Part Three

excerpted from the book

A Century of War

Anglo-American Oil Politics and the New World Order

by William Engdahl

Pluto Press, 2004, paperback (original edition 1992)

As early as June 8, 1974, in his capacity as U.S. secretary of state, Henry Kissinger had signed an agreement establishing a little-noted U.S.-Saudi Arabian Joint Commission on Economic Cooperation, whose official mandate included, among other projects, 'cooperation in the field of finance.' (Kissinger retained the unprecedented dual posts of national security adviser to the president and secretary 0r state well into Gerald Ford's presidency.)

By December 1974, the nature of this cooperation had been defined more clearly, though strict secrecy was maintained by both Saudi and Washington governments. The U.S. Treasury had signed an agreement in Riyadh with the Saudi Arabian Monetary Agency, whose mission was 'to establish a new relationship through the Federal Reserve Bank of New York with the [U.S.] Treasury borrowing operation. Under this arrangement, SAMA will purchase new US Treasury securities with maturities of at least one year,' explained assistant secretary of the U.S. Treasury, Jack F. Bennett, later to become a director of Exxon. Bennett's memo explaining the arrangements agreed two months before was dated February 1975 and addressed to Secretary of State Kissinger.
Henry Kissinger had signed an agreement establishing a little-noted U.S.-Saudi Arabian Joint Commission on Economic Cooperation, whose official mandate included, among other projects, 'cooperation in the field of finance.' (Kissinger retained the unprecedented dual posts of national security adviser to the president and secretary 0r state well into Gerald Ford's presidency.)

By December 1974, the nature of this cooperation had been defined more clearly, though strict secrecy was maintained by both Saudi and Washington governments. The U.S. Treasury had signed an agreement in Riyadh with the Saudi Arabian Monetary Agency, whose mission was 'to establish a new relationship through the Federal Reserve Bank of New York with the [U.S.] Treasury borrowing operation. Under this arrangement, SAMA will purchase new US Treasury securities with maturities of at least one year,' explained assistant secretary of the U.S. Treasury, Jack F. Bennett, later to become a director of Exxon. Bennett's memo explaining the arrangements agreed two months before was dated February 1975 and addressed to Secretary of State Kissinger.

No less astonishing than these U.S.-Saudi 'arrangements' to one ignorant of the real history of Anglo-American interests in the Persian Gulf was the exclusive policy decision by the OPEC oil states to accept only U.S. dollars for their oil-not German marks, despite their clear value, not Japanese yen, French francs or even Swiss francs, but only American dollars.

Dollar oil pricing was initially a practice encouraged after the Second World War by the American oil majors and by their bankers in New York. But when, following the oil crisis of early 1974, leading European governments began to enter into serious negotiations with Arab oil suppliers to secure long-term oil purchase contracts to cover their import needs, to be paid in their own national currency-an eminently sensible move which would have enormously lessened the European impact of the oil shock-something extraordinary occurred within OPEC. Germany or France would have had far less difficulty in securing domestic funds for the payment of its oil imports in Deutschmarks or francs than in buying dollars for the same oil. This makes it all the more curious that OPEC ministers, meeting in 1975, agreed to accept no other currency than the U.S. dollar in payment for deliveries of its oil, not even the British pound.

This arrangement, needless to say, proved enormously valuable for the United States dollar and for the financial institutions of New York and the London Eurodollar markets. The world was forced to buy huge amounts of dollars more or less continuously, in order to purchase essential energy supplies. Even more extraordinary, this OPEC dollar-pricing agreement remained in force despite the subsequent enormous losses to OPEC as the dollar gyrated up and down through the next decade and more.

One consequence of the directed recycling of these petrodollars into London and New York was the emergence of American banks as the giants of world banking, paralleling the emergence of their clients, the Seven Sisters oil multinationals, as the giants of world industry. The Anglo-American oil and banking combination so overwhelmed the scale of ordinary enterprise that their power and influence seemed invincible.

In effect, through such secret arrangements as the U.S.-Saudi Joint Agreement with the Treasury ... as well as OPEC's strange dollar-pricing mandate, Washington and the New York banks had exchanged their flawed postwar Bretton Woods gold exchange system for a new, highly unstable petroleum-based dollar exchange system, which, unlike the gold exchange system, they reckoned they could control. Kissinger and the financial establishment of London and New York had in effect replaced the old gold exchange standard of the postwar world with their own 'petrodollar standard.'

After all, who really controlled OPEC? Only the politically naive could believe that Arab countries would suddenly be allowed to exercise independence on issues of such importance to British and American interests. Had they really regarded the oil shock as a life-threatening matter, Washington could have found numerous ways in which to restore a reasonable OPEC oil price. They wanted the high oil price and they wanted OPEC to take the blame for it.

The two reserve currencies of Bretton Woods, the British pound sterling and the U.S. dollar, remained at center stage in the new petrodollar order of the 1970s. Sterling conveniently gained from the vast exploitation of North Sea oil, which came on line just in time to benefit from the 400 per cent oil price inflation ... The British pound became known as a 'petrocurrency.'

... Clearly, the May 1973 Bilderberg deliberations in Saltsjobaden had calculated the winners and losers. No matter to them that their artificial oil price inflation was a manipulation of the world economy of such a hideous dimension that it created an unprecedented transfer of the wealth of the entire world into the hands of a tiny minority. Was this not, after all, what Adam Smith meant by the 'magic' of the market?

