Sunday, November 22, 2009

Economic Meltdown -- A Call for Systemic Change

Economic Meltdown -- A Call for Systemic Change

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Whenever I hold my two-year old grandson, Grant, in my arms I wonder what this world will look like six decades from now, when he is my age. I know that if we "stay the course" it will be ugly. The current economic meltdown is a harbinger.

Panama's chief of government, Omar Torrijos, foresaw this meltdown and understood its implications back in 1978, when I was an economic hit man (EHM). He and I were standing on the deck of a sailing yacht docked at Contadora Island, a safe haven where U.S. politicians and corporate executives enjoyed sex and drugs away from the prying eyes of the international press. Omar told me that he was not about to be corrupted by me. He said that his goal was to set his people free from "Yankee shackles," to make sure his country controlled the canal, and to help Latin America liberate itself from the very thing I represented and he referred to as "predatory capitalism."

"You know," he added, "what I'm suggesting will ultimately benefit your children too." He explained that the system I was promoting where a few exploited the many was doomed. "The same as the old Spanish Empire -- it will implode." He took a drag off his Cuban cigar and exhaled the smoke slowly, like a man blowing a kiss. "Unless you and I and all our friends fight the predatory capitalists," he warned, "the global economy will go into shock." He glanced across the water and then back at me. "No permitas que te engaƱen," he said ("Don't allow yourself to be hoodwinked.")

Three decades later, Omar is dead, likely assassinated because he refused to succumb to our attempts to bring him around, but his words ring true. For that reason I chose one of them as the title of my latest book, Hoodwinked.

We have been hoodwinked into believing that a mutant form of capitalism espoused by Milton Friedman and promoted by President Reagan and every president since - one that has resulted in a world where less than 5% of us (in the United States) consume more than 25% of the resources and nearly half the rest live in poverty - is acceptable.

In fact, it is an abject failure. The only way China, India, Africa and Latin America can adopt this model is if they find five more planets just like ours, except without people.

Most of us understand what my grandson does not--that his life is threatened by the crises generated during our watch. The question is not about prevention. It is not about retuning to "normal." Nor is it about getting rid of capitalism.

The solution lies in replacing Milton Friedman's mantra that "the goal of business is to maximize profits, regardless of the social and environmental costs" with a more viable one: "Make profits only within the context of creating a sustainable, just, and peaceful world," and to create an economy based on producing things the world truly needs.

There is nothing radical or new about such a goal. For more than a century after the founding of this country, states granted charters only to companies that proved they were serving the public interest and shut down any that reneged. That changed after an1886 Supreme Court decision that bestowed on corporations the rights granted to individuals--without the responsibilities required of individuals.

As an EHM, I participated in many of the events that propelled us into this dangerous territory. As a writer and lecturer, I spent the past few years touring the United States and visiting China, Iceland, Bolivia, India, and many other countries, speaking to political and business leaders, students, teachers, laborers, and all manner of people. I read books about Obama's economic plans, current schemes for reforming Wall Street, and other policies. It struck me that most of the discussions dealt with triage and that while we need to stop the hemorrhaging, we must also ferret out the virus that caused these symptoms.

Hoodwinked presents a plan for a long-term cure. During the days following its November 10, 2009 publication, I spoke about this plan at the United Nations, on radio and TV programs, and at a conference attended by 2400 MBA students at Cornell University.

I come away feeling hopeful that we are finally ready to take Omar's warning to heart and to implement the transformation that will be the salvation for my grandson's generation.

John Perkins is former chief economist at a major international consulting firm. His Confessions of an Economic Hit Man spent 70 weeks the New York Times bestseller list. His website is www.johnperkins.org

Forced Labour and Rape, the New Face of Slavery in America

Forced Labour and Rape, the New Face of Slavery in America

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In the Midwestern heartland, police are encountering a new social evil: trafficking, often involving women and children who are forced to work as prostitutes or unpaid labour; and the outcomes can be brutal.

Human trafficking has become a major issue in the Midwest heartland of America, causing some campaigners to dub it a modern form of slavery.

Figures from the State Department reveal that 17,500 people are trafficked into the US every year against their will or under false pretences, mainly to be used for sex or forced labour. Experts believe that, when cases of internal trafficking are added, the total number of victims could be up to five times larger. And increasing numbers of trafficked individuals are being transported thousands of miles from America's coasts and into heartland states such as Ohio and Michigan.

