Wednesday, July 2, 2014

How Washington Protects Itself and the Corporate Sector

Go To Original

The question of how foreign policy is determined is a crucial one in world affairs.  In these comments, I can only provide a few hints as to how I think the subject can be productively explored, keeping to the United States for several reasons.  First, the U.S. is unmatched in its global significance and impact.  Second, it is an unusually open society, possibly uniquely so, which means we know more about it.  Finally, it is plainly the most important case for Americans, who are able to influence policy choices in the U.S. -- and indeed for others, insofar as their actions can influence such choices.  The general principles, however, extend to the other major powers, and well beyond.
There is a “received standard version,” common to academic scholarship, government pronouncements, and public discourse.  It holds that the prime commitment of governments is to ensure security, and that the primary concern of the U.S. and its allies since 1945 was the Russian threat.

There are a number of ways to evaluate the doctrine.  One obvious question to ask is: What happened when the Russian threat disappeared in 1989?  Answer: everything continued much as before.

The U.S. immediately invaded Panama, killing probably thousands of people and installing a client regime. This was routine practice in U.S.-dominated domains -- but in this case not quite as routine. For first time, a major foreign policy act was not justified by an alleged Russian threat.

Instead, a series of fraudulent pretexts for the invasion were concocted that collapse instantly on examination. The media chimed in enthusiastically, lauding the magnificent achievement of defeating Panama, unconcerned that the pretexts were ludicrous, that the act itself was a radical violation of international law, and that it was bitterly condemned elsewhere, most harshly in Latin America.  Also ignored was the U.S. veto of a unanimous Security Council resolution condemning crimes by U.S. troops during the invasion, with Britain alone abstaining.

All routine.  And all forgotten (which is also routine).

From El Salvador to the Russian Border

The administration of George H.W. Bush issued a new national security policy and defense budget in reaction to the collapse of the global enemy.  It was pretty much the same as before, although with new pretexts.  It was, it turned out, necessary to maintain a military establishment almost as great as the rest of the world combined and far more advanced in technological sophistication -- but not for defense against the now-nonexistent Soviet Union.  Rather, the excuse now was the growing “technological sophistication” of Third World powers.  Disciplined intellectuals understood that it would have been improper to collapse in ridicule, so they maintained a proper silence.

The U.S., the new programs insisted, must maintain its “defense industrial base.” The phrase is a euphemism, referring to high-tech industry generally, which relies heavily on extensive state intervention for research and development, often under Pentagon cover, in what economists continue to call the U.S. “free-market economy.”

One of the most interesting provisions of the new plans had to do with the Middle East.  There, it was declared, Washington must maintain intervention forces targeting a crucial region where the major problems “could not have been laid at the Kremlin’s door.”  Contrary to 50 years of deceit, it was quietly conceded that the main concern was not the Russians, but rather what is called “radical nationalism,” meaning independent nationalism not under U.S. control.

All of this has evident bearing on the standard version, but it passed unnoticed -- or perhaps, therefore it passed unnoticed.

Other important events took place immediately after the fall of the Berlin Wall, ending the Cold War.  One was in El Salvador, the leading recipient of U.S. military aid -- apart from Israel-Egypt, a separate category -- and with one of the worst human rights records anywhere.  That is a familiar and very close correlation.

The Salvadoran high command ordered the Atlacatl Brigade to invade the Jesuit University and murder six leading Latin American intellectuals, all Jesuit priests, including the rector, Fr. Ignacio Ellacuría, and any witnesses, meaning their housekeeper and her daughter.  The Brigade had just returned from advanced counterinsurgency training at the U.S. Army John F. Kennedy Special Warfare Center and School in Fort Bragg, North Carolina, and had already left a bloody trail of thousands of the usual victims in the course of the U.S.-run state terror campaign in El Salvador, one part of a broader terror and torture campaign throughout the region.  All routine.  Ignored and virtually forgotten in the United States and by its allies, again routine.  But it tells us a lot about the factors that drive policy, if we care to look at the real world.

Another important event took place in Europe.  Soviet president Mikhail Gorbachev agreed to allow the unification of Germany and its membership in NATO, a hostile military alliance.  In the light of recent history, this was a most astonishing concession.  There was a quid pro quo.  President Bush and Secretary of State James Baker agreed that NATO would not expand “one inch to the East,” meaning into East Germany.  Instantly, they expanded NATO to East Germany.

