G20 leading nations tinker to reboot command & control of world economy
mark s b | 03.04.2009 08:22 | G20 London Summit | Analysis
On the same day, The Financial Accounting Standards Board in the US announced it changed its guidelines for so-called mark-to-market accounting. They said it would give banks more leeway in valuing assets that are a primary reason for the ongoing credit crisis.
Banks have been pummeled by losses tied to writing down the value of certain assets, especially bonds backed by troubled mortgages, costing them hundreds of billions of dollars. The new guidelines require companies to value assets at prices based on what they would be sold for in an "orderly" sale as opposed to a distressed sale. The new guidelines will kick in for the second quarter and not be reflected in first-quarter results due in the coming weeks.
Relief from the accounting standards could give banks the ability to minimize losses, though adjusting an accounting standard does not change the fundamentals of the economy that are still weak and will weigh on the sector long-term.
Gillian Tett in today's Financial Times:
"In recent months, investors and policy makers alike have devoted huge attention to tackling the problem of toxic mortgage debt. But so far, they have generally ignored the corporate debt world. On one level that is unsurprising: to date, the losses on corporate debt have been insignificant compared to the mortgage sphere."
"However, that eerie calm does not mean all is well. Far from it. Deep inside the corporate debt markets the climate is turning increasingly sour. And if this continues unchecked it will have poisonous implications for the wider economy – not least due to the terrible “zombie” curse."
Taken from: 'Insight: Zombie curse of Europe’s CLOs', by Gillian Tett (Published: April 2 2009)
Ref: www.ft.com/cms/s/0/8fad28c6-1fa7-11de-a1df-00144feabdc0.html
"Genie let out of the bottle, it is now the witching hour"
"Your alarm bells, should be ringing"
lyric from 'The Gloaming', by Radiohead
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"YOU HAVE NOT BEEN PAYING ATTENTION!"
'2+2=5', by Radiohead
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1).
A Sisyphean task fit for Herculean policymakers
by Gillian Tett
Published: April 2 2009
Ref: www.ft.com/cms/s/0/97e0922e-1f1d-11de-a748-00144feabdc0.html
As global leaders gather in London today, they might be forgiven for feeling caught in a Sisyphean situation. Time and again over the past two years, bureaucrats and bankers have tried to halt the financial crisis by unveiling measures to write off toxic assets - and make the banks healthy again.
Yet almost every time they have laboriously rolled the toxic asset boulder up the hill, it has come crashing down again.
Never mind all those flashy forensic tests that bankers have promised, to measure the scale of the rot - or those trillions of dollars of taxpayers' funds that have been spent to "clean up" the banks.
As more toxic assets keep emerging, public confidence in the financial system keeps crumbling afresh. Little wonder. After all, the only thing more scary than the current scale of today's banking woes is that, a full two years after subprime defaults got under way, policymakers and bankers alike remain confused about just how big the toxic rot really is, let alone when it might end.
Will today's meeting provide any further clues? Don't bet on it. The issue of toxic assets - or "legacy assets", as the Americans prefer to say - barely features on the official agenda of the G20 summit. Instead, the topics that are grabbing the limelight are initiatives on public spending, banking pay or regulatory reform, including an eye-catching row about tax havens.
That is no accident. One dirty secret that hangs over today's meeting is that there is still precious little global consensus about how to tackle the toxic woes. Some countries (such as the US) are trying to persuade banks to sell their bad assets; others (such as the UK) are trying to "insure" the banks against losses instead.
Meanwhile, several governments in continental Europe seem to be just holding their breath - and praying that the problem will magically disappear.
"You won't have a recovery until you cleanse the system [of toxic assets], but nobody wants to discuss it," mutters one senior global policy official.
"The Americans are hiding behind stimulus and the Europeans are hiding behind regulatory reform. But that misses the real issue."
To a certain extent, this reluctance to debate the issue reflects a desperate attempt to avoid telling taxpayers how much it might really cost to remove the toxic rot. The other big problem, though, is logistics.
A decade ago, during Japan's banking crisis, officials eventually managed to halt their woes by summoning senior bankers into a single (smoke-filled) room and imposing a common system to measure the rot. It took them several attempts before they arrived at a credible number (and it was dramatically bigger than the first guess). But once they finally came up with a big sum, they recapitalised the banks - and rebuilt investor faith.
However, the problem that now haunts western leaders is that it looks extremely hard to replicate the same smoke-filled room trick. After all, this is a global crisis involving banks in numerous different legal and accounting regimes that answer to different bosses.
Moreover, the bad loan total is a moving target: as confidence crumbles in the banks, the economy is weakening - creating more bad loans.
Yet the rub is that until a credible number appears, it will be painfully hard to end the current banking mess. "The main thing we need now is to implement a sense of transparency where we can put a credible floor to the bank losses," points out Mario Draghi, the Bank of Italy governor who chairs the influential Financial Stability Forum.
More broadly, many policymakers hope - or pray - that if today's meeting boosts investor confidence, it may eventually help to halt the slide in asset values, too.
Yet the grim fact remains that, a full year after the International Monetary Fund first caused "shock" by predicting $1,000bn of credit losses, the IMF has now doubled that tally to $2,200bn. That is more than 20 times bigger than the US government's first estimate in 2007.
Yet the gossip is that the IMF estimate is poised to jump even higher soon, just one more reminder - if any were needed - that the G20 now needs to display some truly Herculean vision and strength.
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A G-20 Potential London Statement: No more Tinkering
by Joan Russow
If the current global situation is to be changed, there must be more than measures to prop up the current capitalist system.
The G-20 could reverse the years of contributing to war and conflict, of violating human rights, of denying social justice, and of devastating the environment, if they undertook to do the following:
G-20 Potential London statement:
We, the G-20 states recognize that we have for years been part of the problem and have contributed to a state of global urgency.
We now undertake to do the following:
(1) Reduce the global military budget by reallocating military expenses and transferring the savings into global social justice as undertaken through numerous UN Conference Action Plans and UN General Assembly Resolutions.
