FedUpUSA

Archive for the ‘Fascism’ Category

This talk was delivered at the Doug Casey conference, “When Money Dies,” in Phoenix on October 1, 2011.

Everyone knows that the term fascist is a pejorative, often used to describe any political position a speaker doesn’t like. There isn’t anyone around who is willing to stand up and say: “I’m a fascist; I think fascism is a great social and economic system.”

But I submit that if they were honest, the vast majority of politicians, intellectuals, and political activists would have to say just that.

Fascism is the system of government that cartelizes the private sector, centrally plans the economy to subsidize producers, exalts the police State as the source of order, denies fundamental rights and liberties to individuals, and makes the executive State the unlimited master of society.

This describes mainstream politics in America today. And not just in America. It’s true in Europe, too. It is so much part of the mainstream that it is hardly noticed any more.

It is true that fascism has no overarching theoretical apparatus. There is no grand theorist like Marx. That makes it no less real and distinct as a social, economic, and political system. Fascism also thrives as a distinct style of social and economic management. And it is as much or more of a threat to civilization than full-blown socialism.

This is because its traits are so much a part of life – and have been for so long – that they are nearly invisible to us.

If fascism is invisible to us, it is truly the silent killer. It fastens a huge, violent, lumbering State on the free market that drains its capital and productivity like a deadly parasite on a host. This is why the fascist State has been called The Vampire Economy. It sucks the economic life out of a nation and brings about a slow death of a once thriving economy.

Let me just provide a recent example.

The Decline

The papers last week were filled with the first sets of data from the 2010 US Census. The headline story concerned the huge increase in the poverty rate. It is the largest increase in 20 years, and now up to 15%.

But most people hear this and dismiss it, probably for good reason. The poor in this country are not poor by any historical standard. They have cell phones, cable TV, cars, lots of food, and plenty of disposable income. What’s more, there is no such thing as a fixed class called the poor. People come and go, depending on age and life circumstances. Plus, in American politics, when you hear kvetching about the poor, everyone knows what you’re supposed to do: hand the government your wallet.

Buried in the report is another fact that has much more profound significance. It concerns median household income in real terms.

What the data have revealed is devastating. Since 1999, median household income has fallen 7.1 percent. Since 1989, median family income is largely flat. And since 1973 and the end of the gold standard, it has hardly risen at all. The great wealth generating machine that was once America is failing.

No longer can one generation expect to live a better life than the previous one. The fascist economic model has killed what was once called the American dream. And the truth is, of course, even worse than the statistic reveals. You have to consider how many incomes exist within a single household to make up the total income. After World War II, the single-income family became the norm. Then the money was destroyed and American savings were wiped out and the capital base of the economy was devastated.

It was at this point that households began to struggle to stay above water. The year 1985 was the turning point. This was the year that it became more common than not for a household to have two incomes rather than one. Mothers entered the workforce to keep family income floating.

The intellectuals cheered this trend, as if it represented liberation, shouting hosannas that all women everywhere are now added to the tax rolls as valuable contributors to the State’s coffers. The real cause is the rise of fiat money that depreciated the currency, robbed savings, and shoved people into the workforce as taxpayers.

This story is not told in the data alone. You have to look at the demographics to discover it.

This huge demographic shift essentially bought the American household another 20 years of seeming prosperity, though it is hard to call it that since there was no longer any choice about the matter. If you wanted to keep living the dream, the household could no longer get by on a single income.

But this huge shift was merely an escape hatch. It bought 20 years of slight increases before the income trend flattened again. Over the last decade we are back to falling. Today median family income is only slightly above where it was when Nixon wrecked the dollar, put on price and wage controls, created the EPA, and the whole apparatus of the parasitic welfare-warfare State came to be entrenched and made universal.

Yes, this is fascism, and we are paying the price. The dream is being destroyed.

The talk in Washington about reform, whether from Democrats or Republicans, is like a bad joke. They talk of small changes, small cuts, commissions they will establish, curbs they will make in ten years. It is all white noise. None of this will fix the problem. Not even close.

The problem is more fundamental. It is the quality of the money. It is the very existence of 10,000 regulatory agencies. It is the whole assumption that you have to pay the State for the privilege to work. It is the presumption that the government must manage every aspect of the capitalist economic order. In short, it is the total State that is the problem, and the suffering and decline will continue so long as the total State exists.

The Origins of Fascism

To be sure, the last time people worried about fascism was during the Second World War. We were said to be fighting this evil system abroad. The US defeated fascist governments but the philosophy of governance that it represents was not defeated. Very quickly following that war, another one began. This was the Cold War that pitted capitalism against communism. Socialism in this case was considered to be a soft form of communism, tolerable and even praiseworthy insofar as it was linked with democracy, which is the system that legalizes and legitimizes an ongoing pillaging of the population.

In the meantime, almost everyone has forgotten that there are many other colors of socialism, not all of them obviously left wing. Fascism is one of these colors.

There can be no question of its origins. It is tied up with the history of post-World War I Italian politics. In 1922, Benito Mussolini won a democratic election and established fascism as his philosophy. Mussolini had been a member of the socialist party.

All the biggest and most important players within the fascist movement came from the socialists. It was a threat to the socialists because it was the most appealing political vehicle for the real-world application of the socialist impulse. Socialists crossed over to join the fascists en masse.

This is also why Mussolini himself enjoyed such good press for more than ten years after his rule began. He was celebrated by the New York Times in article after article. He was heralded in scholarly collections as an exemplar of the type of leader we need in an age of the planned society. Puff pieces on this blowhard were very common in US journalism all through the late 1920s and the mid-1930s.

Remember that in this same period, the American left went through a huge shift. In the teens and 1920s, the American left had a very praiseworthy anti-corporatist impulse. The left generally opposed war, the state-run penal system, alcohol prohibition, and all violations of civil liberties. It was no friend of capitalism but neither was it a friend of the corporate State of the sort that FDR forged during the New Deal.

In 1933 and 1934, the American left had to make a choice. Would they embrace the corporatism and regimentation of the New Deal or take a principled stand on their old liberal values? In other words, would they accept fascism as a halfway house to their socialist utopia? A gigantic battle ensued in this period, and there was a clear winner. The New Deal made an offer the left could not refuse. And it was a small step to go from the embrace of the fascistic planned economy to the celebration of the warfare State that concluded the New Deal period.

This was merely a repeat of the same course of events in Italy a decade earlier. In Italy too, the left realized that their anti-capitalistic agenda could best be achieved within the framework of the authoritarian, planning State. Of course our friend John Maynard Keynes played a critical role in providing a pseudo-scientific rationale for joining opposition to old-world laissez faire to a new appreciation of the planned society. Recall that Keynes was not a socialist of the old school. As he himself said in his introduction to the Nazi edition of his General Theory, national socialism was far more hospitable to his ideas than a market economy.

Flynn Tells the Truth

The most definitive study on fascism written in these years was As We Go Marching by John T. Flynn. Flynn was a journalist and scholar of a liberal spirit who had written a number of best-selling books in the 1920s. He could probably be put in the progressive camp in the 1920s. It was the New Deal that changed him. His colleagues all followed FDR into fascism, while Flynn himself kept the old faith. That meant that he fought FDR every step of the way, and not only his domestic plans. Flynn was a leader of the America First movement that saw FDR’s drive to war as nothing but an extension of the New Deal, which it certainly was.

But because Flynn was part of what Murray Rothbard later dubbed the Old Right – Flynn came to oppose both the welfare State and the warfare State – his name went down the Orwellian memory hole after the war, during the heyday of CIA conservatism.

As We Go Marching came out in 1944, just at the tail end of the war, and right in the midst of wartime economic controls the world over. It is a wonder that it ever got past the censors. It is a full-scale study of fascist theory and practice, and Flynn saw precisely where fascism ends: in militarism and war as the fulfillment of the stimulus-spending agenda. When you run out of everything else to spend money on, you can always depend on nationalist fervor to back more military spending.

In reviewing the history of the rise of fascism, Flynn wrote:

“One of the most baffling phenomena of fascism is the almost incredible collaboration between men of the extreme Right and the extreme Left in its creation. The explanation lies at this point. Both Right and Left joined in this urge for regulation. The motives, the arguments, and the forms of expression were different but all drove in the same direction. And this was that the economic system must be controlled in its essential functions and this control must be exercised by the producing groups.”

Government under fascism becomes the cartelization device for both workers and the private owners of capital. Competition between workers and between businesses is regarded as wasteful and pointless; the political elites decide that the members of these groups need to get together and cooperate under government supervision to build a mighty nation.

The fascists have always been obsessed with the idea of national greatness. To them, this does not consist in a nation of people who are growing more prosperous, living ever better and longer lives. No, national greatness occurs when the State embarks on building huge monuments, undertaking nationwide transportation systems, carving Mount Rushmore, or digging the Panama Canal.

In other words, national greatness is not the same thing as your greatness or your family’s greatness or your company’s or profession’s greatness. On the contrary. You have to be taxed, your money’s value has to be depreciated, your privacy invaded, and your well being diminished in order to achieve it. In this view, the government has to make us great.

Tragically, such a program has a far greater chance of political success than old-fashioned socialism. Fascism doesn’t nationalize private property as socialism does. That means that the economy doesn’t collapse right away. Nor does fascism push to equalize incomes. There is no talk of the abolition of marriage or the nationalization of children.

Religion is not abolished but used as a tool of political manipulation. The fascist State was far more politically astute in this respect than communism. It wove together religion and statism into one package, encouraging a worship of God provided that the State operates as the intermediary.