"It is not only a crime. It is an abomination," said Professor Mark Ensalaco, a political scientist at the University of Dayton, Ohio, who organised a recent conference on the issue. In Ohio a human trafficking commission has just been set up to study the problem, while in the northern Ohio city of Toledo a special FBI task force is tackling the issue. For many local law enforcement officials, it is a bewildering new world.

In one recent incident a 16-year-old Mexican girl was found to have been trafficked across the US border. Doctors noticed the heavily pregnant girl showed clear signs of physical abuse when she was brought into a hospital in Dayton to give birth. The police were called but the couple who had brought her had already fled. When the girl's story emerged, it became clear she had been kept against her will in the nearby city of Springfield and used for labour and sex. "I thought slavery ended a few centuries ago. But here it is alive and well," said Springfield's sheriff, Gene Kelly.

He emphasised the risks to the girl's baby after it had been born if the doctors had not been so alert: "Like the mother, the baby could have ended up a victim for years to come. Who knows? Future labour? Future person to traffic?"

Ohio anti-trafficking campaigner Phil Cenedella, founder of Combating Trafficking Anywhere, believes that the baby was destined to be sold off by her captors. "They would have put the kid on the black market. It is crazy that this is happening." Human trafficking – defined as forcing someone against their will to work for no reward – has been dubbed modern slavery. At the Dayton conference, it was discussed as a growing social problem, not in some far-off foreign land, but among the cornfields of Ohio.

"The problems are broader than we realised," said Ohio's attorney general, Richard Cordray. "What we want to do is find and disrupt these networks."

One of the country's leading anti-trafficking advocates is Theresa Flores, a former victim. Flores puts a different kind of face on human trafficking in America. She is white, middle-class and blond and looks the epitome of a suburban American woman. She grew up in a wealthy suburb of Detroit in Michigan and did well at school. Yet Flores tells a nightmarish story of two years being drugged, raped and sold for sex.

Flores, whose ordeal was turned into a book called The Sacred Bath: An American Teen's Story of Modern Day Slavery, was attacked and raped when she was 15. Her assailant used the threat of photographs he had taken during her rape to force her into having sex with strangers. She became the effective prisoner of a drugs gang that used her as a prostitute and kept her earnings, or gave her away free to gang members as a "reward". "People don't think that trafficking looks like me or that it can happen to someone who came from a nice neighbourhood. But it does. People need to see outside that box," said Flores.

Flores said that her lowest point came when the gang took her to a seedy motel where she was raped by as many as two dozen men. She woke up alone, abused and with no clothes. "I was told I would die if I told anyone. It happened over and over for two years as I became a sex slave for those men," she said.

Anti-trafficking campaigners point out that cases in the US come in a wide variety of forms involving men, women and children. One major area is that of trafficked labour with people used for domestic work or, more commonly, for back-breaking labour in agricultural industries. But trafficking cases have also occurred in businesses such as restaurants, hair salons and beauty parlours. The overwhelming majority of the rest are sex cases, usually involving young women or children forced into prostitution. The methods used to keep people vary. They include confiscating the passports of those brought in from a foreign country or the threat of extreme violence. Other tactics are to threaten family members if a victim does not comply or, as in Flores's case, to use blackmail.

Trafficking represents a new challenge to law enforcement, especially in regions which have traditionally not thought of it as a major problem. That is especially true where it happens within an immigrant community. Languages are a problem as well as cultural issues and a natural fear that many immigrants – some of them possibly illegal – have of contacting the police.

Kelly believes that is the case in Springfield, a town that is almost the Midwestern archetype. It was once featured in a story in Newsweek magazine entitled "The American Dream". But its 65,000 citizens also face all the problems of a modern America in the grip of a deep recession: an immigration crisis and profoundly changing demographics. The town now hosts several prominent minority communities who make up more than a fifth of its population, including Russians, Chinese, Latinos and Somalis. "There are a lot of people who distrust law enforcement. We need to break down those barriers. Our officers need training, especially in languages," said Kelly. "If you can't speak to people, you can't reach them."

