Reuters Against Senator John McCain?

Let’s Get Fiscal

The New York Times

By PAUL KRUGMAN

October 17, 2008

The Dow is surging! No, it’s plunging! No, it’s surging! No, it’s ...

Nevermind. While the manic-depressive stock market is dominating the headlines, the more important story is the grim news coming in about the real economy. It’s now clear that rescuing the banks is just the beginning: the nonfinancial economy is also in desperate need of help.

And to provide that help, we’re going to have to put some prejudices aside. It’s politically fashionable to rant against government spending and demand fiscal responsibility. But right now, increased government spending is just what the doctor ordered, and concerns about the budget deficit should be put on hold.

Before I get there, let’s talk about the economic situation.

Just this week, we learned that retail sales have fallen off a cliff, and so has industrial production. Unemployment claims are at steep-recession levels, and the Philadelphia Fed’s manufacturing index is falling at the fastest pace in almost 20 years. All signs point to an economic slump that will be nasty, brutish — and long.

How nasty? The unemployment rate is already above 6 percent (and broader measures of underemployment are in double digits). It’s now virtually certain that the unemployment rate will go above 7 percent, and quite possibly above 8 percent, making this the worst recession in a quarter-century.

And how long? It could be very long indeed.

Think about what happened in the last recession, which followed the bursting of the late-1990s technology bubble. On the surface, the policy response to that recession looks like a success story. Although there were widespread fears that the United States would experience a Japanese-style “lost decade,” that didn’t happen: the Federal Reserve was able to engineer a recovery from that recession by cutting interest rates.

But the truth is that we were looking Japanese for quite a while: the Fed had a hard time getting traction. Despite repeated interest rate cuts, which eventually brought the federal funds rate down to just 1 percent, the unemployment rate just kept on rising; it was more than two years before the job picture started to improve. And when a convincing recovery finally did come, it was only because Alan Greenspan had managed to replace the technology bubble with a housing bubble.

Now the housing bubble has burst in turn, leaving the financial landscape strewn with wreckage. Even if the ongoing efforts to rescue the banking system and unfreeze the credit markets work — and while it’s early days yet, the initial results have been disappointing — it’s hard to see housing making a comeback any time soon. And if there’s another bubble waiting to happen, it’s not obvious. So the Fed will find it even harder to get traction this time.

In other words, there’s not much Ben Bernanke can do for the economy. He can and should cut interest rates even more — but nobody expects this to do more than provide a slight economic boost.

On the other hand, there’s a lot the federal government can do for the economy. It can provide extended benefits to the unemployed, which will both help distressed families cope and put money in the hands of people likely to spend it. It can provide emergency aid to state and local governments, so that they aren’t forced into steep spending cuts that both degrade public services and destroy jobs. It can buy up mortgages (but not at face value, as John McCain has proposed) and restructure the terms to help families stay in their homes.

And this is also a good time to engage in some serious infrastructure spending, which the country badly needs in any case. The usual argument against public works as economic stimulus is that they take too long: by the time you get around to repairing that bridge and upgrading that rail line, the slump is over and the stimulus isn’t needed. Well, that argument has no force now, since the chances that this slump will be over anytime soon are virtually nil. So let’s get those projects rolling.

Will the next administration do what’s needed to deal with the economic slump? Not if Mr. McCain pulls off an upset. What we need right now is more government spending — but when Mr. McCain was asked in one of the debates how he would deal with the economic crisis, he answered: “Well, the first thing we have to do is get spending under control.”

If Barack Obama becomes president, he won’t have the same knee-jerk opposition to spending. But he will face a chorus of inside-the-Beltway types telling him that he has to be responsible, that the big deficits the government will run next year if it does the right thing are unacceptable.

He should ignore that chorus. The responsible thing, right now, is to give the economy the help it needs. Now is not the time to worry about the deficit.

Full-Spectrum Global Financial Domination

Shock and Awe in Economic Warfare
By STEPHEN MARTIN
CounterPunch
October 10 / 12, 2008

Naturally the common people don't want war; neither in Russia, nor in England, nor in America, nor in Germany. That is understood. But after all, it is the leaders of the country who determine policy, and it is always a simple matter to drag the people along, whether it is a democracy, or a fascist dictatorship, or a parliament, or a communist dictatorship. Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is to tell them they are being attacked, and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same in any country.

