- This article addresses Washington's financial coup d'etat
in the context of discussing Michael Hudson's important, very lengthy and
detailed April 5 Global Research.ca one titled: "The Financial War
Against Iceland - Being defeated by debt is as deadly as outright military
warfare." It reviews its key information in advance of Hudson's April
14 scheduled appearance on The Global Research News Hour to discuss.
-
- What's true for Iceland holds everywhere, including the
developed world, the idea being to enrich finance capitalism through state-sponsored
debt bondage and neo-feudal impoverishment. The global economic crisis
was no accident. It was long ago hatched, and has been brewing for years,
gestating, percolating, then bubbling into the 2000 tech crash, a mere
prelude for today's greater one spreading everywhere like a cancer but
hitting the developing world and most indebted nations hardest.
-
- Hudson: "Iceland is under attack - not militarily
but financially."
-
- Like many others, "It owes more than it can pay"
and is bankrupt. It was planned that way, and the idea is to strip-mine
the nation and its people of their resources, enterprises, assets, land,
homes, jobs and futures through perpetual debt bondage. Bankers get enriched.
Nations and people, however, are discarded like trash, with the IMF as
enforcer, to be reinvigorated with an additional (G 20-pledged) $750 billion,
quadrupling its resources to $1 trillion if fulfilled.
-
- Wall Street and Western European bankers planned it and
now ordered the government "to sell off the nation's public domain,
its natural resources and public enterprises to pay (its) financial gambling
debts." Also, raise permanent taxes at the worst possible time, then
suck the maximum wealth from the country leaving behind an empty hulk and
impoverished, desparate population. It's called dystopia Merriam-Webster
defines as: "an imaginary place where people lead dehumanized and
often fearful lives," the opposite of utopia under conditions of deprivation,
poverty, disease, violence, oppression, and terror, much like in Orwell's
Nineteen Eighty-Four.
-
- Permanent debt bondage "is as deadly as outright
military" defeat. Loss of livelihoods and assets leave people vulnerable
to sickness, despair, and early deaths, much like what happened to post-Soviet
Russia under Washington-imposed "shock therapy:"
-
- -- 80% of farmers went bankrupt;
-
- -- around 70,000 state factories closed;
-
- -- unemployment became epidemic;
-
- -- a permanent underclass was created;
-
- -- poverty rose from two million in 1989 to 74 million
by the mid-1990s, and in half the cases it was desperate;
-
- -- alcoholism and drug abuse soared;
-
- -- so did HIV/AIDS 20-fold;
-
- -- suicides also and violent crime four-fold; and
-
- -- the population declined by 700,000 a year; by 2007
it was 10% lower than in 1989 because of sharply reduced life expectancies.
-
- Iceland, the developing world, and the West take note.
This cancer is heading everywhere, courtesy of banker-imposed diktats,
mainly from America and the UK. They insist Iceland "impoverish its
citizens by paying debts in ways (they'd) never follow" even though
the government has no way to do it.
-
- No matter. "They are quite willing to take payment
in the form of foreclosure on the nation's natural resources, land and
housing, and a mortgage on the next few centuries of its future" -
perpetual debt bondage no different than the spoils of war under permanent
occupation.
-
- However, in this case, debtors are convinced to pay voluntarily
"to put creditor interests above the economy's prosperity (and) national
interest." Their indebtedness comes at a huge cost - "chronic
currency depreciation (and) domestic price inflation for many decades to
come."
-
- Contrast this to how developed countries, like America,
handle debt - by inflating (not deflating) their way out to pay it off
with cheap (reduced purchasing power) money because inflation erodes its
value. It's simple - by printing money and running budget deficits the
way Washington did after Nixon closed the gold window in August 1971, ended
the 1944 Bretton Woods Agreement, and no longer let dollars be backed by
gold or converted into it in international markets. A new monetary system
creates money like confetti, and lets us spend and live beyond our means,
then have developing and indebted nations pay the price.
-
- In recent years, dollar weakness and price inflation
"wiped out much of the US international debt." The Iceland model
turns "this inflationary solution inside out....in violation of traditional
credit practice." Instead of currency inflation, Iceland "inflate(d)
its way into debt, not out of it, (by) indexing (it) to the rate of inflation,"
thus guaranteeing "a unique windfall for banks at the expense of wage
earners and industrial profits." The result: destruction of its traditional
way of life.