Some commentators and experts have accused victims' advocates and academics of overstating the problem, arguing the problem has been exaggerated and expressing scepticism at the notion that vast organised criminal networks are dealing in human beings for sex or labour. Law enforcement officers also acknowledge that the definitions of trafficking may need refining.

In North Carolina last week the mother of a five-year-old girl was charged with human trafficking after being accused of offering her daughter for sex. The child was later found dead. The crime was horrific, but the distinction between trafficking and simple, sadistic child abuse might not be immediately obvious.

"We have a problem with definition. It is not always straightforward and easy to explain," said Laura Clemmens, a government lawyer in Dayton. "The hard part is bringing it into the light. At the moment these crimes are clouded in secrecy.

The Pending Collapse Of The U.S.A.

The Pending Collapse Of The U.S.A.

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The truth that most people realize but can’t openly talk about is that America has seen better days and that the system of capitalism has long outlived its usefulness. The last part of that sentence, that capitalism has outlived its usefulness, is thoroughly the fault of the capitalists themselves.

For many years now, transnational corporations have sent much of America’s manufacturing overseas in order to take advantage of low cost workers. About the only manufacturing this country does on a large scale is earth moving equipment (Caterpillar) and military equipment. Boeing, Northrop-Grumman, Raytheon, General Electric and firms like that are the major remnants of a once thriving industrial base that made America. Detroit is still trying to hang in there, but shortfalls in sales have left it up to the workers in these plants to take it on the chin as their pay and benefits get cut.

The Dow is trying to make a comeback but the way I see it, much of the rise of “blue-chip” stocks is really more wishful thinking than serious thought. The stocks being sold on the backs of some of these companies are being bought on speculation that the market will go higher based on the rise of the GDP. The question that I would like to ask, is how far can the GDP go when 70% of the GDP is based on consumer spending? Where is consumer spending going to come from when realistically over 16% of the people in America aren’t working?

In an essay, written by Richard Heinberg entitled “Should We Prop-up a Dying Economy” (19 October 2009), he argues that the economists and the people who follow physical science disagree sharply about where this economy is going. Peak Oil, whether it is present now or just years away, will mean that the economy will contract. The economists state that growth can happen in any environment, yet it is apparent that when oil prices spiked in 2008, the auto industry and the airline industry almost went belly-up. Shrinkage of energy means shrinkage in the economy, we have all been under the notion that we can borrow against a growing economy. The facts are that if the economy does not grow, there will be very little in the growth of capital to repay debts that are leveraged at an average of an average of 350% of debt to GDP ratio. Where will new capital come from?

As the price of petroleum becomes higher, imported goods will become more expensive. When our government fails to repay our foreign creditors, or pays them back in hyper-inflated dollars, there will be no credit issued to this country. This can be a significant problem because we currently use 25% of the world’s oil supply and we buy that oil on credit. He says;

“We have entered a new economic era in which the former rules no longer
apply. Low interest rates and government spending no longer translate to
incentives for borrowing and job production. Cheap energy won't appear
just because there is demand for it. Substitutes for essential resources
will in most cases not be found. Over all, the economy will continue to
shrink in fits and starts until it can be maintained by the energy and
material resources that Earth can supply on ongoing basis.”

That is frightening to say the least. I believe that what our government should be doing is to listen to the scientists and stop listening to the economists. We have already borrowed almost 24 BILLION dollars, that is $80,000 for every man, woman and child in the U.S. We are robbing our future to pay for an economy that is unsustainable. Without economic growth, the banks, the investment houses and the insurance companies are bound to fail anyway. We might as well let them fail and get on with the business of restoring a sustainable economy.

In a talk called “The Five Stages of Collapse”, by Dmitry Orlov, a former Russian that watched the collapse of the Soviet Union, they are;

The Five Stages of Collapse

1. Stage one: Financial Collapse

2. Commercial Collapse

3. Political Collapse

4. Social Collapse

5. Cultural Collapse

This isn’t the warning of a horror show, but unless we start to prepare for a full or partial collapse, it could be worse than it has to be. He envisions a breakdown of society gradually replaced by stronger knit communities that must depend on each other for basic needs or it could be a complete breakdown of utter anarchy.