-- Hermann Goering

In the Economic War currently being waged, the first phase of the telling of such tale of attack, illustrated vividly by image, and with the objective of further building war chest, is over. We have seen the collapse of Lehman Brothers as sacrificial wolf, heard further sabres being rattled in form of AIG, Freddie Mac and Fannie Mae, and bailout, or rescue gone through on the basis of fear and plunging markets. The public coffers have been prised opened further as to plan.

Now the second phase of Economic Blitzkrieg is to begin, and the bad news is that as in total war, the citizen is no more than mere fodder to bomb. The firebombing of Dresden still stands as the worst atrocity of such total war. In Economic War, collateral damage; whether through default on mortgage, wipe out of pension or life savings, loss of livelihood, homelessness - all just battlefield casualty.

This is one big, bold, beast of a high risk strategy towards full spectrum Global Financial dominance no less, and as must have been years in the planning. Even as strategies of war such as scorched earth and the surprise of Blitzkrieg go, it has callousness almost unimaginable in the misery and sufferance it is willing to inflict, including on it’s own people, given that it’s origins are in America - although it has to be pointed out that the true free marketer as Economic warrior, financial terrorist and beast is without country; loyal only to the maximisation of profit as expression of greed and quench of power lust – and as heartless a whore as can be found in the deepest of tragedy.

Economic Warfare Shock and Awe works like this:

First of all you create a shocking financial poison. Then you create the environment necessary for that poison to circulate in the enemy economy, ideally in a situation where they do not know they’ve even swallowed it in quantity– until it is too late. Iceland for example. Many other Economies are also on the brink of being such ‘suckers going down’. Iceland just the first - but hey, every little economy helps when the target is Global Financial Domination.

Let’s examine the brewing of this financial poison, before we turn attention towards the antidote. Just like watching in horror the Stukas dive bombing to terrifying wailing of siren – before the storm troopers are sent in to establish control as achievement of objective in Blitzkrieg manoeuvre. The strategy: first create and administer the shocking financial poison -and then have antidote conveniently to hand, offered with strings attached.

It has to be said that he scale of this particular poisoning makes the Borgias look like little more than mere dilettantes.

Trouble with the Borgias was no ambition.

The shocking financial poison. Stand back in awe. Known by many names, but let’s stick with the most popular. The collateralised debt obligation, or CDO. In order to produce such poison, you require a pump. A special pump fuelled by greed – commission mainly, but also in form of release of equity - by the greed or need of the dupe – and there are lots of dupes out there, as I can personally testify, alas. So what you do is you use this pump on the market, after priming, and inflate the value of as much Collateral as you can (that’s the Real Estate, or the homes citizens have need to live within) and then stand back and watch as greed leads to the inevitable cycle of events. At each little stage in the cycle, more commission is taken out, more bonuses taken until what you have left, the distillate as it were, is a highly toxic pile of worthless paper on some poor sucker’s balance sheet as a dump, where it masquerades as current ‘asset’, liberating noxious fumes. Has something died in the cellar? Get enough of this toxic crap circulating and dumped, and you can bring down whole economies.

There are other financial poisons in the market, including the original ‘fiat currency’, but as these are of lesser toxicity, more gradual in action, also with different antidote, equally shocking in the administration. Not go into detail, other than to mention that the fiat currency, for example, can be useful in the accumulation of tangible assets - but money from the public coffers was still required in this instance.

Remember, this is Global in aspiration.

Phase 2 of the implementation of Shock and Awe Economic warfare in the Master Plan involves the ‘assisted revival’ of the poisoned economies. The vehicle for delivery of the antidote, not the real villain, mind you, merely the accomplice, is the ‘International Monetary Fund’ stepping forth with bold new initiative. It’s springboard: the Economic War Chest, coffers overflowing. The objective being a controlling piece of the action, effectively control over banking and finance in the ‘assisted’ economies. No such thing as a free lunch, remember., especially when the IMF are involved – just ask any Chilean or indeed, Brazilian.

Who needs guns and bullets, when you have these financial storm troopers in the arsenal and such a huge war chest?

