Both Socialism and Populism have been invoked during Bernie Sanders’ presidential campaign run and this has led to no small amount of conceptual confusion among the American people – myself included. His rhetoric and record as a senator has been overwhelmingly anti-Wall Street, pro-worker, and, well, popular, so when I heard the label “Socialist” coming from the more conservative side from the mainstream media I thought it was another scare-tactic and then embraced it as a possible cure for our neoliberal malaise of debt-fueled Superimperialism [Michael Hudson’s latest on US Neoliberal Empire]. His brand of Socialism isn’t the type that conservatives would have you believe though, many avowed Socialists have even distanced themselves from Sanders. It came as somewhat of a surprise, but more of a moment of clarity, when Douglas Edwards (@SebastosPublius) tweeted to me that he is not in fact a Socialist but still demands support from the left in the way he steers the conversation in the media away from compromise with wealthy financiers and corporate giants embedded within the political process [How Wall Street Is Burning Democracy]. Continue reading “Socialism and/or Populism in America”
I participated in talk on the overarching and less-understood workings of the monetary system at the US Social Forum in San Jose, California last week called Who’s Money? Our Money! We’re working on getting a draft of the talking points together into one document, but here is the list of references we draw from in our research (you know, to prove we’re not crazy):
Icelandic Proposal: http://tinyurl.com/pwzwzpo
Positive Money Website: http://positivemoney.org/
Positive Money “Creating a Sovereign Money System.”: http://tinyurl.com/kgkk8rv
Bank of London “Money Creation in the Modern World.”: http://tinyurl.com/nnd7wwq
IMF Working Paper: The Chicago Plan Revisited : http://tinyurl.com/9vuqh3p
Ellen Brown’s “Web of Debt.”: http://tinyurl.com/npsvkr4
Ellen Brown’s The Public Banking Solution : http://tinyurl.com/pj5vdkd
USPS Office of the Inspector General “Providing Non-Bank Financial Services for the Underserved.” : http://tinyurl.com/m6jufyf
USPS OIG “The Road Ahead for Postal Financial Services.”: http://tinyurl.com/l4ujhf4
Elizabeth Warren “Coming to a Post Office Near You: Loans You Can Trust?”: http://tinyurl.com/paslzfn
Bank of North Dakota: http://banknd.nd.gov/
Federal Reserve System: https://en.wikipedia.org/wiki/Federal_Reserve_System
Community Check Cashing, Oakland: http://communitycheckcashing.org/
I did a brief speech at the latest debtors’ assembly for Strike Debt Bay Area on both Fringe Finance and International Debt. With the time allotted I couldn’t get to nearly as much as I wanted to, so I will reproduce my notes here:
The Debt-System effects everyone, even people outside of the traditional banking system. It costs people who don’t have a bank account (the unbanked or underbanked) more money just to use their own money.
People choose not to use banks mainly because they don’t have enough money to meet the minimum balance requirements of banks and have had bad experiences with overdraft charges. They are primarily poor people.
The un- and under-banked people make up about one-quarter of Americans, that’s 25% of all people in America not being served by the banking system. These people must turn to Alternative Financial Services.
Check Cashing Outlets
Check Cashers take out about 4% of your pay check. For someone who uses Check Cashers their entire life, the average amount given over their lifetime is about $40,000.
Check Cashing stores have more than doubled in number this century, and the cost for using them has gone up by about 75% in the period 1996-2006.
Pre-Paid Cards have been getting popular, they are used by 13% of people in the US. They also charge you to access your own money, though a but cheaper than check cashers.
Examples of Pre-Paid Cards: GPR Cards and EBT Cards.
GPR (General Purpose Reloadable Cards) have many fees: monthly fees, activation fees, inquiry fees, and more.
EBT (Electronic Benefit Cards) are for funds given by governments to cut down on paper use (and extract fees). They are better for you when from the federal government than the state (like with Food Stamps and Unemployment Benefits). In California, fees and other costs of use are better than other states, but they’ll still hit you with lots of fees.
Welfare recipients paid $17 million plus in fees and ATM surcharges in CA alone in 2012. So fees add up with Pre-Paid Cards.
Pay Day Loans
12 million people took out a Pay Day Loan in 2012 and they’ve been getting more and more mainstream since the 2008 financial crash.