If the methods look more than a little like a perverse variation on the old mafia 'protection racket' game, this is understandable. The same Anglo-American interests which manipulated political events to create a 400 per cent increase in the oil price then turned to the countries which were the victims of assault and 'offered' to lend them petrodollars to finance the purchase of the costly oil and other vital imports-at a vastly inflated interest cost, of course.

Real industrial and agricultural development for a vast majority of the world, living in less-developed regions, suffered the consequences of the Anglo-American oil policy. The petrodollars went simply to refinance deficits, rather than to finance the creation of new infrastructure, to assist agriculture or to improve the living standards of the world's population.

Frederick Wills, Guyana's minister of foreign affairs, about the Group of Non-Aligned Nations meeting in Sri Lanka in 1976

In what became known as the Third World, approximately 80 per cent of mankind lived on the flanks of superpower rivalry, supplying raw materials for the processing economies of the First and Second Worlds, and striving to become market extensions of the market economies of the First World.

Third world politicians at that time had a different view about their international role, however. They regarded political independence as merely one essential step in the path of growth and development. They sought generalized technological advance, which should be coterminous with diversification of agriculture and the insertion of such infrastructure as would lead to the industrialization, and thereby closing of the huge gaps that separated the different worlds.

Led by Britain and France, the economic theorists of the First World determined that the export receipts of the Third World should decide the pace and quality of development and, when these fell below expectations, resort should be had to the Bretton Woods system whose machinery had been set up in the late 1940s. Above all, this meant the requirement of the stamp-of-approval of the International Monetary Fund (IMF) and submission to the barbarous conditionalities which were the underpinning of IMF intervention.

This was the context within which the Summit of the NonAligned Nations was held at Colombo in Sri Lanka in 1976. There was a call for a new funding institution-an international resources bank-to replace the iniquitous neocolonialism of the IMF. There was also a call for diminution of the vertical and structural economic dependence of the Third World on Britain, France and the USA, and an increase in horizontal linkages between Third World countries. There were calls for regional Zolivereins or customs unions to protect Third World industries, and for technology transfers in order to remove the harshness of underdevelopment.

The United Nations was chosen as the arena where it was hoped that a new era of global cooperation would emerge. These hopes were never realized. One by one, the outstanding advocates of Third World development were removed from the seats of domestic power, and their solidarity was defeated in detail by the age-old principle of 'divide and conquer.' Export receipts and import prices were manipulated to create enormous gaps in balances of payments, and Third World countries were told that they must get the seal of approval of the IMF before any government or private institution would advance further loans. The IMF insisted on austere programs based on currency devaluations which increased misery in the Third World, was directly responsible for the spread of disease and was also successful in encouraging drug cultivation, as those unfortunate countries sought the chimera of a quick cash crop as a panacea for their fiscal difficulties.

At a private closed-door gathering convened in Tokyo in April 1975 and organized by Chase Manhattan Bank chairman David Rockefeller and Bilderberg founder George W. Ball, a handpicked group of policy spokesmen met to discuss a special project.

... What concerned the hundred or so influential policy makers at the April meeting of Rockefeller's newly formed Trilateral Commission was the dangerous risk to the Anglo-American establishment of continuing the offensive U.S. foreign policy stance against the rest of the world associated with Secretary of State Henry Kissinger and the Republican administration. Kissinger's hard-line 'divide and rule' tactics had been to isolate one country after another, whether European, developing sector or OPEC, and to portray OPEC as the villain to developing countries whose economic growth had been destroyed by the Bilderberg group's 1973 oil policy.

By 1975, Kissinger's thinly-veiled 'thug' approach to international diplomacy was risking creating an enormous international backlash. A new 'image' was needed to persuade the world of the need for continued American hegemony. Therefore, at the Tokyo gathering of the Trilateral Commission that April, little more than a year and a half from the 1976 American presidential elections, David Rockefeller introduced a man to his influential international friends as the next president of the United States. Few Americans, not to mention foreigners, had ever heard of the small-town Georgia peanut farmer who preferred to be called 'Jimmy' Carter.

Following his initiation at the 1975 Tokyo meeting, Carter received an extraordinary public relations buildup from establishment media such as the liberal New York Times, which hailed him as a dynamic exponent of America's 'New South.' In November 1976, despite allegations of voting irregularities, Carter became president.

Carter brought with him such a large number of advisers who were members of the Trilateral Commission that his presidency was dubbed the 'Trilateral Presidency.' Not only was Carter's vice president, Walter Mondale, like himself, a member of the elite secretive Trilateral organization, but his national security adviser, Zbigniew Brzezinski, his secretary of state, Cyrus Vance, his treasury secretary, Michael Blumenthal, his defense secretary, Harold Brown, his United Nations' ambassador, Andrew Young and State Department senior officials Richard Cooper and Warren Christopher were all part of the exclusive Trilateral club.

The public profile of Carter's presidency was 'human rights' for the Third World, 'negotiation, not confrontation.' He portrayed himself as an 'outsider' to the Washington power establishment, but the content of U.S. policy under Carter, with his preselected crew of establishment advisers, was to maintain the American century at all costs. Under a rhetorical facade of 'reforming the old order' of U.S. foreign policy, the Carter administration continued the basic Anglo-American neo-Malthusian strategy initiated by Kissinger at the National Security Council under National Security Study Memorandum 200. Third World development was to be blocked, and a 'limits to growth' postindustrial policy was to be imposed, to maintain the hegemony of the dollar imperium. Carter's 'human rights' was to become a bludgeon to justify unprecedented U.S. intervention into the internal affairs of targeted Third World nations.

