Geopolitics of War

From Storm Clouds Gathering, this video is solid research on what drives American Empire, mainly Oil and the Dollar.

Geopolitics of World War III

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The Boy the Earth Talks to: Gold and Progress in Deadwood

I gave a show called Deadwood a chance a few weeks ago and was swiftly plunged into television series binge-mode. The addicting nature of Deadwood comes from the carefully worded script illustrating the political forces acting on and inside a town that suddenly emerged and rapidly expanded its commerce on the borders of the American federation. The show depicts a camp out in what will soon become a part of South Dakota where people flock to mine gold during America’s westward expansion era. The economic-political dynamics of a not-yet-town in a “lawless” region are interesting enough, but what lit my curiosity up was the end of season 2 when a major capitalist finally came to Deadwood in order to establish scaled-up mining production with an imported labor force. Until then, men had mostly paned for gold and spent the plentiful bounty in the camp on food, alcohol, tools, clothing, property, and whores. But with the coming of the gold-mogul George Hearst, the times of freedom from the law and riches for all (European men) would come to a close.

What gives these people the drive to set off on a journey across the continent is the prospect of riches: the officially recognized currency is just waiting to be plucked from the earth. People say “money doesn’t grow on trees,” but it was once freely gathered from rivers, streams, mountains, and the ground. Gold is advantageous to be used as money for many reasons, and American expansionists lucked out when a commodity that would spur commerce appeared in its desired territories. Take away the convertibility of American and European money into gold and the movement westward, with its instantly flourishing commerce and activity, would never had been accomplished so rapidly and with such excitement. The people of Deadwood find money so easily that exchanging goods and services is intensified, simultaneously spreading the American population throughout the continent and increasing the money supply for fortunes to be made. The possibilities for furthering both Capitalists’ interests and American imperial ambitions in their bordering territories were overwhelming and after the first wave of entrepreneurial miners and military battles against Indians, the next phase of large scale production and low-waged labor now seems all but destined to spread across the continent.

George Hearst first sends his close advisor and chief geologist Wolcott to oversee the purchasing of other’s claims, drawing the land under his ownership and away from the less sophisticated miners. One character remarks, “Pretty soon, this’ll be a company town,” and that’s the design: one town owned by one company owned by one man. Wolcott sees this coming and repeatedly speaks about “inevitable change”, which he helps move along by working for Hearst. In challenging the current manager of the largest gold producing comstock in the camp on its site, he says “the noise is terrible isn’t it… like fate.” Wolcott is the agent of the transformation in America that the viewer already knows will happen: the frontier adventure in the edge of civilization will give eventually way to streamlined production and tightly managed labor.

As the character representing this transformation, Wolcott must be a truly horrible man. He speaks not as a common, “low-born” man with the usual outpouring of obscenities and the ease of transition from casual encounter to a heated confrontation. He holds back his expression without a hint of his inner feelings, but not with the aristocratic elegance of the other characters who fit the sophisticated model. When other well-schooled, upper class characters speak they speak in an excess of coded language to make conversation a game and an art. The dizzying flurry of pretty words with an accompanying sensitivity to inflection conceals the simple meaning of the sentence and forces the interlocutor to carefully decipher it. This is a major marker of class difference between those who can follow the train of thought in the conversation and those left dumbfounded by all of those long and confusing-sounding words. The tensions that so easily boil over with the lower classes and their readiness to project their emotions onto the other party is channeled by the upper class into word-play and a kind of conversational poetics. This dynamic is handled beautifully in Deadwood, with the rapidly spoken obscure words contrasting with the angry crude words, a distinction that signals who is capable of planning ahead and likely scheming in one direction or another.

Wolcott fits in an odd place in this dynamic: he speaks much more like a sophisticate, but also directly and without the radiance of the others. He gives simple commands that speak exactly to his interests without any of the masks that must have made conversation so enjoyable. He does not visibly express himself and offers very little bodily gestures to hint at his meaning. He prefers to speak only to other individuals and not in crowds or groups, giving instructions or listening to new information. He only wants to work with a selection of individuals with major stakes in the camp on a singular basis as he does with his employer. He is merely an officer sent to perform a task for his extremely wealthy employer.