In the early 1990’s, there were less than 200 Pay Day Lenders, now there are 23,000 – that’s more than McDonalds for some perspective.
Pay Day Lenders give you money you need now at very high interest rates. Borrowers often end up paying back the Pay Day Lenders many times more than the original loan.
Most people (69%) take our Pay Day Loans to meet everyday expenses. So it’s not just emergencies that lead to Pay Day Loans, as some people believe.
The Pay Day Lenders’ game plan is to keep you in their Debt-Trap and keep the interest rolling over. They call it “Churning”: they don’t want you to pay do back the loan ASAP (only 2% of borrowers actually do). 75% of Pay Day Loans are for the purpose of this Churning and it nets them $3.5 billion.
Pay Day Loans are unsecured, meaning if you default they can’t repossess anything you own. No Debt Collectors, so don’t be frightened by them. They can contact a Credit Reporting Agency and lower your credit score, but they mostly use this as an empty threat.
There are also Pawn Shops, Auto Title Loans, and Rent-to-Own Stores which are more fringe finance institutions that extract fees, interest, and possessions primarily from poor people.
Solutions to Fring Finance:
Community Check Cashing exists in Fruitvale area if you can travel there conveniently. CCC works on a non-profit model which we are trying to extend in our working group. Join us if you like!
Postal Banking is the big one. It has already worked for over 50 years in the twentieth century very well. Postal Banking could perform just about all of the fringe finance business’ but on a cheaper public model, without the fees and usurious charges. Postal Banking is used in many countries now successfully, it is a kind low-level but far-reaching public bank.
Fringe Finance is perhaps the lowest level of the debt-system. People outside the banking system still get caught up in the debt-trap and are hit especially hard.
At perhaps the highest scale of the debt-system there is International Debt – the opposite extreme where entire countries are put under the control of financiers who weaponized debt.
This is how the standard explanation goes: A sovereign country must borrow money and go into debt if it spends too much money and doesn’t collect enough taxes.
But they do this because central banks and other international institutions prevent them from issuing their own currency and controlling its supply, so that these countries cannot control the supply and creation of their own currencies.
Control of the money in a country is in almost every case now controlled by private banks and their willingness to lend.
The Bank of International Settlements (the BIS) in Basel, Switzerland sets the rules of the global financial game for most of the countries on the planet. It was set up in 1929 as a way to shore up the power the international bankers were losing during the beginning of the Great Depression.
But it was right after a World War II that the main standards of the global financial system were set at the Bretton Woods Conference in 1944. This is where the IMF and World Bank were established.
When a country needs money to expand its economy, repay a previous debt, or gain more foreign currency reserves, it must appeal for credit from the IMF or World Bank, or issue bonds (92% of bonds are issued/sold at New York or London).
When countries take out loans from the IMF or World Bank, they must grow their economies mainly by increasing exports. This allows them to match their debt repayment with profits from exporting to consuming nations. If they cannot repay all of the debt from those loans by competing on the global export market, they are caught in the debt-trap.
The IMF and World Bank then impose structural adjustment programs that slash public institutions, public benefits, and public infrastructure. They force countries to privatize public goods like land and industry, because they have to pay the debt instead of their own people.
Privatizing public goods, land, and services gives countries a one-time boost in profit but cancels all further public profit to governments and the free use of the commons.
So, this is all about control, and debt-based finance is perhaps the primary tool for control today besides military intervention.
Any country that tries to break free and play by their own rules can attacked with currency raids and short selling on the foreign exchange market – which devalues an entire worth of a country’s economy.
Nations led by the US can also impose sanctions, saber-rattle, and fund revolutions within the dissenting country to establish sympathetic military rulers (or Juntas).
This is what happened in Chile in the 70’s, Libya a few years ago, what’s happening in Syria and Venezuela now, and what they are trying to do to Iran and Russia. There are many other examples in South and Central America, the Middle East, and Africa.
A good example with a happy ending is Argentina. 70’s – military dictatorship. 80’s – Neoliberal regime that led to a hyperinflation scenario of too much money borrowing. 90’s – massive privatization of natural resources (oil, roads, and banks). The interest in the loans and austerity conditions attached to them meant an uncompetitive, depressed economy.
