Understanding the Monetary System in America

Matt Taibbi has a good description of the monetary system under the Federal Reserve tucked away in a chapter from his book Griftopia on the gigantic folly of Alan Greenspan. He writes:

“A person can go crazy trying to understand everything the Fed does, so in the interest of sanity it’s probably best to skip the long version and focus on its magical money-creating powers, the key to the whole bubble scam. The bank has a great many functions – among other things, it enforces banking regulations and maintains and standardizes the currency – but its most important job has to do with regulating the money supply.
The basic idea behind the Fed’s regulation of the money supply is to keep the economy as healthy as possible by limiting inflation on the one hand and preventing recession on the other. It achieves this by continually expanding and contracting the amount of money in the economy, theoretically tightening when there is too much buying and inflation and loosening when credit goes slack and the lack of lending and business stimulation threatens recession.
The Fed gets its pseudo-religious aura from its magical ability to create money out of nothing, or to contract the money supply as it sees fit. As a former Boston Fed chief named Richard Syron has pointed out, the banks has even fashioned its personnel structure to resemble that of the Catholic Church, with a pope (the chairman), cardinals (the regional governors), and a curia (the senior staff).
One way that money is created is through new issuance of private credit; when private banks issue new loans, they essentially create money out of thin air. The Fed supervises this process and theoretically monitors the amount of new loans issued by the banks. It can raise or lower the amount of new loans by raising or lowering margin requirements, i.e., the number of hard dollars each bank has to keep on hand every time it makes a loan. If the margin requirement is 10 percent, banks have to keep one dollar parked at the Fed for every ten they lend out. If the Fed feels like increasing the amount of money in circulation, it can lower the margin rate to, say, 9 percent, allowing banks to lend out about eleven dollars for every one kept in reserve at the Fed.”

Having a small reserve requirement from which banks can lend out many times more money that it actually is also called fractional-reserve lending. This supposedly allows money to flow more freely where it is needed, although it is done specifically by private bank loans.

“The bank can also inject money into the system directly, mainly through two avenues. One is by lending money directly to banks at a thing called the discount window, which allows commercial banks to borrow from the Fed at relatively low rates to cover short term-financial problems.
The other avenue is for the Fed to buy Treasury bills or bonds from banks or brokers. It works like this: The government, i.e., the Treasury, decides to borrow money. One of a small group of private banks called primary dealers is contracted to raise that money for the Treasury by selling T-bills or bonds or notes on the open market. Those primary dealers (as of writing there are eighteen of them, all major institutions, including Goldman Sachs, Morgan Stanley, and Deutche Bank) on occasion selling those T-bills to the Fed, which simply credits that dealer’s account when it buys the securities. Through this circular process the government prints money to lend to itself, adding to the overall money supply in the process.”

The Fed’s primary and most often used tools for regulating the money supply is through manipulating interest rates:

“When a bank falls short of the cash it needs to meet its reserve requirement, it can borrow cash either from the Fed or from the reserve accounts of other banks. The interest rate that the bank has to pay to borrow that money is called the federal funds rate, and the Fed can manipulate it. When rates go up, borrowers are discouraged from taking out loans, and banks end up rolling back their lending. But when the Fed cuts the funds rate, banks are suddenly easily able to borrow the cash they need to meet their reserve requirements, which in turn dramatically impacts the amount of new loans they can issue, vastly increasing the money in the system.
The upshot of all of this is that the Fed has enormous power to create money by injecting it directly into the system and by allowing private banks to create their own new loans.. If you have a productive economy and an efficient financial services industry that rapidly marries money to solid, job-creating business opportunities, that stimulative power of a central bank can be a great thing. But if the national economy is a casino and the financial services industry is turning one market after another into a Ponzi scheme, then frantically pumping money new money into such a destructive system is madness, no different from lending money to wild-eyed gambling addicts on the Vegas strip-and that’s exactly what Alan Greenspan did, over and over again.”

The power that the Fed has to manipulate the amount of money coursing through the economy at any given time is enormous. The function of such an institution is stability and easing financial hardship, but when factions and class interests are factored in, the misused of the power to control how much money gets pumped into the people’s pockets (all by loans with attached interest from banks and, therefore, an increasing debt burden) is epic. Remember: private banks create new money when they issue loans. This means that when the Fed lowers interest rates: the federal funds rate (meaning the banks can now borrow from each other or the Fed to meet its reserve requirements), the freedom of banks to lend is increased dramatically. More money is extended to people (often referred to as households – it is the economy remember) but as loans or as credit. This loan will theoretically be paid off eventually, but until then, people remain holding a debt that will gradually increase due to interest rates the bank sets on its own (besides the rates the Fed sets).

The U.S. government itself (in the form of the Treasury) also must borrow money from the Fed to finance its expenditures and pay out its dollars. Recall from above that the Treasury must contract out to banks the selling of its Treasury bonds and bills, then receives its (the Treasury’s) own money that it printed after the sale. Since these are bond and bill purchases that must take place before the money is allowed to enter existence as currency, the government must go into debt and pay back the investors who bought those bonds and bills eventually and with interest. Hence the skyrocketing U.S. national debt.

From both the perspective of the people and the government, debt is built into money from the start. But it doesn’t have to be.

Some will point to the Federal Reserve and say: “there is the problem. End the Fed or nationalize it, we can create money debt-free and end the national debt.” A number of people have wised up to this parasite on the money supply and have a similar idea: a national currency of “Greenbacks” the likes of which were seen in Lincoln’s Civil War era and Benjamin Franklin’s colonial Pennsylvannia. The currency would then be be created by publicly and not by private banks siphoning off interest right from the start. Here is a list of people who have more-or-less come to the same conclusion:

Ellen Brown

http://ellenbrown.com/the-global-debt-crisis-how-we-got-in-it-and-how-to-get-out/

Stephen Zarlenga:

http://www.monetary.org/wp-content/uploads/2014/04/32-page-brochure.pdf

Bill Still:

The UK’s Positive Money:

http://www.positivemoney.org

A good blog post was put out on Washington’s Blog about the prospects of a nationalized, public central bank and public banking in general as a panacea: http://www.washingtonsblog.com/2010/03/7-questions-about-public-banking.html

Be sure to read this whole post. They bring on Steve Keen at the end to say that Public Banks are not enough because of the speculative gambling that takes place on Wall Street and the financial trickery that allows money to be multiplied many times over will not be stopped by the public issuance of money. Getting at the source is important, but not sufficient in creating lasting solutions to fictional bubble economies. Regulation of finance is crucial: as long as bankers and financiers are allowed to bid-up asset prices like land, housing, and commodities, the bubbles and an unstable currency will continue despite a tighter control of the money supply. Keen’s key is to stop the debt-leveraging of asset prices.

