Fargo and Bank of America. How many big banks circulating money outside of the county does a small town need downtown?

In 2010 Weill bought a vineyard and huge house here in Sonoma County for $31 million dollars, thus joining this county’s 1%, which the wine industry anchors. He then gave $12 million dollars to Sonoma State University’s elite, expensive, fashionable Green Music Center, where the 1% can enjoy opera and symphonies, joined by a few others who can still afford it. With that he bought an honorary doctorate.

Dimon is described as being “like his mentor Weill, who ran Citigroup into derivative trading hell” by Robert Scheer, writing May 17 at Truthdig.com. “Dimon was in cahoots with his mentor, Sandy Weill, in engineering a series of mergers and acquisitions that would have violated the Glass-Seagall law,” Scheer continues, which made “the too-big-to-fail” banks legal.

SSU faculty, students, alumni, community members and activists from Occupy Petaluma, Occupy Santa Rosa, and Occupy Sebastopol engaged in a successful “Shame on SSU” direct action at the school’s May 12 graduation, where SSU rewarded Weill and his wife with honorable doctorates. The activists described them as “dishonorable” and turned their backs to shun them in a dignified action.

Their concerns include that other banksters and criminal corporate executives will retire, buy into the most lucrative wine industry in the U.S., and bring their predatory/polluting practices here. Sonoma County used to have a diverse agriculture industry; it is now a grape mono-culture. This threatens the county’s entire economy, due to wine’s boom-and-bust quality and the potentiality of a pest to destroy mono-crops.

Chase’s partner CVS is another globalized mega-corporation with a history of abuses.

“CVS must pay $13.75 million in civil penalties,” reports the April 26 weekly Sonoma West. This settlement recently was reached by 44 California district attorneys and city attorneys because CVS “violated California laws for safe storage, handling and disposal of sharps waste, pharmaceutical and pharmacy waste, photo waste containing silver, and hazardous waste generated from spills and customer return of hazardous products.”

This means that people and the environment have been hurt by the customary practices of CVS, which it can be expected to continue if allowed to move downtown into the commons.

“I researched CVS and after reading hundreds of pages of court documents and articles, decided to no longer shop there. CVS is merciless,” according to Sebastopol’s Eric Snyder in a letter to the weekly Sonoma West. It has been forced to pay hundreds of millions in fines. Its executives have been charged with bribery, conspiracy and fraud. CVS paid $75 million, the largest penalty ever paid under the Controlled Substances Act, in 2010. Other locals also already boycott CVS.

Big businesses like Chase and CVS threaten local businesses. Sonoma West published a May 17 commentary by Sebastopol resident Bill Shortridge that detailed the losses to local stores such as Sebastopol Hardware and Art & Soul. Such stores build rather than scatter community. When locals go there they converse with each other and create relationships. This is unlikely in the colder, corporate, industrial places that Chase and CVS build.

Many families have had their homes foreclosed as a result of Chase’s immoral practices. Others have lost their jobs because of the common practices of the giant financial operations. The faulty clean-up practices of CVS can lead to disease and even deaths. The practices of these two corporations have worsened and destroyed many lives.

“Let’s ban chain stores downtown and promote incentives so local businesses can flourish,” Shortridge concludes. Other Sonoma County and North Bay cities have such bans.

Sebastopol’s downtown is at risk of profiteering and polluting by the country’s largest bank and one of its largest pharmacies. Fortunately, credit unions have recently located in Sebastopol, since the successful move your money campaign to take money out of big banks and deposit it in local banks.

At nearly 70 years old, this reporter is old enough to remember Mom and Pop drug stores that anchored downtowns. We would come to the soda fountains and socialize. May our re-localization efforts restore such corner drug stores as places to gather and meet friends.

You will not be able to plug in, turn on and cop out.
You will not be able to skip out for beer during commercials,
Because the revolution will not be televised …
The revolution will be live.

— From the 1970 hit song by Gil Scott-Heron

Last week, the city of Philadelphia’s school system announced that it expects to close 40 public schools next year, and 64 schools by 2017. The school district expects to lose 40% of its current enrollment, and thousands of experienced, qualified teachers.

But corporate media in other cities made no mention of these massive school closings – nor of those in Chicago, Atlanta, or New York City. Even in the Philadelphia media, the voices of the parents, students and teachers who will suffer were omitted from most accounts.

It’s all about balancing the budgets of cities that have lost revenues from the economic downturn. Supposedly, there is simply no money for the luxury of providing an education for the people.

Where will those children find an education? Where will the teachers find work?  Almost certainly in an explosion of private sector “charter schools,” where the quality of education – from the curriculum to books to the food served at lunch — will be sacrificed to the lowest bidder, and teachers’ salaries and benefits will be sacrificed to the profits of the new private owners, who will also eat up many millions of dollars of taxpayer subsidies.

Why does there always seem to be enough money for military expansion, prisons, bank bailouts and tax cuts for the wealthy, but not enough for education—or for jobs, housing, health care, or old age pensions?  These are not “welfare” but are part of the social contract for which we pay taxes and make social security payments.

In an article reprinted on Truthout on May 10th titled “Why Isn’t Closing 40 Philadelphia Public Schools National News?,” Bruce Dixon posed this answer:

The city has a lot of poor and black children. Our ruling classes don’t want to invest in educating these young people, preferring instead to track into lifetimes of insecure, low-wage labor and/or prison. Our elites don’t need a populace educated in critical thinking. So low-cost holding tanks that deliver standardized lessons and tests, via computer if possible, operated by profit-making “educational entrepreneurs” are the way to go.

Lifetimes of insecure, low-wage labor or prison”—this is very close to the “indentured servitude” that was abolished along with slavery by the 13^th Amendment to the Constitution, ratified in 1865.  The freed slaves are being recaptured by debt, beginning with the debt of school loans, followed by credit card debt, mortgage debt, and health care costs.

As was cynically observed in a document called the Hazard Circular, allegedly circulated by British banking interests among their American banking counterparts in July 1862:

[S]lavery is but the owning of labor and carries with it the care of the laborers, while the European plan, led by England, is that capital shall control labor by controlling wages. This can be done by controlling the money. The great debt that capitalists will see to it is made out of the war, must be used as a means to control the volume of money. . . . It will not do to allow the greenback, as it is called, to circulate as money any length of time, as we cannot control that.  [Quoted in Charles Lindburgh, Banking and Currency and the Money Trust, (Washington D.C.: National Capital Press, 1913), page 102.]

The quotation may be apocryphal, but it graphically conveys the fate of our burgeoning indentured class.  It also suggests the way out: we must recapture the control of our money and banking systems, including the issuance of debt-free money (“greenbacks”) by the government.

Meanwhile, in Other Unreported News . . .

That alternative vision was put before a conference in Philadelphia in late April that drew delegates from all over the United States.  The theme of the first Public Banking in America conference, held at the Quaker Friends Center on April 28-29, was that to fix the economy, we first need to take back the “money power”—the power to create currency and credit.

Led by keynote speakers Gar Alperovitz and Hazel Henderson and highlighted in an electric speech by twelve-year-old Victoria Grant, the conference was all about solutions.  As summarized by OpEdNews editor Josh Mitteldorf:

There were two visions expressed . . . . The first is the very practical idea that states and cities around America could be rescued from insolvency if they had their own banks, instead of relying on commercial banks to borrow money through bonds. Tax-exempt bond issues supply money to states and municipal governments typically at 5 or 6% interest, while banks these days are able to borrow from the Fed at 1/4% per year.

The second vision is . . . the radically-subversive idea that the system we have for introducing money into the economy is a boon for the banks, but perhaps a major drag on our economy. Perhaps a simple, direct system of money creation by the Treasury Dept instead of the Fed would put an end to cycles of recession, and create a foundation for long-term prosperity.

Banking is a huge leech on our economy. 40% of every dollar we spend on goods and services — 40% of all that we create and all we consume — is siphoned off the top as bank interest in one form or another. (Calculations of Margrit Kennedy). The US Government is in the absurd position of paying interest to a private bank for every dollar that is put into circulation. The Federal Reserve system has privatized the power to create money, which, according to the Constitution, ought to belong to Congress alone. Presently, interest on the national debt costs the Federal government $500 billion in 2011, and (because of structural deficit spending) it is the fastest-growing portion of the Federal budget.

Five hundred billion dollars could be saved annually just by refinancing the federal debt through our own central bank, interest-free.  This is not an off-the-wall idea but has actually been done, very successfully.  Among other instances, it was done in Canada from 1939 to 1974, as was detailed by the youngest and oldest speakers at the conference, 12-year-old Victoria Grant and former defense minister Paul Hellyer, founder of the Canadian Action Party.  Another Canadian at the conference, Toronto Councilor Kristyn Wong-Tam, has proposed that the Toronto city council could improve its finances by forming its own bank.

The direct solution to the economic crisis, urged by veteran money reformer Bill Still, would be for the federal government to simply create the money it needs, as the American colonists did by printing paper scrip and Abraham Lincoln did by printing greenbacks.

But cities and states don’t need to wait for a deadlocked federal Congress to act.  As Wong-Tam has proposed for Toronto, they can divest their public revenues from the too-big-to-fail banks and put them in their own publicly-owned banks.  These banks could then do what all banks do: leverage capital, backed by deposits, into money in the form of bank credit.

This newly-created bank money would then be available for the use of the local government interest-free (since the government would own the bank and would get the interest back as dividends).  Among other possibilities, the money could be used to restore the schools.  This would not be an expenditure but an investment, as illustrated by the G.I. Bill, which provided education and low-interest loans for returning servicemen after World War II.  Economists have determined that for every 1944 dollar invested in the G.I. Bill, the country received approximately $7 in return, through increased economic productivity, consumer spending, and tax revenues.

Legislation for public banks has now been introduced in 18 U.S. states, on the model of the highly successful Bank of North Dakota (BND).  Elaborated on at the Public Banking conference by Ed Sather and Rozanne Junker, the BND is currently the country’s only state-owned bank and has been a major factor in allowing the state to escape the recent credit crisis.  North Dakota is the only state to boast a significant budget surplus every year since the economic downturn of 2008.

Ellen Brown noted that 40% of banks globally are also publicly-owned.  These are largely in the BRIC countries (Brazil, Russia, India, and China), which also escaped the credit crisis, largely because their public banks did not rely on derivatives and, unlike private banks, lent counter-cyclically to cushion their economies from the downturn.

Conference speaker Samuel Giles proposed that even public universities could set up their own banks, which could then leverage university monies for the university’s own use, rather than giving those assets away to Wall Street to be speculated with and lent back at much higher interest rates.

Innovative Solutions for Pennsylvania

Speakers Michael Sauvante and Mike Krauss noted that efforts are underway in several Pennsylvania and Ohio municipalities to create public banks.  One possibility is for public banks to take an aggressive role in ending the foreclosure crisis by acquiring abandoned and foreclosed homes by eminent domain.  These homes could be added to the asset base of the bank, which could extend credit to restore them and then sell or rent them at reasonable rates.

Krauss noted that Philadelphia already has a strong effort underway to create a “land bank”—a bank to acquire, rehabilitate and create productive uses for the city’s more than 40,000 vacant properties—and legislation (HB 1682) has been introduced in the state legislature to enable this effort.  But the land bank proposed is not designed to function as a depository bank that leverages funds into credit.  Rather, it would simply work with appropriated funds or bond revenue. This is a positive step toward addressing a real need, but it could be enhanced by turning the land bank into a public bank—a chartered bank having the power to create money as credit on its books.

The efforts for developing public banks in Pennsylvania are being led by the Pennsylvania Project, which was a co-sponsor of the Philadelphia conference and is supported in its work by the Public Banking Institute and the Center for State Innovation.  The Pennsylvania Project is creating partnerships with other Pennsylvania public policy organizations to introduce legislation for a state Bank of Pennsylvania in 2013, after elections are held and a strong foundation of support has been laid.

Revolution Without Bloodshed or War

We live under a tyranny today that is just as intolerable and unjust as that in 1776, but violent revolution is no longer an option.  Our oppressors own the military and the media, and their FEMA camps are waiting for us.

If change is to come, it must be peaceful and legal, beginning with a revolution in the minds and hearts of the people.  The message of the Public Banking in America Conference was that we can throw off the yoke of the financial elite by making money and credit a public utility; and the most feasible place to start is at the local level, with publicly-owned banks.

For videos of some of the speakers see here.  More to come.  The Victoria Grant video has gone viral, approaching half a million hits, including copies.

The book begins by describing the gift economy that has characterized all primitive cultures. Public gift giving was a major social ritual in all early societies. It was the primary mechanism early human communities employed to satisfy basic survival needs. As civilizations became more complex, gift exchange and barter were impractical over long distances. Therefore, money was introduced as a common medium of exchange. By tracing the western conception of money back to its earliest origins in ancient Greece, Eisenstein makes a strong case that the money system itself is responsible for rapacious growth and resource depletion, greed and the demise of community.

The Illusion of Scarcity

An early artifact of the introduction of money is the mistaken belief that the basic necessities of life are in short supply. This illusion underpins all western economic theory. In fact, many textbooks define economics as the study of human behavior under conditions of scarcity. As Eisenstein points out, this is a ludicrous notion in a world in which vast quantities of food, energy and raw materials go to waste. He links the illusion of scarcity to the illusion of the “discrete and separate self.” This, in turn, stems from the concept of personal wealth and the privatization of communally owned land. Prior to Roman times, land, like air and water, was considered part of the commons and couldn’t be owned. Under Roman tradition, there was no way for an individual to legitimately take possession of common lands. Thus the Roman aristocracy must have seized it by force, just as the English stole the communally owned lands of Native Americans.

Debt, Commodification, and Perpetual Growth

Sacred Economics argues that what economists commonly refer to as growth is the expansion of scarcity into areas of life once characterized by abundance. Fresh water, which was once abundant, has become scarce following its transformation into a commodity we have to pay for.

The fractional reserve banking system, which allows bankers to create money out of thin air – through loan generation – accentuates the pressure to convert more and more of the commons into commodities. Because the debt and interest created is always greater than the money supply (current global debt is estimated at $75 trillion, in contrast to global wealth of $30 trillion), there is always constant pressure to produce more goods and services to repay it. This explains why there are always people willing to cut down the last forest and catch the last fish.

As natural resources, such as fossil fuels, minerals, forests, fish and water, are rapidly converted to commodities, a similar transformation occurs in the social, cultural and spiritual commons. Stuff that was free throughout all human history – stories, songs, images, ideas, clever sayings – are copyrighted or trademarked to enable them to be bought and sold.

According to Eisenstein, the main reason for the world’s current financial crisis is that we continue to face mountains of increasing debt – yet have run out natural, cultural, social and spiritual capital we can convert to money to repay it.

The Case for Negative Interest Money

Eisenstein argues that capitalism, like the monetary system, has ceased to serve the interests of the vast majority of humankind. However, he disagrees with a “Marxist” solution, in which capitalist infrastructure is totally dismantled. He believes major economic change can occur through gradual evolution. In addition to advocating for relocalization of economic and political power away from central government – to cities, states and regions – he also supports the creation of local “negative interest” currencies, first introduced during the Great Depression in Germany, Austria and Switzerland.

Negative interest money was first proposed by Delvio Gisell in 1906 in his book Natural Economic Order. Gisell called it “free money” because it allowed people to exchange goods and services without paying interest to the owners of money (banks) for the right to do so. A negative interest system involves “demurrage” or natural decay in the value of money. If you know that a $100 bill will only be worth $90 in a year’s time, you have a powerful incentive to exchange it for goods and services.

In the 1920s, a negative interest currency called the Wana circulated in Germany. Towns that used the Wana had plenty of money for business expansion, workers’ salaries and public infrastructure and services – in contrast to towns that relied on the Deutschmark which, owing to deflation, was in extremely short supply. Austrian and Swiss communities introduced negative interest currencies (the Worgle and the WIR) in 1932. Owing to the threat these alternative currencies posed to banks and wealthy elites, the German and Austrian governments banned the Wana and the Worgle in 1932-33. The WIR is still in circulation in Switzerland but no longer operates as a negative interest currency. During the post-World War II boom, the demurrage was eliminated to prevent the Swiss economy from overheating.

In the US more than 100 cities were preparing to launch demurrage currencies – to stimulate local communities ravaged by the Great Depression – when Roosevelt came to power in 1932. Roosevelt, who recognized the enormous threat this posed to central government, banned all “emergency currencies” by executive decree (as Thaddeus Russell writes in A Renegade History of the United States, Roosevelt set the dangerous and unconstitutional precedent of circumventing Congress to enact laws by executive order).

The main advantages of negative interest currency are:

1. Money ceases to be scarce. As it becomes easier for small businesses to access money, jobs are created and people resume purchasing goods and services. Because the new currency is commons-based (see below), higher prices for ecologically harmful products serve as a brake their production.
2. The ready availability of money eliminates the fear of never having enough, reducing greed to acquire more, one of the main causes of income inequality.
3. Debts become easier to repay. People only pay back the original loan, without the compound interest.
4. There ceases to be any incentive for corporations to convert natural resources to profit, as cash profits rapidly decline in value.
5. Banks have more incentive to fund ecologically and socially beneficial projects with a low rate of return. They lose less by lending negative interest money than by allowing it to accumulate.
6. As money loses its value and importance, there is gradual resurrection of both the gift economy and the commons, in which people work for a “social dividend” in the form of public recognition. Eisenstein sees this process already beginning with the thousands of volunteers who donate their time to create and upgrade Open Source software, Wikipedia and books, films, songs and blogs they share freely as part of the Creative Commons.

Using State Banks to Issue Negative Interest Currencies

Eisenstein can see great benefit in local, regional and state governments issuing negative interest currencies to stimulate local business development and job creation, just as the Wana, Worgle and WIR did during the Great Depression. He applauds Ellen Brown’s work in campaigning for publicly owned state banks. At present, seventeen states have introduced legislation to create publicly owned state banks, funded by interest free tax revenue rather than Wall Street. These publicly owned banks would be in an ideal position to issue local negative interest currencies.