Under fascism, society as we know it is left intact, though everything is lorded over by a mighty State apparatus. Whereas traditional socialist teaching fostered a globalist perspective, fascism was explicitly nationalist. It embraced and exalted the idea of the nation-state.

As for the bourgeoisie, fascism doesn’t seek their expropriation. Instead, the middle class gets what it wants in the form of social insurance, medical benefits, and heavy doses of national pride.

It is for all these reasons that fascism takes on a right-wing cast. It doesn’t attack fundamental bourgeois values. It draws on them to garner support for a democratically backed all-round national regimentation of economic control, censorship, cartelization, political intolerance, geographic expansion, executive control, the police State, and militarism.

For my part, I have no problem referring to the fascist program as a right-wing theory, even if it does fulfill aspects of the left-wing dream. The crucial matter here concerns its appeal to the public and to the demographic groups that are normally drawn to right-wing politics.

If you think about it, right-wing statism is of a different color, cast, and tone from left-wing statism. Each is designed to appeal to a different set of voters with different interests and values.

These divisions, however, are not strict, and we’ve already seen how a left-wing socialist program can adapt itself and become a right-wing fascist program with very little substantive change other than its marketing program.

The Eight Marks of Fascist Policy

John T. Flynn, like other members of the Old Right, was disgusted by the irony that what he saw, most everyone else chose to ignore. In the fight against authoritarian regimes abroad, he noted, the US had adopted those forms of government at home, complete with price controls, rationing, censorship, executive dictatorship, and even concentration camps for whole groups considered to be unreliable in their loyalties to the State.

After reviewing this long history, Flynn proceeds to sum up with a list of eight points he considers to be the main marks of the fascist State.

As I present them, I will also offer comments on the modern American central State.

Point 1. The government is totalitarian because it acknowledges no restraint upon its powers.

This is a very telling mark. It suggests that the US political system can be described as totalitarian. This is a shocking remark that most people would reject. But they can reject this characterization so long as they happen not to be directly ensnared in the State’s web. If they become so, they will quickly discover that there are indeed no limits to what the State can do. This can happen boarding a flight, driving around in your home town, or having your business run afoul of some government agency. In the end, you must obey or be caged like an animal or killed. In this way, no matter how much you may believe that you are free, all of us today are but one step away from Guantanamo.

As recently as the 1990s, I can recall that there were moments when Clinton seemed to suggest that there were some things that his administration could not do. Today I’m not so sure that I can recall any government official pleading the constraints of law or the constraints of reality to what can and cannot be done. No aspect of life is untouched by government intervention, and often it takes forms we do not readily see. All of health care is regulated, but so is every bit of our food, transportation, clothing, household products, and even private relationships.

Mussolini himself put his principle this way: “All within the State, nothing outside the State, nothing against the State.” He also said: “The keystone of the Fascist doctrine is its conception of the State, of its essence, its functions, and its aims. For Fascism the State is absolute, individuals and groups relative.”

I submit to you that this is the prevailing ideology in the United States today. This nation conceived in liberty has been kidnapped by the fascist State.

Point 2. Government is a de facto dictatorship based on the leadership principle.

I wouldn’t say that we truly have a dictatorship of one man in this country, but we do have a form of dictatorship of one sector of government over the entire country. The executive branch has spread so dramatically over the last century that it has become a joke to speak of checks and balances. What the kids learn in civics class has nothing to do with reality.

The executive State is the State as we know it, all flowing from the White House down. The role of the courts is to enforce the will of the executive. The role of the legislature is to ratify the policy of the executive.

Further, this executive is not really about the person who seems to be in charge. The president is only the veneer, and the elections are only the tribal rituals we undergo to confer some legitimacy on the institution. In reality, the nation State lives and thrives outside any “democratic mandate.” Here we find the power to regulate all aspects of life and the wicked power to create the money necessary to fund this executive rule.

As for the leadership principle, there is no greater lie in American public life than the propaganda we hear every four years about how the new president/messiah is going to usher in the great dispensation of peace, equality, liberty, and global human happiness. The idea here is that the whole of society is really shaped and controlled by a single will – a point that requires a leap of faith so vast that you have to disregard everything you know about reality to believe it.

And yet people do. The hope for a messiah reached a fevered pitch with Obama’s election. The civic religion was in full-scale worship mode – of the greatest human who ever lived or ever shall live. It was a despicable display.

Another lie that the American people believe is that presidential elections bring about regime change. This is sheer nonsense. The Obama State is the Bush State; the Bush State was the Clinton State; the Clinton State was the Bush State; the Bush State was the Reagan State. We can trace this back and back in time and see overlapping appointments, bureaucrats, technicians, diplomats, Fed officials, financial elites, and so on. Rotation in office occurs not because of elections but because of mortality.

Point 3. Government administers a capitalist system with an immense bureaucracy.

The reality of bureaucratic administration has been with us at least since the New Deal, which was modeled on the planning bureaucracy that lived in World War I. The planned economy – whether in Mussolini’s time or ours – requires bureaucracy. Bureaucracy is the heart, lungs, and veins of the planning State. And yet to regulate an economy as thoroughly as this one is today is to kill prosperity with a billion tiny cuts.

This doesn’t necessarily mean economic contraction, at least right away. But it definitely means killing off growth that would have otherwise occurred in a free market.

So where is our growth? Where is the peace dividend that was supposed to come after the end of the Cold War? Where are the fruits of the amazing gains in efficiency that technology has afforded? It has been eaten by the bureaucracy that manages our every move on this earth. The voracious and insatiable monster here is called the Federal Code that calls on thousands of agencies to exercise the police power to prevent us from living free lives.

It is as Basiat said: The real cost of the State is the prosperity we do not see, the jobs that don’t exist, the technologies to which we do not have access, the businesses that do not come into existence, and the bright future that is stolen from us. The State has looted us just as surely as a robber who enters our home at night and steals all that we love.

Point 4. Producers are organized into cartels in the way of syndicalism.

Syndicalist is not usually how we think of how our current economic structure. But remember that syndicalism means economic control by the producers. Capitalism is different. It places by virtue of market structures all control in the hands of the consumers. The only question for syndicalists, then, is which producers are going to enjoy political privilege. It might be the workers but it can also be the largest corporations.

In the case of the US, in the last three years, we’ve seen giant banks, pharmaceutical firms, insurers, car companies, Wall Street banks and brokerage houses, and quasi-private mortgage companies enjoying vast privileges at our expense. They have all joined with the State in living a parasitical existence at our expense.

This is also an expression of the syndicalist idea, and it has cost the US economy untold trillions and sustained an economic depression by preventing the post-boom adjustment that markets would otherwise dictate. The government has tightened its syndicalist grip in the name of stimulus.

Point 5. Economic planning is based on the principle of autarky.

Autarky is the name given to the idea of economic self-sufficiency. Mostly this refers to the economic self-determination of the nation-state. The nation-state must be geographically huge in order to support rapid economic growth for a large and growing population.

This was and is the basis for fascist expansionism. Without expansion, the State dies. This is also the idea behind the strange combination of protectionist pressure today combined with militarism. It is driven in part by the need to control resources.

Look at the wars in Iraq, Afghanistan, and Libya. We would be supremely naive to believe that these wars were not motivated in part by the producer interests of the oil industry. It is true of the American empire generally, which supports dollar hegemony.

It is the reason for the planned North American Union.

The goal is national self-sufficiency rather than a world of peaceful trade. Consider, too, the protectionist impulses of the Republican ticket. There is not one single Republican, apart from Ron Paul, who authentically supports free trade in the classical definition.

From ancient Rome to modern-day America, imperialism is a form of statism that the bourgeoisie love. It is for this reason that Bush’s post-09/11 push for the global empire has been sold as patriotism and love of country rather than for what it is: a looting of liberty and property to benefit the political elites.

6. Government sustains economic life through spending and borrowing.

This point requires no elaboration because it is no longer hidden. There was stimulus 1 and stimulus 2, both of which are so discredited that stimulus 3 will have to adopt a new name. Let’s call it the American Jobs Act.

With a prime-time speech, Obama argued in favor of this program with some of the most asinine economic analysis I’ve ever heard. He mused about how is it that people are unemployed at a time when schools, bridges, and infrastructure need repairing. He ordered that supply and demand come together to match up needed work with jobs.

Hello? The schools, bridges, and infrastructure that Obama refers to are all built and maintained by the State. That’s why they are falling apart. And people don’t have jobs because the State has made it too expensive to hire them. It’s not complicated. To sit around and dream of other scenarios is no different from wishing that water flowed uphill or that rocks would float in the air. It amounts to a denial of reality.

Still, Obama went on, invoking the old fascistic longing for national greatness. “Building a world-class transportation system,” he said, “is part of what made us an economic superpower.” Then he asked: “We’re going to sit back and watch China build newer airports and faster railroads?”

Well, the answer to that question is yes. And you know what? It doesn’t hurt a single American for a person in China to travel on a faster railroad than we do. To claim otherwise is an incitement to nationalist hysteria.

As for the rest of this program, Obama promised yet another long list of spending projects. Let’s just mention the reality: No government in the history of the world has spent as much, borrowed as much, and created as much fake money as the US. If the US doesn’t qualify as a fascist State in this sense, no government ever has.

None of this would be possible but for the role of the Federal Reserve, the great lender to the world. This institution is absolutely critical to US fiscal policy. There is no way that the national debt could increase at a rate of $4 billion per day without this institution.