Very heavy financial reform and regulation is required to stop gigantic crises that spread misery throughout the Earth. These financial technologies like derivatives, mortgage-backed securities, and naked short selling were cooked up by the smartest people the academies produced (many of the brightest minds in physics left the field to work on Wall Street in the past few decades) and are difficult for regulators to stay on top of. Class interests prevent legislation from being passed on Capitol Hill due to banker capture and unlimited campaign financing. The way out of this mess is hard to see.

The decision makers in politics and finance will move when their power is threatened however. A few quick outlets:

People have been pointing to a far-left/far-right alliance of end-the-Fed Libertarians and progressive Socialists. If they stay away from falling in with the large Corporate backers and Banker class of ultra-wealthy and become popular, they could make radical legislative changes. See Ralph Nader here

The specter of a very unpopular war with Russia and perhaps China (which would mainly be caused by currency and oil control around the globe) could propel a mass movement to change what is in essence an imperial financial system. See here

A debt strike or jubilee would immediately make banks insolvent and provide the open space for alternative solutions formerly considered “too radical.” See Andrew Ross here

Revolution (early reports are unclear about how this would happen).

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The BRICS Bank and Dollar Hegemony: the Importance of Geopolitics

Michael Hudson and Leo Panitch had a spirited debate at the Real News Network recently that brought to light two different views on the strategies for resisting Capitalism. Watch it hear and follow along with the transcript:

Is the BRICS Bank a Challenge to US Financial Power?

The BRICS Development Bank (Brazil, Russia, India, China and South America) was just announced and is an attempt to subvert America’s dollar hegemony or, what Hudson calls, Super Imperialism. They will make loans outside of the dollar system, which coerces/persuades countries that receive loans from the IMF to keep their currencies pegged to the dollar, and issue loans to countries in their own currencies. This, Hudson believes, will be a major geopolitical move by countries extremely frustrated by the Washington Consensus in America and will provide an alternative to the broken philosophy of neoliberalism and its Trojan Horse policy of forcing countries to accept austerity, privatization, and cheap asset sell-offs to private companies when sovereign countries cannot pay back their debts. Rather than write down debts that cannot be repaid, the IMF and World Bank (who accept and champion the dollar standard) demand “developing countries” who cannot keep up with entrenched global corporations on the world market sell away their natural resources, privatize public services and industry (including pensions and health benefits), and generally accept nation-wide austerity when the interest on the loan bloats the bill too high.

A recent case of this comes from Argentina. Argentina was going to write down its debts so that it could repay without crippling its economy until the “Vulture Firms” who bought up some of its debts at very low, distressed prices and demanded they be relayed in full. A New York judge decided that Argentina must make the Vulture Firms whole, with many big Wall Street Banks owning stakes in these vultures. Such is the logic of debt intoxicating countries under financial imperialism, demanding all debts be repaid. Whole peoples wealth and well-being can be sacrificed, but heaven forbid an investor should not get the full amount of capital returned on his investment!

Leo Panitch, however, believes that the significance of the BRICS Development Bank in combating US led neoliberalism is overblown. These five countries all themselves operate as Capitalist economies, forcing their population into low-waged labor and engaging in land purchases around the globe. Oligarchs dominate Russia, ghettos abound in Brazil, farmers have been committing suicide by the thousands, and everyone must submit to the toil of the work day for their livelihood. These aren’t Socialist countries we’re talking about.

Why is the issuing of loans in the currency of a sovereign nation instead of dollars so important for opposing neoliberalism and, eventually, Capitalism itself?

It depends on how much you think American foreign policy and its war machine is bound up with the character and functioning of global economies – whether they could go Socialist or whether they would still choose by themselves to remain fully Capitalist. Does the “room for maneuver” that Panitch says the BRICS alliance is seeking create a whole new place where countries can more democratically reorganize or are they merely jockeying for more of the Capitalist pie?

Hudson emphasizes the Geopolitical where Panitch emphasizes the social forms; I would like to explain why geopolitics (the position of nations on the Earth, the resources they contain, their strategic location for war and trade routes, etc.) is crucial in determining the course of action that a country can take. Countries’ decisions on how their goods and services will be distributed are not merely internal decisions based on voting or their succumbing to the overarching logic of Capitalism. Monetary flows that are unleashed on markets and colonial histories play a major role in shaping the options a country has in taking on the social form it has at any given time. One might call them “external pressures”, but monetary flows and debt levels operate with fluidity and course through countries boundaries according to policies and decisions made at the IMF, World Bank, and Washington DC. If a new development bank would appear that would be more willing to cancel debts and make low interest rate loans, a fundamental shift could occur that would free up a countries’ ability to change its socials forms. The big question, yet to be answered, is whether the BRICS Development Bank will be willing to cancel/write down debt, i.e. whether the credit that is pumped into global markets will be for the purpose of productive works and projects that people need or for making a return at all any “external” cost. Will they be neoliberal financial parasites by another name?