Gorbachev was naturally outraged, but when he complained, he was instructed by Washington that this had only been a verbal promise, a gentleman’s agreement, hence without force.  If he was naïve enough to accept the word of American leaders, it was his problem.

All of this, too, was routine, as was the silent acceptance and approval of the expansion of NATO in the U.S. and the West generally.  President Bill Clinton then expanded NATO further, right up to Russia’s borders.  Today, the world faces a serious crisis that is in no small measure a result of these policies.

The Appeal of Plundering the Poor

Another source of evidence is the declassified historical record.  It contains revealing accounts of the actual motives of state policy.  The story is rich and complex, but a few persistent themes play a dominant role.  One was articulated clearly at a western hemispheric conference called by the U.S. in Mexico in February 1945 where Washington imposed “An Economic Charter of the Americas” designed to eliminate economic nationalism “in all its forms.” There was one unspoken condition.  Economic nationalism would be fine for the U.S. whose economy relies heavily on massive state intervention.

The elimination of economic nationalism for others stood in sharp conflict with the Latin American stand of that moment, which State Department officials described as “the philosophy of the New Nationalism [that] embraces policies designed to bring about a broader distribution of wealth and to raise the standard of living of the masses.” As U.S. policy analysts added, “Latin Americans are convinced that the first beneficiaries of the development of a country's resources should be the people of that country.”

That, of course, will not do.  Washington understands that the “first beneficiaries” should be U.S. investors, while Latin America fulfills its service function.  It should not, as both the Truman and Eisenhower administrations would make clear, undergo “excessive industrial development” that might infringe on U.S. interests.  Thus Brazil could produce low-quality steel that U.S. corporations did not want to bother with, but it would be “excessive,” were it to compete with U.S. firms.

Similar concerns resonate throughout the post-World War II period.  The global system that was to be dominated by the U.S. was threatened by what internal documents call “radical and nationalistic regimes” that respond to popular pressures for independent development.  That was the concern that motivated the overthrow of the parliamentary governments of Iran and Guatemala in 1953 and 1954, as well as numerous others.  In the case of Iran, a major concern was the potential impact of Iranian independence on Egypt, then in turmoil over British colonial practice.  In Guatemala, apart from the crime of the new democracy in empowering the peasant majority and infringing on possessions of the United Fruit Company -- already offensive enough -- Washington’s concern was labor unrest and popular mobilization in neighboring U.S.-backed dictatorships.

In both cases the consequences reach to the present.  Literally not a day has passed since 1953 when the U.S. has not been torturing the people of Iran.  Guatemala remains one of the world’s worst horror chambers.  To this day, Mayans are fleeing from the effects of near-genocidal government military campaigns in the highlands backed by President Ronald Reagan and his top officials.  As the country director of Oxfam, a Guatemalan doctor, reported recently,

“There is a dramatic deterioration of the political, social, and economic context.  Attacks against Human Rights defenders have increased 300% during the last year.  There is a clear evidence of a very well organized strategy by the private sector and Army. Both have captured the government in order to keep the status quo and to impose the extraction economic model, pushing away dramatically indigenous peoples from their own land, due to the mining industry, African Palm and sugar cane plantations.  In addition the social movement defending their land and rights has been criminalized, many leaders are in jail, and many others have been killed.”

Nothing is known about this in the United States and the very obvious cause of it remains suppressed.

In the 1950s, President Eisenhower and Secretary of State John Foster Dulles explained quite clearly the dilemma that the U.S. faced.  They complained that the Communists had an unfair advantage.  They were able to “appeal directly to the masses” and “get control of mass movements, something we have no capacity to duplicate.  The poor people are the ones they appeal to and they have always wanted to plunder the rich.”

That causes problems.  The U.S. somehow finds it difficult to appeal to the poor with its doctrine that the rich should plunder the poor.

The Cuban Example

A clear illustration of the general pattern was Cuba, when it finally gained independence in 1959.  Within months, military attacks on the island began.  Shortly after, the Eisenhower administration made a secret decision to overthrow the government.  John F. Kennedy then became president.  He intended to devote more attention to Latin America and so, on taking office, he created a study group to develop policies headed by the historian Arthur Schlesinger, who summarized its conclusions for the incoming president.

As Schlesinger explained, threatening in an independent Cuba was “the Castro idea of taking matters into one's own hands.”  It was an idea that unfortunately appealed to the mass of the population in Latin America where “the distribution of land and other forms of national wealth greatly favors the propertied classes, and the poor and underprivileged, stimulated by the example of the Cuban revolution, are now demanding opportunities for a decent living.” Again, Washington’s usual dilemma.