Under a gold standard, all of this maniacal spending would come to an end. And if US debt were priced on the market with a default premium, we would be looking at a rating far less than A+.

Point 7. Militarism is a mainstay of government spending.

Have you ever noticed that the military budget is never seriously discussed in policy debates? The US spends more than most of the rest of the world combined.

And yet to hear our leaders talk, the US is just a tiny commercial republic that wants peace but is constantly under threat from the world. They would have us believe that we all stand naked and vulnerable. The whole thing is a ghastly lie. The US is a global military empire and the main threat to peace around the world today.

To visualize US military spending as compared with other countries is truly shocking. One bar chart you can easily look up shows the US trillion-dollar-plus military budget as a skyscraper surrounded by tiny huts. As for the next highest spender, China spends 1/10th as much as the US.

Where is the debate about this policy? Where is the discussion? It is not going on. It is just assumed by both parties that it is essential for the US way of life that the US be the most deadly country on the planet, threatening everyone with nuclear extinction unless they obey. This should be considered a fiscal and moral outrage by every civilized person.

This isn’t only about the armed services, the military contractors, the CIA death squads. It is also about how police at all levels have taken on military-like postures. This goes for the local police, State police, and even the crossing guards in our communities. The commissar mentality, the trigger-happy thuggishness, has become the norm throughout the whole of society.

If you want to witness outrages, it is not hard. Try coming into this country from Canada or Mexico. See the bullet-proof-vest wearing, heavily armed, jackbooted thugs running dogs up and down car lanes, searching people randomly, harassing innocents, asking rude and intrusive questions.

You get the strong impression that you are entering a police State. That impression would be correct.

Yet for the man on the street, the answer to all social problems seems to be more jails, longer terms, more enforcement, more arbitrary power, more crackdowns, more capital punishments, more authority. Where does all of this end? And will the end come before we realize what has happened to our once-free country?

Point 8. Military spending has imperialist aims.

Ronald Reagan used to claim that his military buildup was essential to keeping the peace. The history of US foreign policy just since the 1980s has shown that this is wrong. We’ve had one war after another, wars waged by the US against non-compliant countries, and the creation of even more client states and colonies.

US military strength has not led to peace, but the opposite. It has caused most people in the world to regard the US as a threat, and it has led to unconscionable wars on many countries. Wars of aggression were defined at Nuremberg as crimes against humanity.

Obama was supposed to end this. He never promised to do so. But his supporters all believed that he would. Instead, he has done the opposite. He has increased troop levels, entrenched wars, and started new ones. In reality, he has presided over a warfare State just as vicious as any in history. The difference this time is that the left is no longer criticizing the US role in the world. In that sense, Obama is the best thing to ever happen to the warmongers and the military-industrial complex.

As for the right in this country, it once opposed this kind of military fascism. But all that changed after the beginning of the Cold War. The right was led into a terrible ideological shift, well documented in Murray Rothbard’s neglected masterpiece The Betrayal of the American Right. In the name of stopping communism, the right came to follow ex-CIA agent Bill Buckley’s endorsement of a totalitarian bureaucracy at home to fight wars all over the world.

At the end of the Cold War, there was a brief reprise when the right in this country remembered its roots in non-interventionism. But this did not last long. George Bush the First rekindled the militarist spirit with the first war on Iraq, and there has been no fundamental questioning of the American empire ever since. Even today, Republicans – except, again, Ron Paul – elicit their biggest applause by whipping up audiences about foreign threats, while never mentioning that the real threat to American well-being exists in the Beltway.

The Future

I can think of no greater priority today than a serious and effective antifascist alliance. In many ways, one is already forming. It is not a formal alliance. It is made up of those who protest the Fed, those who refuse to go along with mainstream fascist politics, those who seek decentralization, those who demand lower taxes and free trade, those who seek the right to associate with anyone they want and buy and sell on terms of their own choosing, those who insist they can educate their children on their own, the investors and savers who make economic growth possible, those who do not want to be felt up at airports, and those who have become expatriates.

It is also made of the millions of independent entrepreneurs who are discovering that the number one threat to their ability to serve others through the commercial marketplace is the institution that claims to be our biggest benefactor: the government.

How many people fall into this category? It is more than we know. The movement is intellectual. It is political. It is cultural. It is technological. They come from all classes, races, countries, and professions. This is no longer a national movement. It is truly global.

We can no longer predict whether members consider themselves to be left wing, right wing, independent, libertarian, anarchist, or something else. It includes those as diverse as home-schooling parents in the suburbs as well as parents in urban areas whose children are among the 2.3 million people who languish in jail for no good reason in a country with the largest prison population in the world.

And what does this movement want? Nothing more or less than sweet liberty. It does not ask that the liberty be granted or given. It only asks for the liberty that is promised by life itself and would otherwise exist were it not for the leviathan State that robs us, badgers us, jails us, kills us.

This movement is not departing. We are daily surrounded by evidence that it is right and true. Every day, it is more and more obvious that the State contributes absolutely nothing to our well-being, but massively subtracts from it.

Back in the 1930s, and even up through the 1980s, the partisans of the State were overflowing with ideas. They had theories and agendas that had many intellectual backers. They were thrilled and excited about the world they would create. They would end business cycles, bring about social advance, build the middle class, cure disease, bring about universal security, and much more. Fascism believed in itself.

This is no longer true. Fascism has no new ideas, no big projects, and not even its partisans really believe it can accomplish what it sets out to do. The world created by the private sector is so much more useful and beautiful than anything the State has done that the fascists have themselves become demoralized and aware that their agenda has no real intellectual foundation.

It is ever more widely known that statism does not and cannot work. Statism is the great lie. Statism gives us the exact opposite of its promise. It promised security, prosperity, and peace; it has given us fear, poverty, war, and death. If we want a future, it is one that we have to build ourselves. The fascist State will not give it to us; on the contrary, it stands in the way.

It also seems to me that the old-time romance of the classical liberals with the idea of the limited State is gone. It is far more likely today that young people embrace an idea that fifty years ago was thought to be the unthinkable thought: the idea that society is best off without any State at all.

I would mark the rise of anarcho-capitalist theory as the most dramatic intellectual shift in my adult lifetime. Gone is that view of the State as the night watchman that would only guard essential rights, adjudicate disputes, and protect liberty.

This view is woefully naive. The night watchman is the guy with the guns, the legal right to use aggression, the guy who controls all comings and goings, the guy who is perched on top and sees all things. Who is watching him? Who is limiting his power? No one, and this is precisely why he is the very source of society’s greatest ills. No constitution, no election, no social contract will check his power.

Indeed, the night watchman has acquired total power. It is he who would be the total State, which Flynn describes as a government that “possesses the power to enact any law or take any measure that seems proper to it.” So long as a government, he says, “is clothed with the power to do anything without any limitation on its powers, it is totalitarian. It has total power.”

It is no longer a point that we can ignore. The night watchman must be removed and his powers distributed within and among the whole population, and they should be governed by the same forces that bring us all the blessings the material world affords us.

In the end, this is the choice we face: the total State or total freedom. Which will we choose? If we choose the State, we will continue to sink further and further and eventually lose all that we treasure as a civilization. If we choose freedom, we can harness that remarkable power of human cooperation that will enable us to continue to make a better world.

In the fight against fascism, there is no reason to be despairing but rather to continue to fight with every bit of confidence that the future belongs to us and not them.

Their world is falling apart. Ours is just being built.

Their world is based on bankrupt ideologies. Ours is rooted in the truth about freedom and reality.

Their world can only look back to the glory days. Ours looks forward to the future we are building for ourselves.

Their world is rooted in the corpse of the nation-state. Our world draws on the energies and creativity of all peoples in the world, united in the great and noble project of creating a prospering civilization through peaceful human cooperation.

It’s true that they have the biggest guns. But big guns have not assured permanent victory in Iraq or Afghanistan, or any other place on the planet.

We possess the only weapon that is truly immortal: the right idea. It is this that will lead to victory.

As Mises said: “In the long run even the most despotic governments with all their brutality and cruelty are no match for ideas. Eventually the ideology that has won the support of the majority will prevail and cut the ground from under the tyrant’s feet. Then the oppressed many will rise in rebellion and overthrow their masters.”

Llewellyn H. Rockwell, Jr. [send him mail], former editorial assistant to Ludwig von Mises and congressional chief of staff to Ron Paul, is founder and chairman of the Mises Institute, executor for the estate of Murray N. Rothbard, and editor of LewRockwell.com. See his books.

Lew Rockwell

If you weren’t clear on the government’s intent up until now, you should be after listening to this clip.

http://www.breitbart.tv/shocking-audio-rep-dingell-says-obamacare-will-eventually-control-the-people/

Independence Day eh?

Independence from… what or whom…. and when?

Hattip: Samadams on the forum

Will Greece Let EU Central Bankers Run Riot Over Sovereignty?

Courtesy of Michael Hudson

When Greece exchanged its drachma for the euro in 2000, most voters were all for joining the Eurozone. Their hope was that it would ensure stability, and that this would promote rising wages and living standards. Few saw that the stumbling point was tax policy. Greece was excluded from the eurozone the previous year as a result of failing to meet the 1992 Maastricht criteria for EU membership, limiting budget deficits to 3 percent of GDP, and government debt to 60 percent.

The euro also had other serious fiscal and monetary problems at the outset. There is little thought of wealthier EU economies helping bring less productive ones up to par, e.g. as the United States does with its depressed areas (as in the rescue of the auto industry in 2010) or when the federal government does declares a state of emergency for floods, tornados or other disruptions.

