Since the first assault on Turkey’s finances in 2018, which I wrote about multiple times (here, here, and here), I’ve been the lone voice telling everyone that President Recep Tayyip Erdogan is a lunatic but he’s a lunatic with a plan.

That plan is to de-dollarize the economy of a valuable member of NATO geostrategically.  Since the first shots across the bow by the Trump administration at Erdogan’s toying with those powers east of the Bosporus (Russia, China and Iran) the Turkish lira has been the primary mode of attack against Erdogan.

Erdogan has pursued what has been deemed unorthodox monetary policy since firing his Central Bank during the lira’s 2018 crisis. Then the Bank of Turkey wanted to raise interest rates to 30% to tame inflation. Erdogan, rightfully, in my opinion, stepped in and said no.

Earlier this year he went after Bitcoin exchanges to stem the tide against the lira and buddy back up to Davos a little, but they are more than wise to his game and Erdogan’s reckoning with them was always on the horizon. Today we’ve reached the horizon and the attack on the lira has him in his weakest state politically in all the years he’s been in power.

And with the lira blowing out to 18(!!) versus the dollar this week, Erdogan’s monetary policy has been all the news, especially with him promising to cut interest rates rather than raise them which is the conventional wisdom.

This blowout finally pushed Erodgan to unveil a new package of interventions to stabilize the lira.

The idea that monetary policy should only be conducted on the basis of creating ‘low inflation’ is nonsense, but that is what everyone focuses on with respect to interest rate policy.

It is certainly one factor, and as a committed Austrian in my thinking, I’d rather not even be talking about such things as central banks, monetary policy and what’s a sustainable rate of inflation, since that last part just sounds like a sustainable rate of theft.

But, I digress.

Erdogan was right to lower rates with the Fed raising rates in 2018 and 2019.  His central bank threatened to push rates to 30% and that would have broken the country.  He fired them and lowered rates, defying conventional wisdom.

Stop and think for a second. There is no reason why any currency should carry a 30% risk factor unless the the goal is to destroy it. Because nothing says you have no confidence in your own currency than someone paying 30% to borrow it.

At rational risk levels, where investment returns govern interest rates, yes there can be a somewhat linear relationship between central bank lending rates and price inflation. But to project that linearity, if it exists at all, out to positive and negative infinity is asinine.

I’d rather you think of the efficacy of interest rates vs. inflation as a sigmoid curve rather than a straight line.

If that wasn’t the case then the negative rates in Europe would have produced massive inflation by now and 20% rates in Turkey massive deflation by now.

But neither thing has come to pass because Keynesians, in their obsessions with aggregate demand, ignore both supply issues and marginal demand effects of policy.

In short, there comes a point where models break and the theory proves incorrect. So, with rates at 24% in 2018 not stemming inflation or the slide in the lira, what would be the point of going to 30%? If 30% didn’t work then 40%? 50%?

It’s this strict adherence to dogma which is the problem, as opposed to saying, “Hey, maybe at these rates other factors are more dominant than central bank lending?” That never enters into the thinking of even the most savvy analysts, preferring instead to parrot clearly broken models because it’s easier to throw shade at a lunatic with power (who may actually be right) than think through what’s actually happening.

There comes a point where one has to ask a series of important questions:

1. How did this crisis start?
2. Who benefits from it?
3. What would be the geostrategic goals of collapsing Turkey’s economy?

Because even the smartest, most savvy analysts always seem miss the bigger picture. Zerohedge has missed the boat in multiple articles, focusing on whether Erdogan’s new package of interventions will work or not, given the state of things.

But no one asked the question, “How does a country like Turkey see its currency with some of the highest interest rates in the world already, collapse over a five month period?”

How does something like this start? Without considering what prompted the slide you’re ignoring what causes it to end. Who has the motive to attack Erdogan through his currency?

Frankly everyone. Is there a limit to creating panic? And if that limit is reached what would it take to reverse it?

How to Lose Friends and Alienate People

The key thing to remember about Erdogan is the following. Everything he’s done, including taking control of the Bank of Turkey, has been to call out the IMF and the banking institutions of Europe as ravagers of emerging markets like the one he runs.

He categorically ruled out ever taking another dollar in aid from the IMF during the last time the lira was attacked (2019). Remember, as well, he’s convinced (and I have no reason to disbelieve him) that the coup in 2016 against him was orchestrated by the U.S. and NATO, his nominal security partners.

So, there are a lot of powerful people who have a history of wanting Erdogan gone. Now, at the same time he’s done very little to secure friends. But, then again there are no friends in geopolitics, only temporarily aligned interests.

So, after that first attack on the lira which took it from around 1.8 to over 7.0 versus the US dollar and he made nice with Trump, goin on a rampage across the eastern Mediterranean acting as NATO’s spear to undermine Russia’s efforts to stabilize North Africa, most notably his excursions in Libya and continued betrayals of the Russians in Idlib province of Syria.

Last year he backed Azerbaijan in the Nagorno-Karabakh conflict while selling drones to the UAF in Ukraine which he was then likely framed for encouraging the use of to escalate the conflict there to drive a further wedge between him and Russian President Vladimir Putin.

Putin, for his part, doesn’t care who rules Turkey as long as it isn’t a NATO satrap.  It’s why he’s put up with Erdogan’s nonsense.  He knows the situation on the ground would result in a Davos-backed ghoul coming to power.

With that in mind, the whys of getting rid of Erdogan are clear. Now let’s go one step further. What does getting control of Turkey mean geostrategically?

Clearly the 1936 treaty of Montreaux, which gives Turkey full control over what ships can pass through the Bosporus and Dardenelles, is the prize here.  Getting rid of Montreaux will allow NATO to bring ships into the Black Sea to ostensibly pressure Russia into giving up Sevastopol.

Good luck with that.

So, with the full court press on against Russia diplomatically by the U.S. with the EU doing its typical “Oh, woe are we, we have to go along with the evil Americans…” bullshit, it’s no surprise to me that Erdogan is under extreme pressure through Turkey’s biggest weakness, its currency, at the same time.

There are no coincidences in geopolitics.

Challenging the Orthodoxy

The collapse of the lira has been epic to behold.  And none of this is a defense of Erdogan per se. He’s a lunatic to be sure.

To create a collapse in a currency as weak as the lira was already takes a small net drop in marginal dollar inflow. Erdogan worked to reduce Turkey’s foreign-currency debt situation, but this was complicated by easy money from the Fed post Coronapocalypse.

De-dollarizing is hard if the country’s accounts are open and the Fed is at the zero-bound.

Once the Fed pulled back on foreign dollar liquidity in June the situation in Turkey was going to deteriorate.

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So, is the right response raising interest rates when they are already 1) stifling domestic investment in local currency and 2) retarding savings in that currency because of inflation?

NO. Raising interest rates is a statement by the Central Bank that it has lost the confidence of the market and it has low confidence in its ability to get things under control. Raising rates further only makes that perception that much more ingrained.

Truthfully, when has the IMF ever been right about ANYTHING!?

So, now let’s look at what Erdogan has done over the past three years, he’s run monetary policy exactly opposite of the Rest of the World (RoW).  He cut while the Fed was tightening. Then tightened while the Fed was easing and is now easing while the Fed is tightening (see Chart Above).

During all of this Turkey’s inflation has been crazy. But this is a consequence of zero-bound policies by the major central banks, flooding the world with dollars, euros, yen, etc. Remember, for us to not have inflation at home while printing trillions, the inflation has to be sent overseas.

Money printing leads to inflation always and without fail (Martin Armstrong’s lame protestations to the contrary). The question is where the inflation shows up and does the government include it in the CPI? Lies, damn lies, British Polling and Government Statistics, is how I think the saying goes.

But, back to Erdogan’s unorthodox methods. He actually rebuilt Turkey’s foreign exchange reserves, which no one gives him credit for and brought in more than 300 net tonnes of gold into the Turkish banking system.

Turkey’s current account deficit disappeared and by allowing the lira to properly fall because it was a mess in 2018, it improved Turkey’s trade balance.

Now, one could argue my embedded point above, that Turkey’s currency woes are a function of outside hot money flows pushing and pulling on the lira based on the geopolitics of the moment and say that once Erdogan was a good US lapdog, the pressure abated and nothing he did in 2019-2020 actually mattered.

Fair enough. But, then that begs the question what is he doing now?

And he’s made it clear that the goal is to de-dollarize the Turkish economy. That he’s going to take Turkey on the same path forced onto Russia and Iran in the last ten years — finding ways to be members of the global economic system of trade while using as few US dollars as possible.

Turkey has to do the same thing. And to do that you have to tell people you believe in both the lira and your ability to get things under control.

No Exit?

Erdogan has been fully cut loose by the West and they want him gone.  The polls in Turkey have moved against him and it’s now time for him to put up or shut up.

I said in 2019 there was no easy way out of Turkey’s predicament, that it would not be allowed to leave NATO without a major cost.  That cost will be a short-term hyperinflation of the lira and a radical reorganization of the country’s finances, trade partners and everything else.

European banks are still net short a lot of Turkish debt, blowing up the lira and potentially a bunch of Turkish banks would have big blowback effects on banks like Unicredit, BBVA and others.

That’s all the background stuff. Now let’s talk about what he’s actually doing. And the proof is in the details, which we only got on Wednesday.

The centerpiece of Erdogan’s de-dollarization strategy is a pledge to Turks that it was time to end their reliance on the U.S. dollar as the place to go in times of stress.  He would guarantee their savings in lira if it depreciates versus the rate of inflation.

Through the program, the government will compensate lira deposit holders if the currency’s value depreciates by more than the interest rate offered by banks on these deposits. The objective of the scheme is to stop retail demand for hard currencies like USD and EUR.

Now, many think this is just MMT(no!) or unbacked money printing (yes, but who cares in this world today?).

This is a bluff, ultimately, but given that all fiat currencies are bluffs then, again, so what? Turkish lira deposits are running double digit rates of return and U.S. rates are zero-bound, the question now is will this bluff be called?

