The Global Economic Crisis
excerpted from the book
The Global Economic Crisis
The Great Depression of the XXI
Michel Chossudovsky and Andrew
Gavin Marshall, Editors
Global Research, 2010, paperback
The U.S.-NATO military agenda serves to endorse a powerful business
elite which relentlessly overshadows and undermines the functions
of civilian government.
A complex web of deceit and media distortion serves to conceal
the workings of the global economic system and its devastating
impacts on people's lives.
The meltdown of financial markets in 2008-2009 was the result
of institutionalized fraud and financial manipulation. The "bank
bailouts" were implemented on the instructions of Wall Street,
leading to the largest transfer of money wealth in recorded history,
while simultaneously creating an insurmountable public debt.
Media disinformation largely serves the interests of a handful
of global banks and institutional speculators which use their
command over financial and commodity markets to amass vast amounts
of money wealth. The corridors of the state are controlled by
the corporate establishment including the speculators.
The financial] apparatus has developed sophisticated instruments
of outright manipulation and deceit. With inside information and
foreknowledge, major financial actors, using the instruments of
speculative trade, have the ability to rig market movements to
their advantage, precipitate the collapse of a competitor and
wreck havoc in the economies of developing countries. These tools
of manipulation have become an integral part of the financial
architecture; they are embedded in the system.
The economics profession, particularly in the universities, rarely
addresses the actual "real world" functioning of markets.
Theoretical constructs centered on mathematical models serve to
represent an abstract, fictional world in which individuals are
equal. There is no theoretical distinction between workers, consumers
... By failing to examine the interplay
of powerful economic actors in the "real life" economy,
the processes of market rigging, financial manipulation and fraud
are overlooked. The concentration and centralization of economic
decision-making, the role of the financial elites, the economic
think tanks, the corporate boardrooms: none of these issues are
examined in the universities' economics programs.
Economic science is an ideological construct which serves to camouflage
and justify the New World Order. A set of dogmatic postulates
serves to uphold free market capitalism by denying the existence
of social inequality and the profit-driven nature of the system
is denied. The role of powerful economic actors and how these
actors are able to influence the workings of financial and commodity
markets is not a matter of concern for the discipline's theoreticians.
The powers of market manipulation which serve to appropriate vast
amounts of money wealth are rarely addressed.
The development of America's war economy, supported by a near-trillion
dollar defense budget, has reached new heights ... the advanced
weapons industries, the military and national security contractors
and the up-and-coming mercenary companies have experienced a thriving
and booming growth of their various activities.
War is inextricably linked to the impoverishment of people at
home and around the world. Militarization and the economic crisis
are intimately related. The provision of essential goods and services
to meet basic human needs has been replaced by a profit-driven
"killing machine" in support of America's "Global
War on Terror". The poor are made to fight the poor. Yet
war enriches the upper class, which controls industry, the military,
oil and banking. In a war economy, death is good for business,
poverty is good for society, and power is good for politics. Western
nations, particularly the United States, spend hundreds of billions
of dollars a year to murder innocent people in far-away impoverished
... An outright "economic war"
resulting in unemployment, poverty and disease is carried out
through the free market... The last twenty years of global "free
market" economy have destroyed, through poverty and social
destitution, . the lives of millions of people.
Rather than addressing an impending social
catastrophe, Western governments, which serve the interests of
the economic elites, have installed a "Big Brother"
police state, with a mandate to confront and repress all forms
of opposition and social dissent.
Starting the 1980s during the Reagan-Thatcher era, local and regional
level enterprises, family farms and small businesses were displaced
and. destroyed. In turn, the merger and acquisition boom of the
1990s led to the concurrent consolidation of large corporate entities
both in the real economy as well as in banking and financial services.
"Financial intelligence" and the powers of deceit were
the driving forces behind the 2008 financial meltdown. Covert
undercover financial operations were waged. Those powerful financial
institutions, which had the ability to drive the market up at
an opportune moment and then drive it down, had placed their bets
accordingly. As a result, they reaped billions of dollars in windfall
gains both on the upturn as well as on the downturn.
In contrast, for those who had put their
faith in the free market, lifelong savings were erased in one
fell swoop, appropriated by the shadow banking system. The crash
of financial markets had led to a massive concentration of financial
The weapons used on Wall Street are prior
knowledge and inside information, the ability to manipulate with
the capacity to predict results and the spreading of misleading
or false information on economic occurrences and market trends.