One major aspect of what Ponto alluded to in his last interview did come to pass. June 1978, in response to growing frictions and outright policy clashes with the Carter administration on nuclear energy policy, international monetary policy, the free fall of the dollar, and just about every foreign policy issue of importance to Continental Europe, the member governments of the European Community, on the initiative of France and Germany, took steps to create the first phase of what was seen as a European currency zone, a first attempt to insulate Continental Europe from the shocks of the dollar regime.

German Chancellor Helmut Schmidt and France's President Giscard d'Estaing proposed the establishment what became Phase I of the European Monetary System (EMS), in which the central banks of nine European Community member countries agreed to stabilize their currencies in relation to one another. With growing trade flows concentrated inside the community, the EMS provided a minimal basis for defending intra-European trade and monetary relations.

In early 1979 the EMS became operational and its effect in stabilizing European currencies was notable. But the future possibilities of the EMS were what worried certain circles in London and Washington. It had ominous overtones of becoming a seed crystal for an alternative world monetary order which could threaten the existing hegemony of the 'petrodollar monetary system.

In November 1978, President Carter named the Bilderberg group's George Ball, [a] member of the Trilateral Commission, to head a special White House Iran task force under the National Security Council's Brzezinski. Ball recommended that Washington drop support for the Shah of Iran and support the fundamentalist Islamic opposition of Ayatollah Khomeini. Robert Bowie from the CIA was one of the lead 'case officers' in the new CIA-led coup against the man their covert actions had placed into power 25 years earlier.

Their scheme was based on a detailed study of the phenomenon of Islamic fundamentalism, as presented by British Islamic expert, Dr. Bernard Lewis, then on assignment at Princeton University in the United States. Lewis's scheme, which was unveiled at the May 1979 Bilderberg meeting in Austria, endorsed the radical Muslim Brotherhood movement behind Khomeini, in order to promote balkanization of the entire Muslim Near East along tribal and religious lines. Lewis argued that the West should encourage autonomous groups such as the Kurds, Armenians, Lebanese Maronites, Ethiopian Copts, Azerbaijani Turks, and so forth. The chaos would spread in what he termed an 'Arc of Crisis,' which would spill over into the Muslim regions of the Soviet Union.

The coup against the Shah [of Iran], like that against Mossadegh in 1953, was run by British and American intelligence.

As Iran's domestic economic troubles grew, American 'security' advisers to the Shah's Savak secret police implemented a policy of ever more brutal repression, in a manner calculated to maximize popular antipathy to the Shah. At the same time, the Carter administration cynically began protesting abuses of 'human rights' under the Shah.

British Petroleum reportedly began to organize capital flight out of Iran, through its strong influence in Iran's financial and banking community. The British Broadcasting Corporation's Persian-language broadcasts, with dozens of Persian-speaking BBC 'correspondents' sent into even the smallest village, drummed up hysteria against the regime in exaggerated reporting of incidents of protest against the Shah. The BBC gave the Ayatollah Khomeini a full propaganda platform inside Iran during this time. The British government-owned broadcasting organization refused to give the Shah's government an equal chance to reply. Repeated personal appeals from the Shah to the BBC yielded no result. Anglo-American intelligence was committed to toppling the Shah. The Shah fled in January, and by February 1979, Khomeini had been flown into Tehran to proclaim the establishment of his repressive theocratic state to replace the Shah's government.

... With the fall of the Shah and the coming to power of the fanatical Khomeini adherents in Iran, chaos was unleashed. By May 1979, the new Khomeini regime had singled out the country's nuclear power development plans and announced cancellation of the entire program for French and German nuclear reactor construction.

Iran's oil exports to the world were suddenly cut off, some 3 million barrels per day. Curiously, Saudi Arabian production in the critical days of January 1979 was also cut by some 2 million barrels per day. To add to the pressures on world oil supply, British Petroleum declared force majeure and cancelled major contracts for oil supply. Prices on the Rotterdam spot market, heavily influenced by BP and Royal Dutch Shell as the largest oil traders, soared in early 1979 as a result. The second oil shock of the 1970s was fully under way.

In October 1979, a devastating new Anglo-American financial shock was unleashed on top of the second oil crisis of that year. That August, on the advice of David Rockefeller and other influential voices of the Wall Street banking establishment, President Carter appointed Paul A. Volcker, the man who, back in August 1971, had been a key architect of the policy of taking the dollar off the gold standard, to head the Federal Reserve. Volcker, a former official at Rockefeller's Chase Manhattan Bank, and, of course, a member of David Rockefeller's Trilateral Commission, was president of the New York Federal Reserve at the time of his appointment as head of the worId's most powerful central bank.

... In October 1979, [Paul] Volcker unveiled a radical new Federal Reserve monetary policy... It was aimed at making the U.S. dollar the most eagerly sought currency in the world and to stop industrial growth dead in its tracks, in order that political and financial power flow back to the dollar imperium.

The defect in Volcker's monetary shock therapy was that he never addressed the fundamental origins of the soaring inflation-two oil price shocks since 1973, which had raised the price of the world's basic energy and transportation by 1,300 per cent in six years. And Volcker's insistence on restricting the U.S. money supply by cutting credit to banks, consumers and the economy, was also a calculated fraud.

... U.S. interest rates on the Eurodollar market soared from 10 per cent to 16 per cent, on their way up to levels of 20 per cent in a matter of weeks, as the world looked on in stunned disbelief. Inflation was indeed being 'squeezed' as the world economy was plunged into the deepest depression since the 1930s. And the dollar began what was to be an extraordinary five-year-long ascent.