How a Commons-Based Currency Would Work

Rather than backing them with gold or silver, Eisenstein proposes that demurrage currencies work like bearer bonds and be redeemable for the right to “deplete the commons.” Businesses could exchange them, in other words, for the right to create an agreed amount of pollution or to deplete an agreed amount of a natural resource. Because these pollution/resource depletion quotas would be extremely expensive, corporations would be forced to internalize” (i.e. absorb the cost) of environmentally harmful production, rather than “externalizing” it (i.e. making the public pay) as they do currently.

New Zealand economist Deirdre Kent has proposed using land to back locally created negative interest currency. Under her proposal, local government would issue negative interest vouchers as a “loan” to prospective home buyers. The vouchers could be used to repay these “loans,” pay property taxes (known as “rates” in British commonwealth countries) or purchase goods and services from local businesses. This would offer new home buyers a far cheaper alternative than a bank mortgage, as well as discouraging property speculation, stimulating local business and producing additional revenue for local government.

The new documents, which PCJF National Director Mara Verheyden-Hilliard insists “are likely only a subset of responsive materials,” in the possession of federal law enforcement agencies, only “scratch the surface of a mass intelligence network including Fusion Centers, saturated with ‘anti-terrorism’ funding, that mobilizes thousands of local and federal officers and agents to investigate and monitor the social justice movement.”

Nonetheless, blacked-out and limited though they are, she says they offer clues to the extent of the government’s concern about and focus on the wave of occupations that spread across the country beginning with last September’s Occupy Wall Street action in New York City.

The latest documents reveal “intense involvement” by the DHS’s so-called National Operations Center (NOC). In its own literature, the DHS describes the NOC as “the primary national-level hub for domestic situational awareness, common operational picture, information fusion, information sharing, communications, and coordination pertaining to the prevention of terrorist attacks and domestic incident management.”

The DHS says that the NOC is “the primary conduit for the White House Situation Room” and that it also “facilitates information sharing and operational coordination with other federal, state, local, tribal, non-governmental operation centers and the private sector.”

A better description for a fascist police state network could not be written.

Remember, this sprawling yet centralized operation — what Verheyden-Hilliard describes as “a vast, tentacled, national intelligence and domestic spying network that the U.S. government operates against its own people” — was in this case deployed not against some terrorist organization or even mob or drug cartel, but rather against a loose-knit band of protesters, all conscientiously and publicly committed to nonviolence, who were exercising their Constitutionally-protected right to gather in public places and to speak out against the crimes and abuses of the corporate elite and the politicians who are bought and paid by that elite.

Among the documents obtained by the PCJF in this second batch of responses to its FOIA filing is one Nov. 5, 2011 from the NOC Fusion Center Desk, which collects at the federal level and then distributes the names and contact information of a group of Occupy protesters who were arrested during a demonstration in Dallas, TX against Bank of America, one of the nation’s biggest predatory lenders. Although none of the seven arrested were charged with any serious crime (six were charged with “using the sidewalk!”), their names and contact information were widely disseminated by the DHS.

Fusion Centers, a post-9-11 creation, are a federally-funded joint project of the DHS and the US Justice Department which are designed to share intelligence information among such federal agencies as the DHS, the FBI, the CIA and the US Military, as well as state and local police agencies. By their nature they are designed to circumvent legal constraints on various agencies, for example the ban on CIA domestic spying, or the Posse Comitatus Act, which bars active military activity within the borders of the US. There are currently 72 Fusion Centers around the US.

Another group of documents shows that on November 9, two days after a demonstration by 1000 Occupy activists in Chicago protesting social service cuts in that city, the NOC Fusion Desk relayed a request from Chicago Police asking other local police agencies what kind of tactics they were using against Occupy activists. They specifically requested that information be sought from police departments in New York, Oakland, Atlanta, Washington, D.C. Denver, Boston, Portland OR, and Seattle — all the scene of major Occupation actions and of violent police repression. Realizing that it would look bad if it assisted in such coordination overtly, higher officials in the DHS ordered the recall of the request but then simply rerouted it through “law enforcement channels,” where presumably it would be harder for anyone to spot a federal role in the coordination of local police responses. In response to that order, the documents show that the duty director of the NOC wrote that he would “reach out” to “LEO LNOs (liaison officer) on the floor” to assist. Verheyden-Hilliard explains that LEO is FBI’s nationally integrated law enforcement, intelligence and military network.

On December 12, when Occupy planned anti-war protests at various US ports, Verheyden-Hilliard says the new documents show that the NOC “went into high gear” seeking information from local field offices of the Department of Homeland Security about what actions police in Houston, Portland, Oakland, Seattle, San Diego, and Los Angeles planned to deal with Occupy movement actions.

Another document shows that earlier, in advance of a planned Occupy action at the Oakland, CA port facility on Nov. 2, DHS “went so far as to keep the Pentagon’s Northcom (Northern Command) in the intelligence loop.”

Given the subterfuge revealed in these documents that went into trying to create the illusion that the DHS was and is not coordinating a national campaign of spying, disruption and repression against Occupy activists, it is almost comical to find documents that show the DHS was in “direct communication with the White House” to obtain advance approval of public statements by DHS officials denying any DHS involvement in anti-Occupy actions.

These documents show that both DHS and one of that department’s police arms, the Federal Protective Service (FPS) were in direct contact with Portland, Oregon’s police chief and mayor, discussing how to deal with protesters who were in part on federal property. The coordination between the feds and the local police and political authorities were intense. Yet the approved statement sent to DHS from the White House read:

Any decisions on how to handle specifics (sic) situations are dealt with by local authorities in that location. If a protest area is located on Federal property and has been deemed unsanitary or unsafe by the General Services Administration (GSA) or city officials, and they make a decision to evacuate participants — the Federal Protective Service (FPS) will work with those officials to develop a plan to ensure the security and safety of everyone involved.

There was, comically, also a White House-approved DHS “background” statement, too! (Typically background statements by federal officials are supposed to be used when they want to tell a journalist the true situation but don’t want to have that statement attributed to them or their department. Having it pre-approved by the White House defeats that purpose and is simply a manipulation of the media.)

The faux “background” information included the following–a flat-out lie:

DHS is not actively coordinating with local law enforcement agencies and/or city governments concerning the evictions of Occupy encampments writ large.

Tellingly, the documents also include a Dec. 5 copy of the Weekly Informant, an intelligence report published by the DHS’s Office for State and Local Law Enforcement. The issue includes an update from the Police Executive Research Forum (PERF) concerning the activities of the Occupy Movement. PERF, Verheyden-Hilliard notes, is the group that the federal government claims organized a series of multi-city law enforcement calls to coordinate the police response to Occupy, which led immediately to the wave of violent crackdowns. It was at those meetings that police were advised among other things to act at night, to use aggressive tactics and weapons like tasers and pepper spray, and to take steps to remove journalists and cameras from the scene of crackdowns.

The overall sense from these latest documents is that Washington and the DHS, along with the FBI, was the nexus of the crackdown, orchestrating it, encouraging it, and attempting to cover its tracks.

The documents among other things expose the massive hypocrisy of the Obama administration and the Democratic Party, which this election year have tried to co-opt and claim as their own the anti-fat-cat theme of the “We are the 99%”-chanting Occupiers, while actually acting in the interest of Bank of America and its fellow financial sector mega-firms in trying to crush the movement itself.

To see all the new FOIA documents, go to the PJIF website.

The Social Security program…represents our commitment as a society to the belief that workers should not live in dread that a disability, death, or old age could leave them or their families destitute.

— President Jimmy Carter, December 20, 1977

[This law] assures the elderly that America will always keep the promises made in troubled times a half century ago…[The Social Security Amendments of 1983 are] a monument to the spirit of compassion and commitment that unites us as a people.

— President Ronald Reagan, April 20, 1983

So said Presidents Carter and Reagan, but that was before 1996, when Congress voted to allow federal agencies to offset portions of Social Security payments to collect debts owed to those agencies. (31 U.S.C. §3716).  Now we read of horror stories like this:

I’m a 68 year old grandma of 2 young grandchildren. I went to college to upgrade my employment status in 1998 or 1999. I finished in 2000 and at that time had a student loan balance of about 3500.00.

Could not find a job and had to request forbearance to carry me. Over the years I forgot about the loan, dealt with poor health, had brain surgery in 2006 and the collection agents decided to collect for the loan in 2008.

At no time during the 6-7 year gap did anyone remind me or let me know that I could make a minimum payment on the loan. Now that I am on Social Security (have been since I was 62), they have decided to garnishee my SS check to the tune of 15%.

I have not been employed since 2004 and have the two dependents ….  I don’t dispute that I owed them the $3500.00 but am wondering why they let it build up to somewhere around $17,000/20,000 before they attempted to collect.

Her debt went from $3500 to over $17,000 in 10 years?!  How could that be?

It seems that Congress has removed nearly every consumer protection from student loans, including not only standard bankruptcy protections, statutes of limitations, and truth in lending requirements, but protection from usury (excessive interest).  Lenders can vary the interest rates, and some borrowers are reporting rates as high as 18-20%.  At 20%, debt doubles in just 3-1/2 years; and in 7 years, it quadruples.  Congress has also given lenders draconian collection powers to extort not just the original principal and interest on student loans but huge sums in penalties, fees, and collection costs.

The majority of these debts are being imposed on young people, who have a potential 40 years of gainful employment ahead of them to pay the debt off.  But a sizeable chunk of U.S. student loan debt is held by senior citizens, many of whom are not only unemployed but unemployable.  According to the New York Federal Reserve, two million U.S. seniors age 60 and over have student loan debt, on which they owe a collective $36.5 billion; and 11.2 percent of this debt is in default.  Almost a third of all student loan debt is held by people aged 40 and over, and 4.2% is held by people over the age of 60.  The total student debt is now over $1 trillion, more even than credit card debt.  The sum is unsustainable and threatens to be the next debt tsunami.

Some of this debt is for loans taken out years earlier on their own schooling, and some is from co-signing student loans for children or grandchildren.  But much of it has been incurred by middle-aged people going back to school in the hope of finding employment in a bad job market.  What they have wound up with is something much worse: no job, an exponentially mounting debt that cannot be discharged in bankruptcy, and the prospect of old age without a social security check adequate to survive on.

Gone is the promise of earlier presidents of a “commitment to the belief that workers should not live in dread that a disability, death, or old age could leave them or their families destitute.”  The plight of the indebted elderly is reminiscent of the Irish immigrants who came to America after a potato famine in the 19th century, who were looked upon in some places as actually lower than slaves. Plantation owners kept their slaves fed, clothed and cared for, because they were valuable property.  The Irish were expendable, and they were on their own.

It is obviously not a good time to raise interest rates on student debt, but they are set to double on July 1, 2012, to 6.8%.  Many lawmakers in both parties agree that the current 3.4% rates should be extended for another year, but they can’t agree on how to find the $6 billion that this would cost. Republicans want to take the money from a health care fund that promotes preventive care; Democrats want to eliminate some tax benefits for small business owners.

Congress cannot agree on $6 billion to save the students, yet they managed to agree in a matter of days in September 2008 to come up with $700 billion to save the banks; and the Federal Reserve found many trillions more.  Estimates are that tuition could be provided free to students for a mere $30 billion annually.  The government has the power to find $30 billion — or $300 billion or $3 trillion — in the same place the Federal Reserve found it: it can simply issue the money.

Congress is empowered by the Constitution to “coin money” and “regulate the value thereof,” and no limit is set on the face amount of the coins it creates. It could issue a few one-billion dollar coins, deposit them in an account, and start writing checks.

But wouldn’t that be inflationary?  No.  The Fed’s own figures show that the money supply (M3) has shrunk by $3 trillion since 2008. That sum could be added back into the economy without inflating prices.  Gas and food are going up today, but the whole range of prices must be considered in order to determine whether price inflation is occurring.  Housing and wages are significantly larger components of the price structure than commodities, and they remain severely depressed.

There is another way the government could find needed funds without raising taxes, slashing services, or going further into debt: Congress could re-finance the federal debt through the Federal Reserve, interest-free.  Canada did this from 1939 to 1974, keeping its national debt low and sustainable while funding massive programs including seaways, roadways, pensions, and national health care.  The national debt shot up only when the government switched from borrowing from its own central bank to borrowing from private lenders at interest.  The rationale was that borrowing bank-created money from the government’s own central bank inflated the money supply, while borrowing existing funds from private banks did not.  But even the Federal Reserve acknowledges that private banks create the money they lend on their books, just as central banks do.

U.S. taxpayers now pay nearly half a trillion dollars annually to finance our federal debt.  The cumulative figure comes to $8.2 trillion paid in interest just in the last 24 years.  By financing the debt itself rather than paying interest to private parties, the government could divert what it would have paid in interest into tuition, jobs, infrastructure and social services, allowing us to keep the social contract while at the same time stimulating the economy.

For students, at the very least the bankruptcy option needs to be reinstated, usury laws restored, predatory practices eliminated, and the cost of education brought back down to earth.  One possibility for relieving the burden on students would be to give them interest-free loans.  The government of New  Zealand now offers 0% loans to New Zealand students, with repayment to be made from their income after they graduate.  For the past twenty years, the Australian government has also successfully funded students by giving out what are in effect interest-free loans.  The loans in the Australian Higher Education Loan Programme (or HELP) do not bear interest, but the government gets back more than it lends, because the principal is indexed to the Consumer Price Index (CPI), which goes up every year.

Predatory lenders are keeping us in debt peonage through misguided economics and bank-captured legislators.  We have people who desperately want to work, to the point of going back to school to try to improve their chances; and we have mountains of work that needs to be done.  The only thing keeping them apart is that artificial constraint called “money”, which we have allowed to be created by banks and let out at interest when it could have been created by public institutions for public purposes, either by direct issuance or through publicly-owned banks.  We just need to recognize our oppressors and throw off their yoke, and the good times can roll again.

I take to the streets and go to rallies but maybe I should go to parliament to blow my brains out.

– Dimitris Christoulas to a friend, Business Insider, Apr 5, 2012

The cornered tend to be desperate. The insecure can lose their bearings. The Greek financial crisis is producing an assortment of warring metaphors, some more plausible than others. The common target in this whole business is Germany, implying that more than just the eurozone may be under threat. It suggests, in fact, that financial instability will, in time, lead to a nationalist critique of the European idea.

As with broader conflicts, the national is explained through the local. Global events can be seen through individual lenses, the stories of citizens who have suffered, even if those stories can unduly simplify the complex. In Greece, Dimitris Christoulas has offered the premise for the Greek protest movement. The 77-year-old retired pharmacist shot himself on Syntagma Square in Athens early last month leaving behind a poignant and powerful note. In that note, he claimed that he would ‘rather die than scavenge in rubbish bins for his food’ (Guardian, Apr 5).

Christoulas’s suicide has been labelled as the first ‘act of resistance’ akin to the revolutionary actions of Mohammed Bouazizi, the Tunisian fruit and veg vendor whose act of self-conflagration in December 2010 set the Arab Spring in motion. But what was he resisting against? Unemployment levels in Greece stand at 21 percent and GDP has shrunk. The country is now in its fifth straight year of economic contraction. Soup kitchens in Athens are full with one in every eleven residents making regular trips. A bartering economy is starting to thrive.

The country’s suicide rate has climbed dramatically. From being one of Europe’s lowest, it has officially doubled. An elderly woman, wanting to alleviate the burden on her children, set herself on fire. Such cases make the political ground rich for disaffection, an all too prominent feature in the electoral rhetoric prior to last week’s ballot. Alexis Tsipras of the Syriza party has made gains on the platform of attacking those ‘loan sharks’ who have appropriated Greek sovereignty, promising an annulment of the bailout package. Those loan sharks are, of course, German, giving outsiders the sense that Teutonic bank managers will don their jackboots and march through Athens. The German role behind the bailout has even been deemed to be an imposition of an ‘economic Fourth Reich’ by the nationalist party, the Independent Greeks.

The suicide note by Christoulas also drew on history as a weapon. The government of Lucas Papademos, he suggested, was effectively collaborating with external forces the way Georgios Tsolakoglou did with Nazi Germany during the Second World War.

Even if Christoulas was drawing a very long bow, the problem of sovereignty is certainly critical. The leaders of the New Resistance movement led by Mikos Theodorakis have been enthusiastic and exaggerating in their praise of the Syriza leader. ‘I support with all my strength Alexis Tsipras in his efforts to form a government that will terminate the memorandum and will seek to recover the sovereignty of our country.’

Many would prefer a state of unchanged, moneyed comforts – pensions that are unreduced in perpetuity; a retirement age in the late 40s that enables a good deal of the rest of life to be enjoyed. But the tragedy of the money economy is that the hard means of supporting such lifestyles requires a base, preferably not on quicksand. When that base is crumbling, the rest will follow suit. Bad governance produces discontented, even revolutionary citizens. Internal disaffection encourages an often fruitless search for external excuses.

In a sense, there is a true ‘occupation’ – an economic one ruled by a cadre of technocrats. The banksters are in indirect command, dictating the programs of several countries in Europe where the finances have been shown to be poor. Sovereignty has become subservient to repayment, conditional on financial assistance. A vicious cycle has come into play: the banks have been responsible for lending to those who cannot pay. The books have been cooked; the credentials of those receiving borrowing exaggerated. The result is pure, inconsolable misery. The blame, as ever, is easily levelled against states whose better finances are seen as a means of bullying rather than an issue of praise. German Chancellor Angela Merkel becomes less a sound economic manager than a cruel stifler of independence.

As with any complex, undermining event, several factors feature. Either the political forces are deemed complicit with external forces (notably the Germans), and are accused of collaborators as a shorthand reference; or they are complicit in accepting the entire list of expectations dictated to by Brussels. The true impoverishment that has taken place in Greece is its political promise. The people, as they always have done, will survive in spite of their efforts.