So, in 1995, there was a run on the banks and massive capital flight out of the country – a major depression.
Now for the good part: without any kind of decent banking system, people turned toward alternative currencies (local communities made-up their own money).
Propel conducted massive, sustained protests that delegitimized the entire Argentinian government and made them fear for total loss of control. “Que se Vayan Todos” – “They can all go (to hell)” was their main slogan.
This pressure from below forced the Argentinian government to default on its International Debts. By re-nationalizing it’s once privatized industries, doubling social spending, and public investment, Argentina’s economy grew rapidly in the 2000’s. They went from negative growth to over 8% per year growth.
Recap on Argentina: by walking away from its debts, brought on by massive popular protest, and a re-nationalization of privatized goods, services, and land, Argentina saw major economic revival.
They were able to restructure their debt to far less than the original amount and paid off their IMF debt altogether. They did this by *issuing their own currency under their own control* and boosting public investment.
In the 2000’s, Argentina saw poverty drop from over 50% to under 15%.
Vulture funds bought some debt and refused to renegotiate it down, and there is an ongoing court battle over these culture funds right to collect the entirety of the debt that they bought from someone else.
The big one is Sovereign Money: to allow treasuries to print their own national currencies without borrowing it first from Private Central Banks or issuing bonds. The Central Banks would be public and under public control vs. for-profit private banks.
It happened in America during the civil war when Lincoln printed Greenbacks, which are the original design for the dollars we use today. Now, however, they are federal reserve notes, not treasury notes).
Canada is under a court battle for this right now and Iceland gained this after their revolution…
And Finally, Public Banks
Public Banks put money earned from interest on loans (profit) into the accounts of city and state governments instead of private banks because it would be a municipal, state, or regional bank.
They would partner with local banks and credit unions not compete with them.
Luckily we have one already in the State of North Dakota. The Great Recession and bank failure of 2008 had no effect on their economy whatsoever.
Most all major successful economies around the world today have a strong public banking sector: China, India, Brazil, Russia, and Germany (plus more).
The debt-system effects us all from big to small, from those outside of the banking system to entire countries, Fringe a Finance to International Debt. There are alternative models and solutions at each step, but we need major public pressure to recapture public goods, services, and land before these solutions can be put in place – like in Argentina.
The sources for this speech were The Debt Resistors’ Operations Manual [link], The Public Bank Solution by Ellen Brown [link], and The Democracy Project by David Graeber (for the bit about Argentina’s massive public protests of delegitimization)
This question of organization in the age of the internet seems to be one of the most crucial in any political project. How do we relate to each other on the internet, blogosphere, email, comment sections and all? How does this new form of largely isolated interaction effect more vulnerable embodied assemblages (groups/collectives)? Coming together in a common place as proximal bodies for a common purpose can never be replaced and I feel it must be emphasized – even in a blog post. What blogging does for me and others (to get all meta on you) is exchange ideas, or, if not an equalized interaction, absorb and affect each other’s expressions. I’ve learned quite a bit from the blogosphere – it is a neat surrogate for academia – but the emplacement of the student at the screen as the site of learning and sharing has its drawbacks. The internet has a great many strange places within, but the one in which the embodied user tends to inhabit is the glowing screen.
The debt activism that Asta Taylor is involved in is one case that I can relate to: I’ve done some organizing with Strike Debt Bay Area. It is extremely difficult to reach out to people *as debtors* and organize individuals into a collective *as debtors*. The isolation and shame attached to the position of debtor vis-a-vis creditors makes it less than desirable to claim as a subjectivity to come out as and own (although ‘gay’, ‘queer’, and I’m sure many others have odd histories of their own worth noting), yet the vast majority of people here in America (and many other places) are debtors burdened by the extractive economy. Is it alone, in our rooms, cafés, and other places of comfort that we will break off from adherence to a morality that sucks our energies up and keeps us from straying off of the main road? For some people yes. But for a mass movement of active bodies, most people need to meet up with others in greater gatherings. Debtors Assemblies have played that role, but in order to get people to come, to build that force, you’ve got to advertise. If you want to get people to come to your events I’ll give you some advice I gave to some students at the last Strike Debt Bay Area meeting: images everywhere. Posters, flyers, stickers, bulletin boards, walls, heavily trafficked areas… If you have a good idea, you need to get in people’s faces.