The term ‘high risk’ was given earlier.

In the shakedown stage; Phase 1 and even considerably well into Phase 2, victim economies undoubtedly suffer. Contraction in productivity, mass unemployment, paralysis of financial institutions, a lot of big manufacturing companies may even go down. They can be rebuilt, suitably re- financed. The secret, and indeed the risk, of this Master Plan is the acceptance of the assisting financial package as antidote, by those still in shock and awe. This requires a global channel to prevail, which will have allowed the free flow both of poison and of antidote. Should the channel be shut down, then plan b has to be adopted as back up. This is a regrouping and consolidation in base economy, using economic war chest to further control - in rebuilding the American Economy, taking advantage of shock and awe as undoubtedly present therein. Money can be loosened up again - from that war chest. America can be rebuilt, to slightly different image, and with more singular focus.

Back up plan c, in the highly unlikely event that citizens get wise to what is going on, and start bleating about the constitution and Democracy, doesn’t bear thinking about, especially if the global channel is shut down. Suffice it to say, Posse Comitatus as distant a memory as free press.

But hey, you’ve got to speculate to accumulate, right? And when it comes to detailed speculation and exacting accumulation on such a scale, who else has the experience - and now the ‘reserves’ necessary?

Thus proposed the Master Plan of Shock and Awe in Economic Warfare, as currently in implementation, in progress of moving towards Phase 2.

Full Spectrum Global Financial Domination, here we go. Don’t worry all you poisoned economies out there. The antidote is on the way.
Is such interpretation no more than Paranoia born of desperate questioning in response to the current Economic chaos going on around the world?

Maybe the hundreds of Economists not even consulted over the largest bailout in history have an answer.

In any event, God help us.

Stephen Martin can be reached at: stephenmarti@yahoo.com

After the Breakdown of Bretton Woods

Exposing the Un-Democratic Face of Capitalism
By NOAM CHOMSKY
CounterPunch
October 10 / 12, 2008

The simultaneous unfolding of the US presidential campaign and unraveling of the financial markets presents one of those occasions where the political and economic systems starkly reveal their nature.

Passion about the campaign may not be universally shared but almost everybody can feel the anxiety from the foreclosure of a million homes, and concerns about jobs, savings and healthcare at risk.

The initial Bush proposals to deal with the crisis so reeked of totalitarianism that they were quickly modified. Under intense lobbyist pressure, they were reshaped as "a clear win for the largest institutions in the system . . . a way of dumping assets without having to fail or close", as described by James Rickards, who negotiated the federal bailout for the hedge fund Long Term Capital Management in 1998, reminding us that we are treading familiar turf. The immediate origins of the current meltdown lie in the collapse of the housing bubble supervised by Federal Reserve chairman Alan Greenspan, which sustained the struggling economy through the Bush years by debt-based consumer spending along with borrowing from abroad. But the roots are deeper. In part they lie in the triumph of financial liberalisation in the past 30 years - that is, freeing the markets as much as possible from government regulation.

These steps predictably increased the frequency and depth of severe reversals, which now threaten to bring about the worst crisis since the Great Depression.

Also predictably, the narrow sectors that reaped enormous profits from liberalisation are calling for massive state intervention to rescue collapsing financial institutions.

Such interventionism is a regular feature of state capitalism, though the scale today is unusual. A study by international economists Winfried Ruigrok and Rob van Tulder 15 years ago found that at least 20 companies in the Fortune 100 would not have survived if they had not been saved by their respective governments, and that many of the rest gained substantially by demanding that governments "socialise their losses," as in today's taxpayer-financed bailout. Such government intervention "has been the rule rather than the exception over the past two centuries", they conclude.

In a functioning democratic society, a political campaign would address such fundamental issues, looking into root causes and cures, and proposing the means by which people suffering the consequences can take effective control.

The financial market "underprices risk" and is "systematically inefficient", as economists John Eatwell and Lance Taylor wrote a decade ago, warning of the extreme dangers of financial liberalisation and reviewing the substantial costs already incurred - and proposing solutions, which have been ignored. One factor is failure to calculate the costs to those who do not participate in transactions. These "externalities" can be huge. Ignoring systemic risk leads to more risk-taking than would take place in an efficient economy, even by the narrowest measures.