As with the United States and indeed nearly all countries, EU “aid” is largely self-serving – a combination of export promotion and bailouts for debtor economies to pay banks in Europe’s main creditor nations: Germany, France and the Netherlands. The EU charter banned the European Central Bank (ECB) from financing government deficits, and prevents (indeed, “saves”) members from having to pay for the “fiscal irresponsibility” of countries running budget deficits. This “hard” tax policy was the price that lower-income countries had to sign onto when they joined the European Union.

Also unlike the United States (or almost any nation), Europe’s parliament was merely ceremonial. It had no power to set and administer EU-wide taxes. Politically, the continent remains a loose federation. Every member is expected to pay its own way. The central bank does not monetize deficits, and there is minimal federal sharing with member states. Public spending deficits – even for capital investment in infrastructure – must be financed by running into debt, at rising interest rates as countries running deficits become more risky.

This means that spending on transportation, power and other basic infrastructure that was publicly financed in North America and the leading European economies must be privatized. Prices for these services must be set high enough to cover interest and other financing charges, high salaries and bonuses, and be run for profit – indeed, for rent extraction as public regulatory authority is disabled.

This makes countries going this route less competitive. It also means they will run into debt to Germany, France and the Netherlands, causing the financial strains that now are leading to showdowns with democratically elected governments. At issue is whether Europe should succumb to centralized planning – on the right wing of the political spectrum, under the banner of “free markets” defined as economies free from public price regulation and oversight, free from consumer protection, and free from taxes on the rich.

The crisis for Greece – as for Iceland, Ireland and debt-plagued economies capped by the United States – is occurring as bank lobbyists demand that “taxpayers” pay for the bailouts of bad speculations and government debts stemming largely from tax cuts for the rich and for real estate, shifting the fiscal burden as well as the debt burden onto labor and industry. The financial sector’s growing power to achieve this tax favoritism is crippling economies, driving them further into reliance on yet more debt financing to remain solvent. Aid is conditional upon recipient countries reducing their wage levels (“internal devaluation”) and selling off public enterprises.

The tunnel vision that guides these policies is self-reinforcing. Europe, America and Japan draw their economic managers from the ranks of professionals sliding back and forth between the banks and finance ministries – what the Japanese call “descent from heaven” to the private sector where worldly rewards are greatest. It is not merely delayed payment for past service. Their government experience and contacts helps them influence the remaining public bureaucracy and lobby their equally opportunistic replacements to promote pro-financial fiscal and monetary policies – that is, to handcuff government and deter regulation and taxation of the financial sector and its real estate and monopoly clients, and to use the government’s taxing and money-creating power to provide bailouts when the inevitable financial collapse occurs as the economy shrinks below break-even levels into negative equity territory.

Regressive tax policies – shifting taxes off the rich and off property onto labor – cause budget deficits financed by public debt. When bondholders pull the plug, the resulting debt pressure forces governments to pay off debts by selling land and other public assets to private buyers (unless governments repudiate the debt or recover by restoring progressive taxation). Most such sales are done on credit. This benefits the banks by creating a loan market for the buyouts. Meanwhile, interest absorbs the earnings, depriving the government of tax revenue it formerly could have received as user fees.

The tax gift to financiers is based on the bad policy of treating debt financing as a necessary cost of doing business, not as a policy choice – one that indeed is induced by the tax distortion of making interest payments tax-deductible.

Buyers borrow credit to appropriate “the commons” in the same way they bid for commercial real estate. The winner is whoever raises the largest buyout loan – by pledging the most revenue to pay the bank as interest. So the financial sector ends up with the revenue hitherto paid to governments as taxes or user fees. This is euphemized as a free market.

Promoting the financial sector at the economy’s expense

The resulting debt leveraging is not a solvable problem. It is a quandary from which economies can escape only by focusing on production and consumption rather than merely subsidizing the financial system to enable players to make money from money by inflating asset prices on free electronic keyboard credit. Austerity causes unemployment, which lowers wages and prevents labor from sharing in the surplus. It enables companies to force their employees to work overtime and harder in order to get or keep a job, but does not really raise productivity and living standards in the way envisioned a century ago. Increasing housing prices on credit – requiring larger debts for access to home ownership – is not real prosperity.

To contrast the “real” economy from the financial sector requires distinctions to be drawn between productive and unproductive credit and investment. One needs the concept of economic rent as an institutional and political return to privilege without a corresponding cost of production. Classical political economy was all about distinguishing earned from unearned income, cost-value from market price. But pro-financial lobbyists deny that any income or rentier wealth is unearned or parasitic. The national income and product accounts (NIPA) do not draw any such distinction. This blind spot is not accidental. It is the essence of post-classical economics. And it explains why Europe is so crippled.

The way in which the euro was created in 1999 reflects this shallow vision. The Maastricht fiscal and financial rules maximize the commercial loan market by preventing central banks from supplying governments (and hence, the economy) with credit to grow. Commercial banks are to be the sole source of financing budget deficits – defined to include infrastructure investment in transportation, communication, power and water. Privatization of these basic services blocks governments from supplying them at subsidized rates or freely. So roads are turned into toll roads, charging access fees that are readily monopolized. Economies are turned into sets of tollbooths, paying out their access charges as interest to creditors. These extractive rents make privatized economies high-cost. But to the financial sector that is “wealth creation.” It is enhanced by untaxing interest payments to banks and bondholders – aggravating fiscal deficits in the process.

The Greek budget crisis in perspective

A fiscal legacy of the colonels’ 1967-74 junta was tax evasion by the well to do. The “business-friendly” parties that followed were reluctant to tax the wealthy. A 2010 report stated that nearly a third of Greek income was undeclared, with “fewer than 15,000 Greeks declar[ing] incomes of over €100,000, despite tens of thousands living in opulent wealth on the outskirts of the capital. A new drive by the Socialists to track down swimming pool owners by deploying Google Earth was met with a virulent response as Greeks invested in fake grass, camouflage and asphalt to hide the tax liabilities from the spies in space.” (Helena Smith, “The Greek spirit of resistance turns its guns on the IMF,” The Observer)

As a result of the military dictatorship depressing public spending below the European norm, infrastructure needed to be rebuilt – and this required budget deficits. The only way to avoid running them would have been to make the rich pay the taxes they were supposed to. But squeezing public spending to the level that wealthy Greeks were willing to pay in taxes did not seem politically feasible. (Since the 1980s almost no country has enacted Progressive Era tax policies.) The 3 per cent Maastricht limit on budget deficits refused to count capital spending by government as capital formation, on the ideological assumption that all government spending is deadweight waste and only private investment is productive.

The path of least resistance was to engage in fiscal deception. Wall Street bankers helped the “conservative” (that is, fiscally regressive and financially profligate) parties conceal the extent of the public debt with the kind of junk accounting that financial engineers had pioneered for Enron. And as usual when financial deception in search of fees and profits is concerned, Goldman Sachs was in the middle. In February 2010, the German magazine Der Spiegel exposed how the firm had helped Greece conceal the rise in public debt, by mortgaging assets in a convoluted derivatives deal – legal but with the covert intent of circumventing the Maastricht limitation on deficits. “Eurostat’s reporting rules don’t comprehensively record transactions involving financial derivatives,” so Greece’s obligation appeared as a cross-currency swap rather than as a debt. The government used off-balance-sheet entities and derivatives similar to what Icelandic and Irish banks later would use to indulge in fictitious debt disappearance and an illusion of financial solvency.

The reality, of course, was a virtual debt. The government was obligated to pay Wall Street billions of euros out of future airport landing fees and the national lottery as “the so-called cross currency swaps … mature, and swell the country’s already bloated deficit.” (Beat Balzli, “How Goldman Sachs Helped Greece to Mask its True Debt,” Der Spiegel). The report adds: “One time, gigantic military expenditures were left out, and another time billions in hospital debt.”

Translated into straightforward terms, the deal left Greece’s public-sector budget deficit at 12 percent of GDP, four times the Maastricht limit.

Using derivatives to engineer Enron-style accounting enabled Greece to mask a debt as a market swap based on foreign currency options, to be unwound over ten to fifteen years. Goldman was paid some $300 million in fees and commissions for its aid orchestrating the 2001 scheme. “A similar deal in 2000 called Ariadne devoured the revenue that the government collected from its national lottery. Greece, however, classified those transactions as sales, not loans.” JPMorgan Chase and other banks helped orchestrate similar deals across Europe, providing “cash upfront in return for government payments in the future, with those liabilities then left off the books.”

The financial sector has an interest in understating the debt burden – first, by using “mark to model” junk accounting, and second, by pretending that the debt burden can be paid without disrupting economic life. Financial spokesmen from Tim Geithner in the United States to Dominique Strauss-Kahn at the IMF claimed that the post-2008 debt crisis is merely a short-term “liquidity problem” (lack of “confidence”), not insolvency reflecting an underlying inability to pay. Banks promise that everything will be all right when the economy “returns to normal” – if only the government will buy their junk mortgages and bad loans (“sound long-term investments”) for ready cash.

The intellectual deception at work

Financial lobbyists seek to distract voters and policy makers from realizing that “normalcy” cannot be restored without wiping out the debts that have made the economy abnormal. The larger the debt burden grows, the more economy-wide austerity is required to pay debts to banks and bondholders instead of investing in capital formation and real growth.