Too often do I turn off my tablet after a few hours and then think: “Okay, what did I just do on that one screen?”
“The Internet is said to be a space of democratic expression and transformation, both culturally and politically. But how true is that claim? What are some of the economic, technical, and legal obstacles in place? Drawing from her recent book, “The People’s Platform: Taking Back Power and Culture in the Digital Age,” and her experience as an artist and an activist, Astra Taylor — filmmaker, writer, and political organizer — addresses campaigns by musicians against streaming services and debtors against creditors to reflect on the larger question of how to organize and leverage change in an age of virtual networks — be they networks of cultural distribution or financial ones.”
A friend of mine asked me to explain what it means for Graeber to say that he is an anarchist in the context of money and banking and this was my response, expanded for the blog post:
Graeber calls himself a “little a” anarchist in that he is not tied down by the ideology or any of the big names in the canon and considers it a principle of practicing politics. Anarchism mostly just means “without rulers” and the model of decision-making, the process a meeting takes on, is more important to him and other practically-minded activists that also use it. It is called the consensus model and, when done right (which is actually much harder than he makes it out to be in my experience), it is an extremely powerful and uplifting tool for organizing ourselves. The ideal in the consensus model is that a solution to a problem is worked out through deliberation that everyone can agree on. Voting is not desired but sometimes necessary when the group gets too big, but the intention is that the best solution for all people involved is reached with everyone getting to participate.
So when he talks about himself as an anarchist, it is the consensus process and direct action outside of/without communication with government agencies that he is mostly referring to. It sure as hell worked wonders during the occupy movement, but there were plenty of other factors that propelled and also hampered that movement. When you break it down, (little-a) anarchism is about self-rule instead of command rule. In a general assembly, people don’t interrupt (I love this), get on a stack (a serial list of who will talk next), clarify and debate proposals, take “temperature-checks” (in lieu of voting), and communicate non-verbally with hand-signals. It is very involving and gives everyone a sense that their thoughts actually matter and will have an effect on the course of the greater body-politic.
This style of self-organization will have limits when it comes to making policy in the present state of government, so legitimacy in the agencies of power and our liberal society is definitely lacking. The model itself comes off as antagonistic to the rest of our law-based, market oriented society because it refuses to negotiate or make demands. Although, there is no reason why some group of folks couldn’t consent on doing so. An anarchist, on the other hand, tends to hate the state as a quasi-religious ideological tenet. It started out as a humanistic desire for a non-violent world where nations did not continually embroil their populations in ruinous wars. It has spread deeper into culture with punk music – “don’t tell me what to do!”, hippies – “make love not war, man”, and the general protest politics that got big in the sixties. From the mid 1800’s until then, it was mainly thought of in the political economy sense of an alternative to capitalism that espoused grassroots revolution against all forms of oppression. Worker movements like the IWW or Wobblies wanted to use the power of the recent uprisings for a world run by those who work rather than those who profit off of them. They tended to be nomadic and were better organized before they were crushed, provoking many strikes by workers toiling in horrid conditions.
There are anarchists who are utopian socialists and engage in prefigurative politics like the syndicalists, but they generally refuse to take power and limit themselves to something like: “destroy all the states in a total revolution with a maximally invigorated population!” What comes afterward is up to your imagination, but I think some of the more committed anarchists would just continue fighting whoever seizes the obviously inevitably power vacuum that would result – probably until they are all dead. I think Graeber and those like him would be less militaristic, opting instead for constant organizing to the side of whatever government takes shape. However, there is something inherently aggressive in occupying space and claiming it for your own, marching around nearby (loudly and breaking shit occasionally), and defying all other mandates and orders but those you have crafted on your own inside. He makes the point that the Occupy movement was the most non-violent movement of its size though, probably ever. He also makes the point that occupying is somewhat of an aggressive assertion of a mass of people.
Some anarchists like to emphasize the ancient times before states and organized religion as if they were the manifestation of a timeless grassroots earth-people. It’s actually kind of appealing, until you notice the romantic folly of mixing ideals from the present, the historical past, and the ancient past and saying that underneath them there’s a timeless one that I’ve got. Still though, mythology and elemental worshipping sounds better to me than monotheism – if you have to have something of a cohesive cultural understanding through spiritual agents.