The two traditional parties, pillars of the neoliberal policies, lost more than half of their previous vote. Combined together, they make now just a 32% of the electorate, in comparison to 77% they had scored in the 2009 elections. New Democracy has dropped from 33% in 2009 to 19%, while PASOK has sunk even more dramatically from 44% to 13%, losing more than 2.000.000 votes. This was the punishment for their reactionary “Memorandum” policies, which they followed in cooperation with the European Union and the IMF. These policies led to a vast impoverishment of the majority of the people and a mass unemployment officially already at 23%, resulting even to a plethora of suicides by desperate men and women.

The vote of the broad left rose from a modest 12% in 2009 to an impressive 35.5% (17% for SYRIZA, 8.5% for KKE, 1.2% for the anticapitalist left party ANTARSYA and some 6.1% for the Democratic Left and 2.9% for the Greens). However the prospect of a left government is made problematic since the KKE (Communist Party of Greece) is an ultra-Stalinist party, denying beforehand any cooperation with “opportunists”, which it considers to be all other left parties except from itself. Moreover, the Democratic Left and the Greens are moderate center-left parties, which do not differ radically from PASOK and have supported until lately a rather conservative agenda. Even so, the collective result of the three radical left parties, SYRIZA, KKE and ANTARSYA, an impressive 26.5%, makes it possible to have some real hope for the future.

The other significant feature of the elections is the abrupt rise of the ultra-right, jumping together to an astonishing 20.5%. Formerly represented by just one party, LAOS, which had scored a modest 6% 3 years ago, the ultra-right now was able to present three major parties, Independent Greeks, LAOS, and the neo-Nazi Golden Dawn, which took respectively 10.6%, 2.9% and 7%. LAOS paid for its support of the Papadimos government, holding office during the last months in Greece to implement the austerity programs of the Troika, falling just short from the required 3% to enter the parliament.

However, the shocking 7% achieved by Golden Dawn, an openly neo-Nazi and racist anti-immigrant party, marks perhaps more than anything else the result of the Greek elections. It is the first time such a party not only enters the parliament but gains mass support, which the Nazis lacked during the whole political history of Greece, famous for its resistance movement in 1941-45.

This result had been anticipated by left activists and publicists, between others by our group in Marxist Thought, which devoted its whole last issue to the problem of fascism, neo-fascism, and the new ultra-right. There was a mass mobilization by left organizations during the last three weeks calling the attention of the people to the danger of the neo-Nazi gangs. However, all this proved largely ineffective, as they have gained hold during the last years in degraded neighborhoods and within the unemployed youth. The stance of the Stalinist KKE, which not only is doing absolutely nothing to fight the ultra-right but gives shelter to nationalists like the notorious journalist Liana Kanelli, and even went so far as to welcome the Golden Dawn representatives at the Halyvourgiki strike through the local workers’ union it controls, added largely to the problem.

It is true that the ultra-right gathered together “only” 20.5%, in comparison to the radical left’s 26.5%. However, it is also true that it more than tripled its forces, while the radical left “just” doubled them.

The ensuing situation has been utilized by conservative commentators of the media and the Press, to interpret the result as an illogical expression of anger, pushing to extremes, against the demands of logic and caution. According to this reading, people were carried away by the false promises of demagogues, which are impossible to fulfill. The correct way would have been to foster the reactionary “reforms” that would eventually lead to an overcoming of the crisis through development and higher productivity and an improvement of democracy. Dora Bakogianni, the leader of the ultra neo-liberal (and falsely called so) Democratic Alliance, which failed to enter the Parliament by a narrow margin, has many times argued so in the most clear cut way.

This type of argument has in fact a double purpose. On the one hand, it attempts to equate in a tricky way the ultra-right menace and the prospect of left change as two complementary facets of the problem facing Greece, thus presenting the left as a danger too and denying beforehand there can be any radical positive solution. And on the other hand it seeks to embellish the corrupted Greek parliamentary system and make the parties of the establishment look like a guarantee for stability and improvement, while they are in fact the cause of the problem and of the ultra-right menace too. In Greece, corruption of leading politicians and public officials has been extremely widespread, taking enormous proportions with practically no one of them being ever punished. This decay has been one of the main causes that facilitated the rise of ultra-right and neo-Nazism. Yet, we are urged now to believe that these very forces that produced this situation have the magic clue to lead the country out of the crisis, and this by following the recipes that made it so deep. In fact, when reactionary politicians like Bakogianni are talking about “improving productivity” they only mean more layoffs and a new lowering of wages in the public and private sectors, thus making the existing bad situation even more desperate.

SYRIZA has countered these stereotypes in a successful way, by proposing the formation of a government of the left, which attracted much support from the people. The charismatic personality of its president, Alexis Tsipras, played a part in this too. Other radical left parties like KKE and ANTARSYA failed to make an equivalent impression. The KKE insisted on an ultra-sectarian policy, calling for the establishment of a front for the direct overthrow of the system by a “popular power”, connecting every fight for a bettering of the sad lot of the people with this prospect and denying harshly that anything could be done before establishing the “popular power.” This in fact meant condemning itself to passivity and a bureaucratic break with reality under the deceptive guise of fighting for the revolution, as has so often been the case with Stalinism. ANTARSYA had a much better approach and has played a vital role in the fight against the Golden Dawn neo-Nazis during the last years. Yet it paid for its lack of strong bonds with the people and its inability to cooperate with other left forces. This it failed to do not only with SYRIZA, with which it has a number of programmatic differences, but even with the FSO (Front of Solidarity and Overthrow), a small radical left formation led by Alekos Alavanos, a former eminent SYRIZA leader who broke with SYRIZA and kept largely aside in these elections.

The KKE has been accusing SYRIZA for being opportunistic and spreading illusions to the people by proposing a government of the left, since such a government would be no better than the existing ones. Aleka Papariga, the dogmatist General Secretary of the KKE, has even gone so far as to suggest that taking part in such a government would mean to betray the people for some ministerial “chairs” and state that the KKE would give no vote of confidence to it, should it appear before the Greek Parliament. Their political estimate after the elections was that the rise of support for SYRIZA signifies an attempt by the system to thwart the radicalization of the people and channel it to roads acceptable to the ruling classes. Moreover, Papariga has plainly refused even to meet A. Tsipras who took yesterday the mandate to form a government, after A. Samaras, the New Democracy leader, failed to do so and resigned his mandate.

All this however and the assertion of the KKE leadership that no change at all can be achieved in a parliamentary way is highly sectarian dogmatism. Of course socialism cannot be finally established in a parliamentary way, to achieve that a revolution by the people is needed. Yet the experience of Chavez in Venezuela shows that with the support of a mass movement big radical changes can be initiated using the parliament as a lever, and there is no real reason that this should be in principle impossible for Greece.

Real problems, however, start from this point on. To enforce such a radical change with the help of a left government based on a parliamentary majority, a mass front is needed, which will lend support to the whole project. This is all the more essential in Greece, to be able to withstand the strong pressure by foreign lenders and the European governments and imperialist institutions. However, neither such a majority, nor a front exists presently. And while numbers might make the government of the left abstractly possible at a later stage, it is not at all certain that it will materialize.

The KKE stance is the main problem to that. This party has the support of a significant part of the industrial working class, the fighting elements of which would strengthen and cement the proposed front. However, the KKE, after a break in 1991, has followed for two decades an increasingly Stalinist course. This has gone to the length of not only rehabilitating recently Nikos Zahariadis, the authoritarian and cynical Stalinist General Secretary of the KKE in 1931-56, but also presenting Stalin as one of the greatest of all Marxists, accepting the validity of the Moscow trials and adopting the accusations that Trotsky, Bukharin, and the other Bolshevik leaders were agents of the Gestapo. A number of hard Stalinist pseudo-theorists like politburo members Makis Mailis and Stefanos Loukas have formed a circle directing the party’s inner political and ideological life, thus lowering the level of its members and making it vulnerable to all kinds of careerists and opportunists.

The KKE has repudiated the revolutions of the Arab Spring and the great movements of the “indignados” in Greece and Europe as being suspect and perhaps even guided by organs of the imperialistic secret services, refusing to take part in them. Instead of that it calls the people to unite in party fabricated “fronts” that are directed from above and have little connection with the people. Recently it has gone so far as to ignore the dramatic suicide of Dimitris Christoulas, a 77 year old man who shot himself at Syntagma and left a moving message to the younger generation, urging it to fight against the corrupt rulers. Christoulas was a member of the “indignados” movement and so “Rizospastis,” the official organ of the KKE, in the few lines it devoted to the incident did not even mention his name (calling him “the 77 year old man”) and shamelessly censored his message, reaching even the point off hurling accusations at him that his action was in the interests of the ruling classes, who want the people to commit suicide. Alekos Halvatzis, the son of Spyros Halvatzis, the KKE spokesman in the parliament, left the KKE one or two years ago, accusing the Papariga leadership of having filled the party with “stowaways.”

The SYRIZA is on the other hand a coalition of various groups including Marxists, Trotskyites, Maoists, left and moderate reformists, greens, and a number of other tendencies. The party has a genuinely democratic character and this variety of views lends it liveliness, as a center of discussion and production of ideas. However, in the grave situation facing Greece it could also prove a problem, by preventing at a critical moment a unified stance on crucial questions on which the various components hold different views. For the moment, of course, the electoral success strengthens the unity of the party, but this cannot be sure to hold indefinitely in the future.

The KKE, with its usual fanaticism, seems likely to “bet” on the possibility that a balancing of views will not be possible in SYRIZA and after a probable failure of the attempt to set up a left government or pursue it properly in case it is established, in the not very remote future the Greek people might turn to them. Such a hope can be sustained by the fact that SYRIZA does not have strong bonds with the masses that came over to it in the present elections, and its foothold is not in the working class but mainly in civil servants and the youth. It is a vain hope though in the sense that if SYRIZA fails to cope with the difficulties, chaos will be made universal, and in such a situation the ultra-right and not the KKE will be the one most likely to benefit.

The SYRIZA victory has coincided with the victory of Francois Hollande in France. Yet, it should be made clear, these are two events of an entirely different character. Hollande’s success, even if he has gained the support of many left voters, signifies just a shift of policy within the ruling classes and its parties. It may lead to some partial changes and adjustments, a somewhat different tone and orientation, but it will leave the general foundations of European policies untouched. The turn to SYRIZA in Greece however has a potential to challenge the very foundations of the austerity policies and the domination of the markets. It may serve as an example, especially if it is successful, for other countries facing similar problems, like Spain, Portugal, Italy and Ireland, and instigate a general and real European movement to the left.

The ruling European elites, as represented by Merkel, Schäuble, Barroso, etc, are fully conscious of this and have reacted nervously, either by intervening shamelessly before the elections to dictate the result, or by simply stating that the country’s obligations, signed by the previous government, must be fulfilled. Their fears are certainly justified, especially in the case that a broader movement to the radical left takes place in Europe. However the really urgent question is: how will SYRIZA cope with their intensified pressure during the following months and what it will strive and be able to achieve at a moment the reactionary forces still remain stronger in Europe as a whole?

SYRIZA’s program aims at a denouncement of the “Memorandum” and a re-negotiation of debt, which will include cancelling a large part of it as odious. It also claims a 3-year period of suspension of debt obligations, which would be an important relief step, if achieved. SYRIZA aims at nationalizing a number of banks, heavier taxation of the rich and improving the situation of the people, to a restoration of their former living standards. After having received the mandate, Tsipras proposed a 5-point program which is a concretization of this.

Other left forces like ANTARSYA argue, however, that this is not enough and that a unilateral repudiation of debt will be needed, which will mean that the country will have to leave the Euro zone and return to its national currency. This position is largely held also by the Left Current, a significant component of SYRIZA headed by its parliamentary spokesman Panagiotis Lafazanis, while a number of influential Greek economists, like Kostas Lapavitsas, have also argued this way. Significantly, the KKE connects the cancelation of debt too with the “popular power” slogan, considering it to be impossible under parliamentary conditions. This, of course, is an absurdity since the repudiation of debt is a reform that concerns the system of distribution leaving untouched the capitalist system of production as such. Thus it is perfectly conceivable under capitalism, as a number of examples show (Ecuador, Russia, etc.).

The difficulty with the unilateral repudiation of debt is that, although being in the long run most beneficial to the people, it will cause in its initial stages significant problems and disorganization. To minimize this and avoid an experience like that of Argentina in 2001, it is essential that the majority of the people are convinced for its necessity and it is pursued in an ordered way by a left government that is determined and conscious of its aims. This means that while the European left is still on the defensive, the attempt to implement the “compromising” program of SYRIZA and reach an agreement with the EU should be made. If, as it is quite possible, the neoliberal EU elites refuse to make any real and significant concessions, then this could convince the Greek people for the necessity of more radical steps. Prospectively, it will be ideal if this course coincides will a general revival of mass movements in Europe, especially in Europe’s south, leading to a “European Spring,” like the Arab one.

This prospect is not so remote as it may seem. The ruling classes in Greece and Europe are taking it seriously and making preparations to face the challenge it will pose to their system. The recent rise of the ultra-right in Greece, openly supported by a part of the media, capitalist circles, and the state security machine, is a part of this.

The breakup of the Greek political system has been compared in this respect with the downfall of the Weimar Republic and it is true that there is a number of striking analogies. Under a similar situation of deep economic crisis, mass unemployment, and poverty, we attend the bankruptcy not only of the formerly leading political parties but of the parliamentary system as well. The Papadimos government was important in this regard, as it signified a first step away from normal democratic government, towards technocratic-bureaucratic administration, reminiscent in many ways of the Brüning government in Weimar. The program of the newly created Independent Greeks party, headed by Panos Kammenos (a former New Democracy minister), contains a number of even more dangerous reactionary points, combining an ultra-privatization plan with proposals of appointing the chiefs of police and the army ministers of security and national defense respectively. This is clearly a Bonapartist plan, which would open up a threat to the very foundations of bourgeois democracy and of the labor movement. For the time being, such measures are supported only by the Kammenos party and those even more to the right (LAOS, Golden Dawn). It is not to be excluded that as the crisis intensifies, the more traditional parties, PASOK and New Democracy, or at least certain groups within them, might turn to similar directions.

The May 6th elections had the important consequence of producing a stalemate, not allowing the formation of any viable government. PASOK and New Democracy together have 149 seats, which do not give the needed parliamentary majority of 151. But even if they possessed this, forming a government would be out of question since it would be weak and without authority. This excludes also the possibility of a government being formed by these two parties together the Democratic Left, which would indeed possess a majority of 168 seats. Democratic Left has wisely excluded this possibility, as it would mean to identify itself with the two formerly big parties which were condemned by the people. The broad left on the other hand cannot form a majority, even if we count together all its disunited components. The possibility of forming a “national government” supported by a broad spectrum of forces except the ultra right, as proposed by PASOK and New Democracy leaders, is also excluded since it would simply mean to involve the left in the memorandum policies.

Greece is heading therefore almost inevitably to new elections, which will take place somewhere in the middle of June. These new elections have the potential to provoke a further impressive restructuring of the political scene.

SYRIZA’s tactics will be to unite around it the other left forces, which failed to enter the parliament (KKE of course has declared it is against unity under all conditions). That includes not only the Greens and ANTARSYA, but possibly some other groups that broke from PASOK like the small (and farily conservative) “Social Agreement” party. SYRIZA may also draw votes from KKE and improve its performance in the agrarian areas, which voted more conservative than the big cities (SYRIZA got more than 20% of the vote in Athens but much less in the countryside). If all this materializes, SYRIZA will almost certainly come first and take advantage of the 50 seats bonus the illogical electoral law grants the first party. This could augment its parliamentary force from 52 seats now to some 120, facilitating greatly the formation of a left government.

However, the ruling class parties have some prospects of countering this. The New Democracy party might be able to unite with the two small ultra-neoliberal parties, Bakogianni’s Democratic Alliance and Action of Stefanos Manos (a Greek big capitalist), which gathered together a respectable 5% of the electorate. Should such a regrouping be achieved, then first place in the coming elections will be a very open issue. However, A. Samaras, the New Democracy leader, is not in good terms with the leaders of the other two parties, so it will be rather difficult to happen (although the New Democracy leader has already made the proposal). Alternatively, it is quite possible that the two ultra-neoliberal parties will make a joint appearance, but this, while ensuring their representation in the new parliament, would not stop SYRIZA from coming first.

There is also a possibility of mass desertions of New Democracy and PASOK voters towards the “Independent Greeks” party, which poses as a patriotic and popular right, defending the interests of the people. This might take big proportions if certain sections of the ruling classes and media, who still supported the traditional parties, decide to move towards Kammenos as their only viable representative. However, there is a 7% difference in favor of SYRIZA now, so this movement would have to be very pronounced to enable the Independent Greeks to take the lead. A convergence between the Independent Greeks and Golden Dawn is not very likely since the Independent Greeks leadership takes pains to dissociate itself from Nazism. It will be very interesting though to see what will be the result of Golden Dawn in these new elections.

One thing is certain. After the next elections, the hour of truth will come for Greece. It will also be the hour of truth for the Greek radical left. Developments will show if it is able to unite, withstand the enormous pressures the EU authorities will apply and open up a new progressive way for Greece and a window of hope for the rest of Europe.

Update

Developments are running fast here in Greece, so that the situation changes abruptly and forecasts may prove wrong or inexact in just a few hours.

After E. Venizelos, the PASOK leader, took the mandate from President Papoulias this day, he had a meeting with Fotis Kouvelis, the leader of the Democratic Left. In it, there was a proposal by Kouvelis of forming an “Ecumenical government” of so-called limited purpose, which will supposedly renegotiate the Memorandum and hold office until the 2014 European parliament elections. Venizelos reacted positively to that, saying that it practically coincides with PASOK’s proposal for a government of “National salvation.”
So it seems that for the first time there is a real prospect of a government being formed after the stalemate of the last days.