2. Abandon the pre-emptive/preventive attack policy that has resulted in aggressive attacks on sovereign states and that has been in violation of the UN Charter article 2 and international law as being the 'supreme' international crime of a war of aggression
3. Withdraw immediately from any military involvement and occupation of sovereign states including Iraq and Afghanistan.
4. End the practice of mollifying public opposition by couching aggressive acts in euphemistic "operations" such as "operation just cause", Operation Iraqi freedom, "Operation Enduring Freedom" etc
5. Undertake to sign and ratify all Geneva Protocols, including Protocol V, which requires the removal of remnants of war
6. No longer perceive justice in terms of revenge through military intervention and to instead seek justice through the International Court of Justice.
7. No longer misconstrue Art 51 (self defence) of the Charter of the United Nations to justify premeditated non-provoked military aggression, or to use various such pretexts for invading other sovereign states.
8. Not engage in and to oppose any attempt to undermine the international resolve to prevent the scourge of war; this would include not engaging in intimidation or in offering economic incentives in exchange for support for military interventions.
9. Be willing to be judged by an international tribunal for any actions that might be deemed to violate international law, to be crimes against the peace, to be war crimes, or to involve genocide.
10. Not misuse UN "peace keeping" forces to clean up aggressive acts of destruction and occupation of other states.
11. Close and convert to peaceful purposes all foreign military bases in sovereign states around the world.
12. Undertake to respect the mandatory jurisdiction of the International Court of Justice, and to abide by its decisions.
13 End the production and circulation and berthing of nuclear powered or nuclear arms capable vessels throughout the world.
14. No longer engaged in "War Games" or "Military exercises" such as Exercise Trident Fury.
15. Discontinue propping up and financing military dictators.
16. Abandon the practice of targeting or assisting in the assassination of leaders of other sovereign states, and of engaging in "regime change" or covert destabilization of democratically elected leaders of or any leader of a sovereign state; to end the interference in the democratic process through State-funded Non governmental organizations..
17, Invoke Chapter VI – the peaceful resolutions of disputes- and be prepared to be judged by the International Court of Justice.
18. Abide by the Nuclear Non Proliferation treaty and immediately implement Article VI of the treaty, (Article VI: commits all parties to pursue negotiations in good faith on measures to end the nuclear arms race and to achieve disarmament.)
19. End the production of all weapons of mass destruction such as nuclear, chemical, and biological, as agreed to in UNCHE in 1972, and in specific conventions.
20. Be equally critical of all states, including Israel, which possess nuclear weapons, and to recognize the destabilizing impact of the Middle East as a result of the possession of nuclear weapons.
21. Reaffirm the obligations under the 1967 the Outer space Treaty to ensure that exploration and use of outer space, including the moon and other celestial bodies, shall be carried out for the benefit and in the interests of all countries, irrespective of their degree of economic or scientific development, and shall be the province of all mankind [humanity];
22. Discontinue the research, development and installation of Ballistic Missile Defence technology.
23. Make a full commitment to disarmament and oppose the continued profit- making from the sale of arms,
24. Implement obligations to reduce the trade in small arms
25. Collaborate with the ILO to fund a fair and just transition program for worker currently working in the arms trade.
26.End the destabilization of states and regions through the sale of arms, including through the guise of "foreign aid".
27. End the production of land mines and to sign and ratify the Convention for the Banning of Landmines, and affirm a commitment of funds and continuous effort to remove land mines from all areas of the world where land mines are known to exist.
28. Suffocate the production of uranium,
29. Phase out the use of civil nuclear energy, and refuse to accept nuclear energy as the solution to climate change
30. Prohibit the production and use of weapons such as Depleted Uranium and cluster bombs that would be prohibited under the Geneva Protocol II.
31.Oppose NATO'S first strike policy, and support the disbanding of NATO, and NORAD.
32. Abide by the Geneva conventions on the treatment of civilians, and respect international human rights and humanitarian law.
33. Abide by the Convention against Torture through Cruel, Inhumane or Degrading Treatment or Punishment, and end the practice of rendition of citizens and to abide by the Geneva conventions.
34. Eliminate cruel and inhumane punishment such as capital punishment, which violates accepted international norms.
35. Abandon institutions and agreements which promulgate globalization, deregulation and privatization; these institutions and agreements undermine the rule of international public trust law, and condone and actively facilitate corporations benefiting and profiting from war.
36. Oppose the promulgation, globalization, deregulation and privatization through trade agreements, such as the WTO/FTAA/NAFTA/ SPP etc that undermine the rule of international public trust law and international norms, and to support global fair trade
37. Disband the WTO, Abrogate of NAFTA and end negotiation of the Security and Prosperity Partnership Agreement.
38. Oppose all proposals such as those in the Security and Prosperity Partnership, which will result, through the practice of harmonization, in standards' and regulations' not achieving the highest tenable principles but arriving at the lowest common denominator.
39. Abandon the IMF structural adjustment program which has led to the violation of human rights, has exploited citizens in the developing world and has adversely impacted on vulnerable and indigenous peoples around the world.
40. Oppose the privatization of public services such as water, sewage and health care,
41. Increase funding to Universities to counter the corporate funding of education including the corporate direction of research and declare that research must be arms length and not tied to government or corporations.
42. implement the long-standing international commitment to transfer .7% of the GDP for overseas aid, and to cancel third world debt.
43. No longer subsidize and invest in companies that have developed weapons of mass destruction, that have violated human rights, that have denied social justice, that have exploited workers, and that have destroyed the environment.
44. implement the commitment made to ensure that corporations, including transnational corporations comply .. with international law, and that they pay compensation for any previous health and environmental consequences of their actions.
45. Revoke charters and licences of corporations that have violated human rights, including labour rights, that have contributed to war and violence, and that have led to the destruction of the environment.
46. Abandon the capitalist, exploitative, competitive economic model, and embrace cooperative forms of economic entrepreneurship.
47. Support Mandatory International Ethical Normative (MIEN) standards and enforceable regulations to drive industry to conform to international law, and to oppose corporate "voluntary compliance".
48. Enforce the provisions in the Convention to prevent disasters, and to not embrace the acceptance of weaker proposals which would result in "reducing disasters".