Remember, the Fed is draining the world of dollars and has pledged to do so radically.

Erdogan has to do something to put reserves into Turkish banks, i.e. savings, and have that savings begin forming the pool of real capital for lending. And that pool of capital can’t come in from those hostile to Turkey. It has to come from Turks and those that still want to do honest business with them not subjugate them to the mercantilist machination of Malthusian fascists.

The conventional wisdom is that Turkey should be raising rates here to attract foreign capital.  But it is foreign capital that is the source of the lira’s weakness.  Why does a currency halve in 3 months?  Because foreign money pulls out en masse. 

Remember Question #2 above? Cui Bono?

The very people pulling their money out are the ones who run the IMF who then say, “Hey, we’ll give you a loan at reasonable rates to fix your short-term problems.” This is the standard Economic Hitman Playbook. Erdogan refuses to play that game.

The right move is to stiff-arm any foreign creditors dumb enough to think Erdogan won’t punish them, like what China is doing via Evergrande. Expect targeted defaults here by Turkish corporates. Expect favorable treatment by Erdogan for those that no longer have exposure to his enemies.

Because of Turkey’s importance, i.e. access to the Black Sea, he’ll be able to ask for help from Russia and China, who should be happy to help backstop Turkey in their quest to de-dollarize… for a price, of course.

And that price will be doing all trade between the three of them in lira, yuan and rubles… not dollars.  You wean the Turks off easy dollars by backstopping their savings, and cutting taxes on savings as well as investment taxes, which is also part of Erdogan’s package.

Here’s the full package thanks to Zerohedge:

1. A new Lira deposit instrument that will compensate depositors for losses from Lira depreciation. If the loss from Lira depreciation is higher than the interest gain on the deposit, the difference will be transferred to the depositor and will not be subject to withholding tax.

2. The TCMB will offer Lira forward rates to exporters having pricing difficulties due to the exchange rate volatility.

3. The withholding tax on returns from domestic government bonds will be removed. The withholding tax on corporate dividends will be reduced to 10%.

4. Exporters and industrialists will be given a corporate tax discount of 1pp.

5. The state contribution to the personal retirement system will be increased to 30%.

Yes, there are a lot of risks in this plan but only if there is more foreign money to pull out of the country. The reality is that people don’t run on the banks unless there has been an inciting incident to run the bank’s deposits.

And at some point you’ve pulled all the money out, at some point you reach peak panic and all it takes is someone having the confidence to put their ‘tuppence’ back in the bank’s hands. (You had to know I’d work a Mary Poppins reference in here somewhere.)

A Road to Somewhere New?

So, what if we’ve already seen the worst of the situation and the epic collapse both ZH and Goldman are betting on doesn’t materialize? Will someone finally figure out that central bank interest rates and inflation are something other than a linear relationship?

I heard this same crap in 2014-15 when Russia was going through the same blowup of the ruble. It fell alongside oil prices from 28 to 80 versus the dollar. The assault on oil prices was revenge on Putin for stopping the invasion of Syria by NATO. Russia was sanctioned to the point of forcing corporate debt re-denominations because there were corporate bond rollovers due.

This was the same issue that began the run on the Turkish lira in 2018.

Putin allowed the ruble to float freely, Nabullina at the Bank of Russia raised rates aggressively (to 15.5%), they liberalized a lot of the economy spurring new investment and accepted a yuan/ruble swap arrangement to get dollars into the country to assist in the paying out of the corporate debt.

It worked for Russia and I expect you’ll see the next pieces to the puzzle unveiled in due course as Turkey becomes the next node on the Asian anti-dollar currency bloc that’s forming.

Turkey’s debt to GDP ratio is low (39% in 2020). The government has plenty of room to take on the FX risk here and revalue a lot of the foreign currency debt which is the source of the trouble.

That Turkish banks can hold gold as a reserve asset directly means that as we move into a gold bull market thanks to the Fed finally admitting its lost control over inflation Turkish bank balance sheets will offset any lira weakness with gold now that the government has backstopped savings.

You’ll see more investment by both Russia and China in Turkey thanks to the devaluation, increasing tourism and local investment by their people.

There comes a point where you can only hurt a currency so much by pulling out foreign capital.  And once it’s all been pulled out all that’s left is people making do with what’s available.

Turkey is too valuable a piece of real estate and too valuable a partner geostrategically to let fall here. China needs it for OBOR; Russia for holding onto control of the Black Sea and Iran as a conduit through which it conducts trade while under extreme sanctions.

The West is taking a major shot at he Turks here. But the numbers we are talking to backstop the banking system there are peanuts versus the potential long-term benefits of cleaving Turkey from NATO for Russia and China.

I expect some of that newly-freed up capital within the Chinese banking system thanks to the PBoC easing will make its way through swaps into the Turkish system.

The thing is, with a strategy like this, you have to let things get so bad that the currency goes bidless.  Stocks go bidless etc.  It’s only then that you can attract the maximum amount of speculative money into the market as well as give your potential partners the best return on investment if they come to bail you out.

When there’s blood in the streets betting that it’ll become a river of blood is a bad bet. The better bet is that the madness of crowds is in the past and the immense opportunity to clean things up arrives.

This is what China did when they came in to stabilize the ruble in December 2014.  The announcement of a currency swap line arrangement between China and Russia is what marked the end of the ruble crisis.  Any Chinese money that flowed into Russian banks in 2015 did very very well as bond yields fell steadily until 2020 and the Coronapocalypse.

The same thing is going to happen here with Turkey.  And conventional wisdom will be wrong…. as always.

tomluongo.me

By Whitney WEBB

On Wednesday, an “industry-led and UN-convened” alliance of private banking and financial institutions announced plans at the COP26 conference to overhaul the role of global and regional financial institutions, including the World Bank and IMF, as part of a broader plan to “transform” the global financial system. The officially stated purpose of this proposed overhaul, per alliance members, is to promote the transition to a “net zero” economy. However, the group’s proposed “reimagining” of international financial institutions, according to their recently published “progress report,” would also move to merge these institutions with the private-banking interests that compose the alliance; create a new system of “global financial governance”; and erode national sovereignty among developing countries by forcing them to establish business environments deemed “friendly” to the interests of alliance members. In other words, the powerful banking interests that compose this group are pushing to recreate the entire global financial system for their benefit under the guise of promoting sustainability.

This alliance, called the Glasgow Financial Alliance for Net Zero (GFANZ), was launched in April by John Kerry, US Special Presidential Envoy for Climate Change; Janet Yellen, US Secretary of the Treasury and former chair of the Federal Reserve; and Mark Carney, UN Special Envoy for Climate Action and Finance and former chair of the Bank of England and Bank of Canada. Carney, who is also the UK prime minister’s Finance Advisor for the COP26 conference, currently cochairs the alliance with US billionaire and former mayor of New York City, Michael Bloomberg

GFANZ Leadership; Source: GFANZ

On its creation, GFANZ stated that it would “provide a forum for strategic coordination among the leadership of finance institutions from across the finance sector to accelerate the transition to a net zero economy” and “mobilize the trillions of dollars necessary” to accomplish the group’s zero emissions goals. At the time of the alliance’s launch, UK prime minister Boris Johnson described GFANZ as “uniting the world’s banks and financial institutions behind the global transition to net zero,” while John Kerry noted that “the largest financial players in the world recognize energy transition represents a vast commercial opportunity.” In analyzing those two statements together, it seems clear that GFANZ has united the world’s most powerful private banks and financial institutions behind what it sees, first and foremost, as “a vast commercial opportunity,” the exploitation of which it is marketing as a “planetary imperative.”

John Kerry in conversation with CNN’s Christine Amanpour at COP 26. Source: CNN

GFANZ is composed of several “subsector alliances,” including the Net Zero Asset Managers Initiative (NZAM), the Net Zero Asset Owner Alliance (NZAOA), and the Net Zero Banking Alliance (NZBA). Together, they command a formidable part of global private banking and finance interests, with the NZBA alone currently representing 43 percent of all global banking assets. However, the “largest financial players” who dominate GFANZ include the CEOs of BlackRock, Citi, Bank of America, Banco Santander, and HSBC, as well as David Schwimmer, CEO of the London Stock Exchange Group and Nili Gilbert, chair of the Investment Committee of the David Rockefeller Fund.

Notably, another Rockefeller-connected entity, the Rockefeller Foundation, recently played a pivotal role in the creation of Natural Asset Corporations (NACs) in September. These NACs seek to create a new asset class that would put the natural world, as well as the ecological processes that underpin all life, up for sale under the guise of “protecting” them. Principals of GFANZ, including BlackRock’s Larry Fink, have long been enthusiastic about the prospects of NACs and other related efforts to financialize the natural world and he has also played a key role in marketing such financialization as necessary to combat climate change.

As part of COP26, GFANZ— a key group at that conference—is publishing a plan aimed at scaling “private capital flows to emerging and developing economies.” Per the alliance’s press release, this plan focuses on “the development of country platforms to connect the now enormous private capital committed to net zero with country projects, scaling blended finance through MDBs [multilateral development banks] and developing high integrity, credible global carbon markets.” The press release notes that this “enormous private capital” is money that alliance members seek to invest in emerging and developing countries, estimated at over $130 trillion, and that—in order to deploy these trillions in investment—“the global financial system is being transformed” by this very alliance in coordination with the group that convened them, the United Nations.

Proposing a Takeover

Details of GFANZ’s plan to deploy trillions of member investments into emerging markets and developing countries was published in the alliance’s inaugural “Progress Report,” the release of which was timed to coincide with the COP26 conference. The report details the alliance’s “near-term work plan and ambitions,” which the alliance succinctly summarizes as a “program of work to transform the financial system.”

The report notes that the alliance has moved from the “commitment” stage to the “engagement” stage, with the main focus of the engagement stage being the “mobilization of private capital into emerging markets and developing countries through private-sector leadership and public-private collaboration.” In doing so, per the report, GFANZ seeks to create “an international financial architecture” that will increase levels of private investment from alliance members in those economies. Their main objectives in this regard revolve around the creation of “ambitious country platforms” and increased collaboration between MDBs and the private financial sector.