As the most influential American publicist of nineteenth-century British liberalism, the aristocratic Walter Lippmann defined this class society in a modern framework for an American audience. Society, Lippmann argued, should be divided into the great vulgar masses of a largely ignorant 'public,' which is then steered by an elite or a 'special class,' which Lippmann termed the 'responsible men,' who would decide the terms of what would be called 'the national interest.' This elite would become the dedicated bureaucracy, to serve the interests of private power and private wealth, but the truth of their relationship to the power of private wealth should never be revealed to the broader ignorant public. 'They wouldn't understand.'

The general population must have the illusion, Lippmann argued, that it is actually exerting 'democratic' power. This illusion must be shaped by the elite body of 'responsible men' in what was termed the 'manufacture of consent... In its concept of an elite specialized few, ruling on behalf of the greater masses, modern Anglo-American liberalism bore a curious similarity to the Leninist concept of a 'vanguard party,' which imposed a 'dictatorship of the proletariat' in the name of some future ideal of society. Both models were based on deception of the broader populace.'

More and more, following the turning point of the 1957 U.S. economic recession, the enormous power of a small number of international banks and related petroleum multinationals, concentrated in New York, defined the contents of an American 'liberalism,' based on adaptation of the nineteenth-century British imperial model. The American version of this enlightened liberal model would be shaped from an aristocracy of money, rather than the blue-blood aristocracy of birth. But increasingly, as a consequence of the economic policy decisions of the American East Coast liberal establishment-so-called because its center of power was built around the New York finance and oil conglomerates-the United States became transformed. America, once the ideal of freedom for much of the world, became, step-by-step, transformed into the opposite, and at a quickening pace during the 1970s and 1980s, while she retained a rhetorical facade of 'freedom and liberty.'

The combined impact of the two staggering oil shocks of the 1970s, and the resulting hyperinflation this set into motion, created, in effect, a new American 'landed aristocracy,' in which those who owned property suddenly saw themselves become millionaires overnight, not as a consequence of enterprise or successful manufacturing or scientific invention, but merely as the consequence of possession of land-real estate, dead dirt.

But if the oil shocks set off this polarization of society into a minority of the increasingly wealthy and a vast majority whose living standards were slowly sinking, the monetary shock therapy imposed on the United States by Paul Volcker after October 6, 1979 helped the task to its ultimate conclusion.

... In early May 1979, Margaret Thatcher won the British general election against her Labour Party opponent, James Callaghan. She had campaigned on a platform of 'squeezing inflation out of the economy.' But Thatcher, and the inner circle of modern-day Adam Smith 'free market' ideologues which surrounded her, promoted a consumer fraud, insisting that government deficit spending, and not the 140 per cent increase in the price of oil since the fall of Iran's Shah, was the chief 'cause' of Britain's 18 per cent rate of price inflation.

According to the Thatcher government claim, inflated prices could again be lowered simply by cutting the supply of money to the economy, and since the major source of 'surplus money,' she argued, was from chronic government budget deficits, government expenditure must be savagely cut in order to reduce 'monetary inflation.' The Bank of England, as their contribution to the remedy, simultaneously restricted credit to the economy by a policy of high interest rates. Predictably, the effect was depression; but it was called instead the 'Thatcher revolution.'

Cut and squeeze. Thatcher did just that. In June 1979, only one month after taking office, Thatcher's chancellor of the exchequer, Sir Geoffrey Howe, began a process of raising base rates for the banking system a staggering five percentage points, from 12 per cent up to 17 per cent, over a matter of twelve weeks. This amounted to an unprecedented 42 per cent increase in the cost of borrowing for industry and homeowners. Never in modern history had an industrialized nation undergone such a shock in such a brief period, outside the context of a wartime economic emergency.

The Bank of England simultaneously began to cut the money supply, to ensure that interest rates remained high. Businesses went bankrupt, unable to pay borrowing costs; families were unable to buy new homes; long-term investment in power plants, subways, railroads and other infrastructure ground virtually to a halt as a consequence of Thatcher's monetarist revolution.

But the principal problem with the British economy at the end of the 1970s was(not government ownership of companies such as the British Leyland car group, Rolls-Royce or the many other enterprises which have since been auctioned off to private investors. The main problem was lack of investment by the government in upgrading public infrastructure, in the education of its skilled labor force, and in scientific research and development. It was not 'government,' but rather wrong government policy, in response to the economic shocks of the previous ten or more years, which was at fault.

Thatcher's 'economic revolution' applied the wrong medicine to 'cure' the wrong disease. But the international financial interests of the City of London and the powerful petroleum companies grouped around Shell, British Petroleum and their allies were the intended real beneficiaries, as was the perceived strategic British 'balance-of-power' calculus. Thatcher was a simple grocer's daughter, groomed by her cynical patrons to act out a role for their greater geopolitical designs.

As Thatcher imposed the policies which earned her the name 'Iron Lady,' unemployment in Britain doubled, rising from 1.5 million when she came into office to a level of 3 million by the end of her first 18 months. Labor unions were targeted under Thatcher as obstacles to the success of the monetarist 'revolution,' a prime cause of the 'enemy,' inflation. All this time, with British Petroleum and Royal Dutch Shell exploiting the astronomical price of $36 or more per barrel for their North Sea oil, never a word was uttered against Big Oil or the City of London banks, which were amassing huge sums of capital as a result of the situation. Thatcher also moved to accommodate the big City banks by removing exchange controls, so that instead of capital being invested in rebuilding Britain's rotten industrial base, funds flowed out in speculation on real estate in Hong Kong or lucrative loans to Latin America.