Austerity makes the problem worse, by intensifying debt deflation. To pretend that austerity helps economies rather than destroys them, bank lobbyists claim that shrinking markets will lower wage rates and “make the economy more competitive” by “squeezing out the fat.” But the actual “fat” is the debt overhead – the interest, amortization, financial fees and penalties built into the cost of doing business, the cost of living and the cost of government.

When difficulty arises in paying debts, the path of least resistance is to provide more credit – to enable debtors to pay. This keeps the system solvent by increasing the debt overhead – seemingly an oxymoron. As financial institutions see the point approaching where debts cannot be paid, they try to get “senior creditors” – the ECB and IMF – to lend governments enough money to pay, and ideally to shift risky debts onto the government (“taxpayers”). This gets them off the books of banks and other large financial institutions that otherwise would have to take losses on Greek government bonds, Irish bank obligations bonds, etc., just as these institutions lost on their holdings of junk mortgages. The banks use the resulting breathing room to try and dump their bond holdings and bad bets on the proverbial “greater fool.”

In the end the debts cannot be paid. For the economy’s high-financial managers the problem is how to postpone defaults for as long as possible – and then to bail out, leaving governments (“taxpayers”) holding the bag, taking over the obligations of insolvent debtors (such as A.I.G. in the United States). But to do this in the face of popular opposition, it is necessary to override democratic politics. So the divestment by erstwhile financial losers requires that economic policy be taken out of the hands of elected government bodies and transferred to those of financial planners. This is how financial oligarchy replaces democracy.

Paying higher interest for higher risk, while protecting banks from losses

The role of the ECB, IMF and other financial oversight agencies has been to make sure that bankers got paid. As the past decade of fiscal laxity and deceptive accounting came to light, bankers and speculators made fortunes jacking up the interest rate that Greece had to pay for its increasing risk of default. To make sure they did not lose, bankers shifted the risk onto the European “troika” empowered to demand payment from Greek taxpayers.

Banks that lent to the public sector (at above-market interest rates reflecting the risk), were to be bailed out at public expense. Demanding that Greece not impose a “haircut” on creditors, the ECB and related EU bureaucracy demanded a better deal for European bondholders than creditors received from the Brady bonds that resolved Latin American and Third World debts in the 1980s. In an interview with the Financial Times, ECB executive board member Lorenzo Bini Smaghi insisted that:

First, the Brady bonds solution was a solution for American banks, which were basically allowed not to ‘mark to market’ the restructured bonds. There was regulatory forbearance, which was possible in the 1980 but would not be possible today.

Second, the Latin American crisis was a foreign debt crisis. The main problem in the Greek crisis is Greece, its banks and its own financial system. Latin America had borrowed in dollars and the lines of credit were mainly with foreigners. Here, a large part of the debt is with Greeks. If Greece defaulted, the Greek banking system would collapse. It would then need a huge recapitalization – but where would the money come from?

Third, after default the Latin American countries still had central banks that could print money to pay for civil servants’ wages, pensions. They did this and created inflation. So they got out [of the crisis] through inflation, depreciation and so forth. In Greece you would not have a central bank that could finance the government, and it would have to partly shut down some of its operations, like the health system.

Bini Smaghi threatened that Europe would destroy the Greek economy if the latter tried to scale back its debts or even stretch out maturities to reflect the ability to pay. Greece’s choice was between submission or anarchy. Restructuring would not benefit “the Greek people. It would entail a major economic, social and even humanitarian disaster, within Europe. Orderly implies things go smoothly, but if you wipe out the banking system, how can it be smooth?” The ECB’s “position [is] based on principle … In the euro area debts have to be repaid and countries have to be solvent. That has to be the principle of a market-based economy.” (Ralph Atkins, “Transcript: Lorenzo Bini Smaghi,” Financial Times, May 27)

A creditor-oriented economy is not really a market-based, of course. The banks destroyed the market by their own central financial planning — using debt leverage to leave Greece with a bare choice: Either it would permit EU officials to come in and carve up its economy, selling its major tourist sites and monopolistic rent-extracting opportunities to foreign creditors in a gigantic national foreclosure movement, or it could bite the bullet and withdraw from the Eurozone. That was the deal Bini Smaghi offered: “if there are sufficient privatizations, and so forth – then the IMF can disburse and the Europeans will do their share. But the key lies in Athens, not elsewhere. The key element for the return of Greece to the market is to stop discussions about restructuring.”

One way or another, Greece would lose, he explained: “default or restructuring would not help solve the problems of the Greek economy, problems that can be solved only by adopting the kind of structural reforms and fiscal adjustment measures included in the program. On the contrary it would push Greece into a major economic and social depression.” This leverage demanding to be paid or destroying the economy’s savings and monetary system is what central bankers call a “rescue,” or “restoring market forces.” Bankers claim that austerity will revive growth. But to accept as a realistic democratic alternative would be self-immolation.

Unless Greece signed onto this nonsense, neither the ECB nor the IMF would extend loans to save its banking system from insolvency. On May 31, 2011, Europe agreed to provide $86 billion in euros if Greece “puts off for the time being a restructuring, hard or soft, of Greece’s huge debt burden.” The pretense was a “hope that in another two years Greece will be in a better position to repay its debts in full.” Anticipation of the faux rescue led the euro to rebound against foreign currencies, and European stocks to jump by 2 per cent. Yields on Greek 10-year bonds fell to “only” a 15.7 percent distress level, down one percentage point from the previous week’s high of 16.8 percent when a Greek official made the threatening announcement that “Restructuring is off the table. For now it is all about growth, growth, growth.”

How can austerity be about growth? This idea never has worked, but the pretense was on. The EU would provide enough money for the Greek government to save bondholders from having to suffer losses. The financial sector supports heavy taxpayer expense as long as the burden does not fall on itself or its main customers in the real estate sector or the infrastructure monopolies being privatized.

The loan-for-privatization tradeoff was called “aiding Greece” rather than bailing out German, French and other bondholders. But financial investors knew better. “Since the crisis began, 60 billion euros in deposits have been withdrawn from Greek banks, about a quarter of the country’s output.” (Atkins, FT.) These withdrawals, which were gaining momentum, were the precise size of the loan being offered!

Meanwhile, the shift of 60 billion euros off the balance sheets of banks onto the private sector threatened to raise the ratio of public debt to GDP over 150 per cent. There was talk that another 100 billion euros would be needed to “socialize the losses” that otherwise would be suffered by German, French and other European bankers who had their eyes set on a windfall if heavily discounted Greek bonds were made risk-free by carving up Greece in much the same way that the Versailles Treaty did to Germany after World War I.

The Greek population certainly saw that the world was at financial war. Increasingly large crowds gathered each day to protest in Syntagma Square in front of the Parliament, much as Icelandic crowds had done earlier under similar threats by their Social Democrats to sell out the nation to European creditors. And just as Iceland’s Prime Minister Sigurdardottir held on arrogantly against public opinion, so did Greek Socialist Prime Minister George Papandreou. This prompted EU Fisheries Commissioner Maria Damanaki “to ‘speak openly’ about the dilemma facing her country,” warning: “The scenario of Greece’s exit from the euro is now on the table, as are ways to do this. Either we agree with our creditors on a program of tough sacrifices and results … or we return to the drachma. Everything else is of secondary importance.” And former Dutch Finance Minister Willem Vermeend wrote in De Telegraaf that ‘Greece should leave the euro,’ given that it will never be able to pay back its debt.”

As in Iceland, the Greek austerity measures are to be put to a national referendum – with polls reporting that some 85 percent of Greeks reject the bank-bailout-cum-austerity plan. Its government is paying twice as much for credit as the Germans, despite seemingly having no foreign-exchange risk (using the euro). The upshot may be to help drive Greece out of the eurozone, not only by forcing default (the revenue is not there to pay) but by Newton’s Third Law of Political Motion: Every action creates an equal and opposite reaction. The ECB’s attempt to make Greek labor (“taxpayers”) pay foreign bondholders is leading to pressure for outright repudiation and the domestic “I won’t pay” movement. Greece’s labor movement always has been strong, and the debt crisis is further radicalizing it.

The Power of Money Creation
The aim of commercial banks is to replace governments in creating money, making the economy entirely dependent on them, with public borrowing creating an enormous risk-free “market” for interest-bearing loans. It was to overcome this situation that the Bank of England was created in 1694 – to free the country from reliance on Italian and Dutch credit. Likewise the U.S. Federal Reserve, for all its limitations, was founded to enable the government to create its own money. But European banks have hog-tied their governments, replacing Parliamentary democracy with dictatorship by the ECB, which is blocked constitutionally from creating credit for governments – until German and French banks found it in their own interest for it to do so. As University of Missouri-Kansas City Professor Bill Black summarizes the situation:

“A nation that gives up its sovereign currency by joining the euro gives up the three most effective means of responding to a recession. It cannot devalue its currency to make its exports more competitive. It cannot undertake an expansive monetary policy. It does not have any monetary policy and the EU periphery nations have no meaningful influence on the ECB’s monetary policies. It cannot mount an appropriately expansive fiscal policy because of the restrictions of the EU’s growth and stability pact. The pact is a double oxymoron – preventing effective counter-cyclical fiscal policies harms growth and stability throughout the Eurozone.”

Financial politics are now dominated by the drive to replace debt defaults by running a fiscal surplus to pay bankers and bondholders. The financial system wants to be paid. But mathematically this is impossible, because the “magic of compound interest” outruns the economy’s ability to pay – unless central banks flood asset markets with new bubble credit, as U.S. policy has done since 2008. When debtors cannot pay, and when the banks in turn cannot pay their depositors and other counterparties, the financial system turns to the government to extract the revenue from “taxpayers” (not the financial sector itself). The policy bails out insolvent banks by plunging domestic economies into debt deflation, making taxpayers bear the cost of banks gone bad.