Those who have access to privileged information ... will invariably
have the upper hand in the conduct of highly leveraged speculative
transactions, which are the source of tremendous financial gains.
The CIA has its own financial institutions on Wall Street.
Merrill Lynch was bought and Lehman Brothers was pushed into bankruptcy
. These are not haphazard occurrences. They are the result
of manipulation, using highly leveraged speculative operations
to achieve their objective... The 2008 financial meltdown has
nothing to do with free market forces: it is characterized by
financial warfare between competing institutional speculators.
The Federal Reserve Bank of New York and its powerful Wall Street
stakeholders - which are Wall Street's largest private banks -
have inside information on the conduct of U.S. monetary policy.
They are therefore in a position to predict outcomes and hedge
their bets in highly leveraged operations on the futures and derivatives
markets. They are in an obvious conflict of interest.
Links to U.S. intelligence, the CIA, Homeland Security and the
Pentagon are crucial in the conduct of speculative trade, since
that allows the speculators to predict events through prior knowledge
of foreign policy and/or national security decisions which directly
affect financial markets. An example: they purchased "put
options" on airline stocks in the days preceding the 9/11
The institutional speculators, the hedge funds ... are the ultimate
creditors. They trigger the collapse of listed companies through
short selling and other speculative operations and then cash in
on their large scale speculative gains.
The financial meltdown on Wall Street largely benefits Bank of
America and J.P. s Morgan Chase, which is part of the Rockefeller
Resulting from the multitrillion dollar trade in derivatives,
a new generation of powerful financiers has emerged. This purchasing
power of the ultimate creditors is virtually unlimited.
... The financiers are not buying consumer
goods, nor is this money being used extensively to invest in new
plant and equipment. This increased liquidity, resulting from
an unlimited capacity to create fiat money, is not driving up
prices; instead it is being used to acquire existing real economy
assets. The financiers are using worthless paper wealth to acquire
real wealth. What we are dealing with is a large scale process
of expropriation, unprecedented in history.
The financial establishment ultimately calls the shots on the
restructuring and privatization of the State.
The upper spheres of Wall Street overshadow the real economy.
The accumulation of large amounts of money wealth by a handful
of Wall Street conglomerates and their associated hedge funds
is reinvested in the acquisition of real assets. Paper wealth
is transformed into the ownership and control of real productive
assets, including industry, services, natural resources and infrastructure.
Industrial corporations are being driven into bankruptcy, taken
over by the global financial institutions. Credit, which constitutes
the lifeline of production, is controlled by a handful of financial
conglomerates. America is the most indebted country on earth.
Credit is the supply of loanable funds.
The debt crisis of the early 1980s had unleashed a wave of corporate
mergers, buyouts and bankruptcies. These changes have, in turn,
paved the way for the consolidation of a new generation of financiers.
clustered around the merchant banks, the institutional investors,
stock brokerage firms, large insurance companies. In this process,
commercial banking functions have coalesced with those of the
investment banks and stock brokers.
While these "money managers"
play a powerful role on financial markets, they are, nonetheless,
increasingly removed from entrepreneurial functions in the real
economy. Their activities which often escape state regulation
include speculative transactions in commodity futures and derivatives,
and the manipulation of currency markets.
What we are facing is the development
of a shadow banking system, which operates outside the sphere
of financial regulation.
... Legal and illegal business activities
have become increasingly intertwined; vast amounts of unreported
private wealth have been accumulated. Favored by financial deregulation,
the criminal mafias have also expanded their roles in the spheres
of inter-national banking.
... The shadow banking system is an appendage
of the global financial system, controlled by the financial elites.
The debt crisis of the early 1980s unleashed a wave of corporate
mergers, buyouts and bankruptcies. These changes then paved the
way for the consolidation of a new generation of financiers clustered
around the large merchant banks, the institutional investors,
stock brokerage firms and large insurance companies. In this process,
commercial banking functions have coalesced with those of the
investment banks and stock brokers, leading to the consolidation
of a handful of global financial conglomerates.
The unregulated use of complex speculative instruments has provided
Wall Street with the means to extend its global financial empire.
The main thrust of this process does not consist in overseeing
the stock market per se. Rather it resides in controlling the
lucrative markets of speculative trade (e.g. derivatives, options,
futures and hedges) where the scope for manipulation and insider
trade is far greater.