Beginning in Britain, then moving to the United States, and from there radiating outward from the Anglo-American world, the radical monetarism of Thatcher and Volcker spread like a cancer, with its insistent demands to cut government spending, lower taxes, deregulate industry and break the power of organized labor. Interest rates rose around the world to levels never before considered possible.

Six months after [Margaret] Thatcher, took office, Ronald Reagan was elected... Reagan kept Milton Friedman as an unofficial adviser on economic policy. His administration was filled with disciples of Friedman's radical monetarism, much as Carter's had been with exponents of David Rockefeller's Trilateral Commission.

This entire radical monetarist construct, first advanced in the early 1980s by the British regime of Thatcher and soon afterwards by the U.S. Federal Reserve and the Reagan administration, was one of the most cruel economic frauds ever perpetrated. But its aim was other than what its ideological 'supply-side' economics advocates claimed.

The powerful liberal establishment circles of the City of London and New York were determined to use the same radical measures earlier imposed by Friedman to break the economy of Chile under Pinochet's military dictatorship, this time in order to inflict a devastating second blow against long-term industrial and infrastructure investment in the entire world economy. The relative power of Anglo-American finance was thus to become again hegemonic.

It would be no exaggeration to say that there would not have been a Third World debt crisis during the 1980s had it not been for Margaret Thatcher's and Paul Volcker's radical monetary shock policies.

As the average cost of their petroleum imports, denominated in US dollars, rose some 140 per cent following the Iran oil shock in early 1979, developing countries this time around found that the dollar itself, in terms of their local currencies, was also rising like an Apollo rocket because of the high U.S. interest rates caused by Volcker's policy. Not only could most struggling developing countries barely manage the borrowings to finance the oil deficits built up from the 1974 oil crisis; by 1980, an entirely new element faced them-floating interest rates on their Eurodollar borrowings.

... as early as 1973 the Anglo-American financial insiders of the Bilderberg group had discussed using the major private commercial banks of New York and London, in the London-centered Eurodollar market, to recycle what Henry Kissinger and others referred to as the new OPEC petrodollar surpluses. The sudden glut of new OPEC oil funds, which was steered into the London Eurodollar banks during the oil crises of the 1970s, was to be the source of the greatest unregulated lending spree since the 1920s.

London had evolved as the geographical center for this Eurodollar 'offshore' market because the Bank of England, over a period since the 1960s, had made it clear that it would not attempt to regulate or control the flows of foreign currencies in the London Eurodollar banking market. It was part of their strategy of reconstructing the City of London as the center of world finance.

With the application of the Thatcher government's interest-rate monetary shock beginning June 1979, followed that October by the same policy from Paul Volcker's Federal Reserve, the interest rate burdens of Third World debt compounded overnight, as interest rates on the London Eurodollar market climbed from an average of 7 per cent in early 1978 to almost 20 per cent by early 1980.

Due to this one factor alone, Third World debtor countries would have collapsed into default as the altered debt service conditions imposed on them by the creditor banks added an unpayable new amount to their previous onerous debt burden. But even more unsettling were the uncanny parallels of policy then imposed by the leading London and New York bankers, virtually a letter-by-letter rerun of the same banks' Versailles war reparations debt-recycling folly of the 1920s, which had collapsed into chaos in October 1929 with the crash of the New York stock market.

As interest rate burdens on their foreign debt obligations soared to the stratosphere after 1980, the market for Third World debtor country commodity exports to the industrial countries, which were critical to repaying those debt burdens, collapsed, as the industrial economies were plunged into the deepest economic downturn since the world depression of the 1930s-a result of the impact of the Thatcher-Volcker monetary shock 'cure.'

Third World debtor countries began to get squeezed in the blades of a vicious scissors of deteriorating terms of trade for their commodity exports, falling export earnings, and a soaring debt service ratio. This, in short, was what Washington and London preferred to call the 'Third World debt crisis.' But the crisis had been made in London, New York and Washington, not in Mexico City, Brasilia, Buenos Aires, Lagos or Warsaw.

Under the presidency of José Lopez Portillo, beginning late 1976, Mexico had undertaken an impressive modernization and industrialization program. Lopez Portillo's government had determined to use its 'oil patrimony' to industrialize the country into a modern nation. Ports, roads, petrochemical plants, modern irrigated agriculture complexes, and even a nuclear power program were undertaken. Significant and nationally controlled oil resources were to be the means for modernizing Mexico.

By 1981, after the Volcker interest rate shock, certain Washington and New York policy circles determined that the prospect of a strong industrial Mexico, a 'Japan on our southern border,' as one American establishment person derisively called it, would 'not be tolerated.' As with Iran earlier, a modern independent Mexico was considered by certain powerful Anglo-American interests to be intolerable. The decision was made to intervene to sabotage Mexico's industrialization ambitions by securing rigid repayment, at exorbitant rates, of her foreign debt.

A well-prepared run on the Mexican peso was orchestrated beginning the fall of 1981 ...

By February 19, 1982, the Mexican government was forced to impose a draconian austerity program, in the desperate hope of stabilizing the flood of flight capital out of Mexico into the United States. Powerful vested financial interests exerted strong pressure on Lopez Portillo to prevent his taking what would have been the necessary defense of reimposing Mexican foreign exchange controls. The capital flight accelerated.