49. Ban substances and activities that contribute to environmentally induced diseases,
50. Address poverty related health problems and ensure universal access, to publicly funded not for profit health care system.
51. End the production of toxic, hazardous, atomic waste,
52. Prevent the transfer to other states of substances and activities that are harmful to human health or the environment as agreed at the UN Conferences on the Environment and Development, 1992.
53. Ban the production, approval and promotion of genetically engineered foods and crops which have led to a deterioration of the food supply, and to loss of heritage seeds; and
54. Oppose all proposals such to supply genetically engineered food and crops to address the issue of poverty, or to contribute to the mitigation of climate change.
55. Promote organic agriculture, and to institute a fair and just transition program for workers and communities affected by the conversion to organic agriculture.
56. Protect Biodiversity by signing and ratifying the Convention on Biological Diversity and oppose "megadiversity"--resulting from genetic engineering.
57. Be forthright in acknowledging that the Biosafety Protocol is a disguised trade agreement, and serves to promote the acceptance of Genetically modified living organisms.
58. Accept the warnings of the Intergovernmental panel on Climate Change, and to no longer disregard obligations under the Framework Convention on Climate Change and its protocol to reduce greenhouse gas emissions, to preserve carbon sinks, and commitment made under Habitat II Agenda to move away from car dependency.59. To urge the Intergovernmental Panel on Climate Change to investigate and estimate the full impact on greenhouse gas emissions by the military and demand that each state release information related to the greenhouse gas emissions from the production of all weapons systems, military exercises, from war games, weapons testing, military aviation, environmental warfare, troop transfer, military operations, waste generation, reconstruction after acts of violent interventions etc.;
60. Counter the deniers of the issue of climate change by citing the precautionary principle contained in the legally binding Framework Convention on Climate Change;
Which reads that where there is a threat of climate change, the lack of full scientific certainty should not be used as a reason for postpone measures to prevent the threat [a paraphrase].
61. Oppose any suggestion that civil nuclear energy is the solution to climate change. {civil nuclear energy violates the principle that a solution should never be equally bad or worse than the problem it is intended to solve].
62. End the misappropriation of agricultural land for the growing of biofuel.
63. Oppose the practice by the International Atomic Energy Agency (IAEA) of promoting civil nuclear energy as a solution to climate change [in violation of the principle that a regulator should not a promoter be].
64. Support a Forest Protocol to be linked to the Convention on Biological Diversity and to the Framework Convention on Climate Change.
65. Repeal Patriot act/Anti-terrorism Acts etc , because it violates civil and political rights, and results in racial profiling.
66. Abandon the "no-fly" list,
67. Oppose "slap suits" against public participation.
68 No longer target, intimidate and discriminate against activists on the grounds of political and other opinion (a listed ground in the International Covenant of Civil and Political Rights}.
69 End all discrimination on the following grounds:
- race, tribe, or culture;
- colour, ethnicity, national ethnic or social origin, or language; nationality, place of birth, or nature of residence (refugee or immigrant, migrant worker);
- gender, sex, sexual orientation, gender identity, marital status, or form of family, [including same-sex marriage]
- disability or age;
- religion or conviction, political or other opinion, or - class, economic position, or other status.
70. End the discrimination against immigrants, and refugees.
71.Sgn and ratify the Convention for the Protection of Migrant Workers and their Families; and the Convention on Refugees.
72.Offer amnesty to all those who were war resisters.
73.. Fully abide by ILO Convention related to indigenous rights
74. No longer engage in practices that destroy the lands of indigenous people or that are deemed to be inappropriate as agreed to in Agenda 21 (UNCED);
75,. Adopt the Declaration of the Rights of Indigenous Peoples.
76. Respect women's reproductive rights, and abide by commitments made under the International Conference on Population and Development, and the Beijing Platform, and to sign and ratify the Convention on the Elimination of all forms of Discrimination against Women, and its protocols.
77. Ratify the Convention on the Rights of the Child
78. Sign and ratify all of the ILO Conventions, including the provisions related to the right to strike, and the right to equal pay for work of equal value
79 Support the institution of an International Court of Compliance linked to the International Court of Justice; The Court of Compliance will hear evidence from citizens of state non compliance.
80. Support the establishment of an International Court of Compliance where citizens can take evidence of state and corporate non-compliance, and where, in the absence of compliance, charters and licences of corporation can be revoked.
81 Discharge obligations incurred through conventions, treaties, and covenants; and act on commitments made through conference action plans related to Common security - peace, environment, human rights and social justice
82. Sign, ratify, and enact the necessary legislation to ensure compliance with, or respect for Common Security international Conventions, Covenants and Treaties.
83. Affirm a commitment to multilateralism and oppose unilateral actions that undermine global common security
84 Affirm that true security is not "collective security" or "human security" which has been extended to "humanitarian intervention" and used along with the "responsibility to protect" with a view to justifying military intervention in other states. True security is "common security", not as defined in the SPP, but in documents prepared by Olaf Palme, and which entrench peremptory norms related to the following actions:
85 Promote and fully guarantee respect for human rights including labour rights, civil and political rights, social and cultural rights- right to food, right to housing, right to universally accessible, not for profit health care system , right to education and social justice; to this end, to ratify the international Covenant on Social Economic and Cultural Rights.
* to enable socially equitable and environmentally sound employment, and ensure the right to development [as per Convention];
* to achieve a state of peace, social justice and disarmament; through reallocation of military expenses, and eradication of poverty
* to create a global structure that respects the rule of law ; and
* to ensure the preservation and protection of the environment, respect the inherent worth of nature beyond human purpose, reduce the ecological footprint and move away from the current model of over consumptive development and toward forms of economic cooperation.
86..Ratify the Vienna Convention on the Law of Treaties, under which Article 53 has the provision that a treaty is null and void if the treaty violates international peremptory norms
87. Oppose religious extremism and proselytizing including the spread of Evangelical Christianity around the world, which has undermined local indigenous cultures, instilled fear through the dangerous, belief in the "rapture", "Armageddon" and "left behind", has promulgated dispensationalist "end times" scenario which has serious irreversible
consequences. and has led to the denigrating other established beliefs and practices.