The blight of austerity ravaging the world, of which there seems no end in sight, is largely driven by American Politics: which has been captured by the financial interests of Too-Big-To-Fail Banks and extractive parasites. Their main weapon is debt and interest. The dollar standard ensures that, internationally, sovereign nations must keep their currencies at a fixed rate to the dollar or else leave those currencies open to crippling currency raids and Short Sells. Here is Ellen Brown:

“[After the dollar was taken off of the gold standard] Currencies were now valued merely by their relative exchange rates in the “free” market. Foreign exchange markets became giant casinos, in which the investors were just betting on the relative positions of different currencies. Smaller countries were left at the mercy of the major players – whether other countries, multinational corporations or multinational banks – which could radically devalue national currencies just by selling them short on the international market in large quantities. These currency manipulations could be so devastating that they could be used to strong-arm concessions from target economies. (Web of Debt, p.207)”

Hudson in The Bubble and Beyond writes about the constraining system set up by the dollar standard:

“A double standard has been implicit in the world’s economic rules since the dollar was decoupled from gold in 1971, when the U.S. trade deficit of $10 billion was the equivalent of more than half the U.S. gold stock. But today there is no gold convertibility and hence no major constraint on U.S. spending abroad or at home. The United States has not subjected itself to any of the distressing fiscal conditions that all other countries feel obliged to follow. What makes this asymmetry so ironic is that it was made possible by what seemed to be a financial defeat for the United States. Once America stopped paying gold, there was not much that other central banks could ask for as they found themselves flooded with dollars obtained by private-sector exporters and asset sellers in excess of their need…

…Now that gold had been demonetized, all that foreign central banks can do with their excess dollars is to send them back to the U.S. Government by buying Treasury bonds. If they do not do this, their currencies will surge against the dollar, threatening to price their manufacturers and food exporters out of foreign markets.” (p.368)

The United States of America is an a unique, privileged position in the geopolitical dynamic of forces: it alone gets to run up its debt without limit and maintain a “balance-of-payment” deficit without ever having to pay its debt back. The interest that it must pay for the Treasury bonds it issues are simply added to the debt pile it already has built up. The U.S. Federal Reserve can keep printing dollars and issuing Treasury bonds to match them (the government must borrow in order to create new money), while other countries must use their dollars to buy more Treasury bonds. The Treasury bond nets its buyers money on interest, but that interest paid out by the U.S. comes from printing more money – issuing more T-Bonds.

This “recycling process” fuels U.S. National debt and at the same time ensures that other countries keep using dollars that they obtain from selling their exports to America, foreign company buy-outs, and IMF loans. In international finance, America has become a black hole of debt: other nations receive a glut of dollars must “send them back to the U.S. Government by buying Treasury bonds. If they do not do this, their currencies will surge against the dollar, threatening to price their manufacturers and food exporters out of foreign markets” (Hudson, TBaB p.368). These are currency wars performed almost entirely on computer screens and with the frightening threat of falling to the bottom of a hostile world market when your currency becomes over-valued (relative to the dollar and the value of goods). Suddenly all of the work your country has performed to create products and grow food will be un-tradable because it will cost to much for other countries to convert their own currency into yours for the exchange. This is constraining force burdening the “developing countries” (“developing” because they must export to “developed” countries or else face default or the impending hostile military takeover) to use dollars and continue to finance the U.S. and its war machine.

Michael Hudson is one of the few people to understand this mechanism and has been yelling about it since the early seventies. Few others understand it, but when you do, the importance of not using the dollar – freeing up the room to use one’s own currency for receiving loans and trade with other countries not denominated in dollars – becomes a huge move to open up possibilities for economic activity.

David Graeber writes about this mechanism at the end of his book Debt: The First 5,000 Years:

“Because of the United States trade deficits, huge numbers of dollars circulate outside the country; and one effect of Nixon’s floating of the dollar was that foreign central banks have little they can do with these dollars except use them to buy U.S. Treasury bonds. This is what is meant by the dollar becoming the world’s “reserve currency.”…

…The effect, though, is that American imperial power is based on a debt that will never – can never – be repaid…
…At the same time, U.S. policy was to insist that those countries relying on U.S. Treasury bonds as their reserve currency behave in exactly the opposite way as they did: observing tight money policies and scrupulously repaying their debts.” (p.366-7)

Both realize that this is a special position for the U.S. to be in and reinforces imperial authority in a very efficient, monetary way. Capitalism might have spread throughout the globe, with countries and their ruling classes forcing their people into a reserve of cheap labor and the strict adherence to property rights among other coercions, but the method used for getting new countries to accept this state of affairs is an age old tactic: interest and debt. More from Graeber:

“The new global currency is rooted in military power even more firmly than the old was. Debt peonage continues to be the main principle in of recruiting labor globally: either in the literal sense, in much of East Asia or Latin America, or in the subjective sense, whereby most of those working for wages or even salaries feel that they are doing so primarily to pay off interest-bearing loans.” (p.368)

Getting out of the Capitalist trap will involve financial maneuvering in the national-geopolitical landscape as much as labor struggles because the power of the logic of debt is so great, taking its most global and destructive manifestation to date with American Super Imperialism or Dollar Hegemony. The linking of the influence of debt and military might means that whenever a country attempts to get out of the debt/dollar system, the military steps in to enforce U.S. interests. Saddam Hussein’s Iraq stopped trading in dollars and went for euros in 2000 as well as Iran in 2001. As long as dollars are used in the deal America will win, but if anyone steps out of line and rejects the dollar the hammer comes down. This is why only a large block of high producing nations can legitimately challenge dollar hegemony, unless America’s corporate media is so thoroughly corrupt that it can convince its people a war on China, Russia, Brazil, South Africa and India. It is already demonizing Russia and China the best it can, the two largest players…

Both Hudson and Panitch are anti-Capitalist political-economic thinkers. They both wish to see a Socialist government that can restructure economies to stop apocalyptic climate change and promote prosperity absent the dominance of Capital. Hudson, though, is peering deeper into geopolitics and the forces moving and controlling nations to act in certain predictable ways to find a way out of Imperial U.S. led global Capitalism. A new development bank, though not as uplifting and energizing as a revolutionary uprising, is a glimmer of hope that will change the dominant forces operating all around the Earth if the BRICS countries do it right. All that is left is to see if the BRICS Development Bank will use money and credit solely as a means to serve their Capitalist classes vs the U.S.’s or whether the credit they lend will allow countries the means to invest in national infrastructure that will stop climate change and provide for the public health and food security.

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Did the Other Shoe Just Drop? Big Banks Hit with Monster $250 Billion Lawsuit in Housing Crisis

billrosethorn:

The next credit crisis will be much larger than 2008, how we will distribute goods and services without a free-flowing credit/debt creation machine (in the banks) will likely determine the type of society we will have in the near future.

Originally posted on WEB OF DEBT BLOG:

Wicked Witch of the East

For years, homeowners have been battling Wall Street in an attempt to recover some portion of their massive losses from the housing Ponzi scheme. But progress has been slow, as they have been outgunned and out-spent by the banking titans.

