In recent years we have seen a windfall of corporate crime and esurience. Along with the current Depression there have been banking failures, a collapse in the auto industry, bailouts of companies like AIG who awarded executives exotic junkets and large bonuses, ad infinitum. Through this crisis, the inner workings of the global financial system have been stripped of all raiment and the fraudulent nature of the entire economy exposed. From Ponzi schemes to rackets, banksters, politicians and corporate executives have abused crony-capitalism and in net-effect hijacked the structural machinations of civilization. Meanwhile, a steady diet of entertainment and the subtle inculcations that comes packaged therewith leaves a great number of what once were citizens of democratically represented republics in the West, now more aptly termed subjects, incapable of analyzing and thinking for themselves. The economy is understood as an autonomous blanket on which influence is democratically impinged by persons. The truth, however unfortunate, is that the amount of influence exercised by a stunningly tiny minority gives them a sort of reign over the entire globe, thanks largely to traditional military imperialism and the more recent advent of economic warfare spearheaded by the IMF and World Bank. These finance capital and political generalists, who theorize about how best to use their volume or influence, scrutinize in the context of decades, and have effectively used the centralizing motif of civilization, so blatantly obvious in this day and age it has a palatable name in globalization, to further an agenda of power accumulation by dispossesion of peoples. The political, financial and power elites at the top of the global deference pyramid heed Machiavelli’s advice still to this day: “Knowingly…adopt the beat.”
Gross inequalities exist in the U.S.:
Top 1% own 38.1%
Top 96-99% own 21.3%
Top 90-95% own 11.5%
Bottom 40% of population has 0.2% of all wealth.
In the language of the founding fathers, citizens “owned” property, which implies one was not indebted to a creditor. ((U.S. Wealth Distribution: 10% of US Citizens own 70.9% of all US Assets. Daily Paul, October 18.)) But, such stark inequality, which effectively undermines the ability of markets to function at equilibrium, has to a great extent been normalized in the minds of many — a system in which modern indentured servitude is seen as the path to prosperity, despite that over the past thirty years, as Americans have had to take out loans to make up the difference for falling wages, the standard of living in the US has fallen dramatically. The distribution of wealth represents a system in which rent is owed by the people to finance capital. Recently, a Goldman Sachs International adviser argued in favor of the finance industry’s extravagant compensation and his company’s plans for a near-record year in pay. He argues the spending will boost the economy.
“We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all,” said Brian Griffiths, formerly a special adviser to then British Prime Minister Margaret Thatcher, at a panel discussion in London’s St. Paul’s Cathedral. Discussed was the question, “What is the place of morality in the marketplace?”
Goldman Sachs Group Inc., based in New York, put aside $16.7 billion for compensation and benefits in the first nine months of 2009, an increase of 46 percent when compared with a year earlier. This total is enough to pay each worker $527,192 for the period in question. In many states, the nation is suffering from Depression level unemployment, whilst government figures drastically understate true levels by half. 100,000 teachers, also, have been laid off, and class sizes have exploded to more than 40 students per class. Over one million US students are homeless. Foreclosures are at a record high. ((Caroline Binham. Goldman Sachs’s Griffiths Say Inequality Helps All, October 21. Bloomberg.))
The bailout programs were designed in such a way, that the destination of the money cannot be accounted for, according to Elizabeth Warren, the Harvard law professor who oversaw the bailout for Congress. Instead of taking the saner approach of the taxpayer purchase of all major US banks, since total market capitalization of all major US banks was less than $300 billion or less than a tenth of the amount given away, we’ve insured the major financial institutions at the cost of stability for the taxpayer. Now, should there be any future volatility in the markets, the taxpayer owns shares in the companies.
Instead of a corporate bailout, the banks should have been forced to write-down the value of the mortgages they, according to the FBI, illegally filed, and negotiated a new loan at a lesser price for the homeowners. The power of monetary policy ought to be shifted to the Treasury for the payment of public goods and services and the cost of credit for people should be minimized.
The federal budget deficit is $1.4 trillion, and the federal debt $12 trillion with annual interest rate payments of $450 billion each year. No coherent debate about how to alleviate these problems has been brought to the public. The US debt altogether is $70 trillion.