In the 1987 [stock market] meltdown, 22.6 percent of the value
of U.S. stocks was wiped out largely during the first hour of
trading on Monday morning.
In the wake of the 1987 crisis [stock market meltdown], a massive
concentration of financial power has taken place... the institutional
speculator emerged as a powerful actor overshadowing and often
undermining bonafide business interests... these institutional
actors appropriate wealth from the real economy... Totally removed
from entrepreneurial functions in the real economy, they have
the power of precipitating large industrial corporations into
An old boys' network of officials, advisers and CEOs at the Treasury,
the Federal Reserve, the IMF, World Bank and the Washington think
tanks are in permanent liaison with leading financiers on Wall
The 1997 and 1998 financial meltdowns had set the stage for major
changes in the global financial architecture. 1999 was a watershed
year in the passage of key legislation in the U.S. Congress. The
last months of the Clinton administration represented a major
turning point in the process of financial deregulation. Under
the Financial Services Modernization Act adopted in November 1999
... U.S. lawmakers had set the stage for a sweeping deregulation
of the U.S. banking system.
The Financial Services Modernization Act
(Gramm-Leach Bliley Act) was adopted by the U.S. Congress in the
wake of lengthy negotiations. Clinton's Secretary of the Treasury
Lawrence Summers ... played a key role: all regulatory restraints
on Wall Street's powerful banking conglomerates were revoked with
a stroke of the pen. .
Under the 1999 Financial Services Modernization
Act ... commercial banks, brokerage firms, institutional investors
and insurance companies could freely invest in each other's businesses
as well as fully integrate their financial operations. The legislation
repealed the Glass-Steagall Act of 1933, a pillar of President
Roosevelt's New Deal, which was put in place in response to the
climate of corruption, financial manipulation and insider trading
that resulted in more than 5 000 bank failures in the years following
the 1929 Wall Street crash.
The institutional changes which [the 1999 Financial Services Modernization
Act (FSMA) brought about, including the concentration and centralization
of power in the hands of a small number of financial giants,
largely contributed to Wall Street's unswerving quest for global
The tendency was towards a worldwide financial
supermarket controlled by a handful of global financial institutions
which penetrate and permeate the fabric of national economies.
The sweeping deregulation of U.S. banking imparted unprecedented
powers to Wall Street's financial conglomerates to acquire and
take over banking institutions all over the world.
The worldwide scramble to appropriate
wealth through financial manipulation was the driving force behind
this restructuring of the global financial architecture of which
the 1999 U.S. legislation was an integral part, setting the pattern
of financial reform in different parts of the world.
The 1999 legislation empowered Wall Street's
key players to enter the financial services markets of developing
countries and consolidate a hegemonic position in global banking,
overshadowing and ultimately destabilizing financial systems in
Asia, Latin America and Eastern Europe.
The global financial supermarket created
under the FSMA is to be overseen by the Wall Street giants; competing
banking institutions are to be removed from the financial landscape.
State level banks across America will be displaced or bought up,
leading to a deadly string of bank failures.
... Free from government regulation, the
financial giants were given the ability to strangle local-level
businesses in the U.S. and overshadow the real economy. In fact,
due to the lack of competition, the 1999 legislation also entitled
the financial services giants ... to set interest rates as they
pleased. In turn, financial deregulation in the U.S. had created
an environment which favored an unprecedented concentration of
global financial power.
The FSMA had also set the pace of global
financial and trade reform under the auspices of the IMF, the
World Bank and the WTO. The 1999 banking legislation adopted in
the U.S. empowered a handful of banking conglomerates with the
ability of destabilizing the domestic financial landscape of developing
countries. The legislation was implemented alongside the concurrent
reshaping of the global trade and financial architecture under
the WTO agenda. Under the General Agreement on Trade in Services
(GATS), developing countries have committed themselves to full
liberalization of financial services. In other words, national
governments, which are already controlled by their external creditors,
would be unable to deflect the Wall Street giants from entering
and swallowing up national banks and! financial institutions.
The provisions of both the WTO General
Agreement on Trade in Services and of the Financial Services Agreement
(FA) imply the breaking down of remaining impediments to the movement
of finance capital: J.P. Morgan Chase, HSBC, Citigroup or Deutsche
Bank can go wherever they please, triggering, in country after
country, the bankruptcy of national banks and financial institutions.