In June, however, the banks may have met their match, as some equally powerful titans strode onto the stage.  Investors led by BlackRock, the world’s largest asset manager, and PIMCO, the world’s largest bond-fund manager, have sued some of the world’s largest banks for breach of fiduciary duty as trustees of their investment funds. The investors are seeking damages for losses surpassing $250 billion. That is the equivalent of one million homeowners with $250,000 in damages suing at one time.

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Guattari’s Schizoanalytic Cartographies

billrosethorn:

Brian Holmes navigates global cybernetic capitalism with the help of Guattari’s Schizoanalytic Cartographies.

Originally posted on Continental Drift:

or, the Pathic Core at the Heart of Cybernetics

terrestrial_celestial2

[This text was developed through a large number of improvised presentations. Thanks to all who listened and responded. The very first, in Chicago at the invitation of Jon Cates,  is archived here. - BH]

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A desiring mind seeks infinity, and finds it today in a proliferation of signals: electromagnetic waves beaming down from the skies, fiber-optic cables emerging from the seas, copper wires woven across the continents. The earthly envelope of land, air and ocean – the realm of organic life, or biosphere – is doubled by a second skin of electronically mediated thought: the noosphere. It’s a vast, pulsating machine: a coded universe grown complex beyond our grasp, yet connected at every pulse to the microscopic mesh of nerve cells in our flesh.

Such is the contemporary circuit of communication. Its existence raises two basic questions. What…

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Super Imperialism: Michael Hudson on Dollar Hegemony

One year after the United States dropped its currency backing from gold, Michael Hudson saw a new power formation taking shape and wrote a book called Super Imperialism: The Origins and Fundamentals of U.S. World Dominance. He saw a new dynamic taking place that few would notice in the 1970’s and that few notice still today: America has either planned for or stumbled upon a technique for Imperial rule across the globe that has never before been seen in history. The United States has found a way to use their situation as a heavily indebted nation as leverage for forcing nations around the world to pay it modern day imperial tribute. Due to the complex relationships and mechanisms of central banks and international economic power disparities, America has built an empire based on debt, consumption, currency values, and war that has never appeared before on the earth. I will focus on Chapter 15 of his big book The Bubble and Beyond called America’s Monetary Imperialism for its short, dense explanation of Super Imperialism.

The dynamic that allows for this economic imperialism is very much graspable – it only requires a few steps of reasoning – but it is clouded in economic-speak. Michael Hudson has done a brilliant job in making understandable Super-Imperialism, but I am going to try and explain it again without inducing too much headache. It has taken many weeks of reading, rereading (an excessively marked up text), talking with friends, and talking in the Politics of Debt reading group to come to grippes with it, but this is perhaps the most important phenomenon encircling the earth and the most formidable barrier to enacting global change.

To begin, money in Europe has been backed by a material substance like gold or silver (bullion) since the rise of colonial empires ransacking the Americas and the end of the Middle Ages. The U.S. officially joined the gold standard crew in 1944 during the Bretton Woods system, and since it had most of the gold had the dollar become the reserve currency. In 1971, President Nixon took the United States, by far the most productive and affluent nation on the planet, off of the gold standard. No longer would the value of the American dollar be “pegged” or “coupled” to a fixed value denominated in the weight of gold. Having a steady, base supply of some universally acknowledged material to rest behind the value of a currency makes international trade easier and the currency value less erratic. A standard system of weights and measures allows for many parties to feel safe in exchanging currencies, knowing full well what everyone else will value the money they possess in the same way. A stamped bullion coin or paper money redeemable in a bullion substance would be trusted and retain its value in spite of fluctuating particular country’s currency values – so the logic goes. But this bullion system fixes the value of money so well that the coins or paper needed to pay taxes and conduct business can become scarce. When the supply of a currency runs out, people and states will no longer have the means to conduct trade and might default on their obligations to pay back loans, bonds, and other debt/borrowing instruments.

Today, to facilitate global international trade, currency values are measured against the dollar of which it appears there is no limit. Due to the U.S. leaving the Bretton Woods System of a common gold standard, the standard shifted from the gold backed dollar to just the dollar. Instead of the base measure of value being something scarce as in gold and other bullion, the dollar itself became the standard and could be printed and keyboard-stroked into existence at the behest of the Federal Reserve and lent out wherever – creating a glut of money. Sound inflationary? It is. Since the Federal Reserve was created in 1914, the dollar has lost ~95% of its purchasing power. In other words, things should be a lot cheaper to buy.

The United States of America had been borrowing heavily to finance its deadly and ill-fated war in Vietnam. The costs were skyrocketing and other nations were demanding that the U.S. be able to repay for the bonds it issued – in gold. The American economy was in a recession and its currency was shrinking relative to its supply of gold. The result of these pressures including the limitations on how much money could be spent by the U.S. military due to it’s massive debt run-up was the executive decision to simply unpeg and decouple the US dollar from the gold standard:

“A double standard has been implicit in the world’s economic rules since the dollar was decoupled from gold in 1971, when the U.S. trade deficit of $10 billion was the equivalent of more than half the U.S. gold stock. But today there is no gold convertibility and hence no major constraint on U.S. spending abroad or at home. The United States has not subjected itself to any of the distressing fiscal conditions that all other countries feel obliged to follow.” (Hudson, 368)

The US dollar could now be printed without limit. The US military could spend without limit. The deficits that the US treasury could run up had no limit. The United States could only do this because of its privileged position relative to the rest of the world nations: it was a military powerhouse and had a bustling economy. Other nations relied on the US consumer-based economy to sell their exports to, while they worried about the great disparity created by their military build up:

“The world still remembers how it was the Vietnam War that forced America off gold, as the US balance-of-payments deficit during the 1960’s stemmed entirely from overseas military spending. By 1971 the United States stopped redeeming foreign-held dollars in gold, and the dollar ceased to be a gold proxy. As the U.S. payments deficit shifted to the private sector, it expressed itself in the form of a demand for foreign products. This was welcomed by foreign countries on the grounds that at least it helped spur their domestic employment. But America’s military adventurism has no visible side benefits for Europe, Asia, or other countries. It has given the U.S. Treasury-bill standard the coloration of a political and military threat as well as being merely an economic form of exploitation.” (Hudson, 369)

The standard of gold had been shifted to the standard of US Treasury bills. Now that the burden of a fixed relationship between the dollar and gold had been removed, Treasury bills could be loaned out and dollars could be printed on the promise that America could pay them back with interest. Dollars would be loaned out to “developing countries” through the IMF and World Bank (which, of course, submit to the dollar standard) and any surpluses that these countries earn must be recycled into more U.S. Treasury bills by market constraints I will describe below. The size and scope of the US economy and the flood of money coming in to developing countries (as well as the coercion of economic hit-men and the neoliberal austerity/free-trade theories) convinced them to receive the glut of dollars to finance their industrial expansion. Mainly, developing countries would use these dollars to build up their productive enterprise and sell their exports on the world market, with the US sucking in much of the goods produced overseas.