-
- Iceland must "repudiate this debt bomb" to
escape. It's indexed to inflation and "will never lose value."
It's caught in a destructive whirlpool creating economic shrinkage, falling
assets and wages in the face of perpetually burgeoning debt, the same global
model needing to be exposed and renounced "now." Otherwise, economies
will be hollowed out, "capital formation will plunge," people
will be impoverished, and many won't survive.
-
- Hudson's Background
-
- His expertise comes from "having been an insider
to imperial-style plundering....for forty years" - as an economist
for Chase Manhattan Bank, Arthur Andersen, and the UN Institute for Training
and Development (UNITAR). He's also taught economics since 1969, heads
a Harvard-based economic and financial history group, is a Research Professor
at the University of Missouri, and organized the first sovereign-debt fund
in 1990 at Scudder, Stevens and Clark.
-
- "All these jobs (except his current professorship)
involved analyzing the limited ability of debtor countries to pay - how
much could be extracted from them through foreign-currency loans and how
much public infrastructure (could) be sold off (through) voluntary virtual
foreclosure (under) creditor-dictated rules."
-
- He advises countries not to borrow in foreign currencies,
instead "monetize their own credit for domestic spending and investment."
Iceland broke "the cardinal rule of international finance: Never borrow
in a foreign currency for credit" that can freely be created at home.
"Governments can inflate their way out of domestic debt," not
the foreign kind.
-
- Post-Soviet economies did it the wrong way, now suffer,
and recent riots highlight their problems. "Instead of helping them
industrialize and become more efficient," Western bankers loaded them
with debt and exploited them - not for manufacturing and infrastructure
development, as loans against existing real estate and infrastructure,
to suck as much wealth out quickly.
-
- It produced "bubble economies built on debt-financed
real estate and stock market inflation," illusory wealth "bubbles
(that) always burst." The only sustainable financing of imports is
through enough exports for a favorable balance of trade.
-
- De-industrialization destroys economies by shrinking
them, the result of plunging property valuations, rental income, and exchange
rates. Foreign currency mortgage costs exceed property values producing
defaults and losses for lenders.
-
- It's hitting Sweden, Austria and leading creditor states
like America and the UK. Real estate, stock market and employment are declining
"in a straight line unprecedented even in the Great Depression."
It's turned neoliberalism into a nightmare.
-
- "Just as individuals can't live off a credit card
forever, neither can nations. As any classical economist knows, societies
that only manufacture debt are unsustainable." Eventually they collapse
into bankruptcy just like a business or household. The old saying applies.
Things that can't go on forever, won't.
-
- No matter. Predator banks want to prolong the game as
long as possible, grab all the wealth they can, force debtor nations to
sell state enterprises at distress prices, then get new business by lending
to investors who buy them on the cheap. Will it work? Only if targeted
countries go along. In the case of Iceland, its very future is at stake.
-
- Sound v. Imprudent Banking
-
- For centuries, banks created credit responsibly - loaning
money for sound investments to debtors able to repay with interest. No
one imagined a world like today's with massive defaults occurring globally.
In America, one-third of home mortgages are in "Negative Equity;"
that is, "the mortgage exceeds the (property's) market price pledged
as collateral."
-
- US national debt tripled in one year, from $5 - $15 trillion,
and according to some economists like John Williams, it's much higher under
GAAP accounting - including unfunded liabilities around $65.5 trillion,
an amount exceeding world GDP through FY 2008, meaning America is bankrupt.
Williams also puts unemployment at 19.8% by reengineering it to include
discouraged and involuntary part-time workers and excluding fictitious
birth-death rate ratio inclusions.
-
- Blunt Truths about the "Dismantling of Industrial
Capitalism"
-
- Instead of extending credit to construct and grow them,
financial oligarchs turned indebted nations into "casinos (through)
debt-leveraged gambles," redistributing wealth upward and creating
"debt peonage for most citizens." Even in America, nearly half
the population has no net worth, and the gulf between richest and the rest
is unprecedented.
-
- "This is the unfair system that the world's top
creditors would export to Iceland - if they can convince its voters (and
leaders) to accept neoliberal debt pyramiding as a way to get rich."