88. No longer undermine the notion of democracy by couching a plutocracy/theocracy in democratic notions of "freedom";
.89. End the interference in the democratic process through government funded non-governmental organizations.
90. Reverse the practice of undermining years of international obligations incurred through treaties, conventions and covenants;
91. Reverse the practice of undermining international commitments made through UN Conference Action plans,
92 Reverse the practice of undermining international expectations created through UNGA declarations and resolutions.
93: End the practice of proselytizing of religion
94. Ensure the separation of state and religion
95 Confess to the fact that the majority of the G-20 states have been responsible for the perpetuation of global crises
Joan Russow
- Homepage:
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3).
Dollar Imperialism, the global financial architecture & the neocolonial stranglehold of the IMF
by Mark S Brown
(- taken from a larger article entitled The passage of 21st Century Capital & it’s Colonial Origins: "Imperial plunder, the Post-Colonial Harvest of Underdevelopment & the Goldrush of Financial Capitalism" (to be published)).
"White man's economics is proving itself far more ruthless than white man's colonial rule" (quote from Mike Rowbotham in his book 'The Grip of Death' [1998], p-257).
The second main factor central to this colonisation of 'neoliberal restructuring' is the driving engine of financial capitalism - debt-based money and the private banks' hegemony - and how financial capitalism cannot sustain itself without people and whole nations going into debt (in tandem with this is the unfair advantage that the United States finds itself in which is entirely due to this very process, which it has used to exert it's domination over the global economy). At the heart of money creation by banks is the process referred to as 'Fractional Reserve Banking', which is where many times the amount of money is loaned out than actually exists in deposits ('reserve requirements') – a system based on usury (interest) which is largely accepted by most economists as the necessary means of providing the means for speculative investment to generate wealth creation and spread economic activity.*{variations to this within the world capitalist system entail a form of Keynesiasm embedded within the money system whereby greater levels of government-created public money substitute private bank credit as the private banking system’s ability to loan money is curtailed through increasing private banks’ reserve ratios – a practice traditionally deemed inappropriate by the domination of the Milton Friedman neoliberal school of thought since the early 1970s because, it was perhaps overstated, it led to the ‘crowding-out’ of private investment}. In step with increased economic growth (GDP), the money supply logically expands over time (for e.g. the UK money supply has increased from £14.1 billion in 1963, to £680 billion in 1996). With most economic growth concentrated in the private sector, the long-term trend is towards the increasing privatisation of credit in western societies, emphasised by the case of the UK money supply whereby, while in 1946, the total money stock was comprised of 46% notes and coins printed into circulation, by 2006 it was less than 3% (governments expenditure is partly financed from the private banking system, at interest, when they issue bonds for sale). (El Diwany). This is happening because within any debt-based banking system, more money has to be found for repayment by bank customers than has been loaned due to the interest charged on the loans, so further loans have to be made by the banks for enough economic activity to take place in an economy to generate enough money to make this happen. Thus, debt escaltes at a higher rate than underlying economic growth over time.
This is why the wealthiest nations and corporations are actually the most indebted (the United States is the most indebted nation on Earth: its combined national, private and commercial debt to the banking institutions is around $22 trillion - many times all the dollars in it's economy). Allied to these ever-widening distortions, there prevails the hypocrisy of the USA who has allowed it's national debt to increase from $235 billion in 1960 to it's current level of over $7 trillion (US spending on arms was a staggering $472 billion in 2001 – 70% of the world total of $678 billion), whilst at the same time, the “truly indebted” countries of the South are frogmarched through the macroeconomic straightjacket of restrictive fiscal (deficit) policy through Structural Adjustment Programmes by the Bretton Woods institutions. This extent of enduring a high national debt is also a trend similarly replicated in other leading industrialised economies such as Germany and Japan. Rather like the hypocrisy of the supposed free trade regime, which opens developing country, markets which the rich nations resist adherence to themselves, all-in-all this amounts to a fully-evolved stage of imperialism.
The US economy has been sustained by a prolonged debt-fuelled consumer boom, with both balance of payment deficits and the government’s budget deficits largely financed by borrowing abroad. The US trade deficit, which now stands at $600 billion per year, is effectively financed by the holding of dollar reserves in banks across the world, by persuading the rest of the world to keep buying U.S. Treasury bonds, and through investment income from investments in the newly emerging market economies of Asia (particularly the mega-growth region of China), Eastern Europe and South America, or inward capital investment into America (by late 2002, foreigners had total claims on the US economy of $2,600 billion net of US claims on the rest of the world - equal to 25% of US GDP in 2002). However, it is the US deficit which is sustaining the world economy. If US consumers stopped spending for whatever reason, then the world economy would slow down considerably.
Since the US economy’s departure from the Gold Standard in 1971 to flexible interest rates and exchange rates, the Dollar has remained the international medium of exchange used by foreign business. In order for investors to buy American stocks or bonds, they exchange their currency for U.S. dollars and so, these countries have to hold more U.S. dollars in reserves to accommodate all the exchanges. Nations around the world keep high reserves of dollars to facilitate their own export trade to America and to ensuring there are enough reserves to withstand currency market fluctuations. Prices are stable only as long as the population in countries such as Japan, China and Singapore continue to save large amounts of money which is flowing back to the US, savings which are based upon these large reserves of dollars and US bonds.
The volatile nature of capital flows has exacerbated the liquidity shortage and forced other countries (particularly developing countries) to keep far higher reserves of foreign exchange than used to be necessary, as a protection against sudden market feelings. During the same time as the dollar proportion of global reserves has increased, so has the sensitivity of other countries to its value. Because of the US trade deficit, international liquidity has risen very speedily since 1998. In 2001, total world foreign reserves also rose to $1.53 trillion, a rise of 11% of which 68% was in dollars. (P.Bowring, “From Poor to Rich: Capital is flowing in the wrong direction”, International Herald Tribune, 12/12/2001).