“Now that the dollar had been demonetized, all that foreign central banks can do with their excess dollars is send them back to the U.S. Government by buying Treasury Bonds. If they do not do this, their currencies will surge against the dollar, threatening to price their manufacturers and food exporters out of foreign markets.” (Hudson, 368)

The constraints forced on non-U.S. countries to pay back their debts were not felt by the U.S. itself: being the primary hegemony both militarily and economically, the U.S. can spend whatever it likes and go into debt as much as it wants. Doing this actually helps the U.S. maintain the Imperial order of global trade and resource appropriation from developing countries via the asymmetry in the demand to repay debts and global market competition. This is the strange opposition, whereby an indebted country has been de facto colonizing other nations with surpluses from their trade: the U.S. goes into debt to finance military build up among other things (though obviously not for improving the lives of its own citizens) and the rest of the world must send their surpluses back to debt-empire, if they make a surplus at all. Of course, if “undeveloped” countries do not do well on the world market by selling all of the goods from their land with modernized production and (usually) cheap labor, they must pay back their debts (unlike the U.S.). To ensure this happens, austerity ravages the national purse and sucks the money out of an economy more forcefully and public agencies, enterprises, and infrastructure are privatized. The U.S. elite will get their tribute, whether by dollar-backed “ordinary” market means (a flood of dollars which must be used continually or else leave them at a trade disadvantage) or else austerity enforcement that demands the debts be payed with interest regardless of the performance of the economy in the world market.

Hudson summarizes a bit:

“Unlike former modes of Imperialism, it is a strategy that only one power, the united stares has been able to employ. Also novel is the fact the U.S. Treasury-bond standard does not rely on the corporate profits or the drives of private companies investing in other countries to extract profits and interest. Monetary Imperialism operates primarily through the balance of payments and central bank agreements, which ultimately are government functions. It occurs between the U.S. Government and the central banks of nations running balance of pavement surpluses. The larger their surpluses grow, the more U.S. Treasury securities they are obliged to buy.” (Hudson,370)

All non-U.S. countries are in a bind that forces them to support America’s military “adventurism” abroad. If the massive loans they receive to industrialize do not work out, their debts are collected on at the expense of public services, jobs are lost, and the people flee the destitution in their own land. If they succeed in world markets and play ball with the dollar, they enable the U.S. Treasury to continue selling it’s Bonds and Bills and increase the disposable money or liquidity (money is a very liquid substance under the fiat system vs. solid gold) to finance credit creation all over the globe. Their currencies being tied to the dollar standard, they are obliged (read: economically constrained) to keep currencies devalued, which in turn keeps them tied to the international market system and sends their natural resources away as exports.

The crux of this phenomenon is the dollar standard: because every other currency is denominated in dollars when they trade internationally, the U.S. feels empowered run up its national debt and continue to pay back the interest on the Treasury Bonds it sells with even more Treasury Bonds.

The people clamoring about the national debt astronomic expansion don’t usually make the connection between the debt and its imperial function of suppressing foreign currency values. Likewise, Modern Monetary Theorists who believe the national debt can be run-up without limit because of the governments status as a currency issuer also fail to take into account international dollar hegemony and the effect it has on global markets and the geopolitics of imperialism. A currency does not need to be created with debt attached to it: “[Foreign countries'] Treasuries can create their own money based on their own economic needs rather than letting their central bank reserves be a derivative of the U.S. payments deficit.” (Hudson,378). The IMF-American hegemony on world markets has built up such a giant house-of-cards that getting off of the dollar standard would be risky and upset the by far and away most superior military force on the earth. America’s massive national debt is proportional to its military might.

“Using debtor leverage to set the terms on which it will refrain from causing monetary chaos, America has turned seeming financial weakness into strength. U.S. Government debt has reached so large a magnitude that any attempt to replace it will entail an interregnum of financial chaos and political instability. American diplomats have learned that they are well positioned to come out on top in such grab-bags.” (Hudson,374)

In other words, if any country tries to subvert the dollar standard the military will bring down the hammer. This is why the Russia-China deal to strengthen economic ties in Asia and Eastern Europe in response to sanctions put on Russia for the Ukraine-Cyprus episode is so important: a new block that could successfully subvert the dollar hegemony would be a major geopolitical power maneuver. Hudson sees this dollar hegemony mechanism at work in the Ukraine standoff between Russia and America. It is probably the main reason why the U.S. is pushing so hard on “fast-tracking” the Trans-Pacific Partnership, forcefully and secretly opening up Asia and pretty much the entire Pacific Ocean to unregulated, wild-west Capitalism to counter China’s growing influence as a trading power. As long as these major economic zones with resource-rich lands and cheap labor are using the dollar standard, they will be forced into the vicious cycle of buying Treasury Bonds and exporting their goods overseas – further financing military spending.

Again, thanks to dollar standard and the double standard, whereby the U.S. gets to run up its debts while other countries must honor them and other countries must measure their currency value relative to the this debt-based currency, it doesn’t matter that the U.S. debt climbs sky-high. The national debt actually solidifies America’s position as the central market player regardless of well it does in GDP growth. The black hole of American debt and consumption draws in all of the money that countries make on the private market from exports back into the Treasury Bonds that will guarantee a decent return, but just add on to the U.S. national debt. America feels it can keep printing dollars and loaning them out to whomever because in between the time it takes to pay off the debt that comes attached to the Treasury Bond credit, private businesses have already sucked in the goods of these productive and indebted borrowing countries. If they don’t pay it back, the austerity hawks come flying in. America gets to continue running up its debt because the countries it imports from get loads of dollars, which they can only recycle back into more Treasury Bonds. The dollar becomes like a black hole that all currency must spiral back into when countries with different currencies profit off of global market trading.