As for the debt subordinating nations and democracy, he gets most of his economic insights from Michael Hudson. He’s just a far better writer. Hudson talks about the nefarious ways in which America subordinates other nations to its interests being largely a result of its international monetary practices between the large, economically and militarily powerful nations. The U.S. has operated on a double standard for decades and forced the victorious allies after both world wars to repay it for supplies. It was through unwavering debt repayment that the U.S. got Britain to relinquish its status as top nation in the world, and the money shortages after WWI due to debt services to the U.S. all but directly caused the Great Depression. Since then, as you probably know, nations are under the illusion that they need to borrow money before it is created. But is it a failure in economic thinking or a veiled threat from the U.S.? If nations begin to print their own money debt-free and do anything socialistic like nationalize their industries, their currency will be attacked and they will be targeted for regime change. The only nations big enough to challenge this system are on the move right now, but it is still unclear whether their policies will differ from the U.S., especially in terms of debt and money policies. The interests of bond and share holders and bankers earning interest at all levels of lending (even when it shouldn’t need to be lent), plus American hegemony across the globe has got to be what he means.
What gets me is how so few people know about this, yet it is the most powerful force shaping and constraining governments and people throughout the earth. There is a gigantic geopolitical battle going on right now over trade areas and currency, yet the American public is simply not informed about it. Did you hear about Putin’s proposal for a free-trade area throughout all of Europe? I think Eurasia might be slipping away from the U.S. I heard a military (probably Navy) commander speak on a Democracy Now sound bite about how the Trans-Pacific Partnership would be a major boon to his strategic efforts to control the Pacific – “as good as another aircraft carrier.” Hudson also points to the intertwining of neoliberal philosophy and American foreign policy.
To wrap up, I think anarchists like Graeber would be willing and able to understand this stuff. Between he and Taibbi, we finally have people that can communicate complicated stuff to the public. But anarchists strategy is all delegitimization and uprising; you can’t count on them to create a public bank.
Graeber discusses monetary policy in this article for the Guardian. http://www.theguardian.com/commentisfree/2014/mar/18/truth-money-iou-bank-of-england-austerity. In his usual flowing style, he covers the history of money and how debt is built directly into money at its very source of creation in a breeze. I’ve written about it previously so I won’t go into it in depth, but the important thing in my eyes vis a vis anarchism is this question of how monetary reform could ever come from an anarchist movement espousing a consensus process. Here enters the concept of dual power:
“…the Occupy movement is ultimately based on what in revolutionary theory is often called a *dual power* strategy: we are trying to create liberated territories outside of the existing political, legal, and economic order, on the principle that that order is irredeemably corrupt. It is a space that operates to what extent it is possible, outside the apparatus of government and its claims of a monopoly on the legitimate use of force.” The Democracy Project: A History, a Crisis, a Movement
A burning question for someone like me who is interested in the undeniable force and vivacity of grassroots political organizing and the comfort it brings at meetings, and reclaiming the power to create money for the public is this: how can we reconcile these two opposing positions in the vein of the old populist movements around the turn of the century? The self-imposed distance from the state will make anarchist movements unwilling to touch any kind of policy objectives, no matter how transformative and how beneficial they would be to the current economic realities that most people must endure today. And yet, the greatest impediment to the liberating goals of revolutionaries is the debt structured central bank and international financial institution rule – a rule that would most easily be broken by the reinstating of sovereign money creation by governments and not private banks. Public control of money creation and distribution is more powerful in terms of confronting global oppression than any seizure of power in the traditional revolutionary sense. Such a “reform” in any individual nation would certainly travel very far in our hyper-connected age, the ripple effects of which would eventually turn power relations upside down.