Since last October the taxpayer has bore witness to the largest transfer of wealth in, perhaps, the history of man, with potentially $23.7 trillion going to banks and financial institutions after the socialization of their risk on illegal sub-prime mortgages and credit default swaps. The FBI concluded that 80% of all sub-prime criminal fraud began with the lenders. ((Carl Herman. 2009 US Economy: largest transfer of wealth to financial/political elite in global history, October 20. Examiner. )) There is an old proverb: “The creditor becomes the lenders slave.”
Carrol Quigley, a mentor of former President Bill Clinton, had this to say about finance-capital’s motives:
The Power of financial capitalism [has a] far reaching plan, 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 feudalistic fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent 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 co-operative politicians by subsequent rewards in the business world. ((Carrol Quigley. Tragedy and Hope: A History of the World in our Time. The Macmillan Company. ))
In short, the motives of these firms were and are to expand market share and make profits for the shareholders.
Due to the breakdown in trade, pointedly demonstrated by a ghost fleet larger than the US and British fleets combined anchored east of Singapore, also the largest group of ships in the history of maritime travel without crew, no cargo and no destination, the concept of deglobalization has been floated around. Whereas the definition offered by Quigley points towards a collection of impotent localities unable to exercise sovereignty, other more positive definitions exist, such as that offered by Walden Bello. ((Waldon Bello. The Virtues of Deglobalization. Global Research, October 25.))
He envisages deglobalization as a process that enables production for domestic markets to become central to the economy rather than production where labor is cheap for export markets. Subsidies should be encouraged for projects at the level of the city-state, state and at the national level if this can be done at a reasonable economic and environmental cost with an agenda of preserving community and creating abundant, inelastic resources. Trade policy including quotas and tariffs should protect local economies from predatory corporate-subsidized commodities and their artificially low prices. Equitable income distribution and urban land reform creating a vibrant internal market would kickstart parts of the economy and make available capital for local financial resources for investment. Investment should emphasize not growth, but, rather the quality of life. Environmentally congenial technology in both agriculture and industry would be a massive, New Deal style endeavor, and funds for such projects should be diffused equitably, as opposed only to the energy cartel. Economic decision-making ought not be left to technocrats, but instead to Congress and the Treasury — in other words, those agencies accountable to the public. Questions include what industries to develop or phase out, what proportion of the government budget to devote to agriculture, etc. Markets should refer to a mixed economy of community cooperatives, private enterprise, state enterprise, and no transnational corporations. To replace the transnational corporation, networks of free associations with demarcations or firewalls between local associations may develop.
Despite an unresponsive Washington, overextended budget and rampant corruption which seems hopeless, there are still ways in which our economic problems can be stabilized indefinitely. During the Civil War, for example, English bankers exercised an astonishing amount of influence over Lincoln’s government, just as Wall Street determines Congresses policies today. The North needed money to fund the war, and the bankers lent them money at impossible-to-repay interest rates of 24 to 26 percent. Lincoln noted that this would bankrupt the North and requested that Colonel Dick Taylor of Illinois search for a solution. Taylor informed the President that under the Constitution the US had the power to solve its financing problem by printing its money as a sovereign government. Taylor said:
Just get Congress to pass a bill authorizing the printing of full legal tender treasury notes … and pay your soldiers with them and go ahead and win your war with them also. If you make them full legal tender … they will have the full sanction of the government and be just as good as any money; as Congress is given that express right by the Constitution. ((Ellen Brown. Revive Lincoln’s Monetary Policy: An Open Letter to President Obama. April 8, 2009.))
And so Lincoln funded the war by printing paper notes supported by the credit of the government. These legal-tender U.S. Notes, otherwise known as “Greenbacks,” represented receipts for labor and goods sold to the United States. Soldiers and suppliers received them as pay and they were tradable for goods and services of a value equivalent to their service to the community. The period of the Greenback was also one of large-scale economic expansion. During this period, the steel industry was launched and the continental railroad system was initiated; farm machinery and cheap tools were bankrolled, free higher education was offered, government support was provided to the sciences, the Bureau of Mines was organized, and labor productivity was increased by 50 to 75 percent.
The Greenback was not the lone currency used to bankroll these projects, but it was key to the process. Such growth, moreover, would not have been achieved by money borrowed at the rates London was demanding.
Lincoln’s presidency represents an era in which the government recognized its power to issue a national currency, despite being opposed by powerful special interests. Believed to have been published in the London Times in 1865, the following report sums of the establishment spirit of times in regard to the monetary issue:
If that mischievous financial policy which had its origin in the North American Republic during the late war in that country, should become indurated down to a fixture, then that Government will furnish its own money without cost. It will pay off its debts and be without debt. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and wealth of all countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe.