Per GFANZ, a “country platform” is defined as a mechanism that convenes and aligns “stakeholders,” that is, a mechanism for public-private partnership/stakeholder capitalism, “around a specific issue or geography.” Examples offered include Mike Bloomberg’s Climate Finance Leadership Initiative (CFLI), which is partnered with Goldman Sachs and HSBC among other private-sector institutions. While framed as being driven by “stakeholders,” existing examples of “country platforms” offered by the GFANZ are either private sector-led initiatives, like the CFLI, or public-private partnerships that are dominated by powerful multinational corporations and billionaires. As recently explained by journalist and researcher Iain Davis, these “stakeholder capitalism” mechanism models, despite being presented as offering a “more responsible” form of capitalism, allow corporations and private entities to participate in forming the regulations that govern their own markets and giving them a greatly increased role in political decision making by placing them on an equal footing with national governments. It is essentially a creative way of marketing “corporatism,” the definition of fascism infamously supplied by Italian dictator Benito Mussolini.

In addition to the creation of “corporatist” “country platforms” that focus on specific areas and/or issues in the developing world, GFANZ aims to also further “corporatize” multilateral development banks (MDBs) and development finance institutions (DFIs) in order to better fulfill the investment goals of alliance members. Per the alliance, this is described as increasing “MDB-private sector collaboration.” The GFANZ report notes that “MDBs play a critical role in helping to grow investment flows” in the developing world. MDBs, like the World Bank, have long been criticized for accomplishing this task by trapping developing nations in debt and then using that debt to force those nations to deregulate markets (specifically financial markets), privatize state assets and implement unpopular austerity policies. The GFANZ report makes it clear that the alliance now seeks to use these same, controversial tactics of MDBs by forcing even greater deregulation on developing countries to facilitate “green” investments from alliance members.

The report explicitly states that MDBs should be used to prompt developing nations “to create the right high-level, cross-cutting enabling environments” for alliance members’ investments in those nations. The significantly greater levels of private-capital investment, which are needed to reach net zero per GFANZ, require that MDBs are used to prompt developing nations to “establish investment-friendly business environments; a replicable framework for deploying private capital investments; and pipelines of bankable investment opportunities.” GFANZ then notes that “private capital and investment will flow to these projects if governments and policymakers create the appropriate conditions,” that is, enable environments for private-sector investments.

In other words, through the proposed increase in private-sector involvement in MDBs, such as the World Bank and regional development banks, alliance members seek to use MDBs to globally impose massive and extensive deregulation on developing countries by using the decarbonization push as justification. No longer must MDBs entrap developing nations in debt to force policies that benefit foreign and multinational private-sector entities, as climate change-related justifications can now be used for the same ends.

BlackRock CEO and GFANZ principal Larry Fink talks to CNBC during COP26. Source: CNBC

This new modality for MDBs, along with their fusion with the private sector, is ultimately what GFANZ proposes in terms of “reimagining” these institutions. GFANZ principal and BlackRock CEO Larry Fink, during a COP26 panel that took place on November 2, explicitly referred to the plan to overhaul these institutions when he said: “If we’re going to be serious about climate change in the emerging world, we’re going to have to really focus on the reimagination of the World Bank and the IMF.”

Fink continued:

They are the senior lender, and not enough private capital’s coming into the emerging world today because of the risks associated with the political risk, investing in brownfield investments — if we are serious about elevating investment capital in the emerging world… I’m urging the owners of those institutions, the equity owners, to focus on how we reimagine these institutions and rethink their charter.

GFANZ’s proposed plans to reimagine MDBs are particularly alarming given how leaked US military documents show that such banks are considered to be essentially “financial weapons” that have been used as “financial instruments and diplomatic instruments of US national power” as well as instruments of what those same documents refer to as the “current global governance system” that are used to force developing countries to adopt policies they otherwise would not.

In addition, given Fink’s statements, it should not be surprising that the GFANZ report notes that their effort to establish “country platforms” and alter the functioning and charters of MDBs is a key component of implementing preplanned recommendations aimed at “seizing the New Bretton Woods moment” and remaking the “global financial governance” system so that it “promote[s] economic stability and sustainable growth.”

As noted in other GFANZ documents and on their website, the goal of the alliance is the transformation of the global financial system, and it is obvious from member statements and alliance documents that the goal of that transformation is to facilitate the investment goals of alliance members beyond what is currently possible by using climate change-related dictates, rather than debt, as the means to that end.

The UN and the “Quiet Revolution”

In light of GFANZ’s membership and members’ ambitions, some may wonder why the United Nations would back such a predatory initiative. Doesn’t the United Nations, after all, chiefly work with national governments as opposed to private-sector interests?

Though that is certainly the prevailing public perception of the UN, the organization has for decades been following a “stakeholder capitalist” model that privileges the private sector and billionaire “philanthropists” over national governments, with the latter merely being tasked with creating “enabling environments” for the policies created by and for the benefit of the former.

Speaking to the World Economic Forum in 1998, Secretary General Kofi Annan made this shift explicit:

The United Nations has been transformed since we last met here in Davos. The Organization has undergone a complete overhaul that I have described as a ‘quiet revolution.” . . . A fundamental shift has occurred. The United Nations once dealt only with governments. By now we know that peace and prosperity cannot be achieved without partnerships involving governments, international organizations, the business community and civil society. . . . The business of the United Nations involves the businesses of the world.

With the UN now essentially a vehicle for the promotion of stakeholder capitalism, it is only fitting that it would “convene” and support the efforts of a group like GFANZ to extend that stakeholder capitalist model to other institutions involved in global governance, specifically global financial governance. Allowing GFANZ members, that is, many of the largest private banks and financial institutions in the world, to fuse with MDBs, remake the “global financial governance system,” and gain increased control over political decisions in the emerging world is a banker’s dream come true. To get this far, all they have needed to do was to convince enough of the world’s population that such shifts are necessary due to the perceived urgency of climate change and the need to rapidly decarbonize the economy. Yet, if put into practice, what will result is hardly a “greener” world but a world dominated by a small financial and technocratic elite who are free to profit and pillage from both “natural capital” and “human capital.”

Today, MDBs are used as “instruments of power” that utilize debt to force developing nations to implement policies that benefit foreign interests rather than their own national interests. If GFANZ gets its way, the MDBs of tomorrow will be used to essentially eliminate national sovereignty, privatize the “natural assets” (e.g., ecosystems, ecological processes) of the developing world, and force increasingly technocratic policies designed by global governance institutions and think tanks on ever more disenfranchised populations.

Though GFANZ has cloaked itself in lofty rhetoric of “saving the planet,” its plans ultimately amount to a corporate-led coup that will make the global financial system even more corrupt and predatory and further reduce the sovereignty of national governments in the developing world.

mintpressnews.com

On August 15th, 1971, the then-president of the United States, Richard Nixon, made an eighteen-minute speech to the country whose effects impacted the world. Among other subjects, he announced the end of the dollar-gold parity, which was a shock.

First of all, that decision meant the death of the Bretton Woods Monetary System without telling what would replace it. This fact represented an abrupt change in the international economic order. Secondly, Nixon’s initiative undermined the economic development strategies used since 1947, when the Cold War had started. Those strategies were called “development by invitation” in the center countries and “national developmentalism” in the peripheral ones. Thirdly, the decision strengthened the attacks against the dollar as the main currency in the world, putting more pressure on the international currency hierarchy since then. Finally, in the history of monetary standards, the abandonment of precious metals, as a reference of value, revealed the “charter nature” of money to the detriment of the metallist one.

In the debates on the Bretton Wood system, from its birth and development to its crisis and implosion, a particular narrative seems to prevail. This mainstream interpretation ascribes to the traumas of the great social-economic crisis in the thirties, the system’s origins. Besides the austerity public policies and the automatic recessive adjustments, at the heart of the twenties’ liberal economic order was the freedom of capital movements, whose behavior destabilized the exchange rates, the payments balances, and even the national economies. They were the root causes of the great depression of the thirties, mainly after the Wall Street crash of 1929 when the social and economic context got pretty worse. This scenario fostered the rise of far-right wings mainly in Europe, which created the elements of the beginning of the Second World War.

According to this view, to avoid another experience such as the great economic depression of the thirties and its disastrous effects, the diplomatic representatives of forty-four countries gathered in July 1944 in Bretton Woods, aiming to negotiate a new economic order to the post-war. The talks concluded that the most relevant cause of the economic crisis was the financial capital and its liberty to act against markets, currencies, and national economies. The central proposal was to guarantee the autonomy of the national economic policies. For this reason, they agreed on some points. For instance, capital controls; a system of fixed exchange rates but manageable when necessary; and stabilization funds via IMF without counterparts of recessive policies. It was a victory of Keynesianism against liberal economic orthodoxy. The very participation of John Maynard Keynes as the British government representative in the negotiations was a symbol of it, despite his defeat in defense of a supranational currency, the Bancor, as a new monetary standard.

As a result, the capitalist world, mainly Europe and Japan, achieved excellent economic outputs during the 50s and 60s in terms of product, income, and employment growth, just as international trade and foreign direct investments.

Finally, the mainstream narrative alleges that, during the period, the deficits in the U.S. balance of payments led to the sprawl of the dollar liquidity in the international system without an increase in the Fed’s gold reserves. According to this argument, the military spending growth due to the Vietnam War, above all, triggered such macroeconomic imbalances. So, pressures and speculative attacks against the dollar-gold parity became inevitable. Therefore, in 1971, the situation turned out to be unsustainable.

Nevertheless, from a geopolitical view, it is possible to consider another interpretation for the Bretton Wood system, from its creation to its collapse. First of all, although the authorities of different countries had signed the accords in July 1944, since Roosevelt’s death in March 1945, relevant parts of the agreements were shelved. Henry Morgenthau and Harry White, architects of the postwar new economic order, lost room in the Truman administration. In their place, the bankers constrained the president to implement the Key Currency Plan, which proposed to rebuild a liberal international financial order as it had been in the twenties. However, the new system would rest on the dollar and Wall Street instead of the Pound and the City. Regarding Germany and Japan, the new U.S. orientation aimed to wreck their large industrial conglomerates, transforming their national economies into semiperipheral ones.