This government will in fact be the New Democracy-PASOK-Democratic Left government, which Kouvelis himself had excluded just a few days ago. SYRIZA almost certainly will not take part in it, as will also be the case with the other parties represented in the Greek parliament. However, for obvious reasons of legitimization, the three parties will try to make it appear as something different, perhaps by appointing Kouvelis as Prime Minister and limiting or even wholly avoiding the participation of PASOK and New Democracy.
If this prospect materializes, it will be a flagrant violation of the will of the people, as expressed in the elections. Its real aim will be to continue the Memorandum policies, albeit in a slightly different manner, by extracting a few rather insignificant concessions from the European Union and make it appear as a great achievement. It will also signify a further step towards political anomaly, as it will be based mainly in the two formerly ruling parties condemned for their policies and will represent just 37% of the total vote.

Alexis Tsipras has justly called this plan an attempt by PASOK and New Democracy to find a “left Karatzaferis” – comparing thus Kouvelis with Giorgos Karatzaferis, the leader of the ultra-right LAOS, who had supported, with PASOK and New Democracy, the former Papadimos government, his party failing to enter the new parliament for that reason. The plan to establish such a government shows how horrified the ruling circles are from the prospect of a new election which might give a clear victory to SYRIZA and the left (some polls having already shown an increase of the support for SYRIZA after the election to the level of 25%). It is also a sign of how much the European Union governments and institutions are worried from the prospect of a left government in Greece and strongly press behind the scene for this kind of solution.

It remains to be seen if during the meeting of the Political Leaders with President Papoulias, which the constitution provides for as an attempt to form a government when the circle of mandates ends, it will become possible to reach this solution. The meeting will take place at most after 3 days, if Venizelos exhausts the duration of his mandate. Even if it is established, however, such a government will be patently weak and will not have any real prospect of solving the grave problems of Greece. It is doubtful therefore – although not impossible – if the three parties will take the risk of appointing it and coming to a total failure which will be blamed upon them after a few months.

Reforms in Myanmar have made the past experience just described less dangerous. However, from time to time these days I find myself feeling like a hypocrite when speaking about American ideals and Democracy. Democracy in the United States, seen from abroad, looks more like Communism in China. American foreign policy looks more like mafia thuggery. I’ve begun feeling like I’m misleading my students who deeply believe in American political policy and projected principles solely for the reason that the United States government is – rightly so for a change of pace – Aung San Suu Kyi’s greatest ally.

My students aren’t absent any ideas about what Democracy means. All of them were ex-political prisoners or family members of political prisoners. The youngest among them was detained just six months ago after supporting her father’s single-person protest against an obscure land-seizure case that left his family farm in the hands of a corrupt government crony. The father was arrested and the daughter went to the police station to demand his release. She was arrested when she did so. Three or four years ago they would both have been sentenced to several years in prison.

These days, as Myanmar eases into sort of becoming a fledgling democracy in its earliest stages, reforms have opened doors and minds and after nearly a week, both father and daughter were set free without any pending charges — absent their land. Human rights abuses and injustices still occur wholesale in Myanmar, yet with less frequency except in the frontier regions where westerners are banned from entering. In the United States, human rights abuses and injustices still occur, yet more frequently every day.

When I see video’s of American police brutality against Occupy protesters, people being evicted from their homes, TSA security hacks accosting four-year old children at airports and calling the child “a suspect”, TSA searches of innocent American citizens travelling on buses, trains and sidewalks, police busting down the door of an African American Vietnam Veterans home in white Plains, New York and electrocuting him, then shooting him to death, and when I read the news of the madness of war zone atrocities of murderous drones flying over half of Arabia, bombing and killing at random, American soldiers pissing on corpses, raping and rampaging death and destruction on to impoverished uneducated people with no electricity in their villages, I wonder, what the hell is Democracy?

What is the United States anymore? I hardly can recognize it from the days long ago when I had Civics class in seventh grade; the American military had just finished slaughtering 3 million people in Vietnam, untold numbers more in Laos and was unquestionably responsible for the genocide of 3 million more in Cambodia. Didn’t Nazi Germany in Europe and Imperial Japan in Asia behave this way long before Pearl Harbor and the entry of the United States into World War II? No country dared, then or now, to stand up to American militarism abroad and now that it’s come home to roost in the styles of fascism on American streets and in American homes. Few Americans actually can resist the police state without their lives and livelihoods being  destroyed more than they’ve become.

When the world finally stood up to the spread of fascism in the 1940’s it was too late to save the so-called civilized world from total destruction. That the United States was the only power left not destroyed was because of geography, not superiority. Can the rest of the world stand up to the United States military and security complex?  The BRICS nations are succeeding at bringing imperial American economic might down by devaluing the dollar to 65% of the world’s currency reserve from 85% a few years ago. But as our  politicians have caved like lemmings jumping over a cliff to the security industrial complex, more and more money is being wasted to reap death, destruction, and surveillance over the world and in the United States. American militarism is out of control. Americans collectively have  become like the solitary young man standing in front of the huge tank during the Tiananmen Square protests in China in 1979.

What has become of the United States? The nation’s police departments behave as if they are occupying army’s hell bent on subduing the populace that pays them, even to the point of a citizen being subjected to being stripped searched not once, but twice, for failing to pay for a traffic violation. That means if your spouse, grandparents or children forget or fail to pay a parking ticket, for whatever reason, they can be arrested, strip searched and stored away in a jail and possibly even left there out of professional  neglect such as the kid in California who was doomed to spend four days in prison cell by the DEA, forced to drink his urine to survive, he was never charged with a crime.

America imprisons close to 2.5 million people at a time, year in and year out. African Americans are  disproportionately jailed per capita more than are white people. Where is the democracy? What on earth could 2.5 million Americans be doing so badly that all of them deserve to be in prison? Millions more each year are subjected to the legal system of parole and probation.  Corporations run the prisons in the United States. They lobby for tougher laws in all areas of law in order to arrest and detain more and more American citizens, because they make profits from having people in their prisons. Police and judges have been exposed as being corrupted with kickbacks and payoffs in some places in America as they’ve been caught arresting and sentencing with abandon while getting paid commissions in the form of cash. It’s probable many more have not been caught.

I tell my students to go on YouTube and search “police taser” and watch the many, many videos of American police electrocuting its citizens. They report back to me in shock and horror. They proclaim, “This never even happen in Burma!” It’s hard to teach Democracy when you come from a country where Democracy doesn’t really exist anymore.  Where the police state is the enemy of its citizens, where every form of communication is captured and stored, analyzed and used for advertising or – who knows – future blackmail? American citizens are all “suspects” to the police state. They are now subjected to drones hovering in their air space. No more laying out topless in the back yard on a sunny day or going for a romantic walk in a cornfield or forest and finding a nice cozy place to snuggle. If seen by a police drone, the police will arrive to arrest, strip search, and imprison the couple and they will inevitably be labeled sex-offenders and have their lives forever ruined. All for being in love under the clear blue sky on a pleasant summer day. Clear except for the police watching.

What does Democracy mean regarding the upcoming presidential election? There’s a choice between two people for president who swear they will give more money to the security state, cut social safety nets, privatize public education, cut taxes on the wealthy, spend more money on drug prohibition, continue to kill, torture and destroy more in Afghanistan, and in many other countries in the middle east – for what? Oil? The minority of Israel’s leaders and their insane but wealthy American supporters who are extreme warmongers and zealots hell bent of attacking Iran and ethnic cleansing of Palestinians from their ancestral lands? Most Israelis and Jewish Americans oppose these warmongers among them. The American corporate media is complicit in fueling the airwaves with propaganda against Iran and Islam, immigrants, and any idea left of what was once considered fascism. In today’s bizarre political world Richard Nixon would be called a  progressive.

What are Americans doing about the injustices and high-crimes and misdemeanors of American government and its Wall Street puppeteers? Mitt Romney has a car lift in his home. He’s the Republican nominee – thankfully since all of his opponents were nearly intellectually catatonic  evangelical non-Christ-like Christians. He’s a hedge fund financier – or whatever they call such crooks these days. Call them anything except guilty as charged. Barack Obama is a traitorous liar who sold himself to the American people as a new deal liberal peace-loving reformer who would ends wars, curtail the security state, and fight Wall Street – hahaha. Last time I looked, Guantanamo was still operating full steam ahead.  Americans will be at war in Afghanistan until 2024. (Hasn’t the bloodthirsty response to the September 11, 2001 tragedy been satisfied enough?) Wall Street crooks are still robbing the nation with ease. Terrorism of all kinds rules the world around us.

I want to be clear. I fear terrorism. Make no question about it. I fear police drones watching me from above, being tracked electronically and fondled by the TSA, being  harassed by police at roadblocks – but I fear it coming from Americans in America. I fear it from a psychotic night watchman like Mr. Zimmerman who murdered Trayvon Martin for wearing a hoodie. I fear it from a policeman wanting to arrest me in case my auto insurance payment is late and my insurance lapses. Or maybe I might forget to put the little sticker on my license plate that says I paid for the auto registration. I don’t deserve to be arrested, strip-searched and put in prison where I or anyone one, male or female, could be raped by other prisoners or abused by under-educated, unskilled, under-paid power tripping prison guards working for a corporation.

Maybe we should lobby local towns and cities to blood test and strip search people who want to run for office. I can’t imagine why a person who is not criminally inclined would want to do so. Call it a pre-emptive test of character. If one is willing to be blood tested and strip searched in order to be an elected politician, then they are either going to be guilty of something or they are insane. In either case, they will not be fit for office. Maybe that way we can keep the criminals and crazies out of politics. And then we can keep politics out of American society and return America to the rule of law and not the rule of the wealthy corporatists and the police. Call it the rule of the people, by the people and for the people. What a dream it was to think it could last. What a nightmare American Democracy has become.

China has now surpassed Japan as the world’s second largest economy, and at its current rate of growth, relative to the U.S., it will overtake it within a couple of decades.  India, our champion in the emerging states rivalry, is also growing fast but is hobbled by mismanagement, endemic debilitating corruption, and a kind of laissez faire  capitalism that has further impoverished the already poor, including farmers and peasants, to the point where there is a Maoist rebellion in 20 out of its 28 states.

The economic issue is mind boggling.  The Chinese hold over $3 trillion in foreign exchange reserves of which an estimated $1.75 to $2 trillion is in U.S. debt.  However, China is increasingly trading in their own yuan or local currencies.  This, and China’s diversification of its reserves into gold and other currencies, are major reasons why the dollar’s role as a reserve currency has diminished from 85 percent of global reserves to now nearer 60 percent.  And, it has been the dollar as a reserve currency that has maintained its demand, allowing us to pump out money without becoming an Argentina of the past or a Greece of the present.

It is one thing to be borrowing this money for worthwhile investment that will pay off in the future — infrastructure or education and training for example — quite another, if we borrow to satiate the addictive appetites of our consumer culture, or pour it down the sinkhole of war and the military — both ineffective as we have seen in Iraq and Afghanistan.

After a trillion dollars, Iraq is a virtual Iranian satellite serving as a conduit for arms and goods traffic between Iran and Syria.  The Chinese have won the lucrative Iraqi oil contracts legitimately by bidding successfully for them.  And we are left with warmongers like Bill Kristol of The Weekly Standard, and others, who helped get us in the Iraq mess, now waving their arms wildly at Iran and yelling “fire” once again.

So the soldiers popped their shooters by Scarborough Shoal (Huang-yan Dao to the Chinese) and Secretary Clinton added a bellicose speech.  The main Spratly Island is occupied by the Philippines, and the archipelago’s worth lies in the resources within its territorial limit.  It is probably irrelevant to the Chinese who develops them as long as they have access … at a fair price.  Surely, all that can be negotiated without saber rattling.

By the way, are the Chinese planning a tit-for-tat, and holding joint military exercises with the Cubans in the Caribbean?  No, they are too smart for that.  They spent their energies building a pipeline from gas-rich Turkmenistan to Xinjiang supplying gas that they need to fuel their phenomenal growth, and in the process shut us out of Central Asia.

In September 2008, Henry Paulson, former CEO of Goldman Sachs, managed to extort a $700 billion bank bailout from Congress.  But to pull it off, he had to fall on his knees and threaten the collapse of the entire global financial system and the imposition of martial law; and the bailout was a one-time affair.  Paulson’s plea for a permanent bailout fund—the Troubled Asset Relief Program or TARP—was opposed by Congress and ultimately rejected.

By December 2011, European Central Bank president Mario Draghi, former vice president of Goldman Sachs Europe, was able to approve a 500 billion Euro bailout for European banks without asking anyone’s permission.  And in January 2012, a permanent rescue funding program called the European Stability Mechanism (ESM) was passed in the dead of night with barely even a mention in the press.  The ESM imposes an open-ended debt on EU member governments, putting taxpayers  on the hook for whatever the ESM’s Eurocrat overseers demand.

The bankers’ coup has triumphed in Europe seemingly without a fight.  The ESM is cheered by Eurozone governments, their creditors, and “the market” alike, because it means investors will keep buying sovereign debt.  All is sacrificed to the demands of the creditors because where else can the money be had to float the crippling debts of the Eurozone governments?

There is another alternative to debt slavery to the banks.  But first, a closer look at the nefarious underbelly of the ESM and Goldman’s silent takeover of the ECB . . . .

The Dark Side of the ESM

The ESM is a permanent rescue facility slated to replace the temporary European Financial Stability Facility and European Financial Stabilization Mechanism as soon as Member States representing 90% of the capital commitments have ratified it, something that is expected to happen in July 2012.  A December 2011 youtube video titled “The shocking truth of the pending EU collapse!”, originally posted in German, gives such a revealing look at the ESM that it is worth quoting here at length.  It states:

The EU is planning a new treaty called the European Stability Mechanism, or ESM:  a treaty of debt. . . . The authorized capital stock shall be 700 billion euros.  Question: why 700 billion?  [Probable answer: it simply mimicked the $700 billion the U.S. Congress bought into in 2008.] . . . .

[Article 9]: “. . . ESM Members hereby irrevocably and unconditionally undertake to pay on demand any capital call made on them . . . within seven days of receipt of such demand.”  . . . If the ESM needs money, we have seven days to pay. . . . But what does “irrevocably and unconditionally” mean?  What if we have a new parliament, one that does not want to transfer money to the ESM?  . . . .

[Article 10]: “The Board of Governors may decide to change the authorized capital and amend Article 8 . . . accordingly.”  Question:  . . . 700 billion is just the beginning?  The ESM can stock up the fund as much as it wants to, any time it wants to?  And we would then be required under Article 9 to irrevocably and unconditionally pay up?

[Article 27, lines 2-3]: “The ESM, its property, funding, and assets . . . shall enjoy immunity from every form of judicial process . . . .”  Question:  So the ESM program can sue us, but we can’t challenge it in court?

[Article 27, line 4]: “The property, funding and assets of the ESM shall . . . be immune from search, requisition, confiscation, expropriation, or any other form of seizure, taking or foreclosure by executive, judicial, administrative or legislative action.”  Question: . . . [T]his means that neither our governments, nor our legislatures, nor any of our democratic laws have any effect on the ESM organization?  That’s a pretty powerful treaty!

[Article 30]:  “Governors, alternate Governors, Directors, alternate Directors, the Managing Director and staff members shall be immune from legal process with respect to acts performed by them . . . and shall enjoy inviolability in respect of their official papers and documents.”   Question:  So anyone involved in the ESM is off the hook?  They can’t be held accountable for anything? . . . The treaty establishes a new intergovernmental organization to which we are required to transfer unlimited assets within seven days if it so requests, an organization that can sue us but is immune from all forms of prosecution and whose managers enjoy the same immunity.  There are no independent reviewers and no existing laws apply?  Governments cannot take action against it?  Europe’s national budgets in the hands of one single unelected intergovernmental organization?  Is that the future of Europe?  Is that the new EU – a Europe devoid of sovereign democracies?

The Goldman Squid Captures the EC

Last November, without fanfare and barely noticed in the press, former Goldman exec Mario Draghi replaced Jean-Claude Trichet as head of the ECB.  Draghi wasted no time doing for the banks what the ECB has refused to do for its member governments—lavish money on them at very cheap rates.  French blogger Simon Thorpe reports:

 On the 21st of December, the ECB “lent” 489 billion euros to European Banks at the extremely generous rate of just 1% over 3 years.  I say “lent”, but in reality, they just ran the printing presses. The ECB doesn’t have the money to lend. It’s Quantitative Easing again.

The money was gobbled up virtually instantaneously by a total of 523 banks. It’s complete madness. The ECB hopes that the banks will do something useful with it – like lending the money to the Greeks, who are currently paying 18% to the bond markets to get money. But there are absolutely no strings attached. If the banks decide to pay bonuses with the money, that’s fine. Or they might just shift all the money to tax havens.

At 18% interest, debt doubles in just four years.  It is this onerous interest burden, not the debt itself, that is crippling Greece and other debtor nations.  Thorpe proposes the obvious solution:

Why not lend the money to the Greek government directly? Or to the Portuguese government, currently having to borrow money at 11.9%? Or the Hungarian government, currently paying 8.53%. Or the Irish government, currently paying 8.51%? Or the Italian government, who are having to pay 7.06%?

The stock objection to that alternative is that Article 123 of the Lisbon Treaty prevents the ECB from lending to governments.  But Thorpe reasons:

My understanding is that Article 123 is there to prevent elected governments from abusing Central Banks by ordering them to print money to finance excessive spending. That, we are told, is why the ECB has to be independent from governments. OK. But what we have now is a million times worse. The ECB is now completely in the hands of the banking sector. “We want half a billion of really cheap money!!” they say.  OK, no problem. Mario is here to fix that. And no need to consult anyone. By the time the ECB makes the announcement, the money has already disappeared.

At least if the ECB was working under the supervision of elected governments, we would have some influence when we elect those governments. But the bunch that now has their grubby hands on the instruments of power are now totally out of control.

Goldman Sachs and the financial technocrats have taken over the European ship.  Democracy has gone out the window, all in the name of keeping the central bank independent from the “abuses” of government.  Yet the government is the people—or it should be.  A democratically elected government represents the people.  Europeans are being hoodwinked into relinquishing their cherished democracy to a rogue band of financial pirates, and the rest of the world is not far behind.