Eventually a private institution was put in charge of the technocratic printing of money within the country. The Federal Reserve is a privately-owned central bank bequeathed the power in 1913 to print Federal Reserve Notes or dollar bills and lend them to the government. Since that date, the government has suffered an increase in debt which today stands at $11 trillion.
About this system, Henry Ford noted: “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
California’s current economic woes portend a fate that awaits the rest of the country. The Golden State is currently attempting to solve its $26 billion budget deficit through massive cuts in public funding. California’s residents, making up the world’s eighth largest economy, have refused further tax hikes, and Democratic leaders have refused further cuts in services or auctioning of public assets. California should not pay for the crisis with increased taxes or decreased services or public parks. ((Ellen Brown. California Dreamin’: How the State Can Beat It’s Budget Woes, July 8 2009.))
In the meanwhile, the state has begun paying the State’s bills with IOU’s.
Such was the idea, in fact, that helped the colonies emerge from under a pile of British debt back in the 18th century, a time during which they lacked the silver and gold used in the Old World for conducting trade. The Massachusetts Assembly then proposed a different kind of paper money, a “bill of credit” representing the government’s “bond”; in other words, an IOU. The new fiat currency was backed by no more than “full faith and credit” of the government.
Following such a model, the Federal Reserve’s current Quantitative Easing Program could potentially represent the correct monetary policy in a time of high unemployment and threat of inflation or deflation. Historically, Quantitative Easing has resulted in hyperinflation and currency devaluation, but this does not necessarily need to lead to a doomsday scenario. According to Paul Krugman, a weaker dollar might serve as benefit for the U.S.:
Although there has been a lot of doom saying about the falling dollar, that decline is actually both natural and desirable. America needs a weaker dollar to help reduce its trade deficit, and it’s getting that weaker dollar as nervous investors, who flocked into the presumed safety of U.S. debt at the peak of the crisis, have started putting their money to work elsewhere. But China has been keeping its currency pegged to the dollar — which means that a country with a huge trade surplus and a rapidly recovering economy, a country whose currency should be rising in value, is in effect engineering a large devaluation instead. And that’s a particularly bad thing to do at a time when the world economy remains deeply depressed due to inadequate overall demand. ((Paul Krugman, “The Chinese Disconnect,” New York Times.))
One reason why China has yet to let their currency rise against a weakening dollar is due to their being more concerned about sustaining consistent demand than weaknesses with the greenback.
According to the Economist:
The simplest explanation for the currency’s decline is based on risk aversion. On the days when risky assets fall, the dollar tends to go up. When risky assets rise, the dollar falls. The dollar has fallen fairly steadily since March, a period which has seen stockmarkets enjoy a phenomenal rally. Domestic American investors may be driving the relationship, repatriating funds in 2008 when they were nervous about the state of financial markets and sending the money abroad again this summer because of a perception that the global economy is reviving. ((“Down with the Dollar,” The Economist, Oct, 2009.))
Many concern themselves with record deficits, creating headwinds for more stimulus, which might be useful were it printed through Congress or another public entity within the government concerned with the well-being of citizens. Japan, however, has deficits twice the size of GDP and bond yields hovering below 2 percent. The Japanese are staving off deflation. On the other hand, US deficits represent 12 percent of GDP. The dollar does not need to be crushed by deficits even much greater than this. Nonetheless, as soon as the government stops spending money and running up the deficit, unemployment will soar, banks and business already tottering on the brink will default, foreclosures will go up, and the economy will slip further into Depression. Important to note, is that the US economy, unlike Japan, is nearly 50 percent based in the financial and service sector. It also boasts the world’s reserve currency. ((Mike Whitney, Dollar Collapse Update: “Obama Demands Pay in Euros.” Global Research, October 25.))
Currently, to be sure, consumer credit is decreasing at a year-over-year rate of 5 percent, whilst savings are up and spending is down. Unemployment sits at U6 20 percent. The nation is suffering record foreclosures, delinquencies, bankruptcies, and defaults are sucking credit from the system. Should the Federal Reserve terminate Quantitative Easing, there would be no way to increase jobs or spending.