So do we abandon these practices and start campaigning for political parties that would enact these reforms, form “broad coalitions” with public interest groups, and appeal to big-spender representatives with a list of demands? We should never allow ourselves to be pressured into taking sides on anyone else’s terms before we consider the options placed before us and determine if such a decision is actually required of us. Graeber’s appeal to dual power allows us to consider two different opposing forms of power and organization at once, not having to make them both find a common ground. Consensus-based direct action works well in autonomous spaces for non-bureaucratic people. Representatives regulating the money supply of a nation and administering loans at the local level would work too. The latter operates with the backing of national governments and organized military violence. The former an ideal of peaceful villagers cooperating amiably. Neither models are wholly adequate, but neither do we have to insist that they work out their differences and gel together to make the one right model. Such would be a forced choice insisting that we have one political identity and eliminate all other contradictory beliefs.
Expanding on the dual power concept Graeber elaborates on four different recent political strategies for turning grassroots political movement into sustained machines that have influenced their regions greatly.
The Sadr Strategy: armed militias with top-down discipline like those found in Iraq, which are much more likely to eventually become political parties and require a culturally cohesive base.
The San Andés Strategy: Zapatista organizations that fight and negotiate with national governments to keep their seized territory.
The El Alto Strategy: as found in Bolivia, “using autonomous institutions as the base to win a role in government and maintaining them as a directly democratic alternative completely separate from government”, which then elect representatives while putting “enormous pressure [on them] to do exactly the opposite of what they elected them to do.” This gives those representatives even more negotiating power.
The Buenos Aires Strategy: “try to strip [the political establishment] of all legitimacy.” This apparently worked in Argentina to default on its international debt. “… doing so set off a cascade of events that nearly destroyed international enforcement agencies like the International Monetary Fund, and effectively ended the Third World debt crisis.”
One gets the feeling that to enact major monetary reform would require delegitimization from populist grassroots movements *plus* inside economic policy makers pushing good ideas for public financing.
Not only does the dollar enable the US empire, but also protecting the dollar’s status is a major reason for US imperial wars. American financial and military strength is based upon the fact that the dollar is the world’s reserve and international trade currency, creating a global demand for dollars which allows the US to print as many greenbacks as it likes. It then pumps them into the overbloated finance capital system and uses them to fund its criminal wars…
…Although it has so far been unsuccessful, the idea of rebalancing the world monetary system is extremely threatening to the US, and goes a long way toward explaining recent US wars and warmongering, which may otherwise seem irrational. The line of NATO bases in Eastern Europe and the coup d’etat in Ukraine are attempts to split Europe from Russia, trying to keep a subordinated Europe in the US sphere, prevent a single Eurasian economic area, and isolate and destabilize Russia. The Transatlantic Trade and Investment Partnership has the same goal. Weakening Russia and China (and the BRICS in general) on a military, economic and political level, with a regime change in mind, is a fundamental part of the US strategy for maintaining dollar hegemony. The US therefore has surrounded them with bases and continues to try to destabilize them. The US presence in the Middle East serves not primarily to gain access to its oil and gas (the US has its own, especially since the fracking boom) or even to control access to them (the Chinese are already there), but first and foremost to protect the petrodollar, to ensure that the global fossil fuel markets continue to be denominated in dollars. Iran has been talking about wanting to de-dollarize its oil and gas trade for years – thus, it and the Shia crescent are in the US line of fire…
…This is exactly in the interests of US financial imperialism: to economically undermine any rivals that question dollar hegemony. It is absolutely unacceptable that one country should arrogate to itself the right to set a wildly loose money policy for years and then tighten it at whim, giving the rest of the world a violent thrashing. It is unacceptable that any one country control the world’s reserve currency. As the above quote says, because of the circumstances created by QE and the zero interest rate policy, today if the US economy does well, the global South suffers. It’s a zero-sum equation. This is throwing burning obstacles in front of their process of de-dollarization, and making them suffer. On purpose? Again, it would be difficult to impute too much individual agency behind these effects, but they are predictable, necessary and not unprecedented consequences of the imperial monetary policy waged by the US for years. The question of agency in this case is moot: these policies serve the empire. They go along with and have similar effects to the more obvious forms of financial imperialism such as sanctions. The US should be held accountable for the disasters it sows, and the world should remove its imperial privileges, through the creation of a neutral world reserve currency.
“Neoliberalism is not simply an economic philosophy. It’s interwoven with American foreign policy.” -Hudson.