These financial claims are virtually a demand for tribute. And since 2010 they have been applied to the PIIGS countries. The problem is that revenue used to pay creditors is not available for spending within the economy. So investment and employment shrink, and defaults spread. Something must give, politically as well as economically as society is brought back to the “Copernican problem”: Will the “real” economy of production and consumption revolve around finance, or will financial demands for interest devour the economic surplus and begin to eat into the economy?

Technological determinists believe that technology drives. If this were so, rising productivity would have made everybody in Europe and the United States wealthy by now, rich enough to be out of debt. But there is a Chicago School inquisition insisting that today’s needless suffering is perfectly natural and even necessary to rescue economies by saving their banks and debt overhead – as if all this is the economic core, not wrapped around the core.

Meanwhile, economies are falling deeper into debt, despite rising productivity measures. The seeming riddle has been explained many times, but is so counter-intuitive that it elicits a wall of cognitive dissonance. The natural view is to think that the world shouldn’t be this way, letting credit creation load down economies with debt without financing the means to pay it off. But this imbalance is the key dynamic defining whether economies will grow or shrink.

John Kenneth Galbraith explained that banking and credit creation is so simple a principle that the mind rejects it – because it is something for nothing, the proverbial free lunch stemming from the principle of banks creating deposits by making loans. Just as nature abhors a vacuum, so most people abhor the idea that there is such a thing as a free lunch. But the financial free lunchers have taken over the political system.

They can hold onto their privilege and avert a debt write-down only as long as they can prevent widespread moral objection to the idea that the economy is all about saving creditor claims from being scaled back to the economy’s ability to pay – by claiming that the financial brake is actually the key to growth, not a free transfer payment.

The upcoming Greek referendum poses this question just as did Iceland’s earlier this spring. As Yves Smith recently commented regarding the ECB’s game of chicken as to whether Greece’s government would accept or reject its hard terms:

This is what debt slavery looks like on a national level. … Greece looks to be on its way to be under the boot of bankers just as formerly free small Southern farmers were turned into “debtcroppers” after the US Civil War. Deflationary policies had left many with mortgage payments that were increasingly difficult to service. Many fell into ‘crop lien’ peonage. Farmers were cash starved and pledged their crops to merchants who then acted in an abusive parental role, being given lists of goods needed to operate the farm and maintain the farmer’s family and doling out as they saw fit. The merchants not only applied interest to the loans, but further sold the goods to farmers at 30 per cent or higher markups over cash prices. The system was operated, by design, so that the farmer’s crop would never pay him out of his debts (the merchant as the contracted buyer could pay whatever he felt like for the crop; the farmer could not market it to third parties). This debt servitude eventually led to rebellion in the form of the populist movement. (Yves Smith, “Will Greeks Defy Rape and Pillage By Barbarians Bankers? An E-Mail from Athens,” Naked Capitalism, May 30, 2011.)

One would expect a similar political movement today. And as in the late 19th century, academic economics will be mobilized to reject it. Subsidized by the financial sector, today’s economic orthodoxy finds it natural to channel productivity gains to the finance, insurance and real estate (FIRE) sector and monopolies rather than to raise wages and living standards. Neoliberal lobbyists and their academic mascots dismiss sharing productivity gains with labor as being unproductive and not conducive to “wealth creation” financial style.

Making governments pay creditors when banks run aground

At issue is not only whether bank debts should be paid by taking them onto the public balance sheet at taxpayer expense, but whether they can reasonably be paid. If they cannot be, then trying to pay them will shrink economies further, making them even less viable. Many countries already have passed this financial limit. What is now in question is a political step – whether there is a limit to how much further creditor interests can push national populations into debt-dependency. Future generations may look back on our epoch as a great Social Experiment on how far the point may be deferred at which government – or parliaments – will draw a line against taking on public liability for debts beyond any reasonable capacity to pay without drastically slashing public spending on education, health care and other basic services?

Is a government – or economy – be said to be solvent as long as it has enough land and buildings, roads, railroads, phone systems and other infrastructure to sell off to pay interest on debts mounting exponentially? Or should we think of solvency as existing under existing proportions in our mixed public/private economies? If populations can be convinced of the latter definition – as those of the former Soviet Union were, and as the ECB, EU and IMF are now demanding – then the financial sector will proceed with buyouts and foreclosures until it possesses all the assets in the world, all the hitherto public assets, corporate assets and those of individuals and partnerships.

This is what today’s financial War is about. And it is what the Greeks gathering in Syntagma Square are demonstrating about. At issue is the relationship between the financial sector and the “real” economy. From the perspective of the “real” economy, the proper role of credit – that is, debt – is to fund productive capital investment and economic growth. After all, it is out of the economic surplus that interest is to be paid.

This requires a tax system and financial regulatory system to maximize the growth. But that is precisely the fiscal policy that today’s financial sector is fighting against. It demands tax-deductibility for interest, encouraging debt financing rather than equity. It has disabled truth-in-lending laws and regulation keeping prices (the interest rate and fees) in line with costs of production. And it blocks governments from having central banks to freely finance their own operations and provide economies with money.

Banks and their financial lobbyists have not shown much interest in economy-wide wellbeing. It is easier and quicker to make money by being extractive and predatory.

Fraud and crime pay, if you can disable the police and regulatory agencies. So that has become the financial agenda, eagerly endorsed by academic spokesmen and media ideologues who applaud bank managers and subprime mortgage brokers, corporate raiders and their bondholders, and the new breed of privatizers, using the one-dimensional measure of how much revenue can be squeezed out and capitalized into debt service. From this neoliberal perspective, an economy’s wealth is measured by the magnitude of debt obligations – mortgages, bonds and packaged bank loans – that capitalize income and even hoped- for capital gains at the going rate of interest.

Iceland belatedly decided that it was wrong to turn over its banking to a few domestic oligarchs without any real oversight or regulation over their self-dealing. From the vantage point of economic theory, was it not madness to imagine that Adam Smith’s quip about not relying on the benevolence of the butcher, brewer or baker for their products, but on their self-interest is applicable to bankers? Their “product” is not a tangible consumption good, but interest-bearing debt. These debts are a claim on output, revenue and wealth; they do not constitute real wealth.

This is what pro-financial neoliberals fail to understand. For them, debt creation is “wealth creation” (Alan Greenspan’s favorite euphemism) when credit – that is, debt – bids up prices for property, stocks and bonds and thus enhances financial balance sheets. The “equilibrium theory” that underlies academic orthodoxy treats asset prices (financialized wealth) as reflecting a capitalization of expected income. But in today’s Bubble Economy, asset prices reflect whatever bankers will lend. Rather than being based on rational calculation, their loans are based on what investment bankers are able to package and sell to frequently gullible financial institutions. This logic leads to attempts to pay pensions out of a “wealth creating” process that runs economies into debt.

It is not hard to statistically illustrate this. The amount of debt that an economy can pay is limited by the size of its surplus, defined as corporate profits and personal income for the private sector, and net fiscal revenue paid to the public sector. But neither today’s financial theory nor global practice recognize a capacity-to-pay constraint. So debt service has been permitted to eat into capital formation and reduce living standards – and now, to demand privatization sell-offs.

The Icelandic Alternative

As an alternative is to such financial demands, Iceland has provided a model for what Greece may do. Responding to British and Dutch demands that its government guarantee payment of the Icesave bailout, the Althing recently asserted the principle of sovereign debt:

“The preconditions for the extension of government guarantee according to this Act are:

1. That … account shall be taken of the difficult and unprecedented circumstances with which Iceland is faced with and the necessity of deciding on measures which enable it to reconstruct its financial and economic system.

This implies among other things that the contracting parties will agree to a reasoned and objective request by Iceland for a review of the agreements in accordance with their provisions.

2. That Iceland’s position as a sovereign state precludes legal process against its assets which are necessary for it to discharge in an acceptable manner its functions as a sovereign state.”

Instead of imposing the kind of austerity programs that devastated Third World countries from the 1970s to the 1990s and led them to avoid the IMF like a plague, the Althing is changing the rules of the financial system. It is subordinating Iceland’s reimbursement of Britain and Holland to the ability of Iceland’s economy to pay:

“In evaluating the preconditions for a review of the agreements, account shall also be taken to the position of the national economy and government finances at any given time and the prospects in this respect, with special attention being given to foreign exchange issues, exchange rate developments and the balance on current account, economic growth and changes in gross domestic product as well as developments with respect to the size of the population and job market participation.”

This is the Althing proposal to settle its Icesave bank claims that Britain and the Netherlands rejected so passionately as “unthinkable.” So Iceland said, “No, take us to court.” And that is where matters stand right now.

Greece is not in court. But there is talk of a “higher law,” much as was discussed in the United States before the Civil War regarding slavery. At issue today is the financial analogue, debt peonage.

Will it be enough to change the world’s financial environment? For the first time since the 1920s (as far as I know), Iceland made the capacity-to-pay principle the explicit legal basis for international debt service. The amount to be paid is to be limited to a specific proportion of the growth in its GDP (on the admittedly tenuous assumption that this can indeed be converted into export earnings).