Indeed, the international economic order established from 1945 to 1947 operated quite differently than the Agreements of 1944, and the results were terrible. The attempts to recover the national economies stumbled upon the dollar shortage and the difficulties in the Balances of Payments. In this context, the financial capitals in Europe ran to the United States, destabilizing the exchange rates, the external accounts, and, therefore, the national economies in Western Europe. As is natural to all liberal finance orders, not considering capital controls was the core of the economic problems.

Furthermore, during the war, Josef Stalin expanded the borderlines of the Soviet Union and its area of influence to a position unthinkable to any Romanov Emperor. Not to mention that Russia found itself, for the first time in its history, without a single great rival power in all of Eurasia, as said by George Kennan himself, in an official document of May 1945, entitled The International Position of Russia at the End of the War with Germany.

Anyway, the change in the strategy of the Truman Administration lingered to happen. And it took place only in 1947 for two reasons: the civil war in Greece between the old monarchy supported by the British against the anti-fascist forces led by communists and upheld by the Kremlin; and the pressure of Moscow on Ankara to control territories in Anatolia and install two military bases at the straits. Since then, the U.S. president opted for occupying part of the Rimland that Nicholas Spykman had written about before, in his book of 1942, America’s Strategy in the World Politics.

From a geo-historical point of view, it meant a long-standing tradition of Anglo-Saxon geopolitical thought of maintaining Russia outside of the Mediterranean Sea. Its roots had already been in the British imperial policy of the 19th century, as the Greek independence process during 1821-1830 demonstrates.

The head orientation of the new security doctrine launched by Truman in 1947 pointed to the necessity of permanent and global containment of the USSR. The objective was to freeze their respective areas of influence, leaving both countries, in effect, in a continuous opposition against each other. The U.S. projection of securities lines from their Atlantic borders to the Eurasian continental mass required the stabilization of the new disputed regions, mainly in the fimbriae of Asia. Working out the social and economic problems in these regions became part of the U.S. national security strategy. And, at that moment, the main actions prioritized Europe and Japan.

Then, to avoid the Soviet projection in a Europe marked by a severe economic crisis, the United States resumed rebuilding an international order focused on national product expansions, income growths, and employment improvements. The Marshall Plan and the rescue of the Bretton Woods proposals shaped the core of American economic initiatives. Therefore, both of them had a main geopolitical objective. They were an expression of the submission of the economic order to the geopolitical one. In other words, one could define both Marshall Plan and Bretton Woods system as pieces of economic geostrategy of a new kind of conflict, born around 1947, the Cold War. So, the starting point of the Bretton Woods implementation relies essentially on geopolitics, not on social-economic traumas from the thirties. It could be said, in this way, that the Soviet Union and its leader, Josef Stalin, were respectively the entity and personal genuinely responsible for the economic reconstruction of Europe and the Bretton Woods system’s birth.

As a result, the United States could stabilize the national economies in the sensitive regions relative to Cold War and freeze the frontiers with the communist nations. In the limit, they promoted a quarter-century of extraordinary development in first-world countries. In short, the Cold War was the background that allowed the Bretton Woods System to work out from 1947 until the moment when the U.S. economic strategy to its geopolitical struggles changed.

Concerning Bretton Woods’ contradictions, the creation of Euromarkets in 1958 within England, supported by U.S. authorities, allowed the British government to conciliate two different challenges: on the one hand, carrying out a growth-oriented economic policy; and, on the other, defending London’s position in the international financial business. However, these new markets, out of the control of any monetary authorities, expanded more and more the dollar liquidity in the system.

Unlike the mainstream narrative, the U.S. external accounts weren’t unbalanced, shown in the rather unexpressive U.S. compensatory capital flows in its Balance of Payments during the Bretton Woods period. Part of the system dollar liquidity arose from what Charles Kindleberger [1] and Hyman Minsky [2] described as the deepening process of resources inflows and outflows from the United States to the world. While the Trade Balance and the Current Account were positives, the U.S. Capital Account was negative due to the Foreign Direct Investment. So, the pressure against the dollar-gold parity didn’t come from the supposed deficits in their external accounts. It stemmed from the financial markets, whose operations manifolded without restrictions to the dollar assets in the capitalist world, namely, Euromarkets. The problem was that it occurred without a counterpart of growth in the Fed’s gold reserves.

Therefore, if the Bretton Woods implementation were geopolitical and not due to the traumas of the thirties’ economic crisis, its contradictions came from the Euromarkets and not from the North American external accounts’ imbalances. In turn, its existence depended on how useful it would be to U.S. foreign policy.

In 1969, the international context changed expressively. If Bretton Woods System had already promoted the most important historical era of capitalism, the Soviet Union had also achieved substantial strategic improvements in the 60s. There had been its nuclear weapons’ progress, the strengthening of its navy, the development of edge-cutting aerospace technology, and the expansion of its oil production, among others. And this new Soviet success in the 60s had pressured not only the United States and its allies from the first world but also the Popular Republic of China. In that background, Beijing signalized to Washington a careful approach in 1969. The Nixon administration, in turn, took advantage and started the Triangular Diplomacy. Since then, the American government implemented concessions to Beijing and Moscow, such as reductions of economic sanctions.

For example, in that year, the United States created new legislation, altering the Export Control Act of 1949. Later, in April 1971, only three months before the famous Nixon’s speech, the United States lifted some previous restrictions once more. It allowed the purchase of dollars by China and USSR to encourage their import of products from the capitalist world. So, a valuable triangular diplomacy result was the beginning of the entrance process of China and the Soviet Union into the dollar monetary territory on the eve of the end of the Bretton Woods System.

When Nixon addressed the American people on television in August 1971, the strategy of 1947 had already achieved its economic aims. Besides, Japan and Germany had already become strong adversaries in the international economic competition. Not to mention, the Bretton Woods contradictions still required efforts and coordination with the Europeans and Japanese in financial governance, such as in the Gold Pool and the IMF due to Special Drawing Rights, which sometimes was causing tension and opposition among them. Finally, the Bretton Woods System still enforced restrictions on the U.S. managing their economic policy, as in the dollar-gold parity defense.

Richard Nixon started his famous speech by mentioning: alleged advances in “achieving the end of the Vietnam War,” the “challenges of peace,” despite not specifying them, and the “prosperity without military conflicts.” Next, he connected the last of these issues directly to jobs creation in the United States, control of the internal cost of living, and dollar protection, going quickly from tricky subjects of international relations to national issues in daily life. Then, Nixon announced some economic measures with an orthodox bias to encourage the employment increase, for example, tax reductions and spending cuts. He also ordered radical heterodox economic policies to contain the rise in prices: the freeze on all prices and wages for 90 days.

The population was likely astonished and pretty worried about such sort of economic measures, because it always creates graves problems of relative price imbalances. Probably, when Nixon approached the theme of “protection the position of the American dollar as a pillar of monetary stability around the world,” as he said, the attention in the country was still in the freeze on prices and salaries.

After describing the speculators’ efforts in “waging an all-out war on the dollar,” he argued that the strength of a nation’s currency rests on the strength of that nation’s economy. And, then, Nixon claimed the U.S. position in the international monetary hierarchy by saying that “the American economy is by far the strongest in the world.” Next, he clarified the U.S. disposition when he ordered the Secretary of the Treasury to take any necessary action to defend the dollar. And, finally, he announced what would be unthinkable until that moment: the suspension of the dollar-gold convertibility. According to him, a bugaboo that it should lay to rest.

For the domestic audience, Nixon justified the decision by the devaluation advantages to the American-made products in America. For that matter, he also imposed an additional tax of 10% on goods imported into the United States.

Nixon announced the abandonment of the old economic geostrategy inaugurated in 1947 by the Truman administration. He pointed that economies of the major industrial nations of Europe and Asia had become strong competitors against the United States. Then, there was no longer any need for “the United States to compete with one hand beyond her back.” According to Nixon, the time had come for first-world nations to compete as equals. In other words, President Nixon put an end to the development by invitation, except for China, which had been engaging in a strategic rapprochement with the United States.

Summarizing the argument, before 1969, as long as the foreign policy hadn’t changed, the successive U.S. administrations had carried on upholding the Bretton Woods System and its aims, despite its contradictions. To circumvent its problems, they had implemented some efforts, as Gold Pool, Special Drawing Rights, etc. Therefore, during the Cold War’s first decades, the U.S. support for the Bretton Wood order had occurred since this economic system had reached its geopolitical objectives. However, since the international context had changed expressively in the 60s, the economic order had become more and more inappropriate. It had depleted as a Cold War’s strategic instrument, and it had been inadequate and outdated for the new geopolitical struggles and geoeconomic challenges. In other words, the emergence of new economic competitors and mainly the outcomes of Soviet projection in the system brought shifts in U.S. foreign policy in 1969, originating the triangular diplomacy. And, two years later, in 1971, the United States unilaterally abandoned the Bretton Woods Agreements.

It sounds ironic that the most significant historical experience of western capitalism was related to Stalin’s strategy of enlarging the Soviet frontiers in the context of the Second World War and the capacity of the Soviet Union to respond to the Cold War against the United States, mainly during the 60s.

[1] Kindleberger, Charles. P. A Financial History of Western Europe. Oxford University Press, 1993. (p. 453).
[2] Minsky, Hyman. Financial Integration and National Economic Policy. In: Ciclo de Seminários, 25 anos de economia na UNICAMP, Campinas, agosto-outubro de 1993. (p. 17-18).
[3] Grzybowski, Kazimierz. Control of U.S. Trade with China: an overview. Law and Contemporany Problems, 175-181. Summer, 1973. (p.180)

It is not just in the United States that the results of supposedly democratic, “free and fair” elections should raise eyebrows. On Sunday, conservative businessman Gullermo Lasso swept to an apparently clear 5 percent victory margin in tropical Ecuador winning more than half (52.5 percent) of the popular vote over leftist candidate Andrés Arauz. Now he is looking forward to taking office and power in Quito on May 24.