Hudson:

“[The United States] pays for its net imports and buyouts of foreign industry [typo] with Treasury bonds that its diplomats have long hinted they have little intention of paying off. Central banks end up with paper or electronic IOUs bearing 4 or 5 percent interest, which the U.S. simply adds to the balance of what it owes, while U.S. investors but foreign companies, resources and hitherto public enterprise expected to yield in the neighborhood of 20 percent in earnings and capital gains.” (Hudson,374) *my italics.

The dollars received for real tangible things like public infrastructure, products shipped out on the supply chains, and the benefits of the land are nearly universally valuable in the short run, but, if confidence in the U.S. Treasury to pay back the ever-increasing debt and growth in the U.S. economy dwindles, the long term viability of the dollar will be made obvious and collapse. And since the Federal Reserve has decided to rescue insolvent predator banks that are massively leveraged against real assets with securities and derivatives, the hopes for a return to growth and an even more bustling U.S. economy not burdened by parasitic banksters are looking more and more bleak. On the domestic side,

“… the U.S. real estate and financial bubble has been welcomed as post-industrial “wealth creation,” it is rendering the American economy uncompetitive in world markets and hence unable to pay off its foreign debt by running a trade surplus. U.S. labor is obliged to pay for high-cost housing and pay debt service on the loans it needs to stay afloat in today’s economy.” (Hudson,372)

The infinite demand of debt repayment extends not just to foreign countries but to America’s own people. When the latest speculation caused bubble popped in 2008, the Fed decided to bail out insolvent banks and let them continue their destructive easy-money siphoning behavior while most Americans are teetering on the edge of missing their monthly expense payments. As has been well reported (but never enough), America is one of the most unequal nations on earth, far more than the population even believes it to be. This is largely because of a minuscule amount of financiers earning economic rent on artificially inflated assets, which Hudson details in other parts of the book.

All of this means bad times are ahead if the system of money flows and debt repayment disparities are not drastically altered. The biggest and most glaring issue is that the U.S. has demonstrated that it is willing to flex its military muscles at the behest of its elites and could very well spin the almost totally corporate controlled media into believing that it is checking some other nation’s aggression by going to war. An economic alliance of non-dollar using countries like the industrially productive nations of Brazil, Russia, India, and China (BRICs) could subvert the U.S.’s hegemony by selecting an alternative currency to base all of their transactions on, but how anyone could challenge the United States militaries intervention on behalf of the bankers and capitalists is any bodies guess. Delegitimizing domestic protest and other internal strife that threatens the life of the vampire squid is where one of the most important sites of conflict will be in the global market dominance game.

The American war machine, coupled with the financiers is a powerful block that is desperately trying to maintain the massive wealth and power it has built up. With looming earth-systems collapse on the horizon, the military will do what it has always done in times of crisis and financiers will never let go of the money they have gained by their political maneuvering. Achieving reform like the tariffs for the sake of monetary symmetry that Hudson recommends will be difficult and receive hard pressure with all of the tools at the disposal of an elite financier-capitalist class. Hudson is a rare thinker who understands the need for large debt write-downs for those which cannot and where not designed to payed back in full. The economic gains of the financial class are entirely debt-leveraged and should be taxed away. What comes after a potential jubilee debt-cancellation or Debt Strike will be the really interesting part: a return to competitively growing global markets and military imperialism would only raise the specter of disastrous global warming. A steady-state economy that is built on stopping expansion of production as well as allocating money more equally is the only kind of “reform” that earth and its unfortunately “developed” people could be grateful for.

Be sure to check out his website as well as videos like these:

http://youtu.be/sjV5FEKVs8A

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A Day in the City

Woke up late agin. 12:30 I think. Got on the mobile device to hit up a friend of mine I was suppose to meet earlier in the day. Eventually I get it together and pour some coffee and smoke a rolled up cigarette. Man have I been hitting the smokes lately. After sufficient waking time, I hop on the bike and ride the Metro over to the City.

I’m late. Can’t seem to be on time anymore, not that we ever set a definitive time. He’s already been to the park we were going to meet at, come home and gotten ready for a nap, sunburned. I drag him down to let me in to his living space filled with anti-capitalist, anti-state, and generally anti-society art and literature strewn all over the place. This has become a comfort zone for me, a reprieve. Big common area, tables and couches, and a general do-what-you-like attitude pervade. (It’s gone?)

We walk to the park (his second time today) gabbing about the meaning of privilege and its effectiveness in shutting people up who would otherwise resist vs. encouraging those who currently wouldn’t have without it. Looking back, it amazes me how fluent I’ve become in the lingo of the anti-caps – it literally just streams out my mouth when I relax with friends.

We approach the hilly park full of young and colorful people grouped up into small corpuscles. Each little crew has managed to separate themselves from each other by establishing a common distance between them that could probably be measured within a margin of error of a few inches. I make sure to comment on the lack of consciousness in the park. Only now (writing this) am I taken aback at the strangeness of myself commenting on the “consciousness of the masses.” Remembering the days of blissful indifference takes concerted reflection; my self-confidence, together with a willingness towards self-criticism, has entrenched a defiant stance that I’m happy to keep.

We lie on the grass and talk – it’s getting hotter. We’ve done this before. Sprawling out a few zines and books on the ground between us, philosophy of the European flavor plus what some might call “ultra-left” pamphlets, and begin. He’s a declared egoist, anti-civ guy and I’m fine with it. We’re past he initial pointing out of obvious hypocrisies and ironies; we know the situation we’re in, the systemic impasse. We speak together precisely because of this, because we can see the composition of forces constricting us, and we’re willing to change it. It is a question of how at this point. The fuel to light the fire already exists: we need a trajectory.

I speak about the labyrinth metaphor and its connection with another article that was laid on me by a mutual friend. One was about the labyrinth of the history of science & philosophy, the other about the labyrinth of a situationist’s dérive through the city that begins and ends with a undeveloped hint at “the occupy thing”. In a dérive, the city does the guiding. The specificities of the urban environment are supposed to do the directing, while the ambience invokes and provokes the participants around. The article seemed to suggest the entrance and exit to the labyrinth of the city lay in occupying the square, with so much history, geography, and ideas mashed in the middle. He drops me another article by the same author about negation and ethics. I would read it later that night in my bed.