In practice, this process had already
occurred in a large number of developing countries under bankruptcy
and privatization programs imposed on an ad hoc basis by the Bretton
Woods institutions. By the late 1990s, the mega-banks had already
penetrated the financial landscape of developing countries,, taking
control of banking institutions and financial services... Wall
Street banks in countries like Korea, Pakistan, Argentina or Brazil
became bona fide "national banks", operating as domestic
institutions and governed by domestic laws established under advice
from IMF and the World Bank. The large U.S. and European financial
services giants did not require the formal adoption of the GATS
to be able to dominate banking institutions worldwide, as well
as overshadow national governments.
By early 2000, the process of global financial
deregulation was in many regards a fait accompli. Wall Street
routinely invaded country after country. The domestic banking
system was put on the auction block and reorganized under the
surveillance of external creditors. National financial institutions
were systematically destabilized and driven out of business; mass
unemployment and poverty are the invariable results.
Moreover, with the support of the IMF,
the Wall Street conglomerates and their European and Japanese
partners reinforced and consolidated their roles as the world's
major creditor institutions, routinely underwriting the public
debt, overseeing the conduct of state budgetary policy, issuing
syndicated loans to troubled industrial corporations and overseeing
the privatization of state corporations which have been put on
the auction block in the context of an IMF bailout agreement.
Assisted by the IMF - which routinely
obliges countries to open up their domestic banking sector to
foreign investment retail banking, stock brokerage firms and insurance
companies are taken over by foreign capital and reorganized. Citigroup,
among other Wall Street majors, has gone on a global shopping
spree buying up banks and financial institutions at bargain prices
in Asia, Latin America and Eastern Europe. In one fell swoop,
Citigroup acquired the 106-branch network of Banco Mayo Cooperativo
Ltda., becoming Argentina's second largest bank.
Following the adoption of the 1999 Financial
Services Modernization Act, a new era of intense financial rivalry
was set in motion. The New World Order - largely under the dominion
of American finance capital - was eventually intent on dwarfing
rival banking conglomerates in Western Europe and Japan, as well
as sealing strategic alliances with a select club of German and
British-based banking giants.
Several mammoth bank mergers (including
NationsBank with BankAmerica, and Citibank with Travelers Group
had, in fact, already been implemented and rubber-stamped by the
Federal Reserve Board, in violation of the pre-existing legislation,
prior to the adoption of the 1999 Financial Services Modernization
Act. Citibank, the largest Wall Street bank, and Travelers Group
Inc., the financial services and insurance conglomerate (which
also owns Solomon Smith Barney a major brokerage firm) combined
their operations in 1998 in a 72 billion dollar merger.
Strategic mergers between American and
European banks had also been negotiated, bringing into the heart
of the U.S. financial landscape some of Europe's key financial
players, including Deutsche Bank AG (linked up with Banker's Trust)
and Credit Suisse (linked up with First Boston). The Hong Kong
Shanghai Banking Corporation (HSBC), the British-based banking
conglomerate - which had already sealed a partnership with Wells
Fargo and Wachovia Corporation - had acquired the late Edmond
Safra's Republic New York Bank in a nine billion dollar deal.
In the meantime, rival European banks
excluded from Wall Street's inner circle were scrambling to compete
in an increasingly unfriendly global financial environment. Banque
Nationale de Paris (BNP) had acquired Société Générale
de Banque and Paribas to form one of the world's largest banks.
BNP eventually aspires "to move into North America in a bigger
The bank mergers carried out prior to
the 1999 legislation in violation of the Glass-Steagall Act were
but the tip of the iceberg, the shape of things to come. The repeal
of the Glass-Steagall Act had created an environment which favored
an unprecedented concentration of global financial power.
Effective control over the entire U.S.
financial services industry had been transferred to a handful
of financial conglomerates.
The architects of both the 1997 Asian Bailout agreements and the
1999 Financial Services Modernization Act, which paved the way
for the 2008-2009 financial meltdown, were put in charge of President
Obama's economic stimulus and bank bailout programs: Lawrence
Summers, Robert Rubin, Paul Volcker, Timothy Geithner
What is striking in the various appointments
is the how these individuals are shuffled back and forth from
Wall Street to the Treasury, to the World Bank and the IMP, to
the Federal Reserve and the Council on Foreign Relations. These
government appointments indelibly serve the interests of the financial
THE WALL STREET - WASHINGTON CONSENSUS
The term "Washington Consensus"
was initially formulated by economist John Williamson. It described
a set of accepted neoliberal economic propositions. It was subsequently
understood as the consensus on macroeconomic issues underlying
several Washington-based institutions, including the IMF, the
World Bank, the U.S. Treasury and Washington think tanks, including
the Brookings Institution.