“To provide ideological backup for Yeltsin’s Chicago Boys, the U.S. Government funded its own transitions experts whose jobs ranged from writing privatization decrees, to launching a New York-style stock exchange, to designing a Russian mutual fund market. In the fall of 1992, USAID awarded a $2.1 million contract to the Harvard Institute for International Development, which sent teams of young lawyers and economists to shadow the Gaidar [the head of Yeltsin’s economic reform team] team. In May 1995, Harvard named [Jefferey] Sachs director of the Harvard Institute for International Development, which meant that he played two roles in Russia’s reform period: he began as a freelance adviser to Yelstin, then moved on to overseeing Harvard’s large Russia outpost, funded by the U.S, government.” (p.281)“Despite the fact that Russia’s Constitutional Court once again ruled Yeltsin’s behavior unconstitutional, Clinton continued to back him, and Congress voted to give Yeltsin $2.5 billion in aid. Emboldened, Yeltsin sent troops to surround the parliament and got the city to cut off power, heat and phone lines to the White House parliament building.” (p.294)
“… several of Yeltsin’s ministers transferred large sums of public money, which should have gone into the national bank or treasury, into private banks that had been hastily incorporated by oligarchies. The state then contracted with the same banks to run the privatization auctions for the oil fields and mines. The banks ran the auctions, but they also bid on them – and sure enough, the oligarch-owned banks decided to make themselves the proud new owners of the previously public assets. …the Russian people fronted the money for the looting of their own country.” (p.294)“…he [Sachs] now sees that there was something else at work: many of Washington’s power brokers were still fighting the Cold War. They saw Russia’s economic collapse as a *geopolitical victory*, the decisive one that ensured U.S. supremacy.” (p.315)
Since Positive Money UK instigated a debate at the UK Parliament over the creation of money [UK Parliament Debated Money Creation for the First Time in 170 Years], here is a round of links touching on the idea of debt-free money and/or reforming the monetary system in such a way that debt could not drain away money from cities, nations, and people:
Here is the full video of Steven Baker’s time on the floor beginning the debate: http://youtu.be/bXOkmD8Eozs
Bill Still gives his commentary on the parliamentary debate in his five-part series from his YouTube channel:
The main takeaway from Still is a mantra that he often repeats:
“It matters not what backs money but who controls the quantity.”
What is behind money, as if money were a mere appearance that needed a substantial thing to back its value before it became real, is irrelevant if the amount in circulation can be controlled by other means. As long as the supply of money relative to market activity is stable, whether money is explained as gold, or state credit, or a “store of value”, or a debt token or anything else will not make a difference. Keeping the supply of money stable means taking steps to ensure that money is introduced into the economy in sound, healthy ways (vs. letting banks do so by issuing loans).
When bank loans are payed back, money is destroyed and the supply shrinks. When too many loans are issued, more money is in circulation and therefore people are more indebted. Indebted people are expecting that their incomes and investments will continue to grow with the economy, but when interest rates are constantly lowered at the source of money (in central banks like the Federal Reserve), banks have access to “cheap money” (i.e. they pay very little interest on what money they borrow) and they inflate value of money with excessive loans through fractional reserve banking. When all signs are pointing up and the illusion of constant growth keeps people thinking they can make money simply by riding the flow of time, it is hard to put a stop to the fountain of easy money and contract the supply.
This video from the Caspian Report explains the 2008 financial collapse and how the cheap money created by banks for the housing market was inflationary. The way banks are able to issue credit at will during booms distorts the value of money, further inflating it and leading to a greater bust.
Ellen Brown’s latest piece on Cypress style bail-ins that could come to the US in order to cover the banker’s massively over-leveraged derivatives market. This could be the outrageous spark that will push people to reign in the Too-Big-To-Fail banks. The question is: how many people will tolerate having their deposits seized to keep already maligned mega-banks solvent?
Her solution is for states, cities, and the federal government (really any public body) to own their own banks and stop borrowing money from private banks that must turn a profit for their shareholders and employees.
[The Public Banking Institute]
The big message about money is that the mechanisms in place to control the total quantity of money are obsolete. Money must be created without borrowing and without going into debt at the personal and governmental level to prevent banks from sucking money out of the circular economy. Striking debt from the process of creating money would be a simple fix to help turn the tide against systemic domination by rentiers and financiers.
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:
The UK’s Positive Money:
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).
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:
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, Indian 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.