Varieties of imperial decline - deficits for oligarchs, cuts for the plebs by Toni Solo, June 18th 2010
The conventional view of deficits resulting from public sector borrowing is that excessive deficits absorb financial
resources available for private sector investment, tending to drive up interest rates. That supposedly affects the
economy's ability to grow and meet people's needs. In 2008 and 2009, governments and oligarchic financial elites
composed of central bank bureaucrats and powerful corporate financial sector cronies hijacked public sector spending to
rescue giant international financial corporations and banks from bankruptcy
But the financial corporations and banks are not generally using those vast government resources to invest in their
countries' economies. They are holding much of those resources to cover huge liabilities either hidden Enron-style in
off balance sheet special purpose vehicles, or else against the possibility of significant default on risky loans they
made when the going was good. Or, with as-good-as--free-lunch-money borrowed for next to nothing, they buy government
bonds paying 2% or 3%.
These huge quasi-non-governmental corporate giants have also exploited hapless impoverished taxpayer philanthropy to
fund their gambling in currency and commodity markets, which they work to fix in their favour so as to ensure the best
outcomes possible for their bets. Not only have the parasitical corporate financial frauds taken taxpayers' money to
fund their gambling habits and cover their losses. Central banks have taken on to their balance sheets hundreds of
billions of dollars of grossly over-valued corporate sector securities as collateral against central bank thin air funny
money issued wholesale to buoy up the corporate financial sector.
The price of keeping the grinning deflation Death's Head at bay has been to balloon central bank balance sheets with
bloated asset-rubbish knowing taxpayers will be forced over time to absorb all losses. National governments, central
banks and the corporate financial sector mafia work together intimately to try and mitigate the failure of the consumer
capitalist system they dominate. Without credit booms inflating on ever shorter cycles, economies run under that system
lose their capacity to grow and meet people's needs. The outcome of failed consumer capitalism is an anti-democratic
elitist society based on huge inequality in which the needs of the great majority are relentlessly subordinated to those
of a greedy repressive elite. That reality tends to get lost in theoretical noise.
Progressive economists in the US and Europe argue that, given the failure of financial markets to deliver private sector
investment, extraordinary public sector deficits are the only way to prevent significant economic contraction and large
scale unemployment. These economists reject conservative arguments that such deficits bring unacceptable risks of
default if they cannot be funded by global investors. They point out that sovereign countries issuing their own currency
can, if necessary, buy their own debt so as to avoid a deficit spiral whereby cuts in public sector spending reduce
revenue and make the deficit worse. In reply, conservative economists often point to Japan's experience of stagnation
and hyper-indebtedness.
The continuing international economic and financial crisis offers a glaring paradox. Almost unprecedented deficit hikes
were accepted to guarantee supposedly free financial markets while more modest deficit spending to protect the great
majority of people from massive unemployment is being resisted. In practice, the arbiters of the deficit argument turn
out to be the very same profligate, fraudulent, parasitic financial market-players that had to be rescued by the very
same people of whom those market gangsters now demand austerity and public sector spending cuts.
"Investors" is a euphemism for hugely wealthy systemic predatory gamblers. They hunt in packs for vulnerable targets -
unwary groggy corporate stragglers or slow-moving not-feeling-so-good-today nation states. Governments and central banks
facilitate that system by protecting off shore financial havens shuffling trillions of dollars of "investment" loot out
of reach of fiscal authorities every year. No child-murdering predator drones darken the skies of Anguilla or the Cayman
Islands.
That global reality is so far beyond parody it largely condemns economic arguments about deficits to theoretical
irrelevance. The more important argument is a deep political argument. To what extent are the needs of the great
majority to be repressed by the oligarchs who in truth dominate the Western Bloc countries of North America and Europe
and those of their Pacific allies like Australia and Japan? The outcome of that argument will define how the rest of the
world accommodates continuing Western Bloc decline relative to clearly emerging majority world competitors.