But Lasso must now navigate political clouds and conflicts ahead. The Correismo bloc, named after former popular, reelected former President Rafael Correa who ran the country for a decade from 2007 to 2017, still remains powerful in Congress. And questions linger and are likely to grow over Lasso’s victory, one of the most dramatic ‘come-from-behind’ upsets in the political history of any country.

For in the first round of voting on February 7, Lasso only attracted a derisory 19 percent of the vote: Arauz, the would-be successor and political heir to Correa, had a commanding lead with 32 percent. Even Lasso and third-place candidate Yaku Perez a “Green” environmentalist-focused lawyer who claimed to be a “progressive” but who was suspiciously weak on serious economic issues, together only attracted 38 percent in all.

Lasso therefore leaped from 19 percent to 52 percent in a single bound in the April 11 vote, making him the political Superman of Ecuador politics (and he has never shown any particular charisma or other political superpowers). Or he was the beneficiary of some very determined skullduggery?

For very powerful interests operating in Ecuador were horrified at the thought of Aruaz winning. He had made clear he was determined to renegotiate a crippling $6.5 billion debt repayment agreement with the International Monetary Fund (IMF), which Lasso will now certainly honor. Arauz had also made plain he wanted to challenge previous U.S. untrammeled control of a key strategic air base in the Galapagos Islands thousands of miles out in the Pacific Ocean. U.S. occupation of that base will now continue untroubled.

Most of all, Aruaz offered the real prospect of cracking down at last on the mighty Colombian drug cartels and their associates in Peru: the two countries that produce the largest output of raw material for cocaine in the world. That is not going to happen now either.

And possibly even more alarming for Washington policymakers, Arauz remained determined to hold Washington’s favorite, previous President Lenín Moreno, a hard right reactionary despite his colorful first name, as legally responsible for his handling of the little Ecuador’s disastrous ravaging by the coronavirus pandemic.

This last issue has enormous hemispheric repercussions ranging far beyond Ecuador. For if Arauz had won, he would have launched his investigation into Moreno’s catastrophic coronavirus response record before him. And that would have established a precedent that could have led to Donald Trump’s beloved President Jair Bolsonaro being held equally responsible for the coronavirus response catastrophe in giant Brazil with its population of more than 200 million people.

Pressure is already building on Bolsonaro: On April 8, a Brazilian Supreme Court justice ordered the country’s Senate to investigate the Bolsonaro government’s handling of the coronavirus crisis. The last thing Bolsonaro needed was for a new idealistic social democratic reform president in the same hemisphere to set a precedent for probes into his own incompetent and catastrophic record in failing to deal with the pandemic.

U.S. hostility and paranoia have doomed countless social democratic reformers across the Western Hemisphere over the past 110 years, Arauz has been at pains to reassure IMF officials and bankers alike. While still determined to renegotiate Ecuador’s debt burden, he told Agence France-Presse in an interview the week before the election. We are not going to declare a moratorium against the IMF.”

However, Arauz remained determined to ease the massive burden that the Western financial institutions have imposed upon the long suffering people of his country. His goal for a renegotiated agreement with the IMF was to slow down the slashes in public spending that the body had demanded. He also wants to keep U.S. dollars in Ecuador to enhance economic activities.

In dealing with the drug trade too, Arauz remains determined to protect his overwhelmingly impoverished people sandwiched as they are between the world’s two biggest cocaine producers – Colombia and Peru.

“We cannot forget that the United States is the [main] consumer country of drugs in the region and on the planet,” Arauz told AFP. “Given that, we aim to adjust the cooperation conditions. There must be cooperation with the United States, Mexico, the Central American countries and our neighbors.”

But now that is not going to happen: As Wayne Madsen rightly predicted in these columns, the top officials of the Biden administration will courteously applaud Lasso’s victory. The toothless, senile old watchdogs of the U.S. Mainstream Media will remain silent and obedient on events in Ecuador. Business as usual will continue.

Pepe ESCOBAR, Michael HUDSON

Michael Hudson: Fifty ago, I wrote Super Imperialism about basically how America dominates the world financially and gets the free ride.

I wrote it right after America went off gold in 1971, when the Vietnam War, which was responsible for the entire balance of payments deficit, forced the country to go off gold. And everybody at that time worried the dollar was going to go down. There’d be hyperinflation. And what happened was something entirely different.

Once there was no gold, America strong-armed its allies to invest in U.S. Treasury bonds because their central banks don’t buy companies. They don’t buy raw materials. All they could buy is other central bank’s treasury bonds. So, all of a sudden, the only thing that other people could buy with all the dollars coming in were U.S. Treasury securities.

And the securities they bought essentially were to finance yet more war making and the balance of payments deficit from war and the 800 military bases America has around the world. And the largest customer, I think we discussed it before, are the Defense Department and the CIA that looked at it [Super Imperialism] as a how-to-do it book. Well, that was 50 years ago.

 

And what I’ve done is not only re-edit the book and add more information that’s come out, but I’ve picked up the last 50 years and how it’s absolutely transformed the whole world. And it’s a new kind of imperialism.

There was still a view 50 years ago that imperialism was [essentially] economic. And this is the view that there’s still a rivalry for instance, between America and China or America and Europe and other countries.

But I think the whole world has changed so much in the last 50 years that what we have now is not really so much a conflict between America and China or America and Russia, but between a financial system economy run by finance and an economy run by governments — democratic or less democratic, but certainly a mixed economy.

Well, everything that made industrial capitalism rich, everything that made America so strong in the 19th century, through its protective tariffs, through its public infrastructure investment all the way down through World War II and the aftermath. We had a mixed economy in America, and that was very balanced. Europe had a mixed economy. Every economy since Babylon and Rome has been a mixed economy, but in America you’ve had since 1980 something entirely different. That was not foreseen by anybody because it seemed to be so disruptive.

And what that was, was the financial sector saying we need liberty and by liberty, meaning we have to take planning and subsidy and economic policy and tax policy out of the hands of government. And put it in the hands of Wall Street.

And so, libertarianism and free market is a centralized economy that is centralized in the hands of the financial centers, Wall Street, the City of London, the Paris Bourse. And what you’re having today is the attempt of the financial sector to take the role that the landlord class had in Europe, from feudal times through the 19^th century.  It’s a kind of resurgence.

If you look at the whole last 200 years of economic theory — from Adam Smith and, Henry George and Marx, onward — the whole idea was that everybody expected a mixed economy to become more and more productive and to free itself from the landlords, to free itself from banking to make land a public utility.

That was the tax base to make finance basically something public, and government would decide who gets the funding and thus, the idea of finance in the public sector was going to be pretty much what it is in China. You create bank credit in order to finance capital investment in factories. It means the production of machinery, agricultural modernization, of transport, infrastructure of high-speed trains of ports and all of that.

But in the United States and England, you have finance becoming something completely different.  Banks don’t lend money to factories. They don’t want money to make means of production. They make money to take over other assets. Eighty percent of bank loans are mortgage loans to transfer the ownership of real estate. And of course that’s what created a middle class in the United States.

The middle class was able to buy its own housing, it didn’t have to pay rent to landlords or absentee owners or warlords and their descendants in England and Europe. They could buy their own. What nobody realized is that if you borrowed the money to take a mortgage, there’s still an economic rental value that is not paid to the landlords. It’s paid to the banks. And so, in the Western civilizations in America and Europe, the banks have played the role that the landlords played a hundred years ago.

And just as the landlord is trying to do everything they could through the House of Lords in England and the upper houses of government in Europe, they’re trying to block any kind of democratic government. And the fight really is against government that would do anything that is not controlled by the 1 percent, by the banks. Essentially the merger between finance insurance and real estate; the FIRE sector. So, you have almost a relapse of capitalism in the West back into feudalism, but feudalism with a financialized twist much more than it was in medieval times.

The fight against China, the fear of China is that you can’t do to China, what you did to Russia.  America would love for there to be a [former Russian President Boris] Yeltsin figure in China to say, just give all of the railroads that you’ve built, the high-speed rail, the wealth, all the factories to individuals. And let the individuals run everything and, then we’ll lend them the money, or we’ll buy them out and then we can control them financially.

And China’s not letting that happen. And Russia stopped that from happening. And the fury in the West is that somehow, the American financial system is unable to take over foreign resources, foreign agriculture. It is left only with military means of grabbing them as we are seeing in the near East. And you’re seeing in the Ukraine right now.

Chinese President Xi Jinping, left, with Russian President Vladimir Putin during a state visit to Moscow. (Kremlin)

Pepe Escobar: Well, as an introduction, Michael that was perfect because now we have the overall framework — geo-economic and historically — at least for the past 70 years.

I have a series of questions for you. I was saving one of these for the end, but I think I should start really the Metallica way. Let’s go heavy metal for a start, right?

So considering  what you describe as a new kind of imperialism and the fact that this sort of extended free lunch cannot apply anymore because sovereigns around the world, especially Russia and China, I tried to formulate the idea that there are only three real sovereign powers on the planet, apart from the hegemon; Russia, China, and Iran, these three, which happen to be the main hub and the main focus of not only of the New Silk Roads but of the Eurasia integration process, they are actively working for some sort of change of the rules that predominated for the past 70 years.

So my first question to you would be, do you see any realistic possibility of a, sort of a Bretton Woods 2.0, which would imply the end of the dollar hegemony as we know it, and petrodollar recycling on and on and on, with the very important presence of that oily hacienda in the lands of Arabia. And do you think this is possible considering that President [Vladimir] Putin himself only a few days ago reiterated once again that the U.S. is no longer agreement- capable?  So that destroys already the possibility of the emergence of the new rules of the game. But do you think this is still realistically possible?