Lawrence Summers, Timothy Geithner, Stanley
Fischer, Phil Gramm, Paul Volcker, Ben Bernanke, Hank Paulson,
Robert E. Rubin, not to mention former Fed Chairman Alan Greenspan,
belong to the Washington Consensus. They have links to Wall Street,
the Council on Foreign Relations and the Bilderberg Group. They
act concurrently in accordance with the interests of Wall Street.
They meet behind closed doors; they are on the same wavelength.
They are Democrats and Republicans. We are looking at the broader
Washington-Wall Street consensus, whereby the decisions taken
by various governmental and intergovernmental bodies including
the U.S. Treasury and the Bretton Woods institutions serve the
interests of Wall Street.
The stated priorities of the Obama economic package are health,
education, renewable energy, investment in infrastructure and
transportation... The budget proposal had all the appearances
of an expansionary program, a demand-oriented "Second New
Deal" geared towards creating employment, rebuilding shattered
social programs and reviving the real economy.
... To reach these stated objectives,
a significant hike in public spending on social programs (health,
education, housing, social security) would be required, as well
as the implementation of a large-scale public investment program.
Major shifts in the composition of public expenditure would also
be required, i.e. a move out of a war economy, requiring a shift
- out of military-related spending in favor of civilian programs.
In actuality what we are dealing with
is the most drastic curtailment in public spending in American
history, leading to social havoc and the potential impoverishment
of millions of people.
The Obama promise largely serves the interests of Wall Street,
the defense contractors, the oil conglomerates and Big Pharma.
In turn, the Bush-Obama bank "bailouts" have led America
into a spiraling public debt crisis. The economic and social dislocations
are potentially devastating.
THE HEDGE FUNDS
Hedge funds are private investment funds,
which manage the pooled funds of wealthy investors. While they
are often linked to major financial institutions, they are totally
unregulated. They operate with a large pool of money capital,
which is used to undertake highly leveraged speculative transactions.
The latter have the characteristic that profits can be reaped
when the market goes up, but also when the market goes down.
The powerful financial groups which routinely manipulate stock
markets, currency and commodity markets, are also promoting the
continuation and escalation of the Middle East war. The financial
crisis is related to the structure of U.S. public investment in
the war economy versus the funding, through tax dollars, of civilian
... The war is profit-driven, financed
through the massive worldwide expansion of dollar denominated
debt. War and globalization go hand in hand. Wall Street, the
oil companies and the defense contractors have concurrent and
overlapping overlapping interests ... resulting from the military
agenda, the U.S. civilian economy is in crisis as the nation's
resources, including tax dollars, are diverted into funding a
multibillion dollar Middle East war.
In 2000, J.P. Morgan merged with Chase Manhattan, leading to the
integration of J.P. Morgan, Chase, Chemical and Manufacturers
Hanover into a single financial entity. Bear Stearns was acquired
in 2008 by J.P. Morgan Chase following its collapse. This banking
empire controlled by the Rockefeller family has assets of more
than 1.6 trillion dollars.
Both the Bush and Obama bank bailouts were handouts to major financial
institutions... The bailouts have contributed to financing the
restructuring of the banking system, leading to a massive concentration
of wealth and centralization of banking power.
A large part of the bailout money granted
by the U.S. government has already been transferred electronically
to various affiliated accounts including the hedge funds. The
largest banks in the U.S. are also using this windfall cash to
buy out their weaker competitors.
... The financial elites will use these
large amounts of liquid assets (paper wealth), together with the
hundreds of billions acquired through speculative trade, to buy
out real economy corporations (airlines, the automobile industry,
telecoms, media, etc.), whose quoted value on the stock markets
has tumbled. In essence, a budget deficit (combined with massive
cuts in social programs) was required to fund the handouts to
the banks, as well as finance defense spending and the military
surge in both Iraq and Afghanistan.
Under a "balanced-budget" criterion - which has been
a priority of government economic policy since the Reagan era
- almost all the revenues of the federal government amounting
to 2.381 trillion dollars would be used to finance the bank bailout
(1.45 trillion), ( the war (739.5 billion) and interest payments
on the public debt (164 billion). In other words, no money would
be left over for other categories of public expenditure.