As the CIA explained, “The extensive influence of 'Castroism' is not a function of Cuban power... Castro’s shadow looms large because social and economic conditions throughout Latin America invite opposition to ruling authority and encourage agitation for radical change,” for which his Cuba provides a model.  Kennedy feared that Russian aid might make Cuba a “showcase” for development, giving the Soviets the upper hand throughout Latin America.

The State Department Policy Planning Council warned that “the primary danger we face in Castro is... in the impact the very existence of his regime has upon the leftist movement in many Latin American countries… The simple fact is that Castro represents a successful defiance of the U.S., a negation of our whole hemispheric policy of almost a century and a half” -- that is, since the Monroe Doctrine of 1823, when the U.S. declared its intention of dominating the hemisphere.

The immediate goal at the time was to conquer Cuba, but that could not be achieved because of the power of the British enemy.  Still, that grand strategist John Quincy Adams, the intellectual father of the Monroe Doctrine and Manifest Destiny, informed his colleagues that over time Cuba would fall into our hands by “the laws of political gravitation,” as an apple falls from the tree.  In brief, U.S. power would increase and Britain’s would decline.

In 1898, Adams’s prognosis was realized. The U.S. invaded Cuba in the guise of liberating it.  In fact, it prevented the island’s liberation from Spain and turned it into a “virtual colony” to quote historians Ernest May and Philip Zelikow.  Cuba remained so until January 1959, when it gained independence.  Since that time it has been subjected to major U.S. terrorist wars, primarily during the Kennedy years, and economic strangulation.  Not because of the Russians.

The pretense all along was that we were defending ourselves from the Russian threat -- an absurd explanation that generally went unchallenged.  A simple test of the thesis is what happened when any conceivable Russian threat disappeared.  U.S. policy toward Cuba became even harsher, spearheaded by liberal Democrats, including Bill Clinton, who outflanked Bush from the right in the 1992 election.  On the face of it, these events should have considerable bearing on the validity of the doctrinal framework for discussion of foreign policy and the factors that drive it.  Once again, however, the impact was slight.

The Virus of Nationalism

To borrow Henry Kissinger’s terminology, independent nationalism is a “virus” that might “spread contagion.” Kissinger was referring to Salvador Allende’s Chile.  The virus was the idea that there might be a parliamentary path towards some kind of socialist democracy.  The way to deal with such a threat is to destroy the virus and to inoculate those who might be infected, typically by imposing murderous national security states.  That was achieved in the case of Chile, but it is important to recognize that the thinking holds worldwide.

It was, for example, the reasoning behind the decision to oppose Vietnamese nationalism in the early 1950s and support France’s effort to reconquer its former colony.  It was feared that independent Vietnamese nationalism might be a virus that would spread contagion to the surrounding regions, including resource-rich Indonesia.  That might even have led Japan -- called the “superdomino” by Asia scholar John Dower -- to become the industrial and commercial center of an independent new order of the kind imperial Japan had so recently fought to establish.  That, in turn, would have meant that the U.S. had lost the Pacific war, not an option to be considered in 1950.  The remedy was clear -- and largely achieved.  Vietnam was virtually destroyed and ringed by military dictatorships that kept the “virus” from spreading contagion.

In retrospect, Kennedy-Johnson National Security Adviser McGeorge Bundy reflected that Washington should have ended the Vietnam War in 1965, when the Suharto dictatorship was installed in Indonesia, with enormous massacres that the CIA compared to the crimes of Hitler, Stalin, and Mao.  These were, however, greeted with unconstrained euphoria in the U.S. and the West generally because the “staggering bloodbath,” as the press cheerfully described it, ended any threat of contagion and opened Indonesia’s rich resources to western exploitation.  After that, the war to destroy Vietnam was superfluous, as Bundy recognized in retrospect.

The same was true in Latin America in the same years: one virus after another was viciously attacked and either destroyed or weakened to the point of bare survival.  From the early 1960s, a plague of repression was imposed on the continent that had no precedent in the violent history of the hemisphere, extending to Central America in the 1980s under Ronald Reagan, a matter that there should be no need to review.

Much the same was true in the Middle East.  The unique U.S. relations with Israel were established in their current form in 1967, when Israel delivered a smashing blow to Egypt, the center of secular Arab nationalism.  By doing so, it protected U.S. ally Saudi Arabia, then engaged in military conflict with Egypt in Yemen.  Saudi Arabia, of course, is the most extreme radical fundamentalist Islamic state, and also a missionary state, expending huge sums to establish its Wahhabi-Salafi doctrines beyond its borders.  It is worth remembering that the U.S., like England before it, has tended to support radical fundamentalist Islam in opposition to secular nationalism, which has usually been perceived as posing more of a threat of independence and contagion.