We muse about civilization, humanity, the Earth, the police… On the way back we agree about the clarity to be found in the revelation that there is an enemy to position oneself against – an enemy with its vice grip on the future. But I stop and launch into another improvised digression on the choosing of one’s enemies. An antagonism born of revenge against the lowly denizens appears trite within the context of the thoroughgoing disintegration of the system of the Earth by the system of Capital. One’s enemies tell much about who one is. Yet we cannot seemed to get beyond the police.

Having family obligations I must depart. We have discussed enough words and theory to chew on until our next meeting. After all, he’s facing a legal battle over his living space that demands clarity of language. The pain of departing from my friends had grown noticeably more acute since things have died down. So much so that within the last half-hour or so, a feeling of forlornness dawns on me early and we tarry about his space.

The spot has since been evicted. The building was bought and they were kicked out of the city by the new dollar-eyed landowner. I don’t often go to that part of the city anymore.

I arrive late for the show. The doors have closed and I will not see the play that my family has invited me to. Instead I grab a beer at a sports bar and watch the end of a baseball game. An old gay man stands at the corner of the bar and talks about his 15-minutes of fame: he was arrested at the Supreme Court of New York to protest for gay rights and I eat it up. He spoke of the arresting officers not knowing where to take him, so they just kept leading him down the macabre catacombs of the Supreme Court building that eventually turned into a sandy basement. I remember the intentionally soft voice of his – like a children’s story reader enrapturing little kids – as he repeated “going down, down, down…” I get bits of the article my friend gave me in-between him, the game, and the cheerful tourist couple to my left. I make a note of being in between an old man having already lived through his activist glory days and an out-of-town couple looking for something novel and distinct about this city.

When I left the bar I stopped to pick up some tobacco on the advice of a particularly hostile homeless man who for some reason took a liking to me. I give him a cigarette when I come out and we talk briefly about something forgettable. Making my way down the street I find that the show is over and everyone has left. Unable to contact my family for lack of internet access, I linger a bit longer in the Metropolis and talk to some more homeless people. I even shout at a security guard trying to move a guy away from his employer’s doorway, but this guy is too feeble and incoherent to realize what I have done for him.

I wander around the roads a bit more, biking up hills and avoiding speedy cars. I expel some more energy into the city streets, not really sure where I am going. Stopping at a small convergence spot near a public transit section, I roll another cigarette and tentatively look for another random conversation. Someone starts talking about my bike and we compare them with flattery. The slightly larger than usual sidewalk is surrounded by fast-food restaurants, a large neon-lit bar, a fancy hotel and a chic department store. There are pockets of people grouped-up and traveling in different directions. They scan each other, make short loud cries of laughter, and try to maintain a sense of direction. I stand with my cigarette observing everyone with my buzzed and oddly curious gaze. “Creepy dude” they must be thinking. Finally, I decide to go home. When I arrive, I feel grateful for having a house.

Many messages are on my mobile device when I get home. My family is wondering where I am. My absence must be felt considering my righteous intensity as of late. I reply to one: “I’m not coming, don’t worry about it.” I pause at this last word and wonder about whether to go with “it” or “me”. “Don’t worry about *it.” … “Don’t worry about *me.” …

I decide this isn’t about me at all, it is about the situation.

(Written in summer 2012)

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Mad Men’s Commune

In episode 4 of the current season 7 of Mad Men, one of the central characters in Roger Sterling has a run-in with a hippy commune in upstate New York. Sterling’s daughter has run away, leaving behind her five year-old son to find happiness in a new living situation. The episode brings up some simple yet potent points about the family structure and hierarchical structures in general. The presence of hierarchy and the father figure have been important themes of contention throughout the show, as seen in the intricate dynamics of working at a New York City firm and living in a 1960’s white suburban household at the height of American power. Generally, the show has handled the trials of women and minorities in a male-dominated world very well, with moments of subtle and not-so-subtle imbalances in gendered power relations. But this episode was especially eye-opening for its giving the viewer a glimpse at an alternative living situation outside of the city and suburbia that actively tried to counter family-based power structures. At stake is the morals attached to such a patriarchic family structure and how well Mad Men’s commune subverts them.

Roger Sterling first gets word of his daughter Margaret’s flight to utopia at his office from both his ex-wife Mona and his son-in law who married her. The two are in conflict about whether to even enlist Roger for help and Roger ends up siding with his son-in-law: he should go as the husband to fetch Margaret back and reunite the family. Mona tries to push Roger to head the retrieval party: “A father is a powerful thing”, she says. But Roger abdicates and agrees with his son-in-law: “Let the man be a man!”, he fires back at his ex-wife. But the husband fails and instead of convincing her to come and resume her duties as mother he gets in a fight at a bar and winds up in jail. So Roger and his ex-wife journey through beat-up country roads to try and pull their daughter off of the commune and back into her family role as a mother.

The two together fail as Mona is far too insistent, laying guilt upon her daughter for abandoning her son (breaking the family line, so to speak), but Roger is far more suave. As an accounts man at his advertising firm he is responsible for smooth-talking clients and wining and dining them to give the diplomatic “human-touch” to the business interaction. Some of his one-liners are pretty sharp, but more importantly he has also experimented with LSD many times. As we learn from previous episodes in the season, he has been shacking up with a hippy girl and sharing the bed with random drop-outs of the sixties era. So when he sees the commune his daughter has been staying at, he takes the opportunity to get a taste of the country-hippy culture to go along with his greater goal of bringing back Margaret.

In the car ride, the family-based morality of where Margaret came from is layer bare:

“It was my fault.” Mona says, “She only had one job and that was to find a husband and she mucked it up.”

The two seem only capable of diagnosing her problems as a wife or a mother or a daughter. The family nucleus is the bedrock of happiness, and any deviations from that path to familial bliss can be corrected by family intervention.

Mona goes on: “She has been a little bit strange lately…” “And a little bit philosophical?” Roger interjects. “Yes…” she replies, “I thought she was finally happy.” End scene.

The blindness of the two to is exacerbated by the fact that they divorced when Margaret was young. They come charging out of the city to pull their daughter back to the family, having already displayed the harshness of their own separation . The family is their conceptual limit of the good life, despite their own failures. A bad conscience is shared by everyone in this episode, a perfect tool for keeping all personal and social problems within the realm of the family.