Three categories of expenditure, namely defense, the bank bailout
and interest on the public debt, had virtually swallowed up the
entire 2010 federal government revenue of 2381.0 billion dollars.
A major crisis of the federal fiscal structure was in the making.
The multibillion dollar allocations to the war budget and to the
Wall Street bank bailout program  backlash on all other
categories of public expenditure.
... Public spending will be slashed with
a view to curtailing a spiraling budget deficit. Health and education
programs will be cut, revamped and privatized.
The likely outcome is the outright privatization
of public services and the sale of state assets, including public
infrastructure, urban services, highways and national parks. Fiscal
collapse leads to the privatization of the state.
America is the most indebted country on earth. The United States
(federal government) gross public debt is currently of the order
of fourteen trillion dollars.
With the markets for U.S. dollar denominated debt in crisis, further
pressure will be exerted on the Treasury to slash (civilian) public
expenditure to the bone, exact user fees for public services and
sell off public assets, including state infrastructure and institutions.
In all likelihood, this crisis is leading us to the privatization
of the state, where activities hitherto under government jurisdiction
will be transferred into private hands.
Who will be buying state assets at rock
bottom prices? The financial elites, who are also the recipients
of the bank bailout.
The mainstream media suggests that the banks are being nationalized
as a result of TARP. In fact, it is exactly the opposite: the
state is being taken over by the banks, the state is being privatized.
The establishment of a worldwide unipolar financial system is
part of the broader project of the Wall Street financial elites
to establish the contours of a world government.
The Wall Street banks are the brokers and underwriters of the
U.S. public debt. Although they hold only a portion of the debt,
they transact and trade in U.S. dollar denominated public debt
instruments worldwide. They act as creditors of the U.S. State;
they evaluate the creditworthiness of the U.S. government; they
rank the public debt through Moody's and Standard and Poor; they
control the U.S. Treasury, the Federal Reserve Board and the U.S.
Congress; they oversee and dictate fiscal and monetary policy,
ensuring that the state acts in their interest.
Since the Reagan era, Wall Street dominates most areas of economic
and social policy. It sets the budgetary agenda, ensuring the
curtailment of social expenditures.
The massive increase in the public debt (2009-2010) required to
"rescue the banks" was financed and brokered by the
financial institutions which were the direct beneficiaries of
the Bush and Obama bank bailouts.
The Federal Reserve System is a privately owned central bank.
While the Federal Reserve Board is a government body, the process
of money creation is controlled by the twelve Federal Reserve
banks, which are privately owned. The shareholders of the Federal
Reserve banks (with the New York Federal Reserve Bank playing
a dominant role) are among America's most powerful financial institutions.
The U.S. government is in a sense financing its own indebtedness:
the money granted to the banks is in part financed by borrowing
from the banks. To finance the 1.45 trillion dollar bailout, the
government needs to borrow, through the emission of public debt.
Where does the government go? To the banks. In other words, with
the money the banks lend to the government, the Treasury finances
the bailout in favor of the banks.
In turn, the banks impose conditionalities
on the management of the U.S. public debt. They dictate how the
money should be spent. After having cashed in on their bailout
money, they impose "fiscal responsibility" on the U.S.
Treasury; they demand massive cuts in public spending, which eventually
results in the collapse and/or privatization of public services.
All public debt operations go through the Federal Reserve, which
is in charge of monetary policy, acting on behalf of private financial
interests. The government as such has no authority over money
creation. This means that public debt operations essentially serve
the interests of the banks.
Large amounts of money transit through the banking system, from
the banks to the hedge funds, to offshore banking havens and back
to the banks.
The financial institutions are transferring billions of dollars
into their affiliated financial entities and hedge funds. From
these hedge funds, money is also being used to acquire real economy
Financial manipulation is an integral part of the New World Order.
It constitutes a powerful means to accumulate wealth. It has contributed
to destabilizing the U.S. fiscal structure. Under the present
political arrangement, those responsible for monetary policy are
quite deliberately serving the interests of the financiers, to
the detriment of working people, leading to economic dislocation,
unemployment and mass poverty.