That February 19, the Lopez Portillo government cracked under the pressure. The Mexican peso was devalued by an immediate 30 per cent to try to stem the capital outflow and stabilize the situation. The domestic consequence was that private Mexican industry, which had borrowed dollars to finance investment in the previous years, led by the once-powerful Alfa Group of Monterrey, was made bankrupt overnight. Its earnings were in pesos, and its debt service in the vastly more costly dollars. Simply to maintain its previous debt service position, a company would have had to increase peso prices by 30 per cent, or cut costs by reducing its workforce. The devaluation also forced reduction in Mexico's industrial program, cuts in living standards, and increased domestic inflation. Mexico, only months earlier the most rapidly growing economy in the developing world, had been plunged into chaos by the spring of 1982.

Henry Kissinger had formed a high-powered new consultancy firm, Kissinger Associates Inc., which numbered on its select board Aspen Institute chairman and oil magnate Robert 0. Anderson, Thatcher's former foreign secretary, Lord Carrington, together with Bank of England and S.G. Warburg director, Lord Roll of Ipsden. Kissinger Associates worked together with the New York banks and circles of the Washington administration to impose, 'case-by-case,' the most onerous debt collection terms since the Versailles reparations process of the early 1920s.

Following the September 30 UN speech of Secretary of State Shultz, the powerful private banking interests of New York and London overruled any voices of reason. They managed to bring in the Federal Reserve, the Bank of England and, most importantly, the powers of the International Monetary Fund, to act as the international 'policemen,' in what was to become the most concerted organized looting operation in modern history, far exceeding anything achieved during the 1920s.

... Mexico, under this IMF regimen, was forced to slash subsidies on vital medicines, foodstuffs, fuels, and other necessities for its population. People, often infants, died needlessly for lack of the most basic medicine imports.

The IMF then dictated a series of Mexican peso devaluations to 'spur exports.' In early 1982, before the first 30 per cent devaluation, the peso stood at 12 pesos to one U.S. dollar. By 1986, an incredible 862 Mexican pesos were needed to buy one dollar, and by 1989 the sum had climbed to 2,300 pesos. But Mexico's total foreign debt, almost all of it 'taken over' by the national government from the Mexican private sector under demands from the New York banks and their Washington allies, grew from some $82 billion to just under $100 billion by the end of 1985. Mexico was rapidly going in the direction of Germany in the early 1920s.

The same process was repeated in Argentina, Brazil, Peru, Venezuela, most of black Africa, including Zambia, Zaire and Egypt, and large parts of Asia. The IMF had become the global 'policeman' to enforce payment of usurious debts through imposition of the most draconian austerity in history. With the crucial voting bloc of the IMF firmly controlled by an American-British axis, the institution became the global enforcer of Anglo-American monetary and economic interests in a manner never before seen.

A study by a Danish economist [Hans K. Rasmussen] commissioned by the Danish UNICEF Committee ... pointed out that what has taken place since the early 1980s has been a wealth transfer from the capital-starved Third World, primarily into the financing of deficits in the United States, and to a lesser degree Britain. Rasmussen estimated that during the 1980s, the combined nations of the developing sector transferred a total of $400 billion into the United States alone. This allowed the Reagan administration to finance the largest peacetime deficits in world history, while falsely claiming credit for 'the world's longest peacetime recovery.'

With high U.S. interest rates, a rising dollar, and the security of American government backing, fully 43 per cent of the record high U.S. budget deficits during the 1980s were 'financed' by this de facto looting of capital from the debtor countries of the once-developing sector. As with the Anglo-American bankers in the post-First World War Versailles reparations debt process, the debt was merely a vehicle to establish de facto economic control over entire sovereign countries ...

In May 1986, a staff study prepared for the joint Economic Committee of the U.S. Congress on the 'Impact of the Latin American Debt Crisis on the U.S. Economy' took note of some of these alarming aspects of how the problem was being handled by the Reagan administration. The report documented the devastating losses of U.S. jobs and exports as the IMF austerity measures forced Latin America to virtually halt industrial and other imports in order to service the debt. The authors noted:

it is now becoming clear that Administration policies have gone above and beyond what was needed for protecting the money center banks from insolvency ... the Reagan Administration's management of the debt crisis has in effect, rewarded the institutions that played a major role in precipitating the crisis and penalized those sectors of the U.S. economy that had played no role in causing the debt crisis.

In a study of the capital flight out of Latin America, Professor Joe Foweraker at the University of California at San Diego, noted that facilitating capital flight flows for such clients had become one of the most profitable parts of the debt crisis for the large U.S. banks during the 1980s. He noted that in addition to some $50 billion annual interest payments from the hard-pressed debtor governments, these large banks, such as Citicorp, Chase Manhattan, Morgan Guaranty and Bank of America, were bringing in flight capital assets of some $100-120 billion from the very countries against whom they demanded brutal domestic austerity to 'stabilize' the currency. It was more than a little hypocritical, and more than a little lucrative for the banks.

The annual return for the New York and London banks on their Latin American flight capital business, kept in strictest secrecy, was reliably reported to average 70 per cent. As one such private banker said, 'Some banks would kill to get a piece of this business.' That was putting it mildly. In 1983 the London Financial Times reported that Brazil was far and away the most profitable banking part of Citicorp's worldwide operations.

If anything, Africa fared even worse than Latin America as a result of the Anglo-American debt strategy.

... Until the 1980s, black Africa remained 90 per cent dependent on raw materials export for financing its development. Beginning the early 1980s, the world dollar price of such raw materials-everything from cotton to coffee, copper, iron ore and sugar-began an almost uninterrupted fall. By 1987, raw materials prices had fallen to the lowest levels since the Second World War, as low as their level of 1932-a year of deep world economic depression.