The Value of Secrecy

There is much more to say, but the historical record demonstrates very clearly that the standard doctrine has little merit.  Security in the normal sense is not a prominent factor in policy formation.

To repeat, in the normal sense.  But in evaluating the standard doctrine we have to ask what is actually meant by “security”: security for whom?

One answer is: security for state power.  There are many illustrations.  Take a current one.  In May, the U.S. agreed to support a U.N. Security Council resolution calling on the International Criminal Court to investigate war crimes in Syria, but with a proviso: there could be no inquiry into possible war crimes by Israel.  Or by Washington, though it was really unnecessary to add that last condition.  The U.S. is uniquely self-immunized from the international legal system.  In fact, there is even congressional legislation authorizing the president to use armed force to “rescue” any American brought to the Hague for trial -- the “Netherlands Invasion Act,” as it is sometimes called in Europe.  That once again illustrates the importance of protecting the security of state power.

But protecting it from whom? There is, in fact, a strong case to be made that a prime concern of government is the security of state power from the population.  As those who have spent time rummaging through archives should be aware, government secrecy is rarely motivated by a genuine for security, but it definitely does serve to keep the population in the dark.  And for good reasons, which were lucidly explained by the prominent liberal scholar and government adviser Samuel Huntington, the professor of the science of government at Harvard University.  In his words: “The architects of power in the United States must create a force that can be felt but not seen.  Power remains strong when it remains in the dark; exposed to the sunlight it begins to evaporate.”

He wrote that in 1981, when the Cold War was again heating up, and he explained further that “you may have to sell [intervention or other military action] in such a way as to create the misimpression that it is the Soviet Union that you are fighting. That is what the United States has been doing ever since the Truman Doctrine.”

These simple truths are rarely acknowledged, but they provide insight into state power and policy, with reverberations to the present moment.

State power has to be protected from its domestic enemy; in sharp contrast, the population is not secure from state power.  A striking current illustration is the radical attack on the Constitution by the Obama administration’s massive surveillance program.  It is, of course, justified by “national security.” That is routine for virtually all actions of all states and so carries little information.

When the NSA’s surveillance program was exposed by Edward Snowden’s revelations, high officials claimed that it had prevented 54 terrorist acts.  On inquiry, that was whittled down to a dozen.  A high-level government panel then discovered that there was actually only one case: someone had sent $8,500 to Somalia.  That was the total yield of the huge assault on the Constitution and, of course, on others throughout the world.

Britain’s attitude is interesting.  In 2007, the British government called on Washington’s colossal spy agency “to analyze and retain any British citizens’ mobile phone and fax numbers, emails, and IP addresses swept up by its dragnet,” the Guardian reported.  That is a useful indication of the relative significance, in government eyes, of the privacy of its own citizens and of Washington’s demands.

Another concern is security for private power.  One current illustration is the huge trade agreements now being negotiated, the Trans-Pacific and Trans-Atlantic pacts.  These are being negotiated in secret -- but not completely in secret.  They are not secret from the hundreds of corporate lawyers who are drawing up the detailed provisions.  It is not hard to guess what the results will be, and the few leaks about them suggest that the expectations are accurate.  Like NAFTA and other such pacts, these are not free trade agreements.  In fact, they are not even trade agreements, but primarily investor rights agreements.

Again, secrecy is critically important to protect the primary domestic constituency of the governments involved, the corporate sector.

The Final Century of Human Civilization?

There are other examples too numerous to mention, facts that are well-established and would be taught in elementary schools in free societies.

There is, in other words, ample evidence that securing state power from the domestic population and securing concentrated private power are driving forces in policy formation.  Of course, it is not quite that simple.  There are interesting cases, some quite current, where these commitments conflict, but consider this a good first approximation and radically opposed to the received standard doctrine.

Let us turn to another question: What about the security of the population? It is easy to demonstrate that this is a marginal concern of policy planners.  Take two prominent current examples, global warming and nuclear weapons.  As any literate person is doubtless aware, these are dire threats to the security of the population.  Turning to state policy, we find that it is committed to accelerating each of those threats -- in the interests of the primary concerns, protection of state power and of the concentrated private power that largely determines state policy.