Michael: I certainly do not see any repetition of a Bretton Woods because as I described in Super Imperialism, the whole of Bretton Woods was designed to make American control over Britain, over Europe total. Bretton Woods was a U.S.-centered system to prevent England from maintaining its empire. That’s okay. To prevent France from maintaining its empire and for America to take over the sterling area and, essentially with the World Bank, to prevent other countries from becoming independent and feeding themselves, to make sure that they supported plantation agriculture, not land reform. The one single fight of the World Bank was to prevent land reform and to make sure that America, and foreign investors, would take over the agriculture of these countries.

And very often people think of capitalism, certainly in the sense that Marx described in Volume One, capitalism is the exploitation of wage labor by employers. But capitalism also is an appropriation of the land rent, the agricultural rent, the natural resource rent, the oil and the mineral rent. And the idea of Bretton Woods was to make sure that other countries could not impose capital controls to prevent American finance coming in and appropriating their resources, of making the loans to foreign governments so that governments would not create their own money to promote their own social development but would have to borrow from the World Bank and the IMF, which essentially meant from the Pentagon and the State Department, in U.S. dollars.

World Bank headquarters in D.C. (Bruno Sanchez-Andrade Nuño, Flickr)

 

And they would dollarize their economies and the economies would all be sucked. The economic rents from oil, agriculture, mining would all be sucked into the United States. That kind of Bretton Woods cannot be done again. And since Bretton Woods was an idea of centralizing the world’s economic surplus in a single country, the United States, no, that can never be done again.

What is happening? You mentioned the world of free, free lunch, and that’s what was a theme of Super Imperialism, when America issues dollars, for these all end up in central banks and they hold the dollars as a surplus. That means what can they do? All they can do is really lend them to the United States. America got a free lunch. It could spend and spend on its military, on bumping up corporate takeovers of other countries. The dollars have come in and foreign countries couldn’t cash them in for gold. They had nothing to cash them into. And all they could do is finance the U.S. budget deficit by buying Treasury bills.

That’s the irony now, what has happened in the last few years in the fight against Russia and China is America has killed the free lunch because it said, okay, now we’re going to have sanctions against Russia and China. We’re going to all of a sudden grab whatever money you have in foreign banks like we grabbed Venezuela’s money. Let’s go, we’re going to excommunicate you from the bank clearing system. So, you can’t use banking. We’re going to put sanctions against banks that deal with you.

So obviously Russia and China said, okay, we can’t deal with the dollar anymore, because the United States just crammed them. And if we do have dollars, we’re just going to hold everything in reserves and lending to the United States, the dollars that it’s going to spend building more military bases around us to make us waste our money on monetary spending. And so, America itself by the way, in fighting against China and Russia, has ended the free lunch.

“In America you’ve had since 1980 something entirely different. That was not foreseen by anybody because it seemed to be so disruptive.”

And now, Russia and China as you pointed out, are de-dollarizing, they’re trading in each other’s currency. They’re being the exact opposite of everything that Bretton Woods tried to create. They’re trying to create independence from the United States.

If Bretton Woods is this dependence on the United States, a centralized system dependent ultimately on Wall Street financial planners then, what China and Russia are trying to create is an economy that’s not run by the financial sector, but it is run by, let’s say, industrial and economic engineering and saying, what kind of an economy do we need in order to raise living standards and wages and self-sufficiency and preserve the environment, what is needed for the ideal world that we want?

Well, in order to do that, you’re going to have to have a lot of infrastructure. And in America, infrastructure is all privatized. You have to make a profit. And once you have infrastructure, a railroad or electric utility, like you see in Texas recently, it’s a monopoly. Infrastructure, for 5,000 years, Europe, the near East, Asia was always kept in the public domain that goes, if you’ll give it to private owners, they’ll charge a monopoly rent.

Well, the idea that China has is, “OK, we’re going to provide the educational system freely and let everybody try to get an education.” In America if you have an education, you have to go into debt for the banks for between $50,000 and $200,000. And whatever you make you’re going to end up paying the bank while in China, if you give free education, the money that they earned from the education will be spent into the economy, buying the goods and services that they produce, and the economy will be expanding, not shrinking, not having it all sucked out into the financial banks that are financing the education, same thing with the railroads, same things with the healthcare.

If you provide healthcare freely then the employers do not have to pay for the healthcare because that’s provided freely. In the United States, if the  corporation and the employees have to pay for healthcare, that means that the employees have to be paid a much higher wage in order to afford the healthcare, in order to afford the transportation that gets him to work, in order to afford the auto loans, in order to drive to work, all of this is free, or subsidized in other countries, who create their own credit.

In the United States and Europe, governments feel that they have to borrow from the wealthy people in a bond and pay interest. In China they say, “we don’t have to borrow from a wealthy class. We can simply print the money.” That’s Modern Monetary Theory. As Donald Trump has explained in the United States, we can print whatever we want. Dick Cheney said, deficits don’t matter. We can just print it.  And of course, Stephanie Kelton and my colleagues in MMT at Kansas City for many years have been saying.

“The economy has been saturated and Reaganized and the result is a fight of economic systems against China and Russia.”

The banks fear this because they say, “Wait a minute, Modern Monetary Theory means it’s not feudal monetary theory. We want feudal monetary theory. We want the rich people to be able to have a choke point on the economy that you can’t survive unless you borrow from us and pay us interest. We want the choke points.” That’s called economic rent.

And so, you have the West turning into a rent-extractive economy, a rent-seeking economy. And you’ll have the whole ideal of Russia, China, and other countries being the ideal of not only Marx, but Adam Smith, John Stuart Mill, Ricardo. The whole of classical economics was to free economies from economic rent. And the American economy is all about extracting rent through the real estate sector, the financial sector, the health insurance sector, the monopolies and infrastructure sector.

The economy has been saturated and Reaganized and the result is a fight of economic systems against China and Russia. So, it’s not simply that, there’s a fight between who makes the best computer chips and the best iPhones. It’s: are we going to have a fallback of civilization back into feudalism, back into control by a narrow class at the top of the economy, that 1 percent? Or are we going to have the ideal of democratic industrialization that used to be called socialism but it was also called capitalism. Industrial capitalism was socialism; it was socialized medicine, it was socialized infrastructure, it was socialized schooling. And so, the fight against socialism is a fight against industrial capitalism, a fight against democracy, a fight against prosperity.

[See previous coverage:  The Consequences of Moving from Industrial to Financial Capitalism]

That’s why what you’re seeing now is a fight for what direction civilization will go into. And you can’t have a Bretton Woods for a single kind of organization because the United States would never join that civilization. The United States calls a country trying to make its labor force prosperous, educated and healthy instead of sick with shorter lifespans, they call it communism or socialism.

Well, it can call it whatever it wants, but that’s the dynamic we are talking about.

Pepe:  Well, you put it very, I would say starkly. The opposition between two completely different systems, what the Chinese are proposing, including, from productive capitalism to trade and investment all across Eurasia and beyond, including Africa, parts of Latin America as well. And the rentier obsession of the 0.01 percent that controls the U.S. financial system. In terms of facts on the ground, are we going slowly but surely and ominously towards an absolute divorce by a system based on rentier, ultra-financialization, which is the American system, not productive capitalism at all.

May 14, 1984: Pop superstar Michael Jackson, center, with President Ronald Reagan and First Lady Nancy Reagan. (Pete Souza, White House)

I was going through a small list of what the U.S. exports, it’s not much as you know, better than I do. Agricultural products but always privileging U.S. farmers.  Hollywood, we are all hostages of Hollywood all over the world. Pop culture? That’s not the pop culture that used to be absolutely impregnable and omniscient during the ‘60s, the 70s, during the Madonna, Michael Jackson era in the ‘80s, right? Infotech. And that’s where a big bet comes in. And this is maybe the most important American export at the moment because American Big Tech controls social networks all over the planet. Big Pharma. Now we see the power of Big Pharma with the whole Covid operations, right?  But Boeing prefers to invest in financial engineering instead of building decent products. Right?

So, in terms of a major superpower, the hyperpower, that’s not much, and obviously buyers all over the world already noticed that. So, China is proposing the New Silk Roads, which is a foreign-policy strategy, and a trade, investment and sustainable development strategy. [It’s] applied not only to the whole of Eurasia, but Eurasia and beyond to grow a great deal of the Global South and that’s why we have Global South partners to the New Silk Roads — 130-and-counting as we speak.

So, the dichotomy could not be clearer. What will the 0.001 percent do? Because they don’t have anything seductive to sell. To all those nations in the Global South to start with; the new version of the Non-Aligned Movement, NAM, the countries that are already part of New Silk Road projects, not even to Europe and this, we could see by the end of last year when the China-European Union agreement was more or less sealed. It’s probably going to be sealed in 2021 for good.

And at the same time, we had the Regional Economic Comprehensive Partnership, RCEP, with the ASEAN 10, my neighbors here, the Association of South East Asian Nations, China, Japan, South Korea, Australia, and New Zealand. So, when you have the China-EU deal, and when you have RCEP, you have China as the number one trade partner on the planet, no competition whatsoever.

And obviously every one of these players wants to do business with China. And they’re privileging doing business with China to doing business with the U.S., especially with a country that once again, according to President Putin, is non-agreement capable. So, Michael, what is your key geo-economic view of the next steps? Are we going towards the divorce of the American financialization system and the Eurasia-and-beyond integration system?

Sept. 25, 2015: Vice President Joe Biden, center, raises a toast in honor of Chinese President Xi at a State Department luncheon. U.S. Secretary of State Johh Kerry on right. Jill Biden lower left. (Wikimedia Commons)

Michael: Well, you you’ve made the whole point clear. There is incompatibility between a rentier society controlled by the finance and real estate interests and military interests and an industrial democracy.

Industry in England and Europe in the 19th century — the whole fight for democratic reform to increase the role of the House of Commons against the House of Lords in England and the lower house in Europe — was a fight to get labor on the side of industry [and] to get rid of the landlord class. And it was expected that … capitalism [would then be] free of the landlord class, free of something that wasn’t really capitalism at all, it was a carry-over from feudalism. Once you free capitalism, you wouldn’t have this overhead of the idle 1 percent, only consuming resources and going to war, anymore.