After Iceland recovers, the Treasury offered to guarantee payment for Britain for the period 2017-2023 up to 4 per cent of the growth of GDP after 2008, plus another 2 per cent for the Dutch. If there is no growth in GDP, there will be no debt service. This meant that if creditors took punitive actions whose effect is to strangle Iceland’s economy, they wouldn’t get paid.

No wonder the EU bureaucracy reacted with such anger. It was a would-be slave rebellion. Returning to the application of Newton’s Third Law of motion to politics and economics, it was natural enough for Iceland, as the most thoroughly neoliberalized disaster area, to be the first economy to push back.

The past two years have seen its status plunge from having the West’s highest living standards (debt-financed, as matters turn out) to the most deeply debt-leveraged. In such circumstances it is natural for a population and its elected officials to experience a culture shock – in this case, an awareness of the destructive ideology of neoliberal “free market” euphemisms that led to privatization of the nation’s banks and the ensuing debt binge.

The Greeks gathering in Syntagma Square seem to need no culture shock to reject their Socialist government’s cave-in to European bankers. It looks like they may follow Iceland in leading the ideological pendulum back toward a classical awareness that in practice, this rhetoric turns out to be a junk economics favorable to banks and global creditors. Interest-bearing debt is the “product” that banks sell, after all. What seemed at first blush to be “wealth creation” was more accurately debt-creation, in which banks took no responsibility for the ability to pay. The resulting crash led the financial sector to suddenly believe that it did love centralized government control after all – to the extent of demanding public-sector bailouts that would reduce indebted economies to a generation of fiscal debt peonage and the resulting economic shrinkage.

As far as I am aware, this agreement is the first since the Young Plan for Germany’s reparations debt to subordinate international debt obligations to the capacity-to-pay principle. The Althing’s proposal spells this out in clear terms as an alternative to the neoliberal idea that economies must pay willy-nilly (as Keynes would say), sacrificing their future and driving their population to emigrate in a vain attempt to pay debts that, in the end, can’t be paid but merely leave debtor economies hopelessly dependent on their creditors.

In the end, democratic nations are not willing to relinquish their political planning authority to an emerging financial oligarchy.

No doubt the post-Soviet countries are watching, along with Latin American, African and other sovereign debtors whose growth has been stunted by predatory austerity programs imposed by IMF, World Bank and EU neoliberals in recent decades. We should all hope that the post-Bretton Woods era is over. But it won’t be until the Greek population follows that of Iceland in saying no – and Ireland finally wakes up. 

Financial Times columnist Martin Wolf writes that the eurozone “has only two options: to go forwards towards a closer union or backwards towards at least partial dissolution. … either default and partial dissolution or open-ended official support.”[8] But ECB intransigence leaves little alternative to breakup. Europe’s payments-surplus nations are waging financial war against the deficit countries. Without a common union based on mutual support within a mixed economy – one capable of checking financial aggression – the European Central Bank replaced the military high command. Its bold gamble is whether the Greeks will be as stupid as the Irish, not as smart as the Icelanders.

As published in Counterpunch

Footnotes

[1] Louise Story, Landon Thomas Jr. and Nelson D. Schwartz, “Wall St. Helped to Mask Debt Fueling Europe’s Crisis,” The New York Times, February 13, 2010.

[2] At the time of the spring 2010 bailout French banks held €31 billion of Greek bonds, compared to €23 billion by German banks. This helps explain why French President Nicolas Sarkozy sought to take major credit for the bailout, based on a May 7, 2010 discussions with EU Commission President José Manuel Barroso, ECB President Jean-Claude Trichet and Eurogroup President Jean-Claude Juncker.

[3] Landon Thomas Jr., “New Rescue Package for Greece Takes Shape,” The New York Times, June 1, 2011.

[4] Ibid.

[5] Emma Rowley, “Greece risks ‘return to drachma,’” The Telegraph, June 1, 2011.

[6] Idris Francis, “Greece leaving the EMU: From taboo to fashionable?” Open Europe blog, June 1, 2011. (I am indebted to Paul Craig Roberts for drawing my attention to this source.)

[7] Martin Wolf, “Intolerable choices for the eurozone,” Financial Times, June 1, 2011.

ZeroHedge

Most Americans believe that we still live in a capitalist system and that free markets primarily determine the growth and development of our economy.  But is that really the case?  No, sadly it is not.  The truth is that the U.S. Federal Reserve does a tremendous amount of central economic planning.  So what makes the central economic planning that the Federal Reserve does different from the central economic planning that communist China does?  Yes, in China it is the government that does the central planning and in the United States it is a private central bank that does the central planning, but other than that are there any huge differences?  And if our economy is centrally planned, then how can we continue to claim that we still have a free market capitalist system?

Certainly China goes into greater detail in their economic planning, but that does not mean that the economic planning that the Federal Reserve and the U.S. government do is not similar.

After all, free markets do not set interest rates in this country – the Federal Reserve does.

The Federal Reserve also determines what the money supply will be.

The Federal Reserve is the one that decides if inflation is too high or too low.

The Federal Reserve is the one that decides if unemployment is too high or too low.

In addition, the Federal Reserve has a tremendous amount of regulatory power over U.S. banks and the entire financial system.  Most Americans simply do not realize how much power the Federal Reserve has over our banks.  Just last year Federal Reserve officials walked into one bank in Oklahoma and demanded that they take down all the Bible verses and the Christmas buttons that the bank had been displaying.

Like the communist Chinese, the Federal Reserve is not elected and it is essentially accountable to nobody.

Like the communist Chinese, the Federal Reserve also picks winners and losers.  You see, not all financial institutions are treated equally by the Fed.  For example, some have access to the Fed’s discount window and others do not.

How is that fair?

Certainly the Federal Reserve does not do all of the central economic planning in this country.  The U.S. government loves to get involved in economic planning as well.  For example, the U.S. government has decided that there are certain types of light bulbs that we are allowed to buy and certain types of light bulbs that we are no longer going to be allowed to buy.  It doesn’t matter that the new light bulbs are far more dangerous to children or that most of us would still like to have the choice to buy the old light bulbs.

But getting back to the Federal Reserve, how “democratic” or how “capitalist” is it to have 12 unelected people sitting around a table deciding the economic direction of this country?

The truth is that we live in a system that simply does not trust free markets and that believes that our economy needs to be “managed”.

I have to admit that my thinking on these issues was stimulated when I recently read an excellent article by Vitaliy Katsenelson in which he asked the following question….

It is a fundamental tenant of American capitalism that central planning of economies doesn’t work in the long term, whether in Soviet Union historically or in China today. But I often wonder: How is the Fed’s Board of Governors – the proverbial 12 guys in a room – any different than the 24 guys in a room who make up the Chinese politburo?

Is Katsenelson not right about this?

How in the world is the Fed’s Board of Governors all that much different from the Chinese Politburo?

In both cases, a group of unelected elitists makes the major economic decisions for all the rest of us.

That certainly does not sound like “capitalism” to me.

Would the free markets really produce worse results for our economy than the Federal Reserve does?

Would America ever have gone through the Great Depression if the Federal Reserve had not been created in 1913?

Would we have experienced the financial crash of 2008 if the policies of Greenspan and Bernanke had not created tremendous bubbles in the financial system?

Would the U.S. dollar have lost over 95 percent of its value since 1913 if the Federal Reserve was not around to constantly inflate our currency?

Would the U.S. government have the largest debt in the history of the world if we were not using the debt-based monetary system imposed upon us by the elite international bankers?

Now that the total debt of the U.S. government is $14,228,193,126,138.72, it is getting really hard to deny that the federal government is drowning in debt.

Dallas Federal Reserve Bank President Richard Fisher unknowingly indicted the very system he serves when he recently made the following statement….

“If we continue down on the path on which the fiscal authorities put us, we will become insolvent, the question is when.”

If the Federal Reserve had never been created, and the U.S. government had been issuing debt-free currency all this time, it is entirely conceivable that we would have absolutely no federal government debt at this point.

But defenders of the Federal Reserve tell us that if not for the brilliant people over at the Fed, America would be an economic basket case by now.

Oh really?

In case anyone has not noticed, Federal Reserve Chairman Ben Bernanke has a very long track record of incompetence.  Nearly every major judgment that he has made since taking over that position has been wrong.  If one of us could go down the street and appoint the manager of our local Dairy Queen as the Chairman of the Federal Reserve, it is very doubtful that person could do a worse job than Bernanke has done.

Unfortunately, most Americans do not understand this.  Most Americans are still convinced that “the greatest economy on earth” will just keep roaring along forever.  Most Americans are spending and partying as if everything is going to be just fine.

Sadly, as Richard Daughty recently pointed out, most Americans will not wake up and realize just how bad our economic problems really are until it is too late….

In fact, to use an analogy, the economy is like a group of overpaid people, milking the government for every dollar and benefit they can get, on a chartered airplane that has been certified as “unsafe,” where one minute everybody is having fun, drunk as skunks, laughing and telling dirty jokes, and the next minute the plane is plunging out of the sky, out of fuel, one wing is in flames, the engines are dead, the entire electrical system is kaput, and, worst of all, the beverage cart is completely empty of cold beer and those little bottles of different kinds of tasty liquors. Uh-oh!

Most Americans have become so “dumbed down” that they still won’t even understand what is happening even after the economy has collapsed.  Newsweek recently found that 63 percent of Americans do not know how many justices are on the Supreme Court and 29 percent of Americans cannot even name the current Vice-President.

America today is rapidly degenerating in many of the same ways that the Roman Empire once did.  Tens of millions of Americans are lazy, slothful and absolutely addicted to entertainment.  It is frightening to see just how many Americans did not show any empathy during the recent crisis in Japan or when we started launching missiles on Libya.  The following mini-documentary that was recently posted on YouTube does a beautiful job of making this point….