Consider global warming.  There is now much exuberance in the United States about “100 years of energy independence” as we become “the Saudi Arabia of the next century” -- perhaps the final century of human civilization if current policies persist.

That illustrates very clearly the nature of the concern for security, certainly not for the population.  It also illustrates the moral calculus of contemporary Anglo-American state capitalism: the fate of our grandchildren counts as nothing when compared with the imperative of higher profits tomorrow.

These conclusions are fortified by a closer look at the propaganda system.  There is a huge public relations campaign in the U.S., organized quite openly by Big Energy and the business world, to try to convince the public that global warming is either unreal or not a result of human activity.  And it has had some impact.  The U.S. ranks lower than other countries in public concern about global warming and the results are stratified: among Republicans, the party more fully dedicated to the interests of wealth and corporate power, it ranks far lower than the global norm.

The current issue of the premier journal of media criticism, the Columbia Journalism Review, has an interesting article on this subject, attributing this outcome to the media doctrine of “fair and balanced.” In other words, if a journal publishes an opinion piece reflecting the conclusions of 97% of scientists, it must also run a counter-piece expressing the viewpoint of the energy corporations.

That indeed is what happens, but there certainly is no “fair and balanced” doctrine. Thus, if a journal runs an opinion piece denouncing Russian President Vladimir Putin for the criminal act of taking over the Crimea, it surely does not have to run a piece pointing out that, while the act is indeed criminal, Russia has a far stronger case today than the U.S. did more than a century ago in taking over southeastern Cuba, including the country’s major port -- and rejecting the Cuban demand since independence to have it returned.  And the same is true of many other cases.  The actual media doctrine is “fair and balanced” when the concerns of concentrated private power are involved, but surely not elsewhere.

On the issue of nuclear weapons, the record is similarly interesting -- and frightening.  It reveals very clearly that, from the earliest days, the security of the population was a non-issue, and remains so.  There is no time here to run through the shocking record, but there is little doubt that it strongly supports the lament of General Lee Butler, the last commander of the Strategic Air Command, which was armed with nuclear weapons.  In his words, we have so far survived the nuclear age “by some combination of skill, luck, and divine intervention, and I suspect the latter in greatest proportion.” And we can hardly count on continued divine intervention as policymakers play roulette with the fate of the species in pursuit of the driving factors in policy formation.

As we are all surely aware, we now face the most ominous decisions in human history.  There are many problems that must be addressed, but two are overwhelming in their significance: environmental destruction and nuclear war.  For the first time in history, we face the possibility of destroying the prospects for decent existence -- and not in the distant future.  For this reason alone, it is imperative to sweep away the ideological clouds and face honestly and realistically the question of how policy decisions are made, and what we can do to alter them before it is too late.

Why We Might Be on the Verge of Another Financial Crash

Go To Original

The denial of fundamental economic principles is setting the world up for another Great Crash.

Although wages have been flat or declining since the West started following Thatchernomics and Reaganomics in the late '70s and early 1980s, the stock market has risen to all-time highs. Billions—hundreds of billions—have been made by individuals on Wall Street.

Meanwhile, over 60,000 factories have closed in United States just in the past 14 years, and over 50 million Americans are either unemployed or underemployed.

In Europe, with the exception of the Scandinavian countries who are ignoring our economic advice, the situation is very similar. Other then Germany, which is becoming a major extractor of wealth from the rest of the EU, European countries and Great Britain are following the same fallacy that has been driving U.S. economic policy for more than 30 years.

The Financial Times lead their front page on June 29 with the warning [3] that "'Europhic' Capital Markets Are Out of Step With Reality, Warns BIS."

The article notes that capital markets are "extraordinarily buoyant," according to the Bank for International Settlements, and argues that central banks around the world "should not fall into the trap of raising rates 'too slowly and too late.'"

They correctly point out how low interest rates have caused an explosion worldwide of corporate debt.

Though it's not noted in the article, for-profit corporate banks have also discovered that instead of lending money to working-class people to buy homes or cars, it has become more profitable to simply borrow from central banks at very low interest rates, often less than 1%, and then park that money in government treasuries which pay 2% or 3%—in effect loaning the country's money back to the same government at a profit.

Similarly, huge transnational corporations from tech companies to pharmaceutical companies are hoarding cash in offshore tax havens where it's not available to stimulate local economies, or are making acquisitions based on fiscal strategies rather than how to best manufacture the best product.

Completely lost in the debate between the BIS and the IMF over stimulative central bank strategies is a simple economic fact. Economies are driven by demand, and the principal component of demand is wages.