What we are dealing with is the fraudulent confiscation of lifelong
savings and pension funds and the appropriation of tax revenues
to finance the bank bailouts... What is at stake is then outright
criminalization of the financial system, financial theft on an
Economic policy quite deliberately serves the interests of the
financial elites, who in turn control the political process. Meaningful
policies cannot be achieved without radically reforming the workings
of the international banking system. What is required is an overhaul
of the monetary system.
Tanya Cariina Hsu
US. President Thomas Jefferson; Letter to John Taylor, May 1816
I sincerely believe ... that banking establishments
are more dangerous than standing armies.
America is dying. It is self-destructing and bringing the rest
of the? world down with it.
Often referred to as a sub-prime mortgage
collapse, this obfuscates the real reason. By associating tangible
useless failed mortgages, at least something 'real' can be blamed
for the carnage.
The banking industry renamed insurance
betting guarantees as "credit default swaps" and risky
gambling wagers were called "derivatives".
Financial managers and banking executives
were selling the ultimate con to the entire world, akin to the
snake-oil salesmen from the 18th century but this time in suits
and ties. And by October 2008, it was a quadrillion-dollar (that's
1,000 trillion dollar) industry that few could understand.
Propped up by false hope, America is now
falling like a house of cards.
When signed into law in 1913, the Federal Reserve would loan and
supply the nation's money, but with interest. The more money it
was able to print, the more "income" it generated for
itself. By its very nature, the Federal Reserve would forever
keep producing debt to stay alive. It was able to print America's
monetary supply at will, regulating its value.
The Federal Reserve doubled America's money supply and in 1920,
it called in a mass percentage of loans. Over five thousand banks
collapsed overnight. One year later, the Federal Reserve again
increased the money supply by 62 percent, but in 1929, it again
called the loans back in, en masse. This time, the crash of 1929
caused over sixteen thousand banks to fail and an 89 percent plunge
on the stock market. The private and well-protected banks within
the Federal Reserve system were able to snap up the failed banks
at pennies on the dollar.
The derivatives trade was "worth" more than one quadrillion
dollars, or larger than the economy of the entire world.
The [derivatives] market had become the largest industry in the
world, and all the financial giants were cashing in.
John Bellamy and Fred Magdoff
Federal Reserve Governor Ben Bernanke in a 2002 talk
The U.S. government has a technology,
called a printing press that allows it to produce as many U.S.
dollars as it wishes at essentially no cost. By increasing the
number of U.S. dollars in circulation, or even by credibly threatening
to do so, the U.S. government can also reduce the value of a dollar
in terms of goods and services, which is equivalent to raising
the prices in dollars of those goods and services. We conclude
that, under a paper-money system, a determined government can
always generate higher spending and hence positive inflation.
Stagnation in the 1970s led capital to launch an accelerated class
war against workers to raise profits by pushing labor costs down.
The result was decades of increasing inequality - a sharp decline
in the share of wages and salaries in GDP between the late 1960s
and the present. This reflected the fact that real wages of private
nonagricultural workers in the United States (in 1982 dollars)
peaked in 1972 at $8.99 per hour, and by 2006 had fallen to $8.24
(equivalent to the real hourly wage rate in 1967), despite the
enormous growth in productivity and profits over the past few
This was part of a massive redistribution
of income and wealth to the top.
Household consumption continued to rise from a little over sixty
percent of GDP in the early 1960s to around seventy percent in
2007. This was only possible because of more two-earner households
(as women entered the labor force in greater numbers), people
working longer hours and filling multiple jobs, and a constant
ratcheting up of consumer debt. Household debt was spurred, particularly
in the later stages of the housing bubble, by a dramatic rise
in housing prices, allowing consumers to borrow ore against their
increased equity (the so-called housing "wealth effect")
- a process that came to a sudden end when the bubble popped,
and housing prices started to fall. Household debt increased from
about forty percent of GDP in 1960 to one hundred percent of GDP
in 2007, with an especially sharp increase starting in the late
This growth of consumption, based in the
expansion of household hold debt, was to prove to be the Achilles
heel of the economy. The housing bubble was based on a sharp increase
in household mortgage-based debt, while real wages had been essentially
frozen for decades. The resulting defaults among marginal new,
owners led to a fall in house prices. This led to an ever increasing
number of owners owing more on their houses than they were worth,
creating more defaults and a further fall in house prices. Banks
seeking to bolster their balance sheets began to hold back on
new extensions of credit card debt. Consumption fell, jobs were
lost, capital spending was put off, and a downward spiral of unknown
Profits were increasingly directed away from investment in the
expansion of productive capacity and toward financial speculation,
while the financial sector seemed to generate unlimited types
of financial products designed to make use of this money capital...
enormous amounts of investment-seeking capital circling the world
and increasingly drawn to the United States because of its leading
role in financialization.