Rather than ratifying the draconian ESM treaty, Europeans would be better advised to reverse article 123 of the Lisbon treaty.  Then the ECB could issue credit directly to its member governments.  Alternatively, Eurozone governments could re-establish their economic sovereignty by reviving their publicly-owned central banks and using them to issue the credit of the nation for the benefit of the nation, effectively interest-free.  This is not a new idea but has been used historically to very good effect; e.g., in Australia through the Commonwealth Bank of Australia and in Canada through the Bank of Canada.

Today the issuance of money and credit has become the private right of vampire rentiers, who are using it to squeeze the lifeblood out of economies.  This right needs to be returned to sovereign governments.  Credit should be a public utility, dispensed and managed for the benefit of the people.

Financiers that break from the corruption of gluttonous greed can become the conscience of a sector that seems to have no conscience. Let’s hope their courage is contagious and others follow their lead.  We need a revolt from inside big finance that will help radically transform finance from greed to generosity, from gluttony to moderation and from selfishness to community benevolence.

A thorough examination of the corruption of big finance came in a recent shareholder letter from Robert Wilmers, the Chairman and CEO of M&T Bank. He laments that “it is difficult, for one who has spent more than a generation in the field, to recall a time when banking as a profession has been publicly held in such persistently low esteem” noting that polls show “only a quarter of the American public expressed confidence in the integrity of bankers.”  He recognizes that this is something big finance has brought on itself: “Since 2002, the six largest banks have been hit by at least 207 separate fines, sanctions or legal awards totaling $47.8 billion. None of these banks had fewer than 22 infractions; in fact, one had 39 across seven countries, on three different continents.

And, he highlights the salary disparity between bankers and other Americans reminding us that this is a recent development.  Just a few generations ago “the average compensation in the financial services industry was exactly the same as the average income of a non-farm U.S. worker.”  But today:

At a time when the American economy is stuck in the doldrums and so many are unemployed or under-employed, the average compensation for the chief executives of four of the six largest banks in 2010 was $17.3 million – more than 262 times that of the average American worker . . . it is hardly surprising that the public would judge the banking industry harshly – and view Wall Street’s executives and their intentions with skepticism.

How did the finance industry change into this corrupt mass?  Wilmers points to the repeal of Glass-Steagall, a law “prudently erected in the wake of the Depression, kept investment banks apart from traditional banks.”  When banks were credible members of the community they “saw public service as part of their obligation” and “played a clear, if limited, role in the economy: to gather savings and to finance industry and commerce. Trading and speculation were nowhere included.”

But, in the 1970s and 80s he describes banking moving away from investing in things they knew as they began investing in areas where they “possessed little knowledge.” This created high risks, so much so that a 1993 study conducted by the Federal Reserve Bank of Boston found that had “banks truly recognized all the losses inherent in their books in 1984, one major bank would have been insolvent and seven others dangerously close.”

Rather than reducing risk, they sought quick profit by creating “investments they did not understand – and, indeed it seems nobody really understood. In the process, they contorted the overall American economy.”  The repeal of the Glass-Steagall Act in 1999 married investment banks with traditional banks.  Rather than sound investment Wall Street bet on “increasingly opaque financial instruments, built on algorithms rather than underwriting.” This sowed “the seeds of crisis and embodied a broader change that, in important and unfortunate ways, continues today”

Wilmers describes a bigger, systemic problem, “not only bankers but their regulators, not only investors but those paid to advise them, not only private finance but its government-sponsored kin.” The result – “the decimation of public trust in once-respected institutions and their leaders.”  The economic collapse “was orchestrated by so many who should have, instead, been sounding the alarm.”

Unfortunately, “the Wall Street banks continue to fight against regulation that would limit their capacity to trade for their own accounts – while enjoying the backing of deposit insurance – and thus seek to keep in place a system which puts taxpayers at high risk. In 2011, the six largest banks spent $31.5 million on lobbying activities. All told, the six firms employed 234 registered lobbyists.”

Wilmers urges us “to distinguish between Wall Street banks who, in my view, were central to the financial crisis and continue to distort our economy, and Main Street banks who were often victims of the crisis.”  Many activists do see the difference between Wall Street and community banks and credit unions; and therefore, have engaged in the “move your money” campaign.

A second example of divisions in the banking sector comes from the Federal Reserve Board of Dallas which released a report from its chief researcher, Harvey Rosenblum , “Why We Must End Too Big To Fail Now,” cites statistics showing that the five largest U.S. banks hold 52% of all bank assets.  The report points out that “American workers and taxpayers want a broad-based recovery that restores confidence. . . The road back to prosperity will require reform of the financial sector. In particular, a new roadmap must find ways around the potential hazards posed by the financial institutions that the government not all that long ago deemed ‘too big to fail.’” In an introduction to the report, Dallas Fed President Richard W. Fisher calls for “downsizing” these megabanks because the continuing cloud of ‘too big to fail’ hanging over the economy is simply too costly.

Rosenblum, like Wilmers, sees that Americans have lost faith in capitalism as a result of Wall Street’s greed: “Diverse groups ranging from the Occupy Wall Street movement to the Tea Party argue that government-assisted bailouts of reckless financial institutions are sociologically and politically offensive. From an economic perspective, these bailouts are certainly harmful to the efficient workings of the market.” He blames the big banks for the lackluster “recovery” writing that the too-big-to-fail banks “remain a hindrance to full economic recovery.”

In the report, Rosenblaum states that the financial crisis arose because of “failures of the banking, regulatory and political systems.” But, he warns “focusing on faceless institutions glosses over the fundamental fact that human beings, with all their flaws, frailties and foibles, were behind the tumultuous events that few saw coming and that quickly spiraled out of control.”  As the regulatory and political systems failed, the rule of law was not enforced, when this occurs “incentives often turn perverse, and self-interest can turn malevolent. . . Greed led innovative legal minds to push the boundaries of financial integrity. . .”

Rosenblaum sees the too big to fail financial banks, not community banks, as the “primary reason” for the weak recovery: “Many of the biggest banks have sputtered . . . in contrast, the nation’s smaller banks are in somewhat better shape . . . most didn’t make big bets on mortgage-backed securities, derivatives and other highly risky assets whose value imploded.” He concludes: “an economy relatively free from financial crises—won’t be reached until we have the fortitude to break up the giant banks.”

The most highly publicized division among financiers was in mid-March when Goldman Sachs executive Greg Smith publicly resigned, with a pointed letter  in the New York Times.  The letter described a “toxic and destructive environment” in Goldman where the entire staff from senior partners to associates, pursued nothing but ever-more sophisticated means of “ripping their clients off.”  At the center of  Smith’s critique is the massive derivatives market, where he was a central player.

What may have been most interesting about the public resignation letter was so many commentators saying – ho hum, Goldman rips off its clients, big surprise.  Former Secretary of Labor Robert Reich broadened the discussion describing the history of Goldman rip-offs going back to the 1920s and broadening the rip-off mentality to all of Wall Street’s big banks, not just Goldman. Reich describes this as a problem of “endemic abuse of power and trust.”  This culture of corruption led to “the junk-bond and insider trading scandals of the 1980s, the dot-com scams of the late 1990s and early 2000s, the Wall-Street enablers of Enron and other corporate looters, and the wild excesses that led to the crash of 2008.”

What do these emerging cracks mean to people in the United States who want to see radical transformation of finance, democratization of the economy and a participatory democracy where people have real power?  It means, we are seeing the weakening of the pillars that hold the power structure in place – a critical step to people having the power to demand change.

Steve Chrismer, an engineer working with Occupy, describes this in engineering terms; how with the right frequency we can insert our fist, even our arm between rocks:

Did you know that it is possible to insert yourself between rocks that are vibrating at just the right frequency?  When looking for the optimum vibration frequency I increased the frequency by single digits from 0 Hz.  When resonance occurred the situation changed dramatically and as the rocks became ‘fluid’ I was able to insert my hand and then my whole arm into the rocks.  If you went slow enough the rocks flowed around you, not noticing your presence, and did not resist: go too recklessly fast and the rocks would resist.

This is where Occupy is as a movement: only 6 months old and we are already noticing the weakness of solid walls. To weaken the pillars of power requires that we study these cracks so that we can provide the needed energy to open them non-violently and allow us all to pass through.

Occupy needs to drive wedges through these cracks.  Protests of executive salaries, stopping foreclosures and evictions through Occupy Our Homes, highlighting the failure to loan to small businesses and the hiding of profits offshore to avoid paying taxes, pressuring banks for their investments in private prisons, dirty fuel, for-profit health care and other negative corporate interests need to escalate as we build pressure to break up the Too Big to Fail Banks.  At the same time, we need to build a new finance system which includes developing public banks at the state and city level and building community banks and credit unions by moving our money from the big banks.  Time banks that record volunteer time which is traded for unpaid labor at the community level will avoid the banking system altogether. Expanding the fissures by the combination of protest and building the new economy will result in a finance system that serves the public interest, not private gain.

No doubt many others inside big finance feel the same as those who have spoken out. The courage of the few may embolden more to expose the corrupt practices and unsafe risks that are being taken; and to speak about real solutions to the financial crisis. Up until now, those who see the corruption may have felt alone but now they know they are not, and they can join with others seeking to stop the exploitation of people and the planet.

The more we speak about the fraud and corruption of Wall Street, the more we will empower those in big finance who are questioning the current paradigm. The more we protest at banks and financial institutions, exposing the truth about unethical foreclosures, concentrated wealth and ties to industries that harm people and the planet. the more reasons those inside will have to change their behavior. Using creative conflict and nonviolent tactics, we can draw more people to the movement for social and economic justice and provide a safe place for them to speak the truth of much-needed transformation.

Last week in Ottawa, the Canadian House of Commons passed the federal government’s latest round of budget cuts and austerity measures.  Highlights included chopping 19,200 public sector jobs, cutting federal programs by $5.2 billion per year, and raising the retirement age for millions of Canadians from 65 to 67.  The justification for the cuts was a massive federal debt that is now over C$ 581 billion, or 84% of GDP.

An online budget game furnished by the local newspaper, the Globe and Mail, gave readers a chance to try to balance the budget themselves.  Possibilities included slashing transfer payments for elderly benefits, retirement programs, health benefits, and education; cutting funding for transportation, national defense, economic development and foreign aid; and raising taxes.  An article on the same page said, “The government, in reality, doesn’t have that many tools at its disposal to close a large budgetary deficit. It can either raise taxes or cut departmental program spending.”

It seems that no gamer, lawmaker or otherwise, was offered the opportunity to toy with the number one line item in the budget: interest to creditors.  A chart on the website of the Department of Finance Canada titled “Where Your Tax Dollar Goes” showed interest payments to be 15% of the budget—more than health care, social security, and other transfer payments combined.  The page was dated 2006 and was last updated in 2008, but the percentages are presumably little different today.

Penny Wise, Pound Foolish

Among other cuts in the 2012 budget, the government announced that it would be discontinuing the minting of Canadian pennies, which now cost more than a penny to make.  The government is focusing on the pennies and ignoring the pounds—the massive share of the debt that might be saved by borrowing from the government’s own Bank of Canada.

Between 1939 and 1974, the government actually did borrow from its own central bank.  That made its debt effectively interest-free, since the government owned the bank and got the benefit of the interest.  According to figures supplied by Jack Biddell, a former government accountant, the federal debt remained very low, relatively flat, and quite sustainable during those years.  (See his chart here.)  The government successfully funded major public projects simply on the credit of the nation, including the production of aircraft during and after World War II, education benefits for returning soldiers, family allowances, old age pensions, the Trans-Canada Highway, the St. Lawrence Seaway project, and universal health care for all Canadians.

The debt shot up only after 1974.  That was when the Basel Committee was established by the central-bank Governors of the Group of Ten countries of the Bank for International Settlements (BIS), which included Canada.   A key objective of the Committee was to maintain “monetary and financial stability.”  To achieve that goal, the Committee discouraged borrowing from a nation’s own central bank interest-free, and encouraged borrowing instead from private creditors, all in the name of “maintaining the stability of the currency.”

The presumption was that borrowing from a central bank with the power to create money on its books would inflate the money supply and prices.  Borrowing from private creditors, on the other hand, was considered not to be inflationary, since it involved the recycling of pre-existing money.  What the bankers did not reveal, although they had long known it themselves, was that private banks create the money they lend just as public banks do.  The difference is simply that a publicly-owned bank returns the interest to the government and the community, while a privately-owned bank siphons the interest into its capital account, to be re-invested at further interest, progressively drawing money out of the productive economy.

The debt curve that began its exponential rise in 1974 tilted toward the vertical in 1981, when interest rates were raised by the U.S. Federal Reserve to 20%.  At 20% compounded annually, debt doubles in under four years.  Canadian rates went as high as 22% during that period.  Canada has now paid over a trillion Canadian dollars in interest on its federal debt—nearly twice the debt itself.  If it had been borrowing from its own bank all along, it could be not only debt-free but sporting a hefty budget surplus today.  That is true for other countries as well.

The Bankers’ Silent Coup

Why are governments paying private financiers to generate credit they could be issuing themselves, interest-free?   According to Professor Carroll Quigley, Bill Clinton’s mentor at Georgetown University, it was all part of a concerted plan by a clique of international financiers.  He wrote in Tragedy and Hope in 1964:

The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations.

Each central bank . . . sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.

In December 2011, this charge was echoed in a lawsuit filed in Canadian federal court by two Canadians and a Canadian economic think tank.  Constitutional lawyer Rocco Galati filed an action on behalf of William Krehm, Ann Emmett, and COMER (the Committee for Monetary and Economic Reform) to restore the use of the Bank of Canada to its original purpose, including making interest free loans to municipal, provincial and federal governments for “human capital” expenditures (education, health, and other social services) and for infrastructure.  The plaintiffs state that since 1974, the Bank of Canada and Canada’s monetary and financial policy have been dictated by private foreign banks and financial interests led by the BIS, the Financial Stability Forum (FSF) and the International Monetary Fund (IMF), bypassing the sovereign rule of Canada through its Parliament.

Today this silent coup has been so well obscured that governments and gamers alike are convinced that the only alternatives for addressing the debt crisis are to raise taxes, slash services, or sell off public assets.  We have forgotten that there is another option: cut the debt by borrowing from the government’s own bank, which returns its profits to public coffers.  Cutting out interest has been shown to reduce the average cost of public projects by about 40%.

Game over: we win.

When the Egyptian people began to gather in Tahrir Square in January 2011, the embers of the immolation that consumed Tunisian street vendor Mohamed Bouazizi had already sparked the prairie fire that overthrew the dictatorial ruler Ben Ali. The protest in Tahrir Square was the first manifestation of that fire in Egypt but certainly not the last. As everyone must know by now, the fires of protest in Egypt tossed out their dictator less than two months after Mr. Ben Ali was deposed. The feat of that overthrow was not only momentous within the borders of Egypt itself; its repercussions were felt in the halls of Arabia, Asia, Africa and the Americas. In Washington, Tel Aviv, London, Berlin, Paris, and Rome and on Wall Street, there was plenty of catching up to do. Neither the eavesdroppers at the National Security Agency or the black ops mangers of the Central Intelligence Agency predicted the end of the Mubarak regime. Indeed, it wasn’t until the bitter end that the political powers in the aforementioned capitals began to side with (and subvert) the popular uprising in the streets of Egypt.

After Mubarak’s fall, the revolutionary fire spread like flames whipped by warm Santa Ana winds. Bahrain to Libya. Yemen to Syria. London and New York. Athens and Oakland. The insurrectionary wave was in motion and nowhere was it more powerful than in the Arab world. Also, nowhere was it met with more determined (and murderous) resistance from the powers that be, internally and externally. Underlying the insurrectionary tide were the economic facts of neoliberalism’s struggle to maintain its global dominance. When it became apparent that this goal could not always be accomplished by continuing to support the old regimes, the capitols of capitalism inserted their agents into the opposition and did their best to manipulate the rebellion into serving the agencies of those capitols. The IMF, World Bank and the rest of the usual suspects saw their moments in each instance and made their moves. As I write, the entire insurrectionary wave is at a stalemate between the forces of popular social justice and just another new face for western imperialism.

Naturally, very little has been written about this aspect of the revolutionary upsurge of 2011-2012 in the organs of neoliberalism. Instead, the fact of IMF arrangements with the post-Mubarak Egypt and the new Tunisia are interspersed with superficial analyses of the rebellions that would have the reader believe that it was social media that provoked them. Even more revealing of the mainstream media’s allegiance to the imperial regime in the insurrection is its lack of coverage of the continuing popular resistance in the Pentagon’s shipyard Bahrain. Instead, we are presented with an ongoing litany of unconfirmed atrocities committed by the Syrian military and a portrayal of the resistance there as essentially untainted by its affiliation with outside governments and militaries.

Fortunately, we have Vijay Prashad. His latest book, titled Arab Spring, Libyan Winter, attacks the western interpretation of the transitions in Egypt and Libya and explores the actual events from a perspective that explains the players in terms of their allegiances, holdings and politics. In Prashad’s work, the differences between the fighters on the ground and the suits on television are not only acknowledged, they are examined in terms of their meaning to the future. In discussing Egypt, Prashad describes the conflagration of Washington’s imperial needs, Tel Aviv’s paranoiac perception of its security, and the Mubarak clique’s desire to maintain power. He gives lie to the West’s claim that it was interested in democracy (a relatively simple task to be sure), explaining that in the western mindset democracy doesn’t mean democracy, it means a guarantee that the interests and holdings of capital will not be upset. The common term one hears, states Prashad, is stability.

Most of this book is about the battle for Libya. Prashad’s text provides the most detailed description of the events both on the ground and in the office suites. He exposes the humanitarian intervention by NATO for what it was. That is, a means for the western powers to regain unfettered access to Libyan oil and rid themselves of an at best erratic client—Muammar Gaddafi. Unlike many on the Left, Prashad does not take sides for or against the rebellion. Instead, he explains the uprising as a popular and positive thing that was manipulated by the forces of the G7 and NATO. Simultaneously, he discusses Gaddafi’s reign as one that began with many positive changes yet ultimately was a victim of its own excess and greed. If there are any good guys in his narrative, it would be the masses that risked their lives to overthrow the autocracy that had Gaddafi at its helm. Their opposite would be the men on both sides of the battle whose only real interest was in keeping their bank accounts plush while serving their masters in the stock exchanges of the neoliberal world.