Instead, theFinancial Times noted that the Bank for International Settlements is "calling for policymakers to halt the steady rise of debt burdens around the world and embark on reforms to boost productivity."

This echoes the old Reaganomics line that increased productivity equals a growing economy. Make more things and people will buy more things.

Productivity has been rising steadily in the United States since the 1930s, but since the early 1980s it has become uncoupled from wages, which have remained flat or fallen.

Even as individual companies become more productive, producing more goods with lower costs and less labor, the economy has been stagnant because there is little demand for those goods. And that's because of the simple Econ 101 maxim, dating back to Adam Smith: demand is what drives economies, and wages are the principal driver of demand.

The majority of American workers spend 100% or more (they go into debt) of their wages, and all but the top few percent of American workers save anything close to even 10% of their wages. It is their spending that creates demand.

As wages flatten or drop, and as the ability of unemployed people to continue buying things is undercut by Republican efforts to end long-term unemployment over the past six months, demand falls.

Meanwhile, large corporations, wealthy people, and banks are all making money simply by playing with money. This "financialization" of our economy is driving us to the edge of a massive crash.

Policymakers, from the Fed to the IMF to the BIS to the U.S. Congress and the White House should all be looking back at the lessons of the 1930s—because we're about to learn them all over again.

Wages for working people, not the wealth of the rich, corporate income, or banking profits are what both drive and sustain an economy. As long as those wages remain stagnant or falling, there will not be sufficient demand to keep an economy from collapsing under the weight of its own high-end gamblers and the growing debt of its young and working-class people just trying to get by.

While inflation hawks are hysterical about the possibility of our repeating the inflation of the 1970s if central banks raise their rates or stop buying bad corporate or good government debt, they fail to remember that most of the inflation of that era was driven by oil price shocks, and that it did not, by and large, impair the ability of average people to continue to gain wealth and buy homes.

With rare exceptions, inflation is not caused by government borrowing or "money printing," but by shortages in essential commodities. In the United States in the '70s it was principally oil shortages that drove inflation; more recently in Zimbabwe it was food. The intentional hyperinflation in 1920s Germany was simply a "screw you" response to the Treaty of Versailles, which imposed punishing debt on Germany for World War I, and which John Maynard Keynes warned [4] would provoke the next great war. He was right, and the conventional wisdom among international policymakers was wrong.

History—and the examples of Germany and Scandinavia—shows us that high levels of unionization, trade and taxation policies that favor the working class over the rich, coupled with heavy regulation of the banking and speculative industries, will build a strong and healthy working- and middle-class, and thus a strong and healthy economy. Instead, the United States and much of the EU still cling to Thatchernomics and Reaganomics, and the result is the continuing decline of both economies.

Until the corporate elite and our billionaire class are under control, and our working class can once again enter the middle class, we stand at the precipice of a great crash. Without vigorous governmental action to radically reduce student and working-family debt, increase wages, and suppress speculation, that crash comes closer to us every day.


Links:
[1] http://alternet.org
[2] http://www.alternet.org/authors/thom-hartmann
[3] http://on.ft.com/1rLUhue
[4] http://www.history.com/this-day-in-history/keynes-predicts-economic-chaos
[5] mailto:corrections@alternet.org?Subject=Typo on Why We Might Be on the Verge of Another Financial Crash
[6] http://www.alternet.org/tags/economy-0
[7] http://www.alternet.org/tags/banking-0
[8] http://www.alternet.org/tags/corporations
[9] http://www.alternet.org/tags/wages
[10] http://www.alternet.org/tags/markets-0
[11] http://www.alternet.org/%2Bnew_src%2B

A deepening global economic and financial breakdown

Go To Original

The annual report of the Bank for International Settlements, released last Sunday, points both to the depth of the global capitalist breakdown that began in September 2008 and the incapacity of the ruling economic and financial elites to advance any policies to resolve it.

In fact, as the report makes clear, the measures implemented after 2008 to try to save the global financial system from a complete collapse—the endless supply of ultra-cheap money—are creating the conditions for another meltdown. But the central banks, firmly in the grip of the financial elites with their insatiable profit demands, press on regardless.

Just as the geo-political system is increasingly coming to resemble a madhouse, with US imperialism staggering from one military disaster to the next, creating the conditions for world war, so the financial system, devoid of any rationality or logic, is on course for another meltdown, potentially bigger than the last one.