This flow of dollars generated by the US economy is the collateral treadmill that feeds financial credit markets across the world, benefiting the entire world economy. It's been the oil that has lubricated world trade. It has provided the capital to finance the expansion of Asian economies, especially that of China. The American dollar has been the currency that has made globalisation a reality. Without the outflow of capital from America, many nations would not have been able to develop their economies as they have over the last 30 years (development concentrated in corporate-driven investment, with much of it’s expropriated value siphoned-off to feed the pension and investment income of the wealthy sections of the populations in the North).
Without the extraordinary power of money creation by international and large commercial banks, financial markets would not operate to such a massive extent. It is obvious that as the amount of debt that can be recycled into loans increases, this generates greater and greater capital for speculative investment. Due to the volatile nature of the stock exchange - effectively gambling shops or dens of predatory speculation - the value of companies ride on the crest of the wave of the market. What is at the centerpiece of this 'roulette-table of stock and shares', "where the chips are peoples' lives and livelihoods" is the power of international finance - banks, pension and trust funds, investment houses and ''hedge" funds - which is simply colossal and dwarfs even the power of multinationals (Corporate-Watch, 1999 and Rowbotham, 1998). It has even been known for some companies to use this 'easy credit' to buy their own stock which drives the price up, making fortunes for the stockholders. Of course these companies are greatly increasing their debt which will have to be paid back out of future profits. In the first quarter of 1999, IBM spent $2.1 Billion buying its own stock. At the same time IBM had increased its outstanding debt to $30 billion dollars. (from New York Times 22/4/99).
The consequences of easy credit are distortions in the economy. It misleads businessmen to expand when there is no market for their goods. It causes stock speculation to drive the market to unrealistic heights (e.g. the 'net bubble'). There is left a massive susceptibility to the whims of the market and the threat to people's livelihoods through a recession or market crash. Meanwhile, the money-creation process concentrated within the private banking sector continues to drive the engine of financial capitalism without being able to take it's foot off of the accelerator pedal - meaning the goldrush of financial capitalism is driven forward without regard to the misallocation of resources that private investment tends towards due to public investment being crowded out by private capital. In the absence of long-term investment decisions (for e.g. in poorer regions of the world, investment in infrastructural projects specifically beneficial to corporate developments such as in oil exploration or luxury apartment dwellings seem to mushroom whilst investment in smaller community enterprises or public infrastructural projects tend to be neglected, so further restricting the assumed 'trickledown' of wealth). The attempts of borrowers to repay debt that grows at compound interest by investing in physical assets that display precisely the opposite tendency of compound decrement means that substantial resource depletion occurs. For example, multinationals who are driven by their pressure to achieve rapid rates of return on their shareholders' investment capital and interest-bearing bank credit such as the "goldrush" of mineral extraction by Rio Tint o in countries like West Papau which occurs with scant regard for local indiginous populations and environmental limits, results in a trail of environmental devastation (unless it is severely regulated against, which is currently a practice that doesn't even happen in industrialised countries and is currently something which is now perceived as "anti-free trade" by the WTO trade regime).
As greater financial liberalisation has further deepened over the years, further increasing the phenomenon of speculative flows across international financial markets, financial capital and the interests of shareholders are ordained a predominance of extraordinary weight, to the extent that whilst in 1970, 90% of total world financial flows were specifically trade related (trade in actual goods or services), by 1990, 90% of these financial flows were purely speculative. Data from the IMF suggests that the year 2001 was the second year in a row when capital flowed from developing countries to support consumption in the west (P.Bowring, “From Poor to Rich: Capital is flowing in the wrong direction”, International Herald Tribune, 12/12/2001).
In short, then, the extent of the American economy is such that other national economies’ export markets hugely depend on the buying power of American consumers. Meanwhile, with the ability to create their currency at will, the US economy has autonomy to decide on its own exchange rate and monetary policy, whilst intense competition between exporters in the rest of the world gives them an inflow of imports at constantly decreasing prices relative to the price of US exports. Meanwhile, the US trade deficit increases over time, as America’s “waistline of consumption” has no bounds (the American population constitute 10% of the world population, but consume a third of total world consumption – Total World GDP). The US increasingly finds itself dependent upon its dominant financial position built up during its heydays, with the total debt of the federal government having particularly risen sharply in the last few years. With China now the major epicentre of capital accumulation in the world, with the inflow of American foreign investment, many of the surplus dollars in the world economy are coming into the Chinese Central Bank and have been used to buy US government treasury bills – effectively granting the US short-term loans. The importance of the growth of China to the future growth of US and world capital is wrapped up with the predominance of financial expansion and the liberalisation of international investment flow.
Meanwhile, poor countries have been known to endure interest rates as high as 18%, while the US borrows through US Treasury bonds at 3%, which means that borrowing countries in crisis have to repay more when their capacity to repay is less. (Ref: New Economics Foundation/Jubilee Research, "The US as an HIPC or 'heavily indebted prosperous country'" April 2002). From the 1970's until recent years, the 'Third World' debt crisis meant that in country after country across the developing world, the overbearing, unrelenting pressure to repay (since the level of spiralling debt in relation to national wealth was usually very high due to compound interest), became the driving force that forced these primary-good commodity suppliers to compete with one another, driving down the price of their goods.
However, the debt merry-go-round comes round again where as soon as debt-relief programmes have begun to be implemented, the country is locked into new debt commitments, effectively the re-mortgaging of the original debt. For those countries with this international debt, these chains of debt keep going round a fairytale roundabout of economic progress, which only goes to create ever spiralling debt as it moves round, and so, these chains can never be disentangled within a system which keeps moving forward with it's own self-generating momentum. To use another analogy, the spiralling distortion of this system means that the manner in which indebted nations are increasing economic growth to pay off their debt is akin to them running up a downward moving escalator.
The World Bank and IMF (and the G8 countries in their partial efforts at debt cancellation in Gleneagles, July 2005) are effectively complicit in refusing to bail out these countries. What they are doing is rather-like consigning these countries to the lower deck of the slave ship, and so while it periodically checks to see if her crew is showing any signs of physical exhaustion, they are given just enough scraps from the dining table to keep them in toil to keep the slave ship on course. And of course, if the slaves all refused to stop rowing, what then for the Capitalist voyage? Well the rich elites' bounty would be at risk. Captain of the ship - the WB & IMF - would lose their bearings as the seas got rough - the ship might even completely lose course? Then anything could be possible - even a mutiny ...and the slaves could even achieve liberation within the new order!