The task of financial institutions is to take risks and, if well-managed, to ensure that potential losses to themselves will be covered. The emphasis is on "to themselves". Under state capitalist rules, it is not their business to consider the cost to others - the "externalities" of decent survival - if their practices lead to financial crisis, as they regularly do.

Financial liberalisation has effects well beyond the economy. It has long been understood that it is a powerful weapon against democracy. Free capital movement creates what some have called a "virtual parliament" of investors and lenders, who closely monitor government programmes and "vote" against them if they are considered irrational: for the benefit of people, rather than concentrated private power.

Investors and lenders can "vote" by capital flight, attacks on currencies and other devices offered by financial liberalisation. That is one reason why the Bretton Woods system established by the United States and Britain after the second World War instituted capital controls and regulated currencies.*

The Great Depression and the war had aroused powerful radical democratic currents, ranging from the anti-fascist resistance to working class organisation. These pressures made it necessary to permit social democratic policies. The Bretton Woods system was designed in part to create a space for government action responding to public will - for some measure of democracy.

John Maynard Keynes, the British negotiator, considered the most important achievement of Bretton Woods to be the establishment of the right of governments to restrict capital movement.

In dramatic contrast, in the neoliberal phase after the breakdown of the Bretton Woods system in the 1970s, the US treasury now regards free capital mobility as a "fundamental right", unlike such alleged "rights" as those guaranteed by the Universal Declaration of Human Rights: health, education, decent employment, security and other rights that the Reagan and Bush administrations have dismissed as "letters to Santa Claus", "preposterous", mere "myths".

In earlier years, the public had not been much of a problem. The reasons are reviewed by Barry Eichengreen in his standard scholarly history of the international monetary system. He explains that in the 19th century, governments had not yet been "politicised by universal male suffrage and the rise of trade unionism and parliamentary labour parties". Therefore, the severe costs imposed by the virtual parliament could be transferred to the general population.

But with the radicalisation of the general public during the Great Depression and the anti-fascist war, that luxury was no longer available to private power and wealth. Hence in the Bretton Woods system, "limits on capital mobility substituted for limits on democracy as a source of insulation from market pressures".

The obvious corollary is that after the dismantling of the postwar system, democracy is restricted. It has therefore become necessary to control and marginalise the public in some fashion, processes particularly evident in the more business-run societies like the United States. The management of electoral extravaganzas by the public relations industry is one illustration.

"Politics is the shadow cast on society by big business," concluded America's leading 20th century social philosopher John Dewey, and will remain so as long as power resides in "business for private profit through private control of banking, land, industry, reinforced by command of the press, press agents and other means of publicity and propaganda".

The United States effectively has a one-party system, the business party, with two factions, Republicans and Democrats. There are differences between them. In his study Unequal Democracy: The Political Economy of the New Gilded Age, Larry Bartels shows that during the past six decades "real incomes of middle-class families have grown twice as fast under Democrats as they have under Republicans, while the real incomes of working-poor families have grown six times as fast under Democrats as they have under Republicans".

Differences can be detected in the current election as well. Voters should consider them, but without illusions about the political parties, and with the recognition that consistently over the centuries, progressive legislation and social welfare have been won by popular struggles, not gifts from above.

Those struggles follow a cycle of success and setback. They must be waged every day, not just once every four years, always with the goal of creating a genuinely responsive democratic society, from the voting booth to the workplace.

Note

* The Bretton Woods system of global financial management was created by 730 delegates from all 44 Allied second World War nations who attended a UN-hosted Monetary and Financial Conference at the Mount Washington Hotel in Bretton Woods in New Hampshire in 1944.

Bretton Woods, which collapsed in 1971, was the system of rules, institutions, and procedures that regulated the international monetary system, under which were set up the International Bank for Reconstruction and Development (IBRD) (now one of five institutions in the World Bank Group) and the International Monetary Fund (IMF), which came into effect in 1945.

The chief feature of Bretton Woods was an obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value.

The system collapsed when the US suspended convertibility from dollars to gold. This created the unique situation whereby the US dollar became the "reserve currency" for the other countries within Bretton Woods.