If the prices for such raw material exports had been stable, at merely the price levels of the 1980 period, black Africa would have earned an additional $150 billion during the decade of the 1980s. In 1982, at the beginning of the 'debt crisis,' these countries of Africa owed creditor banks in the United States, Europe and Japan some $73 billion. By the end of the decade, this sum, through debt 'rescheduling' and various IMF interventions into their economies, had more than doubled, to $160 billions-in short, almost exactly the sum which these countries would have earned at a stable export price level.

It begins to appear that a very different process was occurring than what the average citizen in a west European or American city was reading daily in the newspapers regarding the reality of this debt. Powerful British and U.S. multinationals followed the banks during the 1980s to set up child-labor sweatshops in places such as along the Mexican border with the United States. These maquiladores, as the low-skill assembly plants were named, employed desperate Mexican children aged 14 or 15 for wages of 50 cents an hour, to produce goods for General Motors or Ford Motor Company or various U.S. electrical companies. They were allowed by the Mexican government, because they 'earned' dollars needed to service the debt.

While the policies imposed after October 1982 to collect billions from Third World countries brought a huge windfall of financial liquidity to the American banking system, the ideology of Wall Street, and Treasury Secretary Donald Regan's zeal for lifting the government 'shackles' off the financial markets, resulted in the greatest extravaganza in world financial history. When the dust settled by the end of that decade, some began to realize that Reagan's 'free market' had destroyed an entire national economy. It happened to be the world's largest economy, and the base of world monetary stability as well.

On the simple-minded and quite mistaken argument that a mere removing of the tax burden on the individual or company would allow them to release 'stifled creative energies' and other entrepreneurial talents, President Ronald Reagan in August 1981 signed the largest tax reduction bill in postwar history. The bill contained provisions which also gave generous tax relief for certain speculative forms of real estate investment, especially commercial real estate. Government restrictions on corporate takeovers were also removed, and Washington gave the clear signal that 'anything goes so long as it stimulated the Dow Jones Industrials stock index.

A central feature of the Reagan supply-side credo echoing Margaret Thatcher in Britain, was to identify trade unions as 'part of the problem.' A British-style class confrontation was set up, and the result was the cracking of the organized labor movement.

Deregulation of government control over transportation was a central weapon of the policy. Trucking and airline transportation were 'set free.' Nonunion 'cut-rate' airlines and trucking companies proliferated, often with low or no safety standards. Accident rates climbed, wage levels of union workers plunged. While the Reagan 'recovery' was turning young stock traders into multimillionaires, seemingly at the push of a computer key, it was reducing the standard of living of the skilled blue-collar workforce. No one in Washington paid much attention. After all, the conservative Reagan Republicans argued, trade unions were 'almost like communists.' A nineteenth-century British-style 'cheap labor' policy dominated official Washington as never before.

... The real living standard for the majority of Americans steadily decreased, while that of a minority rose as never before. Society was becoming polarized around income differentials.

The new dogma of a 'postindustrial society' was being preached from Washington to New York to California. No longer was America's economic prosperity linked to investment in the most modern industrial capacities. Steel had been declared a 'rust-belt' industry, as steel plants were allowed to rust or blast furnaces were actually dynamited. Shopping centers, glittery new Atlantic City gambling casinos, and luxury resort hotels were 'where the money' was.

During the speculative boom of most of the Reagan years, the money also flowed in from abroad to finance this wild spree. No one seemed to mind that in the process, by the mid 1980s, the United States had within five short years passed from being the world's largest creditor to becoming a net debtor nation, for the first time since 1914.

... The national debt expanded, along with the deficits, all paying Wall Street bond dealers and their clients record sums in interest income. Interest payments on the total debt by the U.S. government doubled in six years, going from $52 billion in 1980, when Reagan was elected, to more than $142 billion by 1986-a sum equal to one-fifth of all government revenue. But despite such warning signs, money flowed in from Germany, from Britain, from Holland, from Japan, to take advantage of the high dollar and the speculative gains in real estate and stocks.

To anyone with a sense of history or a long memory, it was all too familiar. It had all happened during the 'Roaring '20s'-until the 1929 market crash brought the roulette wheel to an abrupt halt.

... Saudi Arabia was persuaded to run a 'reverse oil shock' and flood the depressed world oil market with its abundant oil. The price of OPEC oil dropped like a stone, to below $10 per barrel by spring of 1986, from an average of nearly $26 only some months earlier. Magically, Wall Street economists proclaimed the final 'victory' over inflation, while conveniently ignoring the role of oil in creating the inflation of the 1970s or in reducing it in the 1980s.

Then, when a further fall in oil prices threatened to destabilize vital interests of the large British and American oil majors themselves, not merely the small independent rival producers, George Bush made a quiet trip to Riyadh in March 1986, where he reportedly told King Fahd that he should stop the price war.

... This 1986 oil-price collapse unleashed what was comparable to the 1927-29 phase in the U.S. speculative bubble. Interest rates dropped even more dramatically, as money flowed in to make a 'killing' on the New York stock markets. A new financial perversion became fashionable on Wall Street, the 'leveraged buyout.' With money costs falling and stock prices apparently ever rising, and a Reagan administration which promoted the religion of the 'free market,' anything was allowed.

Over the decade of the Reagan years, almost $1 trillion flowed into speculative real estate investment, a record sum, almost double the sums of previous years. Banks, desiring to secure their balance sheets against troubles in Latin America, for the first time went directly into real estate lending rather than traditional corporate lending.