And then World War I changed all of that . … Already, in the late 19th century, the landlords and the banks fought back, and they fought back largely through the Austrian School of individualism and the English marginalist and they called it freedom. They call it free markets. Free market meant giving power to the monopolists, to the oppressors, to violence. A free market was where armies can come in, take over your country, impose a client dictatorship like [Gen. Augusto] Pinochet in Chile or the neo-Nazis in the Ukraine. And you call that a free market.

Poster of the mongrel dog symbol of social protests in Chile since the student demonstrations of 2011. (Carlos Teixidor Cadenas, CC BY-SA 4.0, Wikimedia Commons)

The free world was a world centrally planned by the American military and finance together. So, it’s Orwellian, and the dynamic of this world is shrinking because it’s polarizing and you’ve seen with the Covid pandemic in the United States, the economy has polarized much more sharply than ever before between the 1 percent, the 10 percent and the rest of the economy.

Well, as opposed to that here, you have economies that are not run by a rentier class, that do not have a banking class and the landlord class controlling the economy, but a partnership. The kind of thing you had in Germany in the late 19th century, government industry and labor, all working together to design how we provide the financing for industry so that it can provide not only industrial capital formation, but public funding for us to build infrastructure and uplift the population.

What China is doing is what made America rich in the 19th century, what made Germany rich. It’s exactly the same logical engineering plan. Now, this plan because it’s based on economic expansion, and environmental preservation and economic balance instead of concentration, this is going to be a growing economy. So, you’re having a growing economy outside of the United States and a shrinking economy in the States and its satellites in Europe.

“What China is doing is what made America rich in the 19th century, what made Germany rich.”

Europe had a choice; either it could shrink, and be American, or it could join the growth. Europe has decided unanimously, we don’t want to grow. We want to be constant. We want our banks to take over just like in America. That’s a free market because Americans have found out, and I’m told by American officials we just buy the European politicians, they’re bribable. That’s why when president Putin says, America and Europe are not agreement capable, it means they’re just in it for the money. There is no ideology there. There is no idea of the overall social benefit. The system is “how can I get rich, and you can get rich by being bribed?” That’s why you go into politics. As you can tell in America with the Supreme Court law saying politics can be personally financed.

So, you’re having two incompatible systems and, they’re on different trajectories and if you have a system that is shrinking like the West and growing in the East, you have resentment.  People who obtain their wealth in crooked ways, or without working — by inheritance, by crime, by exploitation — they will fight like anything to keep that. Whereas people who actually create wealth, labor, capital, they, they’re not willing to fight, they just want to be creative. So you have a destructive military force, in the West. And, basically a productive, economic growth force. And in Eurasia, the clash now is occurring largely in Ukraine. You’re having the United States back the neo-Nazis.

Pepe: The old Nazi movement!

Michael: It’s the same swastika-carrying group that threatened Russia in World War II. And this is like waving a red flag before a bull. Putin continues to remind the Russians. We know what happened with the 22 million Russians that died, in World War II with Europe coming in. We’re not going to let it happen again.

And you can be certain Russia is not going to be sucked into invading the Ukraine. The United States has its military advisers in the Ukraine. Now, the Vineyard of the Saker has a very good report on that. America’s trying to needle Russia into fighting back against the terrorist groups and Russia has no desire at all to. There’s nothing that Russia has to gain by taking it over. It’s essentially a bankrupt country.

The United States is trying to provoke a response so it can say Russia is attacking the West.  The result will probably be that Russia will very simply provide arms to the Eastern Ukrainians to fight back the invasion. And you’re going to have a wasteland in Western Ukraine and Poland. And this wasteland will be the new buffer state with Europe. Already you have, maybe 10 percent of the Ukrainians having moved to Russia and the east. [Another] 10 percent are now plumbers in England and Europe, working. They’re beginning to look like Latvia and other neo-liberalized countries. Neo-liberalized countries? If you want to see the future, look at Latvia, Estonia. Look at Greece. That’s the American plan. Essentially, an emigration of skilled labor, a sharp reduction of living standards, a 20 percent decline in population. And although it may appear to have more income, all of this income and GDP is, essentially, interest collection and rents to the FIRE sector.

All the American GDP growth is essentially payment to the bank, to the landlords and the monopolist, it’s not, the population, the employees are not sharing in the GDP. It’s all concentrated at the top. They make a desert, and they call it growth.

Street in Detroit in 2009. (Bob Jagendorf, Flickr, (CC BY-NC 2.0)

It hasn’t changed.  Rome was a predatory economy held by military force that ultimately collapsed and America is on the same trajectory as Rome. And it knows this, I have spoken to American policymakers and they say, “you know, we we’re going to be dead by then. It doesn’t matter if the West loses. I’m going to get rich. I’m going to buy a farm in New Zealand and make a big bomb shelter there and live underground, you know, like a cave dweller.”

The financial time frame and the predatory rentier time frame is short term. The Eurasian time frame is long-term. So, you’ve got to have the short-term burning what wealth it has as opposed to the longer-term building up.

[Consider the Biden Covid relief measure.] They call it a stimulus bill, but if you’re starving, if you haven’t been able to pay your rent, if you’re six months behind in your rent and you get enough money to pay the landlord, at least one month back rent, that’s not a stimulus, that’s a survival.  And it’s a one-time payment. This kind of stimulus checks that America’s sending out are sent out every month in Germany and parts of Europe.

“All the American GDP growth is essentially payment to the bank, to the landlords and the monopolist.”

The whole idea in Europe is: OK, you have a pandemic, you have business interrupted. What we’re going to do is we’re going to have a pause. You don’t pay the rent, but the landlords are not going to pay the banks. And the banks are not going to be in arrears. We’re just going to have a pause so that when it’s all over people will go back to normal. Well, China and Russia are already pretty much there and where you are [in Asia], and especially in Thailand, are already back to normal.

People in Guangzhou, China in February 2020, during the Covid-19 pandemic. (Zhizhou Deng, CC BY 2.0, Wikimedia Commons)

But in America anybody who’s renting or who’s bought a house on mortgage credit or who has credit card debt or personal debt or automobile debt they’re way behind. And all of these stimulus checks are just being used to pay the banks and the landlords not to not to buy more goods and services.

All they’re trying to do is, is get out of the hole that they’ve been dug into in the last 12 months. That’s not a stimulus that’s a partial, desperation payment. This problem never existed in other civilizations. You have the whole tradition of Greece, Babylonia that’s what my book Forgiving the Debt is all about. The whole idea is when there is an economic interruption, you have an interruption, you don’t have people into debt. You wipe out all of the arrears that have mounted up. You wipe out the tax arrears, the rent arrears, the debt of payment arrears. So once the crisis is over, you can start from a normal position again.

There’s no normalization in America, there’s no normal position to start. You’re starting from a position, even more behind the financial problems than you were when you went in. The foreign economies of China and Russia don’t have that kind of problem, they don’t have any kind of deficit. So, the West is beginning with 99 percent of the population deeper and deeper into debt to the 1 percent.

Protesters with Occupy Wall Street in NYC, Nov. 17, 2011. (Z22, CC BY-SA 3.0, Wikimedia Commons)

Where is that whole polarization between the 1 percent and the 99 percent? It doesn’t exist certainly in China and in Russia, Putin is trying to minimize it, given the legacy of the kleptocracy that the neo-liberals put in he’s still trying to deal with that, but you really have that. It’s a difference in economic systems and the direction in which these systems are moving in.

Pepe: I’m really glad that you brought up Ukraine, Michael, because this, let’s say U.S. foreign policy, even, before Trump and now with the new Biden-Harris administration, basically more or less what it boils down to is sanction sanctions, sanctions, as we know, and provocations, which is what they’re doing certainly in Syria with that recent bombing.

And, in the case of Ukraine and Donbass, it’s absolutely crazy because NATO so-called strategists, when you talk to them in Brussels, they know very, very well about each state or whatever they weaponize and financialize to profit Kiev to mount some sort of offensive against the Donbass and even if they would have like 300,000 soldiers against like 30,000 in Donbass.

If the Russians see that this is going to get really heavy if they intervene in directly, with their bombing, with their super missiles, they can finish this story in one day. And if they want it, they could finish the whole story, including invading Ukraine in three days, like they did in 2008 with Georgia and still they keep the provocations, loosely acted on by  people from inside the Pentagon.

And so, we have sanctions, we have nonstop provocations, and we have also a sort of introducing a Fifth Column — elements inside or at the top of government — which brings me to, and I would love to have your personal analysis on the role of Mario (Goldman Sachs) Draghi now in Italy, which is something I had been discussing with my Italian friends. And there’s more or less a consensus, among very well informed, independent Italian analysts that Draghi may be the perfect Trojan horse to accelerate the destruction of the Italian state, which will accelerate the globalist project of the European Union, which is absolutely non-state centric.

Let’s put it this way, which is also part of the Great Reset so if you could briefly talk to us about the role of Super Mario at the moment.

Mario Draghi, right, with Italian President Sergio Mattarella at the Quirinal Palace, Feb. 3. (Presidenza della Repubblica, Wikimedia Commons)

Michael: Well, Italy is a very good example to look at. It had strings for a long time. When you have a country that needs infrastructure, that needs public, social democratic spending, you need a government to create the credit. But when Americans and specifically the University of Chicago free market lobbyists created the European, the Eurozone financial system, their premise was that governments cannot create money. Only banks can create money. Only banks owned by the bond holders can create money for the benefit of their owners and bond holders. So, no European government, first of all, can run a budget deficit sufficient to cope with the coronavirus or with the problems that have been plaguing Italy for a decade. They can’t create their money to revive employment, to revive infrastructure, to revive the economy. The European Central Bank only lends to other central banks.

It’s created trillions of euros just to buy stocks and bonds, not to spend into the economy, not to hire labor, not to build infrastructure, but just for the holders of the stocks and bonds. The 1 percent or 5 percent of the population gets richer. The function of the European Central Bank is to create money, to save the wealthiest 5 percent from losing a single penny on their stocks and bonds.