Interesting, and as yet not very closely examined, is the role of the Gulf Cooperation Council (GCC) states of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates. Jordan and Morocco. Prashad makes note of the fact that the western capitals have said very little about the harsh repression visited on the Bahraini uprising or the Saudi intervention there. He also explores the military role played by Qatar in Libya, its current role in Syria, and the inclusion of some GCC states in a NATO adjunct. Perhaps, writes Prashad, this adjunct of NATO will be able to stand in for NATO in future operations in the Arab world, thereby creating another shadow in the workings of modern imperialism.

Despite the (probably) millions of words written about the Libyan uprising and the NATO intervention, nothing written in English has come near the truth. After reading Arab Spring, Libyan Winter, it seems that when all is said and done, Prashad’s work will come the closest.

Far from reducing risk, derivatives increase risk, often with catastrophic results.

— Derivatives expert Satyajit Das, Extreme Money (2011)

The “toxic culture of greed” on Wall Street was highlighted again last week, when Greg Smith went public with his resignation from Goldman Sachs in a scathing oped published in the New York Times.  In other recent eyebrow-raisers, LIBOR rates—the benchmark interest rates involved in interest rate swaps—were shown to be manipulated by the banks that would have to pay up; and the objectivity of the ISDA (International Swaps and Derivatives Association) was called into question, when a 50% haircut for creditors was not declared a “default” requiring counter-parties to pay on credit default swaps on Greek sovereign debt.

Interest rate swaps are less often in the news than credit default swaps, but they are far more important in terms of revenue, composing fully 82% of the derivatives trade.  In February, JP Morgan Chase revealed that it had cleared $1.4 billion in revenue on trading interest rate swaps in 2011, making them one of the bank’s biggest sources of profit.  According to the Bank for International Settlements:

[I]nterest rate swaps are the largest component of the global OTC derivative market.  The notional amount outstanding as of June 2009 in OTC interest rate swaps was $342 trillion, up from $310 trillion in Dec 2007.  The gross market value was $13.9 trillion in June 2009, up from $6.2 trillion in Dec 2007.

For more than a decade, banks and insurance companies convinced local governments, hospitals, universities and other non-profits that interest rate swaps would lower interest rates on bonds sold for public projects such as roads, bridges and schools.  The swaps were entered into to insure against a rise in interest rates; but instead, interest rates fell to historically low levels.  This was not a flood, earthquake, or other insurable risk due to environmental unknowns or “acts of God.”  It was a deliberate, manipulated move by the Fed, acting to save the banks from their own folly in precipitating the credit crisis of 2008.  The banks got in trouble, and the Federal Reserve and federal government rushed in to bail them out, rewarding them for their misdeeds at the expense of the taxpayers.

How the swaps were supposed to work was explained by Michael McDonald in a November 2010 Bloomberg article titled “Wall Street Collects $4 Billion From Taxpayers as Swaps Backfire”:

In an interest-rate swap, two parties exchange payments on an agreed-upon amount of principal. Most of the swaps Wall Street sold in the municipal market required borrowers to issue long-term securities with interest rates that changed every week or month. The borrowers would then exchange payments, leaving them paying a fixed-rate to a bank or insurance company and receiving a variable rate in return. Sometimes borrowers got lump sums for entering agreements.

Banks and borrowers were supposed to be paying equal rates: the fat years would balance out the lean.  But the Fed artificially manipulated the rates to save the banks.  After the credit crisis broke out, borrowers had to continue selling adjustable-rate securities at auction under the deals.  Auction interest rates soared when bond insurers’ ratings were downgraded because of subprime mortgage losses; but the periodic payments that banks made to borrowers as part of the swaps plunged, because they were linked to benchmarks such as Federal Reserve lending rates, which were slashed to almost zero.

In a February 2010 article titled “How Big Banks’ Interest-Rate Schemes Bankrupt States,” Mike Elk compared the swaps to payday loans.  They were bad deals, but municipal council members had no other way of getting the money.  He quoted economist Susan Ozawa of the New School:

The markets were pricing in serious falls in the prime interest rate. . . . So it would have been clear that this was not going to be a good deal over the life of the contracts. So the states and municipalities were entering into these long maturity swaps out of necessity. They were desperate, if not naive, and couldn’t look to the Federal Government or Congress and had to turn themselves over to the banks.

Elk wrote:

As almost all reasoned economists had predicted in the wake of a deepening recession, the federal government aggressively drove down interest rates to save the big banks. This created opportunity for banks – whose variable payments on the derivative deals were tied to interest rates set largely by the Federal Reserve and Government – to profit excessively at the expense of state and local governments. While banks are still collecting fixed rates of from 4 percent to 6 percent, they are now regularly paying state and local governments as little as a tenth of one percent on the outstanding bonds – with no end to the low rates in sight.

. . . [W]ith the fed lowering interest rates, which was anticipated, now states and local governments are paying about 50 times what the banks are paying. Talk about a windfall profit the banks are making off of the suffering of local economies.

To make matters worse, these state and local governments have no way of getting out of these deals. Banks are demanding that state and local governments pay tens or hundreds of millions of dollars in fees to exit these deals. In some cases, banks are forcing termination of the deals against the will of state and local governments, using obscure contract provisions written in the fine print.

By the end of 2010, according to Michael McDonald, borrowers had paid over $4 billion just to get out of the swap deals.  Among other disasters, he lists these:

California’s water resources department . . . spent $305 million unwinding interest-rate bets that backfired, handing over the money to banks led by New York-based Morgan Stanley. North Carolina paid $59.8 million in August, enough to cover the annual salaries of about 1,400 full-time state employees. Reading, Pennsylvania, which sought protection in the state’s fiscally distressed communities program, got caught on the wrong end of the deals, costing it $21 million, equal to more than a year’s worth of real-estate taxes.

In a March 15th article on Counterpunch titled “An Inside Glimpse Into the Nefarious Operations of Goldman Sachs: A Toxic System,” Darwin Bond-Graham adds these cases from California:

The most obvious example is the city of Oakland where a chronic budget crisis has led to the shuttering of schools and cuts to elder services, housing, and public safety. Oakland signed an interest rate swap with Goldman in 1997. . . .

Across the Bay, Goldman Sachs signed an interest rate swap agreement with the San Francisco International Airport in 2007 to hedge $143 million in debt. Today this agreement has a negative value to the Airport of about $22 million, even though its terms were much better than those Oakland agreed to.

Greg Smith wrote that at Goldman Sachs, the gullible bureaucrats on the other side of these deals were called “muppets.”  But even sophisticated players could have found themselves on the wrong side of this sort of manipulated bet.  Satyajit Das gives the example of Harvard University’s bad swap deals under the presidency of Larry Summers, who had fought against derivatives regulation as Treasury Secretary in 1999.  There could hardly be more sophisticated players than Summers and Harvard University.  But then who could have anticipated, when the Fed funds rate was at 5%, that the Fed would push it nearly to zero?  When the game is rigged, even the most experienced gamblers can lose their shirts.

Courts have dismissed complaints from aggrieved borrowers alleging securities fraud, ruling that interest-rate swaps are privately negotiated contracts, not securities; and “a deal is a deal.”  So says contract law, strictly construed; but municipal governments and the taxpayers supporting them clearly have a claim in equity.  The banks have made outrageous profits by capitalizing on their own misdeeds.  They have already been paid several times over: first with taxpayer bailout money; then with nearly free loans from the Fed; then with fees, penalties and exaggerated losses imposed on municipalities and other counterparties under the interest rate swaps themselves.

Bond-Graham writes:

The windfall of revenue accruing to JP Morgan, Goldman Sachs, and their peers from interest rate swap derivatives is due to nothing other than political decisions that have been made at the federal level to allow these deals to run their course, even while benchmark interest rates, influenced by the Federal Reserve’s rate setting, and determined by many of these same banks (the London Interbank Offered Rate, LIBOR) linger close to zero. These political decisions have determined that virtually all interest rate swaps between local and state governments and the largest banks have turned into perverse contracts whereby cities, counties, school districts, water agencies, airports, transit authorities, and hospitals pay millions yearly to the few elite banks that run the global financial system, for nothing meaningful in return.

Why are these swaps so popular, if they can be such a bad deal for borrowers?  Bond-Graham maintains that capitalism as it functions today is completely dependent upon derivatives.  We live in a global sea of variable interest rates, exchange rates, and default rates.  There is no stable ground on which to anchor the economic ship, so financial products for “hedging against risk” have been sold to governments and corporations as essentials of business and trade.  But this “financial engineering” is sold, not by disinterested third parties, but by the very sharks who stand to profit from their counterparties’ loss.  Fairness is thrown out in favor of gaming the system.  Deals tend to be rigged and contracts to be misleading.

How could local governments reduce their borrowing costs and insure against interest rate volatility without putting themselves at the mercy of this Wall Street culture of greed?  One possibility is for them to own some banks.  State and municipal governments could put their revenues in their own publicly-owned banks; leverage this money into credit as all banks are entitled to do; and use that credit either to fund their own projects or to buy municipal bonds at the market rate, hedging the interest rates on their own bonds.

The creation of credit has too long been delegated to a cadre of private middlemen who have flagrantly abused the privilege.  We can avoid the derivatives trap by cutting out the middlemen and creating our own credit, following the precedent of the Bank of North Dakota and many other public banks abroad.

You now hear something similar in regard to raising taxes on the very rich (even though a cursory examination reveals that federal income taxes are lower today than they’ve been in many decades).  You hear pundits say that if we did that, if we nudged those brackets any higher, we’d risk having these wealthy people close up shop and flee the country.  These armchair pundits deserve credit for being able to say something that stupid with a straight face.

However, instead of being cowed by those absurd threats—instead of being intimidated into abandoning plans for a fairer tax system and stricter regulations on the banking industry—we should greet such condescending arguments with delight.  In truth, not only would these defections rid us of the stench and the rot, they would give men and women on the lower rungs the opportunity to move into the top spots and test their mettle. It would be a welcome change.

Of course, there was a corollary to that replacement argument as well.  Wall Street also cautioned us that, should these financial prodigies, these “masters of the universe,” be forced to leave the industry (and, indeed, the country), the newbies who replaced them would be nowhere near as competent or reliable.

As effective as that line of reasoning might have been a decade ago, it doesn’t count for much today.  In fact, ever since we learned that it was those very same prodigies who precipitated the financial disaster that almost destroyed the world’s economy, and required a trillion-dollar taxpayer bailout just to keep us afloat, that old, “We’re too talented to be replaced” argument has pretty much lost its potency.

Unfortunately, despite the dire predictions, most of these Wall Street vultures aren’t going anywhere.  They can huff and puff all they like, but on Monday morning they’re going to show up for work just like the rest of us.  If these fund managers honestly believe that all they have to do to land a multi-million dollar a year banking gig is report to Zurich or London, briefcase in hand, they’re even more arrogant than we thought.  Sorry to disappoint you, boys, but those European banking jobs are already taken.  By Europeans.

Still, it would be wonderful if they all left.  While these soulless whores are, technically, U.S. citizens, in no way are they patriots.  They’re not even genuine Americans.  They are cultural eunuchs with no sense of honor, no sense of civic pride, and no sense of belonging to a “community.”  They live privileged lives in gated mansions and penthouses far, far away from the “herd.”  If given a choice, they would rather watch America’s great industrial cities fall into decay and despair than voluntarily part with so much as a nickel of their own money.

Those Wall Street executives who argued that we’d be losing valuable “expertise” if we allowed our financial wizards to move away are the same Wall Street execs who argue that if the very wealthy were to leave the United States (because of higher taxes), they would take their money with them, which, in turn, would damage our economy.  That’s a dumb argument.  It’s dumb because it’s already happened.

Wealthy people already have their money squirreled away in places believed to bring them the maximum return.  If one of those places happens to be the U.S., then lucky us, because that’s where they’ll probably keep it.  But they’re more likely to have that dough invested in sheltered off-shore bank accounts or high-yield foreign businesses.  And that’s where their money will remain, no matter where they live or work.

Let’s be clear.  If the very rich threaten to jump ship, we must do everything in our power to ensure they carry out that threat.  What a cathartic moment that would be!  The entrenched, inbred, self-perpetuating moneyed class being abruptly vacated—and new blood, new ideas, new faces, and new ethnicities rushing in to replace it.  Ain’t that what America is supposed to be all about?

It’s true, things did get a bit wild at Citi’s Financial Services conference at New York’s Waldorf Astoria when Brian Moynihan got on stage and began flipping through his tedious powerpoint.

While the hotel security was busy watching anti-bank protesters rallying outside, CODEPINK cofounder Jodie Evans, dressed in a hot pink bustier, burst into the conference room. “Bust up Bank of America before it busts up America”, she shouted, before being hauled out by security guards. “As I was saying,” continued a deadpan Moynihan to the laughter of the crowd, returning to the dreary slides that tried to put a rosy spin on this dinosaur of a company whose share price has plummeted while it continues to foreclose on families’ homes and faces tens of billions of dollars in damages from lawsuits over mortgage investments.

Little did Moynihan know that the excitement at what is normally a bankers’ snoozefest had just begun. CODEPINK co-director Rae Abileah and I were already seated in the front of the room. Wearing dark business suits, we did our best to blend into the crowd of stodgy white men in black business suits.

While Moynihan was bragging that Bank of America ended 2011 with the most capital, liquidity and reserves ever in its history, I calmly walked on stage and began to disrobe while Rae deftly jumped on a table in front of the stage. As we shed our jackets and shirts, the startled CEO suddenly found himself flanked by women in pink bras, with Bust up B of A scrawled on our chests.

Taking the mic away from Moynihan, I addressed the audience of bankers and institutional investors. “Today, March 8, is International Women’s Day, and on behalf of 99 percent of women in this country who are disgusted by the unbridled greed of the big banks, we say it’s time to Bust Up the Bank of America.” I kept talking about the bank’s misdeeds as security guards jumped on stage and dragged me into the hall. To my delight, I could hear Rae, who was left standing on the table in her pink bra, shouting over the boos of the audience. “Stop foreclosing on people’s homes; stop the predatory lending; stop funding dirty coal. Mr. Moynihan, how can you justify making millions while bankrupting America?” she asked, as the security guards dragged her away. Indeed, in 2011, while millions of Americans were jobless and homeless thanks to the bankers, Moynihan received over $6 million in compensation.

This protest was one of many taking place at Bank of America branches around the country on International Women’s Day. Organized by CODEPINK, Women Occupy and Occupy Wall Street, the protests were meant to highlight the effects of the financial crisis on women and the fact that, four years into this crisis, the same problems exist.

In the afternoon, those of us in New York moved on to protest at the Bank of America branch located across the street from famous Zuccotti Park. While protesters gathered outside the bank, a few of us, including Rae and myself, went inside early. Just as the “bank busters” tried to make their way inside, the manager locked the doors and refused to let anyone else in.

With only three of us inside, we didn’t know whether to proceed or bail. We decided to say a few chants, sing a Break Up the Banks song we had practiced, and then make a quick exit. We had just taken off our shirts and belted out a few chants when the police stormed in.

I gathered my belongings, ready to follow what I assumed would be a request to leave. Instead, the police treated me like I was about to rob the bank, pinning my arms behind my back and putting me in handcuffs. “We were never asked to leave, we were only exercising our right to free speech, we didn’t harm anyone or block any doors,” I argued to no avail.

Meanwhile Rae, who had run outside, was brutally tackled to the ground, her head smashed against the pavement. Crying and clearly in pain, she was roughly pulled up and cuffed. So was Monica Hutchins, who was arrested by the same out-of-control officer for merely marching and singing on the sidewalk. Occupy Wall Street activist Mark Adams, who had come to Rae’s aid, was also grabbed and arrested.

I later learned that the gentle, soft-spoken Mark Adams had personal reasons for protesting the bank, and for joining the Occupy Wall Street movement. His father had been approved for a mortgage by a small private lender, but then his dad got sick and passed away. Mark tried to keep the house, but the lender sold the loan to Bank of America who then foreclosed, leaving him homeless.

The four of us, arrested at 2:30pm on March 8, were taken to the local jail, where we were booked, and then transferred to the infamous clink known as “The Tombs.” We were locked up in a dirty, freezing cell with about 15 women who had been picked up on various charges like prostitution, shoplifting, drug dealing and domestic violence. All our possessions, including our jackets, had been taken away, so we were stuck in the freezing cell with no coats or blankets. The sleeping accommodations consisted of three dirty plastic mats—meant for one person each—thrown on the floor to “share” among all of us. We spent a long, sleepless night shivering in the cold.

The women in the cell were proud of us for standing up to the banks; so were some of the police. “They were arrested for protesting against foreclosures at Bank of America,” one of the policemen told a policewoman while I was being fingerprinted. “I’m with you there,” she said. “Those bankers are thieves. They take government money to bail them out but then they refuse to lend money to black women like me. I lost my house because I couldn’t get a bank loan, even though I have a good, steady job.”

Her case is all too common. And minority women who do get loans have been targeted with the most expensive, punitive and toxic loans. Women are 32% more likely than men to receive sub‑prime mortgages, and Latina and African-American women borrowers are the most vulnerable.

*****

After several rounds of fingerprinting, two iris scans, one disgusting peanut butter sandwich, and 26 hours in a cold cell, we finally got to see a judge. We were charged with two counts of trespassing, and have to return to court on March 30.

In jail, you see the stark contrast between those who create the economic havoc and those who really pay the consequences.

Meeting women locked up for such petty crimes as stealing a $40 bottle of perfume from Sephora, I thought about how much money CEO Brian Moynihan and his cronies have stolen from the American people. In fact, the very same day we were protesting, a whistleblower filed court documents charging Bank of America with knowingly and fraudulently seeking to limit homeowner mortgage modifications under the Home Affordable Modification Program.