Meanwhile the Eagle sits on its perch, fighting wars in foreign lands while spending billions of American dollars doing it. The average American will see no benefit or harm whether we win or lose against the Taliban in Afghanistan. What we will have done however, is strap Americans with more debt and more use of precious resources. The American eagle is getting a little bit wobbly on its perch and it wouldn’t surprise me to see all American soldiers taken from all overseas assignments and brought back to this country just to deal with the economic collapse, and because we can no longer afford to keep them overseas.

We need to start thinking about where we live and how we will survive an economic collapse. When the federal government can no longer function, what will we do to replace it? How are individuals to survive when essential goods and services become extinct? This isn’t a future scenario that will happen twenty or thirty years from now, no! We are already experiencing it.

We can continue to live our daily lives watching TV and the advertisements that lull us into a false sense of security that everything is well, or we can start making provisions to deal with the calamity that lies ahead. We can provision staples, use alternative energy sources to heat our homes or assist us in heating them, and we can start talking with each other and get to know the neighbor that lives across the street that you have never talked to.

I’m really not an alarmist, but I see the merit of what so many scientists are predicting. Not only will Peak Oil stop economic growth, but climate change according to a UN report will bring desertification to 70% of the planet by 2025. Maybe petroleum peaking out is in reality what may save our planet. Maybe a return to simpler ways to live and work will stop the CO2 emissions, but I don’t think so. Third world countries are surpassing the industrialized countries in carbon emissions by burning coal. What I would like to know is who is really minding this nation’s business? What is the Federal government doing when scientific fact is thrown in their face? While Obama listens to Timothy Geitner and Ben Bernanke and other Goldman Sacks alumni, a company that produces nothing and makes money by buying low and selling high with government funds, where are the people that see what’s happening? If I can understand the ramifications of what is happening in front of my face, what about the President of the United States? Is he really ignorant or does he just not wish to deal with it? I’m curious; maybe someone in the executive branch can give us answers. It would be in everyone’s best interest to have people starting to deal with reality instead of putting their head in the sand. Maybe the American eagle should be replaced with the ostrich.

Tim Gatto's new book Complicity to Contempt is available at Amazon, Barnes and Noble, Abe's and other fine bookstores now.

Bill To Audit Federal Reserve Passes Key Hurdle

Bill To Audit Federal Reserve Passes Key Hurdle

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In an unprecedented defeat for the Federal Reserve, an amendment to audit the multi-trillion dollar institution was approved by the House Finance Committee with an overwhelming and bipartisan 43-26 vote on Thursday afternoon despite harried last-minute lobbying from top Fed officials and the surprise opposition of Chairman Barney Frank (D-Mass.), who had previously been a supporter.

The measure, cosponsored by Reps. Ron Paul (R-Texas) and Alan Grayson (D-Fla.), authorizes the Government Accountability Office to conduct a wide-ranging audit of the Fed's opaque deals with foreign central banks and major U.S. financial institutions. The Fed has never had a real audit in its history and little is known of what it does with the trillions of dollars at its disposal.

The amendment expressly blocks Congress from interfering with the independence of monetary policy decision-making, but opponents of the measure said that the political pressure would inevitably follow.

A desperate, last-minute attempt to thwart the move came in the form of an amendment championed by Rep. Mel Watt (D-N.C.) and described by its supporters as more reasonable. On Tuesday, however, the Huffington Post reported that, on a close reading, his amendment would in fact decrease transparency at the Fed by adding additional restrictions.

Backers of the Watt amendment pressed their case on Wednesday by sending a letter from a "political cross section of prominent economists" backing a measure like Watt's. HuffPost reported, however, that those economists might well have be prominent, but they certainly aren't a "political cross section." Seven of the eight economists in question have extensive connections to the Fed -- and half of them are currently on the Fed payroll. Those affiliations were not noted in the letter.

The playbook in Washington often goes like this: When a measure that threatens the establishment builds enough momentum that it must be dealt with, it is labeled as "unserious." The Washington Post editorial board, true to the script, called Paul's measure "an unserious answer to a serious question."

And it particularly rankles the center that a pair of "wingnuts" are behind a successful effort to challenge the prevailing order.

Step Two is for a "serious" compromise to be offered. In this case, it was Watt's amendment. But by the time the vote was called Thursday afternoon, committee members had seen through his measure, recognizing that it was not a compromise effort to bring real transparency to the Fed but an attempt to further shut the the doors.