It's not working throughout post-Soviet states that see it as the road
to hell, if public riots are a gauge.
-
- "Better alternatives (are) the only defense"
as it's impossible for "astronomically indebted economies to 'work
their way out of debt.' " Trying will "collapse the currency's
exchange rate," divert huge amounts of revenue and property to creditors,
and produce "a new kind of post-capitalist (unjust, unsustainable)
non-production/consumpton economy" too gruesome to imagine or tolerate.
-
- Iceland's financial crisis is the result of lawless predation,
an "international (austerity demanding) Ponzi scheme" under rigged
market rules imposing public and private "asset stripping" to
pay debt. A simple scheme transfers wealth.
-
- Economies and populations are trapped on a "debt
treadmill from which there is no escape. (Lenders) pile on credit and let
debts grow (through) the 'magic of compound interest,' knowing that loans
cannot be repaid - except by asset sell-offs." They're strip-mined
through unending debt service so the parasite keeps feeding on its food
source. The idea is to get it all, leaving empty hulks behind, then on
to the new victims. It's "euphemistically dubbed post-industrial wealth
creation," the kind that's collapsing economies globally and destroying
people. Obama is commander-in-chief of the process.
-
- America as Lead Predator
-
- It's a viciously ugly scheme that's "trapped other
countries into a nightmarish system in which (they're practically forced)
to recycle their excess balance-of-payment dollar inflows back to the US,"
mainly as loans to the Treasury.
-
- "When foreign central banks receive dollars for
their exports (or asset sales)," their choices are limited. "Congress
won't let them buy important domestic companies or resources," or
get paid with US gold reserves. The alternative is buy Treasuries and mortgage-backed
securities like Fannie and Freddie debt.
-
- Icelanders and other nations must remember that America
is the world's largest debtor, and as Adam Smith explained in The Wealth
of Nations - "no nation ever repaid its debt," and he never envisioned
one large as America's. We grow it by issuing paper for real assets and
services. Until other countries demand more than confetti, this "Madoff-Ponzi
scheme" will persist - for tiny states like Iceland (population 319,000
as of January 2009) until nothing is left to hand over.
-
- Today's road to riches isn't through capital investment.
It's by "foreclos(ing) at pennies on the dollar and mak(ing) 'capital
gains' by flipping property onto (central bank-inflated) world financial
markets." In a word, socializing risks, privatizing profits, preying
on the weak, and getting "a free lunch" at public expense.
-
- It's a zero-sum game. One side's gain is another's loss,
and when it matches America against Iceland, it's easy exerting pressure,
but no certainty it'll prevail. As a sovereign state, Iceland can choose.
More on that below.
-
- Throughout the process, "financialized wealth is
extractive, not productive....because loans, stocks and bonds are claims
on wealth," not the kind produced by making things.
-
- This is Iceland's dilemma. "Homeowners are paying
tribute, not in taxes to (an occupier), in interest to (debt pyramid, international
creditor) sponsors of "over-financialization," aiming to strip-mine
the country of everything, the way it's worked in many developing states.
"Yet many Icelanders are heading into this future voluntarily"
with little understanding of the trap, propelling them toward debt peonage
destitution under the guise of an IMF rescuer - like a spider to a fly.
-
- It shouldn't happen and won't if countries refuse to
be trapped and extricate themselves in time. Iceland is at a crossroads,
still able to avoid what ruined Russia, other post-Soviet states, South
Africa, and many other nations misjudging America and the IMF are saviors,
not world class predators.
-
- "Back to the Future" - A New Age of Neo-feudal
Debt Bondage
-
- Conventional banking works by extending credit in the
form of interest-bearing loans and seizing collateral only in cases of
default. Central banks were created to finance governments and commercial
ones to "expand trade, related infrastructure, mining and shipping,"
and develop other forms of business and industry.
-
- More recently, "financial managers persuaded many
countries to sell off public enterprises, like their water or energy supplies,
mainly to pay debts or cut taxes" for the rich. It's turned debtor
nations into "tollbooth economies in which basic services become a
vehicle to extract greater and greater portions of national income and
wealth for the benefit of the few."
-
- It's the opposite of how classical economists define
"free markets." Today, financial interests control them to extract
labor and capital investment-produced surpluses - for themselves under
the guise of "economic democracy." The result "pushed much
of the Third World into poverty since the 1960s," and now the same
cancer is heading everywhere.