Occupy Wall Street has been tapping into the anger against these unaccountable, “too big to fail” institutions, not only protesting against them but spurring a campaign to move many millions of dollars from Wall Street to Main Street. In the past year over a million Americans took their money out of big banks and opened accounts with credit unions. Credit union profit jumped 41 percent to $6.4 billion last year. The exodus continues this year, as greedy financial giants continue to squeeze their customers by hiking up fees.

While many of us are protesting, our government has failed to hold the banks accountable, prosecute the wrongdoers or restructure our financial system. The banks that were too big to fail then are even bigger now. The top 6 banks that had 7 trillion dollars in assets now have 9 or 10 trillion, and the Federal Reserve and the Treasury Department continue to prop up these behemoths, instead of breaking them up into smaller, more sustainable banks. The Dodd-Frank legislation passed to regulate the financial institutions is too cumbersome (2,300 pages compared to the 24-page Glass-Steagall Act); the big banks with their fancy lawyers can find all kinds of loopholes, while the smaller banks are now forced to pay for the avarice of the big ones.

Looking back on March 8, going to jail for justice was an appropriate way to commemorate a day that, starting in 1911, was a call by women workers for shorter hours, better pay, voting rights and an end to discrimination. Our foremothers like hell-raiser Mother Jones would certainly approve of standing up to rapacious banks and bankers. She might have even approved of the pink bras. After all, the feisty Mother Jones did have this advice for women: “Whatever your fight, don’t be ladylike.”

The economic crisis that was precipitated that year was something of a revelation for the Icelandic public.  The country neared bankruptcy, and applied for assistance from the International Monetary Fund.  Its three major banks were put into receivership.  The stock exchange shed 90 percent of its value.  Government’s role was forfeited. Theirs ceased being protecting the public – it was rather a case of colluding with an imploding financial sector, a case of throwing the public into the economic ring of gladiatorial combat.  The disaster also involved foreign governments – the Netherlands and Britain had to carry the can for hundreds of thousands of their citizens who had placed money in the Icelandic banking system.

There are broader questions of debate that crop up regarding Haarde’s trial.  To single out one person as the demonic embodiment, the one true fiend of what became a global crisis, is a false solution.  Thousands were involved, and each with varying degrees of culpability.  ‘In a nutshell’ writes Bendikt Johannesson of the Iceland Review (March 11), ‘a majority of Althingi, Iceland’s Parliament, voted to charge a political opponent for not preventing a world economic crisis.’

Nicolas Vernon of Brueghel, a think-tank based in Brussels, feels that judicial interventions should have little role to play in dealing with a ‘bad policy decision’.  It has, after all, been admitted that this is a ‘political trial’ (Iceland Review Online, March 10).  For Vernon, the only true punishment is through the ballot, a resounding dismissal of governments who err in their judgments.  Such arguments, however, only go so far.  The judicial forum is often an appropriate one to emphasise accountability.  The question to be asked, though, is what Haarde can be accountable for.

Furthermore, how does one try a lemming intent on committing suicide?  Ideology is a way of deflecting reality, and for so long that ideology has placed its bets on the iniquitous fantasy of the free market.  One good example of this was Iceland’s former central bank chief David Oddsson, a true devotee of deregulation, and a key figure behind implementing policies that led to a staggering growth in the banking sector – some bloating to 10 times the size of the economy.  A closer inspection of Haarde’s record certainly shows that he was no more culpable that his colleagues, perhaps even less so.

At the trial, Oddsson, who should count himself as lucky not to have made a speedy entry into the dock himself, claimed that he was the prophet of warning, an oracle who could see the devilish machinations of the marketplace unfolding.  He ‘warned the government, in the strongest possible terms, that the Icelandic banks were facing serious difficulties re-capitalising themselves as the European banks no longer believed in their stability’ (Reuters, March 6).  Haarde, it seems, can’t count on his friendship with Oddsson to save him.

The cultural dimensions of a state and its citizens towards money is also a case in point, making prosecutions, should they ever happen in such cases as Greece, unviable.  To, however, assume that no action should be taken against heads of state who bring their state to bankruptcy would be a concession to atrocious decisions.

What many of Iceland’s citizens want is an admission more than a conviction, an extracted public confession.  Silla Sigurgeirsdottir of the University of Iceland is of such an opinion.  ‘The most important thing is not that he is convicted.  The most important thing is that somebody says I’m sorry, I made a mistake. I neglected my duty’ (The National, March 11).

Once the black sheep of high finance, government owned banks can reassure depositors about the safety of their savings and can help maintain a focus on productive investment in a world in which effective financial regulation remains more of an aspiration than a reality.

– Centre for Economic Policy Research, VoxEU.org (January 2010)

Public sector banking is a concept that is relatively unknown in the United States.  Only one state—North Dakota—owns its own bank.  North Dakota is also the only state to escape the credit crisis of 2008, sporting a budget surplus every year since; but skeptics write this off to coincidence or other factors.  The common perception is that government bureaucrats are bad businessmen.  To determine whether government-owned banks are assets or liabilities, then, we need to look farther afield.

When we remove our myopic U.S. blinders, it turns out that globally, not only are publicly-owned banks quite common but that countries with strong public banking sectors generally have strong, stable economies.  According to an Inter-American Development Bank paper presented in 2005, the percentage of state ownership in the banking industry globally by the mid-nineties was over 40 percent.[i]  The BRIC countries—Brazil, Russia, India, and China—contain nearly three billion of the world’s seven billion people, or 40% of the global population.  The BRICs all make heavy use of public sector banks, which compose about 75% of the banks in India, 69% or more in China, 45% in Brazil, and 60% in Russia.

The BRICs have been the main locus of world economic growth in the last decade.  China Daily reports, “Between 2000 and 2010, BRIC’s GDP grew by an incredible 92.7 percent, compared to a global GDP growth of just 32 percent, with industrialized economies having a very modest 15.5 percent.”

All the leading banks in the BRIC half of the globe are state-owned.  In fact, the largest banks globally are state-owned, including:

• The two largest banks by market capitalization (ICBC and China Construction Bank)
• The largest bank by deposits (Japan Post Bank)
• The largest bank by assets (Royal Bank of Scotland, now nationalized)
• The world’s largest development bank (BNDES in Brazil).

A May 2010 article in The Economist noted that the strong and stable publicly-owned banks of India, China and Brazil helped those countries weather the banking crisis afflicting most of the rest of the world in the last few years.  According to Professor Kurt von Mettenheim of the Sao Paulo Business School of Brazil:

Government banks provided counter cyclical credit and policy options to counter the effects of the recent financial crisis, while realizing competitive advantage over private and foreign banks.  Greater client confidence and official deposits reinforced liability base and lending capacity.  The credit policies of BRIC government banks help explain why these countries experienced shorter and milder economic downturns during 2007-2008.

Surprising Findings

In a 2010 research paper summarized on VoxEU.org, economists Svetlana Andrianova, et al., wrote that the post-2008 nationalization of a number of very large banks, including the Royal Bank of Scotland, “offers an opportune moment to reduce the political power of bankers and to carry out much needed financial reforms.”  But “there are concerns that governments may be unable to run nationalised banks efficiently.”

Not to worry, say the authors:

Follow-on research we have carried out (Andrianova et al, 2009) . . . shows that government ownership of banks has, if anything, been robustly associated with higher long run growth rates.

Using data from a large number of countries for 1995-2007, we find that, other things equal, countries with high degrees of government ownership of banking have grown faster than countries with little government ownership of banks. We show that this finding is robust to a battery of econometric tests.

Expanding on this theme in their research paper, the authors write:

While many countries in continental Europe, including Germany and France, have had a fair amount of experience with government-owned banks, the UK and the USA have found themselves in unfamiliar territory. It is therefore perhaps not surprising that there is deeply ingrained hostility in these countries towards the notion that governments can run banks effectively. . . . Hostility towards government-owned banks reflects the hypothesis . . . that these banks are established by politicians who use them to shore up their power by instructing them to lend to political supporters and government-owned enterprises. In return, politicians receive votes and other favours. This hypothesis also postulates that politically motivated banks make bad lending decisions, resulting in non-performing loans, financial fragility and slower growth.

But that is not what the data of these researchers showed:

[W]e have found that . . . countries with government-owned banks have, on average, grown faster than countries with no or little government ownership of banks. . . . This is, of course, a surprising result, especially in light of the widespread belief—typically supported by anecdotal evidence—that ‘… bureaucrats are generally bad bankers’ . . . .

What accounts for their surprising findings?  The authors provide a novel explanation:

We suggest that politicians may actually prefer banks not to be in the public sector. . . . Conditions of weak corporate governance in banks provide fertile ground for quick enrichment for both bankers and politicians – at the expense ultimately of the taxpayer. In such circumstances politicians can offer bankers a system of weak regulation in exchange for party political contributions, positions on the boards of banks or lucrative consultancies.  Activities that are more likely to provide both sides with quick returns are the more speculative ones, especially if they are sufficiently opaque as not to be well understood by the shareholders such as complex derivatives trading.

Government owned banks, on the other hand, have less freedom to engage in speculative strategies that result in quick enrichment for bank insiders and politicians. Moreover, politicians tend to be held accountable for wrongdoings or bad management in the public sector but are typically only indirectly blamed, if at all, for the misdemeanours of private banks. It is the shareholders who are expected to prevent these but lack of transparency and weak governance stops them from doing so in practice. On the other hand, when it comes to banks that are in the public sector, democratic accountability of politicians is more likely to discourage them from engaging in speculation. In such banks, top managers are more likely to be compelled to focus on the more mundane job of financing real businesses and economic growth.

The BRICs as a Global Power

Focusing on the financing of real businesses and economic growth seems to be the secret of the BRICs, which are leading the world in economic development today.  But the BRIC phenomenon is more than just a growth trend identified by an economist.  It is now an international organization, an alliance of countries representing the common interests and goals of its members.  The first BRIC meeting, held in 2008, was called a triumph for former Russian President Vladimir Putin’s policy of promoting multilateral arrangements that would challenge the United States’ concept of a unipolar world.

The BRIC countries had their first official summit and became a formal organization in Yekaterinburg, Russia, in 2009.  They met in Brazil in 2010 and in China in 2011, and they will meet in India in 2012.  In 2010, at China’s invitation, South Africa joined the group, making it “BRICS” and adding a strategic presence on the African continent.

The BRICS seek more voice in the United Nations, the IMF, and the World Bank.  They are even discussing their own multicultural bank to fund projects within their own nations, in direct competition with the IMF.  They oppose the dollar as global reserve currency.  After the Yekaterinburg summit, they called for a new global reserve currency, one that was diversified, stable and predictable; and they have the clout to get it.  According to Liam Halligan, writing in The U.K.Telegraph:

The BRICs account for . . . around three-quarters of total currency reserves. They have few serious fiscal issues and all are net external creditors.

Western financial interests have long fought to maintain the dollar as global reserve currency, but they are losing that battle, despite economic and military coercion.  Russia, China and India are now nuclear powers.  The BRICS will have to be negotiated with, and the first step to forming a working relationship is to understand how their economies work.  Rather than declaring war on their more successful practices, we may decide to assimilate some of them into our own.

China’s re-emergence as a world economic power raises important questions about what we can learn from its previous rise and fall and about the external and internal threats confronting this emerging economic superpower for the immediate future.

First we will outline the main contours of historical China’s rise to global economic superiority over West before the 19th century, following closely John Hobson’s account in The Eastern Origins of Western Civilization. Since the majority of western economic historians (liberal, conservative, and Marxist) have presented historical China as a stagnant, backward, parochial society, an “oriental despotism”, some detailed correctives will be necessary. It is especially important to emphasize how China, the world technological power between 1100 and 1800, made the West’s emergence possible. It was only by borrowing and assimilating Chinese innovations that the West was able to make the transition to modern capitalist and imperialist economies.

In part two we will analyze and discuss the factors and circumstances which led to China’s decline in the 19th century and its subsequent domination, exploitation and pillage by Western imperial countries, first England and then the rest of Europe, Japan and the United States.

In part three, we will briefly outline the factors leading to China’s emancipation from colonial and neo-colonial rule and analyze its recent rise to becoming the second largest global economic power.

Finally we will look at the past and present threats to China’s rise to global economic power, highlighting the similarities between British colonialism of the 18 and 19th centuries and the current US imperial strategies and focusing on the weaknesses and strengths of past and present Chinese responses.

China: The Rise and Consolidation of Global Power 1100-1800

In a systematic comparative format, John Hobson provides a wealth of empirical indicators demonstrating China’s global economic superiority over the West and in particular England. These are some striking facts:

As early as 1078, China was the world’s major producer of steel (125,000 tons); whereas Britain in 1788 produced 76,000 tons.

China was the world’s leader in technical innovations in textile manufacturing, seven centuries before Britain’s 18th century “textile revolution”.

China was the leading trading nation, with long distance trade reaching most of Southern Asia, Africa, the Middle East and Europe.

China’s “agricultural revolution” and productivity surpassed the West to the 18th century.

Its innovations in the production of paper, book printing, firearms, and tools led to a manufacturing superpower whose goods were transported throughout the world by the most advanced navigational system.

China possessed the world’s largest commercial ships. In 1588 the largest English ships displaced 400 tons, China’s displaced 3,000 tons. Even as late as the end of the 18th century China’s merchants employed 130,000 private transport ships, several times that of Britain. China retained this pre-eminent position in the world economy up until the early 19th century.

British and Europeans manufacturers followed China’s lead, assimilating and borrowing its more advanced technology and were eager to penetrate China’s advanced and lucrative market.

Banking, a stable paper money economy, manufacturing, and high yields in agriculture resulted in China’s per capita income matching that of Great Britain as late as 1750.

China’s dominant global position was challenged by the rise of British imperialism, which had adopted the advanced technological, navigational, and market innovations of China and other Asian countries in order to bypass earlier stages in becoming a world power.²

Western Imperialism and the Decline of China

The British and Western imperial conquest of the East, was based on the militaristic nature of the imperial state, its non-reciprocal economic relations with overseas trading countries and the Western imperial ideology which motivated and justified overseas conquest.

Unlike China, Britain’s industrial revolution and overseas expansion was driven by a military policy. According to Hobson, during the period from 1688-1815 Great Britain was engaged in wars 52% of the time.³ Whereas the Chinese relied on their open markets, their superior production, and sophisticated commercial and banking skills, the British relied on tariff protection, military conquest, the systematic destruction of competitive overseas enterprises as well as the appropriation and plunder of local resources. China’s global predominance was based on “reciprocal benefits” with its trading partners, while Britain relied on mercenary armies of occupation, savage repression and a “divide and conquer” policy to foment local rivalries. In the face of native resistance, the British (as well as other Western imperial powers) did not hesitate to exterminate entire communities.⁴

Unable to take over the Chinese market through greater economic competitiveness, Britain relied on brute military power. It mobilized, armed and led mercenaries, drawn from its colonies in India and elsewhere to force its exports on China and impose unequal treaties to lower tariffs. As a result China was flooded with British opium produced on its plantations in India — despite Chinese laws forbidding or regulating the importation and sale of the narcotic. China’s rulers, long accustomed to its trade and manufacturing superiority, were unprepared for the “new imperial rules” for global power. The West’s willingness to use military power to win colonies, pillage resources and recruit huge mercenary armies commanded by European officers spelt the end for China as a world power.

China had based its economic predominance on “non-interference in the internal affairs of its trading partners”. In contrast, British imperialists intervened violently in Asia, reorganizing local economies to suit the needs of the empire (eliminating economic competitors including more efficient Indian cotton manufacturers), and seized control of local political, economic, and administrative apparatus to establish the colonial state.

Britain’s empire was built with resources seized from the colonies and through the massive militarization of its economy.⁵ It was thus able to secure military supremacy over China. China’s foreign policy was hampered by its ruling elite’s excessive reliance on trade relations. Chinese officials and merchant elites sought to appease the British and convinced the emperor to grant devastating extra-territorial concessions opening markets to the detriment of Chinese manufacturers while surrendering local sovereignty. As always, the British precipitated internal rivalries and revolts further destabilizing the country.

Western and British penetration and colonization of China’s market created an entire new class: The wealthy Chinese “compradores” imported British goods and facilitated the takeover of local markets and resources. Imperialist pillage forced greater exploitation and taxation of the great mass of Chinese peasants and workers. China’s rulers were obliged to pay the war debts and finance trade deficits imposed by the Western imperial powers by squeezing its peasantry. This drove the peasants to starvation and revolt.

By the early 20th century (less than a century after the Opium Wars), China had descended from world economic power to a broken semi-colonial country with a huge destitute population. The principle ports were controlled by Western imperial officials and the countryside was subject to the rule by corrupt and brutal warlords. British opium enslaved millions.

British Academics: Eloquent Apologists for Imperial Conquest

The entire Western academic profession – first and foremost British imperialist historians – attributed British imperial dominance of Asia to English “technological superiority” and China’s misery and colonial status to “oriental backwardness”, omitting any mention of the millennium of Chinese commercial and technical progress and superiority up to the dawn of the 19th century. By the end of the 1920s, with the Japanese imperial invasion, China ceased to exist as a unified country. Under the aegis of imperialist rule, hundreds of millions of Chinese had starved or were dispossessed or slaughtered, as the Western powers and Japan plundered its economy. The entire Chinese “collaborator” comprador elitists were discredited before the Chinese people.

What did remain in the collective memory of the great mass of the Chinese people – and what was totally absent in the accounts of prestigious US and British academics – was the sense of China once having been a prosperous, dynamic and leading world power. Western commentators dismissed this collective memory of China’s ascendancy as the foolish pretensions of nostalgic lords and royalty – empty Han arrogance.