"The Watt amendment will fully obliterate everything 1207" -- Paul's measure -- "is intended to do," said Paul during Thursday's debate.

For anyone remaining confused, the debate was further clarified by the central bank itself: Federal Reserve Vice Chair Don Cohn and General Counsel Scott Alvarez spent much of the day calling committee members, urging them to oppose the Paul-Grayson amendment in favor of Watt's, a member of Congress who asked for confidentiality told HuffPost.

Paul's opponents also placed a letter from former Fed chairmen Alan Greenspan and Paul Volcker on the seats of every committee member. Such a move is in violation of House rules and Grayson was able to have the letters removed.

As the day wore on and support held for the Paul-Grayson side, the Fed still could hope that both would pass. Watt's amendment, which included additional restriction, would then trump Paul's.

To counter that possibility, the Paul-Grayson side moved to fully replace Watt's amendment with theirs, leaving only one amendment to vote on. The motion carried and the amendment passed in a landslide.

The GOP broadly backed the amendment, though Frank chided them for finding their love of Fed transparency only after they lost power, noting that Paul has been introducing some version of the measure since 1983.

Frank said he was opposing the Paul amendment because it could be perceived as influencing monetary policy, which can have inflationary pressure. "Perception is very important in monetary policy," said Frank.

He urged a no vote, yet 15 Democrats bucked him, voting with Paul. Key to winning Democratic support was a letter posted early Thursday from labor leaders and progressive economists. The letter, organized by the liberal blog FireDogLake.com, called for a rejection of the Watt substitute and support for Paul.

Grayson was able to show Democratic colleagues that the liberal base was behind them.

"Today was Waterloo for Fed secrecy," a victorious Grayson said afterwards.

Watch:

Banks face major commercial real estate storm

Banks face major commercial real estate storm

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Sooner or later, office buildings and other commercial real estate financed during the credit bubble will generate hurricane-scale losses for banks.

Banks in recent years have been hammered by losses on home mortgages, buyouts and corporate defaults. Now, lenders face big losses from loans backed by commercial real estate, where a stagnant economy will eventually take its toll, financial services executives told the Reuters Global Finance Summit.

"The commercial real estate business still has not been marked down. It's not been marked to market," Cantor Fitzgerald LP Chief Executive Howard Lutnick said. "The economy can't, in my opinion, grow fast enough that the tenants are going to go out and start hiring and growing and building and take up all these rents at $60 a foot. It's nonsense."

U.S. banks held $1.65 trillion of commercial real estate loans on their balance sheets as of November 4, according to the Federal Reserve. Total assets were $11.8 trillion.

Yet banks have postponed their day of reckoning, extending loans in hopes the economy will improve and demand for space will rebound. Banks have resisted selling assets, or taking them away from underwater borrowers, in fear of setting a new and lower market price.

It is a strategy neatly summarized as "a rolling loan gathers no loss," Lutnick quipped.

Lutnick, whose firm is now building out a real estate restructuring business, noted the equity invested in almost every transaction during the peak bubble years of 2005 through early 2007 has been wiped out. Lenders are under deep stress, because the value of their collateral has fallen.

FRIENDLY FED

But there is a limit to how long landlords can hold out for the old pre-recession rents. And once one building is marked down to reflect lower rents, neighboring buildings also should fall in value.

Lutnick added most commercial loans come in the form of five-year balloon loans, so a wave of 2005-vintage assets will test creditors next year.

"When you're in the eye of the hurricane, it sure feels good until you look at the TV screen and then you say, 'look, the hurricane is all around you,'" Lutnick said.

Banks do have a few things going in their favor. Chief among them is a friendly Federal Reserve, whose policy of free money lets banks reap windfall lending profits.

"The Fed has pushed interest rates down to nothing. The spreads on portfolios and securities are generating a huge amount of net interest income," Broadpoint Gleacher Securities Group (BPSG.O: Quote, Profile, Research, Stock Buzz) Chief Executive Lee Fensterstock said at the Summit. "That will enable them to resolve some of their commercial real estate positions."

The commercial real estate problem also pales in size next to the previous waves of mortgage, leveraged loan, credit card and other consumer loan losses.