-
- Financial Warfare As Deadly As by Armies
-
- Today's financial strategy is "multilateral (with)
the IMF (and World Bank) act(ing) as enforcer(s) for global creditors to
appropriate the income of real estate, national infrastructure and industry"
by masquerading as a helping hand and seducing borrowers to believe it.
-
- Here's how neo-feudal banking works. It doesn't create
credit for manufacturing. Retained earnings and equity do it. It "create(s)
credit primarily against (existing) collateral, and by so doing, "extract(s)
money from the economy (and) undercuts industrial growth for "short-term
speculative gains." This hegemony "took thousands of years to
achieve," and it wasn't easy inducing nations into poverty through
"debt pyramiding as good economic strategy." It's like prescribing
gorging as a way to lose weight or a junk food diet to stay healthy.
-
- Iceland made it worse by "protecting the claims
of creditors against debtors," including most wage-earners. As post-bubble
home prices plunged, creditors held their own and even "strengthen(ed)
their hand by increasing their take," thus making a bad situation
worse. Its people own a shrinking equity in their homes vis-a-vis bankers
having the lion's share. Its law shifts homeowners to "Negative Equity,"
and it works by keeping people in the dark.
-
- But it's much the same in the US to hide the root cause
of today's crisis - Wall Street/Washington's engineered housing and debt
bubble fraud amounting to financial piracy of the greatest magnitude. In
America, Iceland, and elsewhere it's turned "ownership" societies
into "loanship" debt trap ones. Until recently, it was unthinkable
to let economies be crippled by interest payments. Now it's de rigueur
through clever manipulation to convince people and nations to go along
with their own demise.
-
- For Iceland, its debt burden threatens its national identity
and "loss of its future" the way Adam Smith explained - through
bankruptcy when it's too great to repay. "Today, creditors and bondholders
care about foreign economies only to the extent that they can charge (enough)
interest (to) absorb their entire economic surplus." Getting it all
is today's credo, and nothing too outlandish is irresponsible. Get in trouble.
Socialism comes to the rescue, for bankers, not people or easy targets
like Iceland.
-
- Its "ethic is mutual aid and prosperity for all....a
highly socialized attitude (yet how tragic that it's) lead the nation to
(buy into) the snake oil (of) debt peonage." Economic growth never
keeps pace with accruing debts that get recycled into greater ones, but
end games are the same. "Debts that can't be paid, won't be,"
while bankers too big to fail get bailed out at the expense of public interests
and sound economics. Yet Hudson explains: "Creditor mismanagement
is the most important problem that any country should strive to avert."
-
- Most important is to foster a free and open market of
ideas, to extract the best and discard the others. But that's not how Western
societies work, especially banker-run ones. A "free market" for
them is "free" of ideas laying bare their snake oil.
-
- "Most societies throughout history provide(d) credit....
without oligarchy." Today it's the opposite. Predatory finance erased
centuries of reform and did it at warp speed. As a result, our freedom
is threatened and very close to being lost.
-
- What's needed is a return to "basics, and a call
for transparent statistics," socially progressive ideas "of a
just society free of economic privilege, free of prices in excess of socially
necessary costs of production and of rentier income and wealth without
effort," earned "in their sleep," not through their labor.
-
- It means wealth should be based on "what one creates
- not land and natural resources, or monopoly privileges to extract income
via control of roads, the right to create money and other natural monopolies."
Reform depends on purging this privilege. "The way to do it is to
treat banking like transportation and broadcasting, as a public utility,"
not something privatized for "rentiers (to) tax society" for
what rightfully belongs to everyone.
-
- In the hands of predators, progressive reforms are impossible
as financial giants "preserve their special privileges by law, minimizing
taxes on themselves by shifting the burden onto labor and industry."
Financialization:
-
- -- "raise(s) the cost of living (and) doing business;"
-
- -- frees bankers' "major customers - mortgage borrowers
- from taxation to leave (maximum) surplus (for) interest;"
-
- -- collects public sector revenue "by capitalizing
it into interest charges" and inflating housing, other real estate,
and other business prices;
-
- -- "shift(s) taxes onto labor and industry, thereby
raising prices and undermining the competitive power of financialized economies."