Far from having any solution, the authors of the BIS report appear mystified, pointing to the “puzzling disconnect between the markets’ buoyancy and underlying economic developments globally.”

Since 2009, share markets have steadily risen. They have surged to new record highs over the past year, while the global economy has experienced the lowest rate of “recovery” in the post-World War II period. The euro zone has yet to reach the level of economic output achieved in 2007.

The underlying disaster is even more evident when trend figures are considered. In the United States, where the economy underwent a 2.9 percent contraction in the first quarter of this year, the level of output is 12.5 percent below where it would have been had the pre-crisis trend continued. In Britain, the corresponding figure is 18.5 percent, while for Spain, one of the European countries hardest hit by the financial crisis, the figure is 29 percent.

Even after allowing for the fact that the pre-crisis trend could not have continued indefinitely, and applying what it called more “sophisticated statistical measures,” the BIS found that, on average, the post-crisis shortfall in the advanced economies was between 7.5 and 10 percent. It ruled out any return to higher growth rates, stating that “the prospects for restoring trend growth are not bright.” It pointed to falling productivity trends in the advanced economies and a lack of investment due to weak demand.

While the real economy stagnates, financial markets are positively euphoric. The BIS noted that Wall Street’s S&P 500 index gained almost 20 percent in the 12 months to May 2014, whereas expected future earnings grew by less than 8 percent over the same period. The price/earnings ratio for the index stood at 25 in May, six points higher than its average over the previous 50 years.

The disparity is the outcome of the program of “quantitative easing”—essentially, the wholesale printing of money—spearheaded by the US Federal Reserve as well as the Bank of England and the Bank of Japan. Even where they have not adopted the same policy, other central banks in countries such as Australia, Canada and the Nordic region have been forced to lower their interest rates, leading to a boom on share markets.

The outcome of the “extraordinary policy ease” has been a massive expansion of central bank assets. After growing rapidly in 2007, “they have more than doubled since then, to an unprecedented total of more than $20 trillion (more than 30 percent of global GDP).”

As a result, all the parasitic and outright criminal practices that led to the 2008 collapse are making a return. “Deal frenzy, animal spirits, merger mania—call it what you like, it is back,” the Financial Times noted in an article published earlier this week on the 75 percent rise in the value of global merger and acquisitions in the first six months of this year. Merger and acquisition finance hit $1.75 trillion and is now at its highest level since 2007.

Another article in the same newspaper stated that US firms were “adding record debt through mergers and acquisitions and share buybacks,” and that “to keep up with competition conservative asset managers are throwing in the towel and buying riskier products.”

According to a recent article published by the New York Times, in home loan markets, “subprime” is fading as a “dirty word.” While the level of subprime lending is not sufficiently large to enable loans to be bundled into securities for sale to investors, as took place in the period leading up to the crash of 2007–2008, “lenders say it is only a matter of time before the market for subprime mortgage-backed securities rebounds.”

The flood of central bank money is not only re-creating the conditions that led to the previous collapse, it is adding more potential flashpoints. Lower interest rates in the advanced economies have sent money pouring into so-called “emerging markets” in search of higher yields. But these inflows can reverse very rapidly, as was seen in the summer of 2013 and at the beginning of 2014 when central banks in a number of countries, including Turkey and South Africa, were forced to lift interest rates to stop an outflow.

While this turbulence was brought under control, a more significant disruption, on the scale of the Asian crisis of 1997–98, would have major implications because, as the BIS noted, emerging markets now constitute a much larger proportion of the world economy and are far more closely integrated into the global financial system.

While implicitly criticising the US Fed and other central banks for their “easy money” policies, the BIS does not have a policy to resolve the crisis. Rather, its criticisms are based on the recognition that flooding financial markets with money is only a short-term fix that raises enormous dangers.

The report contained repeated references to the need for “structural reform,” greater “flexibility” and fiscal consolidation—all code words for intensifying the global social counterrevolution.

This perspective is grounded on the political economy of global capital. While injections of money can provide an adrenalin-like boost, in the final analysis, capital, in vampire-like fashion, depends on sucking fresh life-blood out of the global working class through the lowering of wages, cuts in conditions and the intensification of exploitation.

New documents highlight sweeping NSA surveillance powers at home and abroad

Go To Original

Documents released by Edward Snowden, reported Tuesday in the Washington Post, show that the US government has granted the National Security Agency sweeping authorization to engage in mass spying worldwide.