The austerity programmes of governments and the IMF and World Bank are based on a combination of the macro-economic shock-therapy deflationary policies of interest rates and fiscal restraint (holding down government expenditure), with holding down exchange rates (so as to encourage cheaper exports and so, improve balance of payments - the policy framework for increased national wealth for the given indebted country). It is a rigid interelationship when one considers that countries rendered more dependent upon certain imports such as manufactured goods (after state-protection of import-substituting industries have been removed), have to withstand unnecessary deflationary pressure to hold down prices, where there is upward pressure on import prices from holding down exchange rates. Together with across-the-board privatisation and the enforcement of other neoliberal policies, the crude science of relying on this policy framework as the main platform for economic growth, has been disastrous and, in terms of the ‘one-size-fits-all’ way it has been executed across the globe, amounts to a reductionist logic that has been taken to an insane extreme. The development model being promoted through the World Bank and IMF is contrary to the example of those countries who have developed fairly successful economies such as South Korea, which have been based on systematic state intervention in the economy.
Back in the 1980s, the World Bank had reasoned that the main obstacle to economic growth in developing countries, particularly in Africa, during the 1970s and first half of the 1980s had been interventionist governments and their tendency to set prices which discriminate against agriculture, plus excessive government expenditure (on items such as government employees, defence and state pensions). In Sub-Saharan Africa, the World Bank identified the cause of the poor long-term economic performance of national economies as being attributed to the gearing of resources to import-substituting industrial sectors, whose productivity levels did not justify the levels of protection they received from taxpayers and which acted as a tax on exporters, by raising the cost of local inputs. This phenomenon stemmed from bureaucratic governments from the cold-war era, lacking in technical, managerial or entrepreneurial skills. In addition to this, the World Bank also cited governments’ interventionist policies in regard to setting prices as being detrimental to the continued growth of the agricultural sector. The World Bank recommended the dismantling of parastatals in the agricultural sector (local marketing boards) which set maximum prices for staple foods and commodities. However, to examine the implications of this policy, observing the case in point of Malawi, a major contributory factor to the extent of the 2001/2002 famine in that country can be traced back to the IMF’s insistence on the privatisation of parastatals that managed national grain reserves to protect people from fluctuations in food production, whereby the new privately-owned National Food Reserve Agency formed in 1999 started out severely undercapitalised, borrowing from commercial banks to meet its running costs (Briefing Paper on the Food Crisis in Southern Africa, by Action Aid UK, 2002). This preceded a chain of events that led to the selling of the whole 175,000 metric tonnes of strategic grain reserves, a few months before the regional drought in Southern Africa kicked in and people started dying of hunger and hunger related diseases (“It’s the Banks wot done it”, by Donald Mavunduse in Red Pepper, Sept 2002). Action-Aid commissioned a report into the underlying causes of the famine in Malawi, concluding that the crisis was the result of “policy failures at the domestic and international level” (“State of Disaster: Causes, Consequences and policy Lessons from Malawi”, by Stephen Devereaux [IDS], June 2002).
Michael Lipton in the Development Policy Review (1987-88): “The World Bank has overstated the economic biases against farm product prices – not recognising that they are only one factor among many that discriminate against rural areas”. Factors such as investment in irrigation, the state of localised institutions of credit, infrastructure and research and development in rural technologies and new plant breeding for non-export cash-crop varieties are also highly important. However, in their advocacy of policies to reduce government spending, the World Bank did not recognise that reductions of expenditure per-say across the board would affect rural areas disproportionately more.
The wholesale squeeze on government spending is made worse by the seepage of debt-repayment, rendering the economic fundamentalism of neoliberalism akin to the treating of a malnourished cancer victim with chemotherapy - in that the squeeze on long-term investment is rather analogous to the killing of some of a cancer patient’s healthy functioning cells alongside the elimination of the cancer, a process which would be far more debilitating and painful for a patient whose biological immunity was not functioning as well on account of his/her not absorbing the minimum daily requirements of nutrition. Such has been this intensive implementation of free-market discipline in these debt-riddled, immaturely developed market economies. At the same time, in terms of the primary sectors which the developing world still depend upon, this wide-sweeping free-trade policy of removal of tariffs, subsidies and import controls (further deepened with WTO rules) as it has been implemented across the developing world, pursued as part of a policy that strives to achieve true competitive par-excellence of a modern neoliberal economy, has been both hypocritical and dishonest in the context of agricultural commodity world markets which are non-free trade as a result of the degree of protection afforded to European nations and the US. "In the village of Kpembe, the chief invited us for lunch. We ate chicken feet, soup and American rice. And yet the Katanga valley, just a couple of miles away, was until recently Ghana's rice bowl. It now lies fallow. Ghana used to be self sufficient in rice. The World Bank and IMF decreed subsidies had to stop, that poor countries should concentrate their efforts only on what they can export. And yet the US rice industry receives tens of millions of dollars in support. The double standards apply to water. No state help in Ghana, but subsidy aplenty in countries like the US".
(From The Guardian, "Cash and carry misery in Ghana", by John Kampfner, Friday February 8th, 2002)
This export-or-die doctrine has served to render those countries in the South prone to unpredictable climatic variability to being fantastically vulnerable to catastrophic problems of food self-sufficiency. Small farmers the world over, from India to Mexico, are constantly economically forced out of farming in the face of dwindling returns on farm income due to downward pressure on prices and/or the flood of cheap imports, as economies-of-scale achieving larger farms are able to afford to stand up to this market pressure, as is the capitalist principle of market concentration which multinational control of world price only further intensifies (e.g. Cargill controls over 70% of the world market in grain supply).
Summary:
The 'Washington Consensus', which recommends programmes of privatisation, liberalisation and economic stabilisation measures are all about making Third World economies more dependent on (or "integrated into") Western/Northern needs and in particular more open to exploitation by Northern multinationals; structural adjustment policies (SAPs) also guarantee the North a massive supply of cheap labour.