So is there any hope for America?

Let us hope that people wake up, because there are going to be even more economic disasters coming our way.  Right now a large percentage of the American people don’t even know enough to realize what the real problems are, much less what the solutions may be.

When most Americans talk about economics, they instantly start blaming “Obama” or “Bush” and a lot of them never even bring up the Federal Reserve.

But it is the Federal Reserve that has the most power over our economy.

If Americans want to blame someone in Washington D.C. for the economic mess that we are in, the number one culprit is the Federal Reserve.

Yes, Obama, Bush and virtually every member of Congress has played a role in our economic nightmare as well.  But it is the Federal Reserve that is actually “managing” our economy.

We would have been much better off if we had allowed free markets to “manage” our economy all this time, but very few Americans actually seem to still believe in free markets anymore.

The Economic Collapse

It’s amazing what conclusions people will draw from unrelated events.  This article in the Washington Times for instance.  Of course, the Times isn’t the only place where people are attempting to establish a cause and effect through unrelated events and failing to reach an accurate conclusion from circumstantial evidence.  This is probably why our court system disallows circumstantial evidence, but that’s just an educated guess on my part. 

Glenn Beck* is also doing this with regards to the financial portion of his programs.  He too, has failed to deduce that the cause of our financial meltdown has absolutely no correlation whatsoever to those who are currently exploiting it.

None of what is written in the Times article would have even been remotely possible (assuming there are any bits of truth to this being ‘planned’) unless all the referenced Wall Street firms had already been insolvent – AND THEY WERE!  Anyone who can read a financial earnings report can conclude this merely by examining the data.  Further, anyone can currently see the former balance sheet of Bear Stearns, now happily festering on the Federal Reserve’s books, just awaiting its further taxpayer bailout.

The collapse of Wall Street was not organized by any foreign terrorists – it was created by the Wall Street firms themselves who thought they could collude to drive the prices of mortgage backed securities up in perpetuity. As long as property values were going up, these investment vehicles sold like hot cakes. When normal people could no longer afford homes, the Wall Street banks tried forcing lenders to push ‘creative’ ( a/k/a/ fraudulent) loan products to get people into homes they couldn’t afford – the more risky the loan the bigger the profit for Wall Street. That ended when everyone discovered, much to their disbelief and dismay, that home values were not a perpetual motion machine.  The result was that the portfolios of all these Wall Street firms imploded….only to be rescued by the taxpayers at the point of Hank Paulson’s gun (a/k/a ‘bazooka’).

Now, please tell me how foreign terrorists orchestrated and dictated the actions of almost every single Wall Street firm in our country (to say nothing of the investment firms world-wide that did the same thing) over the past 10 years. If you can answer that, you’ll discover that the collapse was coming regardless of who might now want to exploit it. All of these firms were going to collapse through no fault of anyone’s but their own. They were and still are insolvent and that includes the ones still operating today through taxpayer support. Without the Federal Reserve’s QE policy and without taxpayer exploitation every Wall Street firm would collapse tomorrow. It would have nothing to do with foreign terrorists, George Soros or anyone else.

It is supposition like this article and some of the things from which Glenn Beck is drawing correlations that do not prove effect, which are protecting the true guilty parties: The investment firms on Wall Street and the legislators those firms purchased with their massive profits over the past decade.

Unfortunately it is ‘conspiracy theories’ like these that obsfucate the real truth. The real truth is MUCH scarier than the conspiracy theory in this particular case. You literally have hundreds of criminals running free right now and they are doing exactly what they’ve done for the past decade, just in new areas: they’re robbing us all blind using commodities in which they ‘invest’ with YOUR taxpayer dollars through the Federal Reserve’s QE policy. That same QE and ZIRP policy is also responsible for the unrest around the globe by literally starving people world-wide.

To make this stop the real criminals need to be prosecuted. That is the ONLY answer. And the criminals are not ‘foreign terrorists’ or George Soros; they all reside on Wall Street and in Washington DC.  Understand that George Soros is not an omnicient god, he is but an opportunist who saw the stupidity being allowed to happen on Wall Street and he is now taking advantage of it for his own gains. While he may be a socialist, he makes his money exploiting the bastardized system of ‘capitalism’ we have here – that is: laws don’t apply to those with money – only to the ‘little guys’.  This is not capitalism.  We have not had true capitalism in decades.

Real capitalism is ‘equality under the law’ – NOT ‘some are more equal than others’ and the latter is what our system has become. At this juncture, anyone advocating for Wall Street is supporting fascism.

* Disclosure: I’m actually a Glenn Beck fan and greatly appreciate his efforts.  Some of what he discusses that appear to be ‘conspiracy theories’ truly are valid presentation of fact.  However, when it comes to the economic crisis (from which we are NOT recovering and is ongoing), he is missing the boat trying to tie things together in cause and effect that are just not at all related.

Oh we’ve got a gem of an article this morning, in of all places, The New York Times. 

The commission’s report finds fault with two Fed chairmen: Alan Greenspan, right, a skeptic of regulation who led the central bank as the housing bubble expanded, and his successor, Ben S. Bernanke, who did not foresee the crisis but then played a crucial role in the response to it.

The commission that investigated the crisis casts a wide net of blame, faulting two administrations, the Federal Reserve and other regulators for permitting a calamitous concoction: shoddy mortgage lending, the excessive packaging and sale of loans to investors and risky bets on securities backed by the loans.

Well, that’s certainly a statement of the obvious….but it gets better.

The majority report finds fault with two Fed chairmen: Alan Greenspan, who led the central bank as the housing bubble expanded, and his successor, Ben S. Bernanke, who did not foresee the crisis but played a crucial role in the response. It criticizes Mr. Greenspan for advocating deregulation and cites a “pivotal failure to stem the flow of toxic mortgages” under his leadership as a “prime example” of negligence.

While I don’t necessarily disagree with the premise, the idea that this was merely a result of deregulation is ridiculous.  It was a failure to apply existing laws to blatant criminality…..you know, like FRAUD.  There have been laws on our books regarding fraud and criminal behavior (like stealing) since this country was founded, yet not a single law has been applied during this crisis but to one individual, Bernie Madoff.  Bet he’s wondering, ‘Why me?’ about now.

Like Mr. Bernanke, Mr. Bush’s Treasury secretary, Henry M. Paulson Jr., predicted in 2007 — wrongly, it turned out — that the subprime collapse would be contained, the report notes.

Democrats also come under fire. The decision in 2000 to shield the exotic financial instruments known as over-the-counter derivatives from regulation, made during the last year of President Bill Clinton’s term, is called “a key turning point in the march toward the financial crisis.”

Timothy F. Geithner, who was president of the Federal Reserve Bank of New York during the crisis and is now the Treasury secretary, was not unscathed; the report finds that the New York Fed missed signs of trouble at Citigroup and Lehman, though it did not have the main responsibility for overseeing them.

Former and current officials named in the report, as well as financial institutions, declined Tuesday to comment before the report was released.

The report could reignite debate over the influence of Wall Street; it says regulators “lacked the political will” to scrutinize and hold accountable the institutions they were supposed to oversee. The financial industry spent $2.7 billion on lobbying from 1999 to 2008, while individuals and committees affiliated with it made more than $1 billion in campaign contributions.

Color me surprised that they all declined to comment…..not.   I don’t think it is likely that Henry Paulson ‘got it wrong’ – not when he was at the helm of Goldman Sachs when these little ‘financial weapons of mass destruction’ were developed.  He was also there when Goldman Sachs (the only firm to do so), bet against the very clients they sold these ‘investments’ to!   No chance in hell he didn’t understand what was going on.   To argue he and Ben Bernanke were ‘mistaken’ would be to argue that they didn’t understand what the banks and lenders were doing.  Pull the other one.  No, this was a case of blatant and willful lying to the American people.   Matter of fact, I would argue it was absolutely essential that Henry Paulson be appointed Treasury Secretary in order for the massive cover-up to occur and to work the way it did.  The myriad of the lies told by Paulson, Bernanke, Geithner and others have been documented meticulously here on FedUpUSA and can still be found linked in the right-hand column.

In summation, the NYT article does convey one thing quite clearly:  Our government is comprised of those that run the banking industry and Wall Street, have spent years in the banking industry and/or those who are being directly paid by Wall Street and the banking industry.  Those that control the quantity of money have entirely captured our government.  We have no independent government.  None.  Zip.  Nada.  I believe there is a word for this:  fascism.

When will you wake up America?  Apparently not when you’ve lost your job.  Apparently  not when you’ve gone broke, and apparently not when you’ve lost your home (fraudulently, I might add).  Here it is in black and white:  You have been robbed in broad daylight and you continue to re-elect those directly responsible for doing so.   As long as Americans continue to elect Congressional Representatives with a ‘D’ or an ‘R’ behind their names; those that are ‘professional politicians,’  YOU are contributing to your own demise.  As long as you continue to elect people who are paid by Wall Street, you are not going to change anything.  Just try to find a Representative not owned by Wall Street banks OpenSecrets.  Yes, even now with the 112th Congress.

Are you going to leave this criminal, captured government to your children?  It’s past time to wake up America.  What will it take?

‘Americans can always be counted on to do the right thing, when all other possibilities have been exhausted.’ — Winston Churchill

Could we work on not making this man a liar?

STOP THE LOOTING & START PROSECUTING!