This line of reasoning suggests that the debate about the fall of the dollar is misdirected, and that the jugular of the issue lies in wage growth and full employment. One way in which these two issues can be resolved is by printing up the two trillion in another stimulus, which, regrettably, would amount to another bailout, unless, of course, the public money creation model was followed.
The nation’s only state-owned bank, the Bank of North Carolina, was created 90 years ago, in 1919, as a result of a populist movement across the northern plains. The movement, led by the Nonpartisan league, created an industrial program, out of which both the Bank of North Dakota and a state-owned mill were created. The funding and deposit model is what truly makes the bank unique, for the bank functions as the depository for all state collections and fees, has a captive deposit base, and pays a competitive rate to the state treasurer. From those funds the banks then pays those deposits back to North Dakota as loans. Therefore, it invests back into the state in economic development type of activities.
The bank employs certain programs designed to spur growth in certain sectors of the economy, be it agricultural or economic development programs useful in the state or energy, as well as education in the form of student loan financing. Certain loan programs with low interest rates promote activity along certain lines. The bank even promotes the movement of cash to disaster loan programs meant to aid businesses, enabling the state to act quickly should it need.
The bank all on its own, however, is not the sole reason the state has avoided such the hardships of other states. Rather, the bank’s choice to stay away from subprime lending and inability to get into the derivatives markets and put on swaps and callers and caps and credit default swaps. The bank also provides a dividend back to the state: approximately half of what it makes goes to the state general fund. Over the last 12 years, the bank has contributed a third of a billion dollars to this general fund to alleviate taxes or to aid in funding public sector type of needs. This in a state of 650,000 people.
And how has the current crisis affected the state of North Dakota? According to bank president Eric Hardmeyer:
“The State of North Dakota does not have any funding issues at all. We in fact are dealing with the largest surplus we’ve ever had. So our concern is how do we spend it wisely and make sure we save it for the future.” ((Josh Harkinson. How the Nation’s Only State-Owned Bank Became the Envy of Wall Street. Mother Jones, March 27.))
Corruption in New York City and Washington DC amounts to a collusion between the political and corporate centers of power; in a word, corporatism. Representatives of finance capital are funded in elections, and quite often money talks to get certain cronies elected. When the numbers are considered, this is surely the case in the last presidential election. The expansion of Bush’s militarist and economic policies on the part of Obama is an argument in favor of the idea that the US political system is composed of one party with two factions, whose policies overlap on issues important for the aforementioned top 1-10 percent. There is very little debate carried out in the public forum and a general trajectory of centralized power continues.
The Federal Reserve enables money to be printed at near-zero interest. Along with the Treasury Department, the Federal Reserve controls the purse strings of the US. Taxation and Debt have reached such crippling levels that the majority of citizens are dispirited, hopeless, and exhausted. We should all take a breather: debts that can’t be repaid, won’t. The system of taxation and debt is an old one and has been effective in keeping people in line.
The world’s economic and financial superstructure is, at present, very weak. Policies in Washington and the movement of volume for volatility on behalf of the major financial institutions hint that this is desired by the movers of money. Thankfully, through the internet many more people today are aware that crises, more often than not, do not arise by mysterious and trans-human social forces, but from insatiable greed.
HR1207 and SB604, bills in Congress to audit and investigate the Federal Reserve, have helped to further inform people of the heretofore secretive nature of policy making in these two institutions. In democratic and open societies, nothing less than total transparency are deserved by the people. The job of monetary policy belongs to the Treasury under the Constitution. A firewall between Wall Street and Washington is the next step.
The credit crisis and the breakdown of our economic and financial institutional infrastructure began two years ago. The system of so much fraud and corruption has been kept functioning through cheap money and interest rates, as well as bailouts and stimulus packages. A majority of citizens in the US do not comprehend the problems we all face. The Uberclass, as Griffith’s comment at the top of this article reflects, exist outside the realm of traditional morals and laws and maintain a malfunctioning system or status quo.
Meanwhile, the US is held captive by its creditors, while the state, due to deindustrialization and financialization, stark inequality, a minor tax revolt, and lavish spending will experience inability to pay its debts to foreign creditors and respond to future crises at home or abroad.
But some of the solutions above remind us that there is still a world of hope out there.
What is desirable is a centrifugal system in which the exchange of goods and services follows a decentralizing or peripheral trajectory. Under the current system, centripetal forces attract goods, services and therefore wealth and power to the center, in this case not Marx’s industry, but instead creditors’s industry.