It is the sophisticated use of structural adjustment policies by the IMF and World Bank, which has ensured that the neocolonial process has been both systematic and widespread. The universal enforcement of SAP's imposed by the IMF & World Bank can be considered a continuation of the imperialist manipulation which occurred in colonial times to achieve the domination of the colonial economy. SAPs, to use their abbreviation, do just that; they 'sap' the vitality of domestic economies. There is a wide gulf between the rhetoric and the reality of globalisation and between the rhetoric and reality of the proclaimed benefits of IMF and World Bank operations. The rhetoric promises progress toward broad-based prosperity and environmental stewardship. Many citizens see a different reality: pockets of obscene wealth in the midst of growing human misery, social dislocation, and environmental devastation [WDM June2000]. SAP's lengthen the duration of the famously coined phrase 'trickle-down' to the extent of a dripping tap, while skewering the playing field in favour of multinational capital, consigning domestically led economic recovery firmly to the back-seat. The 'globalisation' process as a whole is rendered a downward spiral to nations in the South by a combination of fundamentally-flawed and dangerously irresponsible economic restructuring and the devastatingly dominant-impact on domestic-economies worldwide from the TNC's oligarchy (for e.g. the impact of export dumping and the taking over of local grain markets by multinational grain companies like Cargill), together with the continued seepage of debt repayments from these economies.
The commonality of poor terms of trade amongst countries in the south, particularly Africa, is best understood if one accepts that exchange rates have purposively been deflated across the "developing world" (particularly in Africa), and so, could be considered a continuation of the imperialist manipulation which occurred in colonial times to entrap countries into the colonial economy when the imperialists' intervention and subjugation of the colonies to new monetary and taxation systems ensured that the imperialist masters pre-determined the value of their goods, services and labour relative to the Imperial Powers' own rate of exchange.
Foreign investment is used to produce goods for the North (for e.g. in export processing zones), the profits from which are repatriated to the North with the remaining national government rates of return usually used to reduce the debt-burden. The same underlying process of expropriation and profit for the benefit of a few has been the driving-force underpinning both the ruthless colonial looting that occurred in Africa, Asia, Eire, Latin America and the West Indies, and present-day corporate investments that rely on speculation without respect of labour or environmental standards. For instance, the "explosion" in Export Processing Zones the last decade all around the poor parts of the world, employing more than 30 million people. In most of these places the companies hired workers endure long working hours (usually 12 h, sometimes up to 16 h a day), no rights, people get fired if the get involved in a labour union, they get fired if they're pregnant or ill, and for many workers (often women) it's their first paid job and they do not have experience with their rights. The companies get tax exemptions and leave no support for the local/national government where they operate. Often these exemptions last for 5 years, and by then the company changes names or starts to produce the same product in another EPZ in another country.
The majority of the population in countries of the South remain largely disenfranchised from the whole process of economic growth, being as they are increasingly dispossessed of having the ability to attain a decent livelihood within domestic agriculture through the market invasion of cheap grain from the North, and conversely, with those economically active subjected to the suppressed multiplier effect on the domestic economy from the simultaneous stranglehold of debt, neoliberal fiscal restraint, and the overbearing appropriation of profits and enclosure of markets by multinationals. Periodic attempts to cancel debt such as at the 2005 G8 Summit at Gleneagles, Scotland are nothing more than a small necessary sacrifice to ensure the economic path of each country is financially secure enough to pave the way for the final stage in the transformation of corporate globalisation. The international evidence indicates that the fall in popular living standards and employment levels is not a temporary but a permanent and increasingly intense characteristic of neo-liberal policies. Infact, job losses are not merely a spin-off of neo-liberalism; they are a core reason for the policy because it saves corporations money and reduces their vulnerability to organised labour.
Additionally, the most fundamental deceit is how financial liberalisation (opening a nation’s financial sector up to the encroachment of global finance capital) and the model of private credit monopoly spreads throughout countries in the south, hand-in-hand with a general push for privatisation in the south, meaning that these same countries are gradually being held more hostage to rampant forces of global capital, even more than has resulted in the past within the historical process of imperialism up until now. Now, the whole process continues to accelerate at an alarming rate, with the continual pressure for ever-faster rates-of-return on speculative investments. Those who are the enslaved primary-commodity producers whose output is largely consumed by the northern markets, and whose surplus-value is appropriated by the north, are left most disposable in
this global system.
Meanwhile, on the African continent, out of recent events in Zimbabwe, the issue of land distribution and the colonial legacy pertaining to it, is sweeping like wildfire through the collective consciousness of the continent’s millions of poor, impatient and downtrodden millions. The movement against structural adjustment was similarly hugely powerful throughout the 1980s. However, with the combined effect of the massive outflow of wealth from the continent from debt-repayments, the iron-grip of structural adjustment policies and wholesale privatisation, and public health pandemics – notably the spread of AIDs, the result is that struggle for everyday existence is the norm for people on this continent – a legacy which it’s people do not deserve.
Conclusion
The legacy of colonialism, then, has been a familiar pattern starting with the straight swap of power from the colonialists to elite dictatorships, through to subjugation of national economies to the dictates of multinational power aided by the “unholy trinity” of the IMF, World Bank and WTO/GATT. There pervades a global adherence to neoliberalist dogmatic perspective, while being intellectually backward in that it is the fastest way to undermine the claimed objectives which are actually sought and hypocritical (we can subsidise our production through the military industrial complex, but you in the South can't), as-it-is-implemented, the "unholy-trinity" of the WTO, WB and IMF are fundamentally complicit in the process of neo-colonial appropriation and resource exploitation.
Countries in the North are increasingly reliant on investments abroad to sustain their own economies. There is an obvious link between the nation state’s interest in diplomatically supporting multinational trading investments in poorer regions of the world, and those multinationals making a decent rate-of-return for their shareholders, who are largely resident in the nation states of the North. The stark reality is that as the US and EU push the General Agreement on Trade in Services to help ease the flow of international investment and liberalisation abroad, together with the floodgates to external investment and multinational encroachment being lowered in regions such as Africa perfectly highlighted by the terms and conditions of the NEPAD agreement (the New Partnership for Africa’s Development), it is plain to see that the process determining the flow of profit from the South to the North is being set-in-stone, consolidating the neocolonial process .