According to the Post, a “classified legal certification” from 2010 and other documents leaked by Snowden show that the Foreign Intelligence Surveillance Court (FISC) authorized US intelligence to carry out unrestrained surveillance activities targeting at least 193 countries worldwide—every country except Australia, the UK, Canada, and New Zealand. The legal certification also authorized NSA surveillance against international institutions including the European Union, the International Monetary Fund, the International Atomic Energy Agency, and the World Bank.

Jennifer Granick of the Stanford Center for Internet and Society said of the 2010 document, “The breadth of the certification suggests that the court is authorizing the government to spy on average foreigners and doesn’t exercise much if any control beyond that.”

A 2010 affidavit in support of the certification authorizing surveillance of foreigners states that foreigners who “possess, are expected to receive and/or are likely to communicate foreign intelligence information” can be targeted. Such a definition can clearly be used to target foreigners, including journalists and academics, virtually at will, as well as their contacts within the US. A report from the office of the Director of National Intelligence released Friday confirmed that the US government surveilled at least 90,000 foreign targets in 2013.

The vague concept of “foreign intelligence information” makes practically any foreign communication a potential surveillance target, while also giving the intelligence agencies a back door to access the constitutionally protected communications of US citizens.

In what is known as “about the target” collection, the NSA has been acquiring communications on the basis that they merely include the e-mail address of another targeted internet user. This requires that the NSA accumulate and have the ability to search all e-mail communications.

Another recent report by researchers at Harvard University and Boston College, “Loopholes for Circumventing the Constitution: Warrantless Bulk Surveillance on Americans by Collecting Network Traffic Abroad,” found that loopholes in the legal framework governing surveillance leave US citizens “as vulnerable” as foreigners to the data collection efforts of the US government.

The report found that the NSA re-routes US data to locations outside the country as a means of “circumventing constitutional and statutory safeguards seeking to protect the privacy of Americans.” Legal rationalization for this practice stems from Executive Order 12333 (EO12333) and United States Signals Intelligence Directive SP0018 (USSID18), statutes that were drawn up and approved within the executive branch. According to the Electronic Frontier Foundation, USSID18 is “littered with loopholes” that allow the intelligence agencies to “over-collect, over-retain, and over-share Americans’ communications—all without a probable cause warrant or any judicial oversight.”

Together with EO12333, USSID18 effectively enables mass collection of data from US targets without a warrant. The NSA’s Operation MUSCULAR, which collects millions of files of data from Yahoo! and Google data centers and transmits them to agency headquarters in Fort Meade, Maryland, operates on the basis of EO12333 and USSID18 and the loopholes they contain.

EO12333 also authorizes deliberate re-routing of communications “to ensure that traffic between US endpoints takes an unusual path through a device located abroad,” according to the study. Renesys, an internet monitoring firm, found multiple instances of such “route hijacking” in 2013, in which US intelligence re-directed internet activity through countries such as Iceland and Belarus, where it could be surveilled under the pseudo-legal regulations set forth in EO12333.

The NSA says that EO12333 is the “primary legal authority” for its surveillance activities. This is significant because while the more widely known legal authorizations of surveillance, Section 215 of the Patriot Act and Section 702 of the Foreign Intelligence Surveillance Act (FISA) were established with congressional authorization, EO12333 is strictly a creation of the executive branch.

Within the framework of Executive Order 12333, the Obama administration has developed a secret guideline, the Special Procedures Governing Communications Metadata Analysis, which authorizes the NSA to generate social networks mapping the relationships of US and non-US citizens on the basis of their communications data.

EO12333 was signed in December of 1981 by President Ronald Reagan, to expand the powers of the Central Intelligence Agency (CIA) and other intelligence bureaucracies. USSID18 was issued as a secret “letter of promulgation” by the NSA in July 1993, with the now publicly available copy remaining highly redacted.

In other words, even if Congress rescinded all of its legislation authorizing surveillance, the NSA could still claim blanket powers to engage in mass data collection on the basis of secretive decrees issued from inside the executive branch and by its own administration.

More NSA bombshells can be expected in the immediate future. Glenn Greenwald of the Intercept delayed release of his latest story on NSA surveillance, rumored to contain names of US citizens targeted by US surveillance, in response to undisclosed claims by the US government about the content of the expose.

About one year out from the initial Snowden exposures, all claims to the effect that the surveillance programs are narrowly targeted and subject to rigorous legal and political control have been thoroughly discredited. Operating on the basis of secret legal authorizations and executive orders, the NSA is using every conceivable tactic to overcome and render impotent constitutional protections against warrantless spying.