Various aspects of the current situation are worth noting. One is the clearer-than-ever symbiosis between the Euro and
the US dollar, which earlier in the year looked as though it might continue to lose value in relation to other global
currencies. That would certainly have stoked inflationary pressures as the dollar's decline generally leads to increased
commodity prices which are quoted in dollars. So it was quite convenient from the anti-inflation Central Bankers'
perspective for market speculators-manipulators - all those "investors" -to attack the Euro and force down its value
against the US dollar on the pretext of an speculator-driven "sovereign-debt crisis".
Major corporate finance entities like Goldman Sachs and J.P.Morgan and other front line international corporate
financial mega-outfits collaborate with governments and central banks to protect mutual interests. While they may be
unable to micro-manage international currency, commodity and bond markets they can certainly nudge market movements in
the direction they want. When things get out of hand they can then dig in and resist matters going further in a given,
undesired, direction. Nothing could be clearer from the recent experience of the attack on the Euro and its current
recovery. Spmething similar happened with the dramatic reversal of the oil price in July 2008.
The plutocrat oligarchies of North America and Europe and their Pacific allies are trying to balance policies that will
protect their rotten-corrupt corporate finance-dominated political system while maintaining sufficient plausibility
among electorates to be able to get away with drastic public spending cuts. The peoples of Europe and North America are
being subject now to the same policies that have kept majority world developing countries in paupery ever since World
War 2. As their corrupt old regime fails beneath them, the rich-country plutocrat oligarchs are progressively applying
the crudest neocolonial extortion against their own peoples.
Back in 2005 the economist Henry C.K.Liu asked in an article "The Repo Time Bomb"*, "What kind of logic supports the
Fed's acceptance of a 6% natural rate of unemployment to combat phantom inflation while it prints money without reserve,
thus creating systemic inflation to bail out reckless private speculators to fight deflation created by a speculative
crash?" Things are much worse now five years on than when Liu made his point in 2005. Official unemployment in the
United States remains around 10% with no relief in sight - the real national unemployment rate is probably nearly twice
as bad with drastic regional variations.
The answer to Liu's question now is pretty much the same as it ever was. What drives Central Bank policy in Western Bloc
countries is in part the militaristic logic of ailing Western Bloc imperialism, now in slowly accelerating decline
against its global rivals. But in part too, central banks and governments are clearly hostage to the corporate financial
sector on which they have relied to be able to fake consumerist prosperity for over a decade. All those austerity
programmes are simply a Thatcherite reset to recreate the conditions for another unsustainable short-lived credit
"prosperity" bubble.
On the one hand, the Western Bloc oligarchs still believe their multinational programme of militarist-financial sector
deficit spending and austerity-for-the-masses will help them sustain their global power and reach. They hope the deficit
spending that has kept their corporate financial sector above water will reactivate another cycle of domestic
credit-bubble fake prosperity. In a world of limited natural resources, they rightly fear that other countries - more
productive than them - are going to, if not pass them by, certainly catch them up.
That is why the United States plutocracy ensures their country's military spending is more than that of the rest of the
world put together. For that reason, United States allies in Europe and the Pacific accept and underwrite United States
leadership. Their counterproductive logic of imperialist domination is driving regional combinations in the Middle East,
in Asia and in Latin America against Western Bloc countries' predatory attempts to control global natural resources
vital for economic development and impose unjust rules of the game on dissident countries like Iran and North Korea.
Those combinations - Iran, Syria and Turkey in West Asia, the ALBA countries in Latin America, the Shanghai Cooperation
Organization with China, Russia and various Central Asian countries containing almost half the world's population - make
it impossible for rich Western Bloc countries to get their own way easily. All the signs are that President Barack
Obama's government will intensify the "endless war" begun by George W. Bush and Dick Cheney. The European Union and
Pacific countries like Japan, South Korea and Australia seem committed to support the US come what may. The badly
scratched veneer of liberal democracy no longer conceals the wholesale barbarism underneath, if it ever did.
* "The Wizard of Bubbleland. Part 2: The repo time bomb" Henry C K Liu, Asia Times Online, September 29th, 2005
*************
Toni writes for Tortilla con Sal