And what is the driving engine of this continued neocolonial subjugation of country after country around the world? For ex-colonising nation states of the post-industrialised world whose citizens are no longer cheap-labour for the manufacturing industry, it is the need to earn rates of return on investments abroad which can balance their own trade-deficits which exist because goods are no longer produced and are instead being imported. For multinationals, their pressure to achieve rates-of-return for their shareholders, it is their own debt schedules – borrowed against their assets (from banks) – which is a byproduct of a debt-money system which itself is the driving engine of capitalism and the necessary source of speculative investment for wealth accumulation, just like it was in the days when the first slave-ships ventured out, financed by banks such as Barclays. Within the North, the virtual monopoly that private banks have to undertake money creation through the liquidity ratio means that a national debt is not only unavoidable, but essential to sustain economic growth. However, as the leading world economy with seinorage status of it’s currency, the USA enjoys premium advantages in being ahead of the pack in the world economy, such as the benefit of the subsequent net capital inflows generated from the flood of US Dollars into the world financial system, permitting them the luxury of perpetually running up trade deficits and enormous budgets for defence spending (how long this precise arrangement will remain in place is questionable in years to come). Together with it’s domination of the multilateral institutions such as the World Bank and IMF, where voting rights are weighted in their favour as the largest member economy, the US penalise countries of inferior wealth who even attempt to implement policies which are long established within US economic management. It is effectively a delicate combination of factors complicit in ensuring the continued neo-colonial subjugation of countries in the South, particularly nations within Africa.
The same enclosure of local markets by the global market which occurred through the spread of the imperialist empire occurs now, except now it is happening at a colossal scale and at a furious rate, underwritten by a monetary system that is utterly demand-led by a world financial market that is driven by market signals generated from the collective might of this “casino stampede”. Countries of the South, infact, having embarked on a frantic re-run of our own history - propelling their societies into the modern world instead of being given the opportunity to learn from our mistakes and avoid the injustices of our history - have been forced through a compressed version of that history, involving land enclosures, dispossession and wage dependency and industrialisation at the expense of rural development.
I close with the remarks of Elenga M’buyinga taken from his paper entitled “Pan-Africanism or Neocolonialism – the Bankruptcy of the OAU”:
The essential requirement: A Break with the World Capitalist Market
All the fundamental features we have outlined previously point to one inescapable conclusion. Since the mechanisms of the world capitalist market, operating through unequal exchange, are at the root of the pillage of Africa, the only way out, the only way to establish the necessary conditions for authentic economic liberation, is to break with the world capitalist market. This does not necessarily imply economic autarchy. It is simply the elimination of the mechanisms of domination through which international imperialism subordinates the economies of the dominated countries, including the African countries, to it’s own economic laws. A geopolitical settlement within Africa would protect domestic industries from outside competition, and indeed, for individual nation states, include a degree of protection within bi-lateral agreements between countries.”
He continued: “There is a lesson from what occurred in 19th century France in the situation of free-trade between Britain and France. The effects of France’s liberal foreign trade policy between 1860 and 1892 were very negative and the precise opposite of those predicted by liberal and neoliberal theories. Economic growth was seriously slowed down, even once external factors have been discounted. The rate of growth was slower than in the equivalent periods which proceeded and followed the free-trade interlude. Indeed, it was the slowest rate of growth France has ever known, if one excludes the troubled years of the revolution and first empire and the great crisis of 1930.”
Mike Rowbotham in "The Grip of Death": "The failure by the Western world to grasp the validity and importance of the criticisms put forward by Douglas and the other monetary reformers must rank as a terrible missed opportunity for us to steady our own social development. But history will surely one day draw attention to the greatest missed opportunity of all time: a missed opportunity which has had the most tragic consequences for generations in the Third World. There was a chance for the imperial powers to end their imperialism with a gift; a gift which is truly beyond measure, and which would have cost the western powers absolutely nothing. The chance existed for the developing nations to learn from our history; to see us choose a different path to economic progress and themselves take a less destructive and more peaceful path to development" (p-257, [1998]).
37)."THE GRIP OF DEATH", by Mike Rowbotham, 1998 [Jon Carpenter] A study of modern money, debt slavery and destructive economics
38). "FRACTIONAL RESERVE BANKING AND THE INTEREST-BASED MONEY SUPPLY”- A paper presented by Tarek El Diwany at a meeting of the Association of Muslim Social Scientists, London School of Economics, London, October 1999.
39). “SQUARING UP TO THE SQUARE MILE, a rough guide to the City of London” written by Corporate Watch and Reclaim the Streets, 1999.
40). “FROM POOR TO RICH: CAPITAL IS FLOWING IN THE WRONG DIRECTION”, by P.Bowring, International Herald Tribune, 12/12/2001
41)."THE US AS AN HIPC OR 'HEAVILY INDEBTED PROSPEROUS COUNTRY'"; New Economics Foundation/Jubilee Research, April 2002
42). “DEVELOPMENT POLICY REVIEW” Journal, SECTION II by Michael Lipton (1987-88)
43).BRIEFING PAPER ON THE FOOD CRISIS IN SOUTHERN AFRICA, by Action Aid UK, 2002
44). “IT’S THE BANKS WOT DONE IT”, by Donald Mavunduse in Red Pepper, Sept 2002
45). “STATE OF DISASTER: CAUSES, CONSEQUENCES AND POLICY LESSONS FROM MALAWI”, by Stephen Devereaux [IDS], June 2002“
46)."CASH AND CARRY MISERY IN GHANA", by John Kampfner, The Guardian, Friday February 8th, 2002
47). “CARGILL: ARROGANCE INCORPORATED”, Corporate Watch GE Briefing:
48). “JUST BEFORE WE ALL DIE", by Naiwu Osahon (World Pan-African Movement, June 2001).
mark s b