Since financialization can be viewed as the response of capital
to the stagnation tendency in the real economy, a crisis of financialization
inevitably means a resurfacing of the underlying stagnation endemic
to the advanced capitalist economy. The deleveraging of the enormous
debt built up during recent decades is now contributing to a deep
crisis... The prognosis is that the economy, even after the immediate
devaluation crisis is stabilized, will at best be characterized
for some time by minimal growth, and by high unemployment, underemployment,
and excess capacity.
Capitalism takes advantage of social inertia, using its power
to rob outright when it can't simply rely on "normal"
exploitation. Without a revolt from below the burden will simply
be imposed on those at the bottom. All of this requires a mass
social and economic upsurge, such as in the latter half of the
1930s, including the revival of unions and mass social movements
of all kinds, using the power for change granted to the people
in the Constitution, even going so far as to threaten the current
duopoly of the two-party system.
Super profits from world production, trade and the recycling of
overseas earnings back to the U.S. created enormous liquidity.
It was far beyond the historical capacity of the U.S. and European
economies to absorb such profits in productive sectors.
The dynamic and voracious exploitation
of the huge surplus labor forces in China, India, and elsewhere
and the absolute pillage and transfer of hundreds of billions
from ex-communist Russia and "neo-liberalized" Latin
America filled the coffers of new and old financial institutions.
The Western pillage of the former-USSR, with the collaboration
of gangster-oligarchs, led to the massive flow of looted capital
into Western banks throughout the 1990s... While the trillion
dollar pillage of Russia and the entire former Soviet Union bloated
the West European and U.S. financial sector, the massive growth
of billions of dollars in illegal transfers and money laundering
toward U.S. and U.K. banks added to the overdevelopment of the
The dynamic growth of Western capitalist wealth was based, in
part, on the brutal pillage of the USSR and Latin America, which
profoundly lowered living standards throughout the 1990s.
The current U.S. depression takes place in the context of a de-industrialized
economy, an insolvent financial system, record fiscal deficits,
record trade deficits, unprecedented public debt, multitrillion
dollar foreign debt and well over 800 billion dollars committed
in military expenditures for several ongoing wars and occupations.
All of these variables defy the contexts in which previous depressions
occurred. Nothing in previous contexts leading up to a crisis
of capitalism resembles the present situation.
Never in the history of capitalism has a deep economic crisis
occurred without any alternative socialist movement, party or
state present to pose an alternative. Never have states and regimes
been under such absolute control by the capitalist class especially
in the allocation of public resources. Never in the history of
an economic depression has so much of government expenditures
been so one-sidedly directed towards compensating a failed capitalist
class with so little going to wage and salaried workers.
The U.S. economic structure, which once generated employment,
profits and growth, no longer exists. It has been dismantled in
the course of diverting capital overseas and into financial instruments
and other non-productive economic sectors.
Recovery from the deepening depression does not reside in running
a multitrillion dollar printing operation, which only creates
conditions for hyperinflation and the debasement of the dollar.
The root cause is the over-accumulation of capital resulting from
over-exploitation of labor, leading to rising rates of profit
and the collapse of demand.
Claudia von Werlhof
Neoliberalism as an economic policy agenda which began in Chile
in 1973. Its inauguration consisted of a U.S.-organized coup against
a democratically elected socialist president and the installment
of a bloody military dictatorship notorious for systematic torture.
This was the only way to turn the neoliberal model of the so-called
"Chicago Boys" under the leadership of Milton Friedman
- a student of Friedrich von Hayek - into reality.
Since the 1980s, it is mainly the Structural Adjustment Programs
(SAPs) of the World Bank and the IMF that act as the enforcers
of neoliberalism. These programs are levied against the countries
of the South which can be extorted due to their debts. Meanwhile,
numerous military interventions and wars help to take possession
of the assets that still remain, secure resources, install neoliberalism
as the global economic politics, crush resistance movements (which
are cynically labeled as "IMF uprisings"), and facilitate
the lucrative business of reconstruction.
Global Economic Crisis - The Great Depression of the XXI Century