China Rises from the Ashes of Imperial Plunder and Humiliation: The Chinese Communist Revolution

The rise of modern China to become the second largest economy in the world was made possible only through the success of the Chinese communist revolution in the mid-20th century. The People’s Liberation “Red” Army defeated first the invading Japanese imperial army and later the US imperialist-backed comprador-led Kuomintang “Nationalist” army. This allowed the reunification of China as an independent sovereign state. The Communist government abolished the extra-territorial privileges of the Western imperialists, ended the territorial fiefdoms of the regional warlords and gangsters, and drove out the millionaire owners of brothels, the traffickers of women and drugs as well as the other “service providers” to the Euro-American Empire.

In every sense of the word, the Communist revolution forged the modern Chinese state. The new leaders then proceeded to reconstruct an economy ravaged by imperial wars and pillaged by Western and Japanese capitalists. After over 150 years of infamy and humiliation the Chinese people recovered their pride and national dignity. These socio-psychological elements were essential in motivating the Chinese to defend their country from the US attacks, sabotage, boycotts, and blockades mounted immediately after liberation.

Contrary to Western and neoliberal Chinese economists, China’s dynamic growth did not start in 1980. It began in 1950, when the agrarian reform provided land, infrastructure, credits and technical assistance to hundreds of millions of landless and destitute peasants and landless rural workers. Through what is now called “human capital” and gigantic social mobilization, the Communists built roads, airfields, bridges, canals and railroads as well as the basic industries, like coal, iron and steel, to form the backbone of the modern Chinese economy. Communist China’s vast free educational and health systems created a healthy, literate, and motivated work force. Its highly professional military prevented the US from extending its military empire throughout the Korean peninsula up to China’s territorial frontiers. Just as past Western scholars and propagandists fabricated a history of a “stagnant and decadent” empire to justify their destructive conquest, so too their modern counterparts have rewritten the first thirty years of Chinese Communist history, denying the role of the revolution in developing all the essential elements for a modern economy, state, and society. It is clear that China’s rapid economic growth was based on the development of its internal market, its rapidly growing cadre of scientists, skilled technicians, and workers and the social safety net which protected and promoted working class and peasant mobility were products of Communist planning and investments.

China’s rise to global power began in 1949 with the removal of the entire parasitic financial, comprador and speculative classes who had served as the intermediaries for European, Japanese and US imperialists draining China of its great wealth.

China’s Transition to Capitalism

Beginning in 1980 the Chinese government initiated a dramatic shift in its economic strategy: Over the next three decades, it opened the country to large-scale foreign investment; it privatized thousands of industries and it set in motion a process of income concentration based on a deliberate strategy of re-creating a dominant economic class of billionaires linked to overseas capitalists. China’s ruling political class embraced the idea of “borrowing” technical know-how and accessing overseas markets from foreign firms in exchange for providing cheap, plentiful labor at the lowest cost. The Chinese state re-directed massive public subsidies to promote high capitalist growth by dismantling its national system of free public education and health care. They ended subsidized public housing for hundreds of millions of peasants and urban factory workers and provided funds to real estate speculators for the construction of private luxury apartments and office skyscrapers. China’s new capitalist strategy as well as its double digit growth was based on the profound structural changes and massive public investments made possible by the previous communist government. China’s private sector “take off” was based on the huge public outlays made since 1949.

The triumphant new capitalist class and its Western collaborators claimed all the credit for this “economic miracle” as China rose to become the world’s second largest economy. This new Chinese elite have been less eager to announce China’s world-class status in terms of brutal class inequalities, rivaling only the US.

China: From Imperial Dependency to World Class Competitor

China’s sustained growth in its manufacturing sector was a result of highly concentrated public investments, high profits, technological innovations and a protected domestic market. While foreign capital profited, it was always within the framework of the Chinese state’s priorities and regulations. The regime’s dynamic “export strategy” led to huge trade surpluses, which eventually made China one of the world’s largest creditors especially for US debt. In order to maintain its dynamic industries, China has required huge influxes of raw materials, resulting in large-scale overseas investments and trade agreements with agro-mineral export countries in Africa and Latin America. By 2010 China displaced the US and Europe as the main trading partner in many countries in Asia, Africa and Latin America.

Modern China’s rise to world economic power, like its predecessor between 1100-1800, is based on its gigantic productive capacity. Trade and investment was governed by a policy of strict non-interference in the internal relations of its trading partners. Unlike the US, China did not initiate brutal wars for oil; instead it signed lucrative contracts. And China does not fight wars in the interest of overseas Chinese, as the US has done in the Middle East for Israel.

The seeming imbalance between Chinese economic and military power is in stark contrast to the US where a bloated, parasitic military empire continues to erode its own global economic presence.

US military spending is twelve times that of China. Increasingly the US military plays the key role shaping policy in Washington as it seeks to undercut China’s rise to global power.

China’s Rise to World Power: Will History Repeat Itself?

China has been growing at about 9% per annum and its goods and services are rapidly rising in quality and value. In contrast, the US and Europe have wallowed around 0% growth from 2007-2012. China’s innovative techno-scientific establishment routinely assimilates the latest inventions from the West (and Japan) and improves them, thereby decreasing the cost of production. China has replaced the US and European controlled “international financial institutions” (the IMF, World Bank, the Inter-American Development Bank) as the principle lender in Latin America. China continues to lead as the prime investor in African energy and mineral resources. China has replaced the US as the principle market for Saudi Arabian, Sudanese, and Iranian petroleum and it will soon replace the US as the principle market for Venezuela petroleum products. Today China is the world’s biggest manufacturer and exporter, dominating even the US market, while playing the role of financial life line as it holds over $1.3 trillion in US Treasury notes.

Under growing pressure from its workers, farmers and peasants, China’s rulers have been developing the domestic market by increasing wages and social spending to rebalance the economy and avoid the specter of social instability. In contrast, US wages, salaries and vital public services have sharply declined in absolute and relative terms.

Given the current historical trends it is clear that China will replace the US as the leading world economic power, over the next decade, if the US empire does not strike back and if China’s profound class inequalities do not lead to a major social upheaval.

Modern China’s rise to global power faces serious challenges. In contrast to China’s historical ascent on the world stage, modern Chinese global economic power is not accompanied by any imperialist undertakings. China has seriously lagged behind the US and Europe in aggressive war-making capacity. This may have allowed China to direct public resources to maximize economic growth, but it has left China vulnerable to US military superiority in terms of its massive arsenal, its string of forward bases, and strategic geo-military positions right off the Chinese coast and in adjoining territories.

In the nineteenth century British imperialism demolished China’s global position with its military superiority, seizing China’s ports – because of China’s reliance on “mercantile superiority”.

The conquest of India, Burma and most of Asia allowed Britain to establish colonial bases and recruit local mercenary armies. The British and its mercenary allies encircled and isolated China, setting the stage for the disruption of China’s markets and the imposition of the brutal terms of trade. The British Empire’s armed presence dictated what China imported (with opium accounting for over 50% of British exports in the 1850s) while undermining China’s competitive advantages via tariff policies.

Today the US is pursuing similar policies: US naval fleet patrols and controls China’s commercial shipping lanes and off-shore oil resources via its overseas bases. The Obama-Clinton White House is in the process of developing a rapid military response involving bases in Australia, Philippines, and elsewhere in Asia. The US is intensifying its efforts to undermine Chinese overseas access to strategic resources while backing “grass roots” separatists and “insurgents” in West China, Tibet, Sudan, Burma, Iran, Libya, Syria, and elsewhere. The US military agreements with India and the installation of a pliable puppet regime in Pakistan have advanced its strategy of isolating China. While China upholds its policy of “harmonious development” and “non-interference in the internal affairs of other countries”, it has stepped aside as US and European military imperialism have attacked a host of China’s trading partners to essentially reverse China’s peaceful commercial expansion.

China’s lack of a political and ideological strategy capable of protecting its overseas economic interests has been an invitation for the US and NATO to set-up regimes hostile to China. The most striking example is Libya where US and NATO intervened to overthrow an independent government led by President Gaddafi, with whom China had signed multi-billion dollar trade and investments agreements. The NATO bombardment of Libyan cities, ports and oil installation forced the Chinese to withdraw 35,000 Chinese oil engineers and construction workers in a matter of days. The same thing happened in Sudan where China had invested billions to develop its oil industry. The US, Israel, and Europe armed the South Sudanese rebels to disrupt the flow of oil and attack Chinese oil workers⁶ In both cases China passively allowed the US and European military imperialists to attack its trade partners and undermine its investments.

Under Mao Zedong, China had an active policy countering imperial aggression. It supported revolutionary movements and independent Third World governments. Today’s capitalist China does not have an active policy of supporting governments or movements capable of protecting China’s bilateral trade and investment agreements. China’s inability to confront the rising tide of US military aggression against its economic interests is due to deep structural problems. China’s foreign policy is shaped by big commercial, financial, and manufacturing interests who rely on their “economic competitive edge” to gain market shares and have no understanding of the military and security underpinnings of global economic power. China’s political class is deeply influenced by a new class of billionaires with strong ties to Western equity funds and who have uncritically absorbed Western cultural values. This is illustrated by their preference for sending their own children to elite universities in the US and Europe. They seek “accommodation with the West” at any price. This lack of any strategic understanding of military empire-building has led them to respond ineffectively and ad hoc to each imperialist action undermining their access to resources and markets. While China’s “business first” outlook may have worked when it was a minor player in the world economy and US empire builders saw the “capitalist opening” as a chance to easily takeover China’s public enterprises and pillage the economy. However, when China (in contrast to the former USSR) decided to retain capital controls and develop a carefully calibrated, state-directed “industrial policy” directing western capital and the transfer of technology to state enterprises, which effectively penetrated the US domestic and overseas markets, Washington began to complain and talked of retaliation. China’s huge trade surpluses with the US provoked a dual response in Washington. It sold massive quantities of US Treasury bonds to the Chinese and began to develop a global strategy to block China’s advance. Since the US lacked economic leverage to reverse its decline, it relied on its only “comparative advantage” – its military superiority based on a world wide system of attack bases, a network of overseas client regimes, military proxies, NGOers, intellectuals and armed mercenaries. Washington turned to its vast overt and clandestine security apparatus to undermine China’s trading partners. Washington depends on its long-standing ties with corrupt rulers, dissidents, journalists and media moguls to provide the powerful propaganda cover while advancing its military offensive against China’s overseas interests.

China has nothing to compare with the US overseas security apparatus because it practices a policy of non-interference. Given the advanced state of the Western imperial offensive, China has taken only a few diplomatic initiatives, such as financing English language media outlets to present its perspective, using its veto power on the UN Security Council to oppose US efforts to overthrow the independent Assad regime in Syria, and opposing the imposition of drastic sanctions against Iran. It sternly repudiated US Secretary of State Hilary Clinton’s vitriolic questioning of the “legitimacy” of the Chinese state when it voted against the US-UN resolution preparing an attack on Syria.⁷

Chinese military strategists are more aware and alarmed at the growing military threat to China. They have successfully demanded a 19% annual increase in military spending over the next five years (2011-2015).⁸ Even with this increase, China’s military expenditures will still be less than one-fifth of the US military budget and China has not one overseas military base in stark contrast to the over 750 US installations abroad. Overseas Chinese intelligence operations are minimal and ineffective. Its embassies are run by and for narrow commercial interests who utterly failed to understand NATO’s brutal policy of regime change in Libya and inform Beijing of its significance to the Chinese state.

There are two other structural weaknesses undermining China’s rise as a world power. This includes the highly ‘Westernized’ intelligentsia which has uncritically swallowed US economic doctrine about free markets while ignoring its militarized economy. These Chinese intellectuals parrot the US propaganda about the “democratic virtues” of billion-dollar Presidential campaigns, while supporting financial deregulation which would have led to a Wall Street takeover of Chinese banks and savings. Many Chinese business consultants and academics have been educated in the US and influenced by their ties to US academics and international financial institutions directly linked to Wall Street and the City of London. They have prospered as highly-paid consultants receiving prestigious positions in Chinese institutions. They identify the “liberalization of financial markets” with “advanced economies” capable of deepening ties to global markets instead of as a major source of the current global financial crisis. These “Westernized intellectuals” are like their 19th century comprador counterparts who underestimated and dismissed the long-term consequences of Western imperial penetration. They fail to understand how financial deregulation in the US precipitated the current crisis and how deregulation would lead to a Western takeover of China’s financial system – the consequences of which would reallocate China’s domestic savings to non-productive activities (real estate speculation), precipitate financial crisis and ultimately undermine China’s leading global position.

These Chinese yuppies imitate the worst of Western consumerist life styles and their political outlooks are driven by these life styles and Westernized identities which preclude any sense of solidarity with their own working class.

There is an economic basis for the pro-Western sentiments of China’s neo-compradors. They have transferred billions of dollars to foreign bank accounts, purchased luxury homes and apartments in London, Toronto, Los Angeles, Manhattan, Paris, Hong Kong, and Singapore. They have one foot in China (the source of their wealth) and the other in the West (where they consume and hide their wealth).

Westernized compradors are deeply embedded in China’s economic system having family ties with the political leadership in the party apparatus and the state. Their connections are weakest in the military and in the growing social movements, although some “dissident” students and academic activists in the “democracy movements” are backed by Western imperial NGO’s. To the extent that the compradors gain influence, they weaken the strong economic state institutions which have directed China’s ascent to global power, just as they did in the 19th century by acting as intermediaries for the British Empire. Proclaiming 19th Century “liberalism”, British opium addicted over 50 million Chinese in less than a decade. Proclaiming “democracy and human rights”, US gunboats now patrol off China’s coast. China’s elite-directed rise to global economic power has spawned monumental inequalities between the thousands of new billionaires and multi-millionaires at the top and hundreds of millions of impoverished workers, peasants and migrant workers at the bottom.

China’s rapid accumulation of wealth and capital was made possible through the intense exploitation of its workers who were stripped of their previous social safety net and regulated work conditions guaranteed under Communism. Millions of Chinese households are being dispossessed in order to promote real estate developer/speculators who then build high rise offices and the luxury apartments for the domestic and foreign elite. These brutal features of ascendant Chinese capitalism have created a fusion of workplace and living space mass struggle which is growing every year. The developer/speculators’ slogan “to get rich is wonderful” has lost its power to deceive the people. In 2011 there were over 200,000 popular encompassing urban coastal factories and rural villages. The next step, which is sure to come, will be the unification of these struggles into new national social movements with a class-based agenda demanding the restoration of health and educational services enjoyed under the Communists as well as a greater share of China’s wealth. Current demands for greater wages can turn to demands for greater work place democracy. To answer these popular demands China’s new comprador-Westernized liberals cannot point to their “model” in the US empire where American workers are in the process of being stripped of the very benefits Chinese workers are struggling to regain.

China, torn by deepening class and political conflict, cannot sustain its drive toward global economic leadership. China’s elite cannot confront the rising global imperial military threat from the US with its comprador allies among the internal liberal elite while the country is a deeply divided society with an increasingly hostile working class. The time of unbridled exploitation of China’s labor has to end in order to face the US military encirclement of China and economic disruption of its overseas markets. China possesses enormous resources. With over $1.5 trillion dollars in reserves China can finance a comprehensive national health and educational program throughout the country.

China can afford to pursue an intensive “public housing program” for the 250 million migrant workers currently living in urban squalor. China can impose a system of progressive income taxes on its new billionaires and millionaires and finance small family farmer co-operatives and rural industries to rebalance the economy. Their program of developing alternative energy sources, such as solar panels and wind farms – are a promising start to addressing their serious environmental pollution. Degradation of the environment and related health issues already engage the concern of tens of millions. Ultimately China’s best defense against imperial encroachments is a stable regime based on social justice for the hundreds of millions and a foreign policy of supporting overseas anti-imperialist movements and regimes – whose independence are in China’s vital interest. What is needed is a pro-active policy based on mutually beneficial joint ventures including military and diplomatic solidarity. Already a small, but influential, group of Chinese intellectuals have raised the issue of the growing US military threat and are “saying no to gunboat diplomacy”.⁹

Modern China has plenty of resources and opportunities, unavailable to China in the 19th century when it was subjugated by the British Empire. If the US continues to escalate its aggressive militaristic policy against China, Beijing can set off a serious fiscal crisis by dumping a few of its hundreds of billions of dollars in US Treasury notes. China, a nuclear power should reach out to its similarly armed and threatened neighbor, Russia, to confront and confound the bellicose rantings of US Secretary of State, Hilary Clinton. Russian President-to-be Putin vows to increase military spending from 3% to 6% of the GDP over the next decade to counter Washington’s offensive missile bases on Russia’s borders and thwart Obama’s regime change programs against its allies, like Syria.¹⁰

China has powerful trading, financial and investment networks covering the globe as well as powerful economic partners. These links have become essential for the continued growth of many of countries throughout the developing world. In taking on China, the US will have to face the opposition of many powerful market-based elites throughout the world. Few countries or elites see any future in tying their fortunes to an economically unstable empire-based on militarism and destructive colonial occupations.

In other words, modern China, as a world power, is incomparably stronger than it was in early 18th century. The US does not have the colonial leverage that the ascendant British Empire possessed in the run-up to the Opium Wars. Moreover, many Chinese intellectuals and the vast majority of its citizens have no intention of letting its current “Westernized compradors” sell out the country. Nothing would accelerate political polarization in Chinese society and hasten the coming of a second Chinese social revolution more than a timid leadership submitting to a new era of Western imperial pillage.

1. John Hobson, The Eastern Origins of Western Civilization (Cambridge UK: Cambridge University Press 2004).
2. Ibid, Ch. 9: 190-218.
3. Ibid, Ch. 11: 244-248.
4. Richard Gott, Britain’s Empire: Resistance, Repression and Revolt (London: Verso 2011) for a detailed historical chronicle of the savagery accompanying Britain’s colonial empire.
5. Hobson: 253-256.
6. Katrina Manson, “South Sudan puts Beijing’s policies to the test”, Financial Times, 2/21/12, p. 5.
7. Interview of Clinton NPR, 2/26/12.
8. La Jornada, 2/15/12 (Mexico City).
9. China Daily, 2/20/2012.
10. Charles Clover, ‘Putin vows huge boost in defense spending’, Financial Times, 2/12/2012.