FBR Capital Markets analyst Paul Miller, while generally negative on banks, on Wednesday played down the danger of commercial real estate losses.

"There's a lot of structural forbearance built into the commercial real estate market," Miller said, meaning it is easier for borrowers to postpone and amend their terms.

Even so, the combination of poorly underwritten loans and a slowing economy will lead to many landlords walking away and handing over the keys. Individual credits, meanwhile, are much larger.

"There's going to be a lot of empty buildings coming back to banks' balance sheets," Miller said.

Hungering for a True Thanksgiving

Hungering for a True Thanksgiving

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In the next 60 seconds, 10 children will die of hunger,” says a United Nations World Food Programme (WFP) online video. It continues, “For the first time in humanity, over 1 billion people are chronically hungry.”

The WFP launched the Billion for a Billion campaign this week, urging the 1 billion people who use the Internet to help the billion who are hungry. But if you think that hunger is far from our shores, here is some food for thought ... and action: The U.S. Department of Agriculture released a report Monday stating that in 2008 one in six households in the U.S. was “food insecure,” the highest number since the figures were first gathered in 1995.

Economist Raj Patel, author of “Stuffed and Starved: Markets, Power and the Hidden Battle for the World’s Food System,” told me he was “gobsmacked” by the U.S. hunger numbers, which he finds appalling: “The reason that we have this huge increase in hunger in the United States, as around the world, isn’t because there isn’t enough food around. Actually, we produced a pretty reliable solid crop last year. ... The reason people go hungry is because of poverty.”

In addition to the online campaign, the United Nations is hosting the World Summit on Food Security in Rome this week, hoping to unite world leaders on the cause of eliminating hunger. Patel remarked on the U.N. summit, “They’re making all the right sounds about hunger around the world, but as some of the activists outside that summit are saying, poor people can’t eat promises.”

Almost 700 people from 93 countries, many of whom are small-scale food producers, have gathered outside the U.N. summit. They are there in behalf of the People’s Food Sovereignty Forum, and they are pushing for small-scale, organic, sustainable food-sovereignty and food-security programs, as opposed to large-scale agribusiness with its dependence on genetically modified organisms and chemical fertilizers and pesticides. Michelle Obama said last March when planting the White House’s organic kitchen garden, “It is so important for them [children] to get regular fruits and vegetables in their diets, because it does have nutrients, it does make you strong, it is all brain food.” The first lady of the U.S. made the point that a homegrown, organic garden is a sustainable and affordable way to strengthen family food security.

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This has led some to wonder, then, why her husband has appointed Islam Siddiqui to be the U.S. chief agricultural negotiator. Siddiqui is currently vice president for science and regulatory affairs for CropLife America, the main pesticide industry trade association. According to the Pesticide Action Network of North America, “This position will enable him to keep pushing chemical pesticides, inappropriate biotechnologies, and unfair trade arrangements on nations that do not want and can least afford them.” It was CropLife’s mid-America division that circulated an e-mail to industry members after Michelle Obama’s garden announcement, saying, “While a garden is a great idea, the thought of it being organic made Janet Braun, CropLife Ambassador Coordinator, and I shudder.”

Jacques Diouf, director-general of the U.N. Food and Agriculture Organization, engaged in a 24-hour hunger strike over the weekend, before the food security summit kicked off. He said in a statement, “We have the technical means and the resources to eradicate hunger from the world so it is now a matter of political will, and political will is influenced by public opinion.” Diouf has estimated that it would take $44 billion per year to end hunger globally, compared with the less than $8 billion pledged recently to that goal. Juxtapose those numbers with the amount being spent by the United States in Iraq and Afghanistan.

According to the Center for Arms Control and Non-Proliferation, the U.S. has spent on average about $265 million per day in Afghanistan since the invasion of that country in 2001 (which is a much lower estimate than that provided by Nobel Prize-winning economist Joseph Stiglitz and others). Even at that rate, five months of military spending by the U.S. would meet Diouf’s goal, and that would be if the U.S. were the sole contributor.

Consider pausing this Thanksgiving, which for many in the U.S. is a major feast, to reflect on the 10 children who die of hunger every minute, and how your elected officials are spending hundreds of billions in public funds on war.