Savings and loan banks, established as separately regulated banks during the depression years to provide a secure source of longterm mortgage credit to family homebuyers, were 'deregulated' in the early 1980s as part of Treasury Secretary Donald Regan's Wall Street free-market push. They were allowed to 'bid' for wholesale deposits, termed 'brokered deposits,' at a high cost. The Reagan administration removed all regulatory restraints in October 1982, with passage of the Garn-St. Germain Act. This act allowed savings and loan (S&L) banks to invest in any scheme they desired, with full U.S. government insurance of $100,000 per account guaranteeing the risk in case of failure.

Prophetically, as he signed the new Garn-St. Germain Act into law, President Reagan enthusiastically told an audience of invited S&L bankers, 'I think we've hit the jackpot.' This 'jackpot' was the beginning of the collapse of the $1.3 trillion savings and loan banking system.

The simple reality was that New York financial power had so overwhelmed all other national interests since the oil shocks of the 1970s that almost no other voice was heard in Washington after the Mexico crisis of 1982. Debt grew by astonishing amounts. When Reagan won the election in late 1980, total private and public debt of the United States stood at $3,873 billion. By the end of the decade, it touched $10 trillion, or $10,000 billion. This meant an increased debt burden of more than $6,000 billion during this brief span.'°

With the debt burden carried by the productive economy rising, and U.S. industrial plant and the labor force deteriorating, the cumulative effects of two decades of neglect began to become manifest in wholesale collapse of the vital public infrastructure of the nation. Highways cracked for lack of regular maintenance; bridges became structurally unsound and in many cases collapsed; in depressed areas such as Pittsburgh, water systems were allowed to become contaminated; hospitals in major cities fell into disrepair; housing stock for the less wealthy decayed dramatically. By 1989, the association for the construction industry, Associated General Contractors of America, estimated that a net investment of $3.3 trillion was urgently needed merely to rebuild America's crumbling public infrastructure modern standards. No one in Washington listened.

Reagan-Bush tax policies had concentrated wealth into a tiny elite, as never before in U.S. history. Since 1980, according to a study carried out by the U.S. House Ways and Means Committee of Congress, real income for the top 20 percent increased a full 32 per cent.

Costs of American health care, a reflection of the strange combination of 'free enterprise' and government subsidy, rose to the highest levels ever, and as a share of GNP, to double that of the United Kingdom; yet 37 million Americans had no health insurance whatever. Health levels in large American cities, with impoverished ghettoes of black and Hispanic unemployed, resembled those of a Third World country, not what was supposed to be the world's most advanced industrial nation.

Thatcher's eleven-year rule in Britain had produced ... disastrous results. Real estate speculation and a vastly increased financial services 'industry' in the City of London obscured the fact that Thatcher's economic policy severely discriminated against industrial investment, and against modernization of the nation's deteriorating public infrastructure, such as railways and highways. The financial deregulation of the City of London in 1986, appropriately termed the 'Big Bang,' was among Thatcher's proudest 'accomplishments.' But by the end of the 1980s everything was unravelling: interest rates again climbed to double digits, industry went into a deep slump and later a depression worse than any since the war, and inflation rose to the level it had been at when Thatcher took office in 1979.

On its own terms, Thatcher economics had failed, as had its twin sister, Reagan economics. But the powerful oil and finance interests of London and New York were not the least deterred. Their domain in this 'postindustrial' imperium was global, not parochial. They demanded financial deregulation everywhere-Frankfurt, Tokyo, Mexico City, Paris, Milan, Säo Paulo.

On October 19, 1987, the bubble burst. On that day the prices on the Dow Jones Index traded at the New York Stock Exchange collapsed more than in any single day in history, by 508 points. The bottom had fallen out of the Reagan 'recovery.' But not out of the strategy of the Thatcher-Bush wing of the Anglo-American establishment. They were determined to ensure that sufficient funds kept the bubble afloat until the new Bush presidency could impose the grand strategy for the century's end.

While many comments have since been made about how the October 1987 crash proved that depressions of the 1930s sort were a thing of the past, it did indeed signal the beginning of the end of the deregulated financial speculation which had kept the Anglo-American century afloat since the early 1970s.

George Bush, facing a presidential election the following November 1988, enlisted the efforts of his former campaign manager and close friend, Treasury Secretary James Baker, along with a powerful faction of the American establishment, to guarantee that, despite the implications of the October 1987 crash, foreign capital would continue to flow into U.S. bond and stock markets to keep the illusion of a Reagan-Bush economic recovery alive in the minds of voters.

Direct Washington appeals to the Japanese government of Prime Minister Nakasone, arguing that a Democratic president such as Gephardt would damage Japanese trade to the U.S., were successful. Nakasone pressed the Bank of Japan and the Ministry of Finance to be accommodating. After October 1987, Japanese interest rates fell progressively lower, making U.S. stocks and bonds, as well as real estate, appear 'cheap' by comparison. Billions of dollars flowed out of Tokyo into the United States.

Tie actual plan of the new Bush administration was to direct pressures onto select U.S. allies for increased burden sharing' to manage the huge U.S. debt burdens. The argument was put forward that the Soviet Union was collapsing and that, as a result, only one superpower with overpowering military might and size remained the United States. In this situation, the argument was offered that Germany, Japan and other major economic and military allies of America should increase their financial support to maintain this Superpower. It was a thinly veiled attempt at blackmail.

A Century of War

Home Page