The worst instance of Wolcott character comes in the violence he unleashes upon women. It seems all of the reserve he maintains in his affairs becomes concentrated, and when he becomes frustrated or disadvantaged he takes it out on whores by slitting their throats. It is one of the more gruesome scenes in Deadwood when he takes out three women without any cause other than his own pent up rage. It has happened before in Mexico, so we know this is a character flaw that recurs: he is overcome by an urge to inflict death and dominance over those he can without conflict. His cold and unflinching disposition is suddenly reversed in an explosion of violence.

Might this dangerous flaw be connected to his occupation under the capitalist Hearst? Or perhaps his knowledge and foresight of the direction of the macro-level of the economy brought him to a resigned despair? His murderous actions themselves where predictable – a matron of a high-end brothel knows of his propensity to kill women, but cannot stop him from accessing his favorite whore. He eventually kills her along with the matron and another woman, suggesting that the fate of Wolcott’s favorite whore was already sealed. But is the doom of the young and beautiful whore connected with the foreseeable expansion of mechanical production and proletarianization of the population?

I’ll leave that question unanswered and point to a conversation that Wolcott has with Hearst when Hearst arrives to Deadwood to take control of it. Hearst proclaims an interesting relationship with the earth: he believes the earth speaks to him and that “she tells me where to dig into her.” Spending his life mining for gold has made Hearst extremely wealthy, and his fame is enhanced with such sayings like this. He believe he is listening to the earth and that this intimate relationship with it allows him to find “the color.” When Hearst learns of Wolcott’s murderous tendencies he confronts him:

Wolcott: “As when the Earth talks to you particularly, you never ask its reasons?”
Hearst: “I don’t need to know why I’m lucky!”
W: “What if the Earth talks to us to get us to arrange its amusements?”
H: “Sounds like god-damned non-sense to me.”
W: “Suppose to you it whispers: “You are king over me. I exist to flesh your will.””
H: “Nonsense.”
W: “And to me, there is no sin.”

[Hearst then severs their relationship]

Hearst: “Does some spirit overtake you, is that what you mean by the talk?”
Wolcott: “No.”
H: “Tells me where the color is, that’s all it tells me.”

There is a great confusion about the Earth and God in this conversation. Hearst has personified the Earth in his labors as a miner, propagating the myth that it speaks to him and tells him where to find gold. Wolcott observes Hearst’s relationship with the Earth as one of subjection. In the absence of The Lord God in heaven above, the Earth below becomes for Wolcott the replacement God, yet one that is vulnerable. A wealthy man like Hearst can listen to the Earth and digs into it, extracting its precious metals and in effect becoming lord of the Earth by freely picking at it.

The relationship between a single great God with all power and knowledge and creation in it and the individual human worshiper is a relationship that could only be one of dominance. The voice of the Earth is taken by Wolcott to be like the voice of God, yet also the voice of a slave-body to be drilled into and harvested for its valuables. In the absence of a master-God (which in the later 19th century was becoming a greater cause for concern in European culture than it had been before) the great voice in the cosmic sky above fell mute with but only the Earth beneath our feet to remain attached to. The relationship of power, however, remains only reversed: the great Capitalist owner of the land and producer of goods becomes The Lord of the Earth. The Voice can no longer speak of correcting wayward souls or offering guidance, instead the security of God is replaced with the subdued body of the Earth. He will not talk to the sinners and provide assurance of the moral value of actions, instead, She will be dissected and exploited for what is universally valued in commerce: gold/money.

So is nihilism and the disgust at the sight of a subdued Earth the cause for Wolcott’s horrifying murders? The unstoppable force of Capitalist progress? His inability to take pleasure in the conversational habits and games of the well-to-do? One is about a great loss of meaning both personally and culturally, the next is about the sweep of history and the material conditions that seemed inalterable, the last is about the simple enjoyment of other’s company – the little twists and turns of the conversation that could either enflamed our body into passionate action or create lasting bonds in the face of another’s skill and grace. In understanding the death of God, the subjugation of the Earth, and the coming age of mechanical production, Wolcott finds no comfort in the company of others. He repeatedly tells people not to touch him. These issues are connected in Deadwood as a show and as a artwork; stepping outside of it, we can say that keeping up the pleasures of our bodies in the company of friends (verbally and with proximal remove as well) can have an effect on the other issues that would drive a man to death and despair.

Fittingly to his character, Wolcott hangs himself at the end of season 2 after being fired and during a wedding. Nobody seemed to notice.

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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]

.

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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