When they arrive, they find Margaret has changed her name to Marigold and she is steadfast about staying. She stares at them with big bold eyes in layered ponchos and moccasins, dishing back the guilt they try and heap on her. Mona demands be responsible and devote her life to her son, when Marigold reminds Mona of her own depression and heavy drinking problems. Roger mostly stands by and offers money – another sign of his absence as a father and devotion to his work.

“I’m tired of accepting societies definition of me,” says Marigold. “I don’t pray to that anymore.”

Her rejection of the family comes with strings attached: the morality of individualized guilt and innocence is kept in breaching the family structure. When the two parents try and convince her to come back, the moral arguments they use are spun right back in their face. It becomes a stand-off over “who is the worse family member?” instead of a competition of living styles. Mona gets fed up and leaves, convinced her daughter is lost, while Roger stays to try and meet her half-way.

It is the short, yet impactful lines on the porch of the commune that lay bare the motivations for leaving behind the family life. They peel potatoes in an old white farm-house with a few other escapees, passing around a joint.

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The man who first met Roger and Mona and tried to direct them away says, “There is no hierarchy here man.”

Roger fires back, “Believe me, there is always a hierarchy.”

Another proclaims, “we do things by true consensus here. If we can’t all agree, we come up with something else.” Marigold adds on: “Everyone does what they want.”

“I haven’t felt this at one with nature since I was in the Navy.” Replies Roger.

Roger is critical of the commune’s logic, but he hangs with it throughout the night. He and Marigold rest in sleeping-bags outside, staring up at the stars and chatting. Eventually, she says, “I’m really glad you’re a daddy.” (not “I’m glad you’re *my* daddy”). Margaret is Roger’s only child, so she subtly cuts off her position in the family line but simultaneously affirms his. She’s looking for a way out of family-centered life, but only seems to be able to judge Roger based on his position as a father. He either fails in his duty as a father or is praised as a father, a kind of judgment that Marigold is seeking a way out of, yet having a hard time voicing it.

In the middle of the night, Roger is awoken by Marigold running off into the house with a man. In the morning, the same guy who first greeted Roger and Mona at the entrance to the commune walks out of the house right before Marigold. This is also the same guy who had short words with Roger about hierarchy on the porch. It isn’t much of a leap to say that Roger’s presence on the compound was a threat and the hippy-guy made a play to steal away Marigold from she and Roger’s night under the stars. This is perhaps an instance where “everybody does what they want” becomes troubled: desires and power-plays will forever disrupt a simplistic idea of full-consensus.

When Roger wakes up he is through playing games. He forcefully grabs Marigold and leads her away from the house to leave. He picks her up and carries her kicking and yelling, like a patriarch asserting his dominion over his daughter. “I don’t care what you want”, he says before making his move. In the struggle he slips and they both fall in the mud. He makes one last plea: “How could you just leave him? He’s your baby.”

Marigold responds by essential saying “you where a bad father, it’s your fault as well.” She speaks about the times he was never there, working or screwing around himself without paying any attention to her. “Your conscience must have been eating you alive.” she says. The two only seem to be able to hurl blame at each other. Whose fault was it for ruining the family? is the only question they can seem to ask each other.

Earlier in the season, Margaret has an awkward lunch with Roger in which she forgives him ambiguously. He’s confused as to why, but it is clear: Margaret is seeking the moral high ground and forgiving him prematurely for his sins. The communication between the two is in shambles. They are both experimenting with the radical attitudes of the sixties by taking drugs, having multiple partners, and living communally but are unable to relate to each other’s experiences because of the father-daughter relationship. Both are kind of ‘bon vivants’ but cannot find a way to share those life-altering moments together because of the moral imperative imposed on the family structure. He’s the father and has obligations as head of the household (mostly by providing security in wealth) and is reproached for not fathering enough. Marigold is chastised for abandoning her family role as mother. Her flight to the commune comes off as a moralistic rebellion against her father in Mad Men, framed in terms of who is in the wrong? who is to blame?

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The family structure is exactly what communes help subvert and attempt to find a genuine alternative to oppressive patriarchic life and its morality. When the two parents go out to the rustic commune full of hippies to pull their daughter back into that life, they run up against logic constraints that prevent them from adequately expressing themselves to each other. They throw around guilt to justify their actions or else the father resorts to forceful aggression. Even in his attempt to understand the culture and have an experimental moment his Marigold, the father-figure haunts Roger, coming from Marigold’s own voice and the (soon-to-be) dominant hippy-guy’s subtle challenge.

Breaking down those moral-familial relationships is difficult in a society like our own, but Mad Men is unclear in its message as to whether this can or should be done. They often laud the responsible father for reassuming their role in the family as teacher and provider when they have previously been indulging. The father figure haunts the country commune house in this episode, but must it? Living in such a way can seriously and effectively change the patriarchic structure, but all we get is the same moral assertions about who’s family role is performed well and who has a bad conscience. This episode could stand as a warning that escaping patriarchy is more difficult than idealistic youths from the late sixties in America thought, but it could also be a way to load down Roger with blame for not being a good father.

Where the show’s writer and director stand about hierarchy, the family, and communes I still cannot tell. Is Roger asserting the universality of hierarchy merely coming from his embedded and privileged role as successful business man and father? Or is the commune’s free-love idealism and unwillingness to use “technology” misguided simply misguided? Of course, assigning blame to one or the other – the father/businessman or the idealistic hippies – would be to fall for the same moral logic that keeps tripping up Roger and Marigold. I would pinpoint the failure of Roger and Marigold’s relationship there on the moral-ground, but it is unclear as to whether that is the intended message. Seeing as they are both experimenting in the burgeoning counter-culture but cannot communicate except in those terms (“pray”, “conscience”, “forgiveness”), the break-down of their relationship is due to the vain attempt at achieving moral purity or pure happiness instead of just spending time together.

The moral-familial system is the real culprit for preventing Roger and Marigold from sharing their fun-loving experiments in liberation together. This episode was especially powerful in showing this because the commune tried to create an alternative to it, but, like so many communes of the era, failed in confronting the specter of moral purism – one used chiefly for the desire to control populations – but also one that Roger’s business in advertising is helping to perpetuate in the image of the happy, consumer family.

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