-
- This is predation, the very opposite of "classical
free market policy." Keynes concluded his General Theory by calling
for "euthanasia of the rentier." His followers advocate banking
as a public utility "to steer debt creation to fund growth in the
means of production, not economic overhead by inflating property bubbles."
None of that's in sight. Maybe someday after the inevitable demise of the
current system that will eventually crumble under its own weight.
-
- Lessons for Iceland and Other Nations
-
- Iceland "is under financial attack from outside
as well as within - by foreigners supported by a domestic banking class.
To succeed (they need) to convince the population that all debt is productive,
and that the economy benefits to the extent that its net worth rises (that
is, make its asset values appear greater than its debt)."
-
- The fact is that prices don't fall, "and if they
do, debts should (remain), even (at the expense of) negative equity."
Icelanders are being manipulated to believe they have "no alternative
but to pay debts that a few insiders (accumulated, ones) that accrue interest
when (they're) unpaid." In fact, demanded debt amounts exceed what
the country can pay, but the strategy is to conceal this as long as possible
"to proceed with the foreclosure and voluntary pre-bankruptcy sell-off
of national assets to pay" predators.
-
- What's true for Iceland, holds everywhere Wall Street
and the IMF target, and here's the scheme:
-
- -- shrink economies;
-
- -- shift wealth and property upwards to a financial oligarchy;
and
-
- -- price "labor and industry out of world markets
as a result of the heavy financial charges built into (the) pricing system."
- Iceland is a "model test case for economic justice."
Hopefully it will "confront reality sooner than later" and not
get trapped into perpetual debt bondage by succumbing to global creditor
pressure or seduction. What benefits them harms people, and everyone needs
to know it. Bankers "aim (for) a return to 'normalcy,' defined as
new exponential (debt volume) growth" producing more destructive bubbles
like the last ones.
-
- Iceland must reject Wall Street's medicine or perish,
and the same holds elsewhere, including in America. Bankers, not nations
or people, should take the pain. Hudson asks: "How can Iceland (or
Hungary, Latvia, Ukraine, or many other nations) pay its debts without
bankrupting itself, (in Iceland's case) abandoning its social democracy
and polarizing its (people) between a tiny creditor oligarchy and"
everyone else? They're threatened by "a new ruling class that will
control (their) destiny for the next century" or beyond. It's their
choice to reject it and stay free.
-
- Their "foreign currency loans should be denominated
in domestic currency at written-down (and de-indexed) interest rates, or
repudiated outright." The guiding principle should be to annul debts
taken out under (destructive and extractive) terms benefitting creditors
at the expense of their prey.
-
- They aim to dominate societies - "above all....to
maximize the power of debt over labor. The worse the economy does, the
stronger" they get. It's a vicious cycle "recipe for economic
suicide (from perpetual) debt peonage." Iceland can be a test case
model against it. It comes down to whether it will back its people or,
like America, surrender to financial predators. It's much the same globally,
the result of the greatest ever economic crisis opportunity for plunder.
The perpetrators love it. It's high time they got their comeuppance.
-
- Imagine tiny Iceland taking the lead and fighting back
against what another former high-level Wall Street and government insider
warns - Catherine Austin Fitts, Assistant Secretary of Housing and Federal
Housing Commissioner under GHW Bush and Dillon Read & Co. Managing
Director and board member.
-
- In her latest quarterly review, she predicts that "Obama
will do more to help bankers achieve centralized control and one world
government than any (previous) US politician." In less than three
months in office, he's shown bankers they can count on him - to the tune
of trillions of dollars, further open-ended checkbook amounts on request,
and global "diplomatic" pressure on targeted nations to surrender.
It's for public rage, tiny Iceland, and other over-indebted nations to
demand "no more." Hopefully enough of them have backbone to
do it.
-
- Stephen Lendman is a Research Associate of the Centre
for Research on Globalization. He lives in Chicago and can be reached at
lendmanstephen@sbcgobal.net.
-
- Also visit his blog site at sjlendman.blogspot.com and
listen to The Global Research News Hour on RepublicBroadcasting.org Monday
- Friday at 10AM US Central time for cutting-edge discussions with distinguished
guests on world and national issues. All programs are archived for easy
listening.
-
- http://www.globalresearch.ca/index.php?context=va&aid=13048
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