And the cost is to impoverish the economy and to basically make the economy end up looking like Greece, which was sort of the dress rehearsal for how the Eurozone was going to just essentially reduce Europe to debt dependency, just like in feudalism everybody had to have access to the land by becoming a serf.

Well now you’re in debt peonage. It’s the modern, finance capital’s version of serfdom. And so, in Italy we’re going to need government spending. We’re going to need to do in our way what China’s doing in its way and what Russia is doing in its way. We’re going to have some kind of government program. And we can’t have the economy being impoverished just because the University of Chicago has designed a plan for Europe to prevent the euro ever from being a rival to the U.S. dollar. If there’s no European central bank to borrow, to pump euros into the world economy, then, only dollars will be left for central bank reserves. The United States doesn’t ever want a rival. It wants satellites and so that’s what it’s basically turned Europe into. And I don’t see any response outside of Italy for an attempt to say we can’t be a part of this system. Let’s withdraw from the euro.

I know that the Greeks, when I was in Greece years ago, we all thought can’t we join with Italy and Portugal and Ireland and say look, the system isn’t working. Everybody else no, no, the Americans will just simply get us out of office one way or another. And in Italy, of course, if you look at what happened after World War II, the great threat was Italian communism.  You had the Americans essentially say well, we know the answer to communism, it’s fascism and, you saw where they put the money. They essentially did every dirty trick in the book in order to fight any left- wing group in Italy, just as they did in Yugoslavia, just as they did in Greece, wiping out the partisans, all the leading anti-Nazi groups from Greece to Italy to elsewhere. All of a sudden they were all either assassinated or moved out of office and replaced by the very people that America had been fighting against during World War II.

Well, now Italy is finally coming to terms with this and trying to fight back and you’re having what’s happening there, between Northern Italy and Southern Italy. You’re having the same splits occur in other countries.

Pepe: Yeah. Well, I’m going to bring up, perhaps an even more extreme case now Michael, which is the case of Brazil, which at the moment is in the middle of an absolutely out of this world mix of telenovela and Kabuki theater that even for most Brazilians is absolutely incomprehensible. It’s like a fragmentation bomb exploding over and over again, a Groundhog Day of fragmentation bombs.

In fact, it’s completely crazy. Lula [former President Luiz Inácio Lula da Silva] is back in the picture as well. We still don’t know under which terms, we still don’t know how the guys who run the show, which are the Brazilian military, are going to deal with him or instrumentalize him, et cetera.

In 2007, President Luiz Inácio Lula da Silva (Lula) and his wife Marisa Letícia review troops during the Independence Day military parade. (Ricardo Stuckert, Agência Brasil, CC BY 3.0. Wikimedia Commons)

In 2007, President Luiz Inácio Lula da Silva (Lula) and his wife Marisa Letícia review troops during the Independence Day military parade. (Ricardo Stuckert, Agência Brasil, CC BY 3.0. Wikimedia Commons)

I bring up this case because … essentially it has convulsed Brazil completely and large parts of Latin America. It is a telenovela with one cliffhanger after another, sometimes in a matter of minutes, but it encompasses all the basic themes of what really interests the 0.01 percent, which we can identify for instance as a class war against labor which is what the system in Brazil, since the coup against Dilma [Former President Dilma Vana Rousseff] has been waging. A war against mixed economies, economic sovereignty, which is something that the Masters of the Universe of the 0.01 percent cannot wage against Russia and China. But that was very successfully waged against Brazil and implemented in Brazil. In fact, in a matter of two years, they completely devastated the country in every possible sense, industrially, sociologically, you name it…

And of course, because the main objective is something that you keep stressing over and over again, unipolar rentier dominance, in fact.

Brazil, I would say is the extreme case in the world not only in the Global South, but in planetary terms of let’s say the last frontier of the rentier economy, when you manage to capture a country that was slowly emerging as a leader in the Global South, as an economic leader. Don’t forget that a few years ago, Brazil was the sixth-largest economy in the world and on the way to become the fifth. Now it’s the 12th and falling down nonstop and controlled by a mafia that includes not by accident, a Chicago Boy Pinochetista, Minister Paulo Guedes, who is implementing, in the 21st century, something that was implemented in Chile in the ‘70s and ‘80s. And they were successful. Apparently, at least so far.

Brazil’s Economy Minister Paulo Guedes in 2019. (Presidente da República, Alan Santos)

Brazil is so disorganized as a nation, so shattered, so fragmented and atomized as a nation that basically it depends on the re-emergence of a single political leader, in this case, Lula to try to rebuild the nation from scratch. And even in a position where he cannot control the game he can interfere in the game, which is what happened, like you know, … when he gave a larger-than-life press conference, mixed with a re-presentation of himself as a statesman and  said, “Look  the whole thing is shattered, but there is some light at the end of the tunnel.”

But still he cannot confront the real Masters of the Universe that have allowed this to happen in the first place. So just to give an example to many of you who are not familiar with some details of the Brazilian case, and it involves directly the Obama-Biden scheme or the Obama-Biden larger operation.  When Biden was vice president in 2013, in May 2013, he visited Brazil for three days and he met with President Dilma.

They discussed very touchy subjects, including the most important one, the absolutely enormous, pre-salt oil reserves, which obviously, the Americans wanted to be part of the whole thing, not by accident. You know what happened one week later? The start of the Brazilian color revolution, in fact, and this thing kept rolling and rolling and rolling.

Brazil’s Dilma Rousseff receiving presidential sash from Luiz Inácio Lula da Silva, Jan. 1, 2011. (Fabio Rodrigues Pozzebom, Agência Brasil, CC BY 3.0 br, Wikimedia Commons)

We got the coup against Dilma in 2016, we got to the Car Wash operation landing Lula in jail. And we got to the election of [President Jair] Bolsanaro. And now we are in a place where even if the military controls this whole process, even if Bolsanaro is becoming bad for business will he become bad for the rentier class business, for the 0.01 percent in the U.S. that has all the connections in their new, large neo-colony in the tropics, which has enormous strategic value, not to mention, unforeseen resources, wealth resources, right? So, this is an extreme case and I know that you follow Brazil relatively closely. So, your geo-economic and geopolitical input on the running telenovela I think would be priceless for all of us.

Michael: Well, this problem goes back 60 years. In 1965, the former president of Brazil came to New York and we met. He explained to me how the United States essentially got rid of him because he wasn’t representing the banking class. And he said that they built Brasilia because it’s apart from the big industrial cities, they wanted to prevent industry and democracy and the population from controlling the government.

So, they built Brasilia. He said maybe they’ll use it as an atom bomb site. It certainly doesn’t have an economic thing. Well, fast forward, in 1980, after Mexico defaulted on its foreign debt in 1972, nobody would invest in Latin America. And by 1990, Brazil was paying 45 percent interest per year to borrow the dollars to be able to finance its deficit, which is mainly flight capital by the wealthy. Well, I think I’d mentioned before here, I was hired by Scudder, Stevens and Clark for the Third World bond fund. Forty five percent: I mean, just imagine that. That’s a fortune every year. No American would buy it, no European would buy it. Who bought it? The Brazilians and the Argentineans bought, and I get it, they’re the government, they’re the central bankers. They’re the president’s family. They’re the 1 percent, they’re the only people that are holding Brazil’s dollar debt.

Entrance to the Cathedral of Brasília. (Rodrigo de Almeida Marfan, CC BY-SA 4.0)

So when Brazil pays its foreign dollar debt, it’s paying to its own 1 percent who are holding, who are saying well, we’re holding it off shore in the Dutch West Indies where the fund was located for tax-exempt purposes and pretending to be American imperialists, but actually being local imperialists.

Well then, just towards the end of Lula’s reign, the Council of Economic Advisors brought Jamie Galbraith and Randy Wray and me down for a discussion. How do we, you know, we’re, we’re really worried because, Lula in order to get elected, had to meet with the banks and agree to give them what they wanted.

They said, look, we can see that, you know, you have the power to be elected. We don’t want to have to fight you in dirty ways, but will let you be elected, but you’re going to have to do the policies and certainly the financial policies that we want and Lula made a kind of a devil’s agreement with them because he didn’t want to be killed and he wanted to do some good things.

So, he was sort of like a Bernie Sanders-type character. Okay, you have to go along with a really bad system in order to get something good done, because Brazil really needs something good done. Well, the fact is that even the little bit he did the finance couldn’t take because one of the characteristics of financial wealth is it’s addictive. It’s not like diminishing marginal utility. If you give more food to an employee or to a worker you know, at the end of the meal, you’re satiated, you don’t want much more. If you give enough money you know, OK, they buy a few luxuries and then, OK, they save it. But if you give more money to a billionaire they want even more and they grow even more desperate. It’s like a cocaine-addicted person and the Brazilian ruling class wanted it so desperately that they framed up and controlled the utterly corrupt judiciary.  The judiciary in Brazil is almost as corrupt as it is in New York City.

Pepe: More, even more.

Michael: They framed them up and they want totalitarian control. And that sort of is what free market is. Totalitarian control by the financial class. That’s freedom for the financial class, if the freedom to do what they want to do to the rest of the economy, that’s libertarianism, it’s a free market, it’s Austrian economics.

It’s the right wing’s fight against government, it’s a fight against any governments for long enough who resist the financial and real estate interests. That’s what the free market is. And Brazil is merely the most devastating example of this because it takes such a racial term there. Not only does Brazil want to make a fortune, tearing down the Amazon, cutting up the Amazon, selling the lumber to China, turning the Amazon into soy production to sell to China. But for that, you have to exterminate the domestic population, the indigenous population that wants to use the land to feed itself. So you see the kind of race war and ethnic war that you have, not to mention the war against the blacks in the Brazilian slums that Lula tried so much to overcome.

So you have a resumption of the ethnic war there, and on Wall Street, I had discussions with money managers back in 1990. Well I wonder whether that’s going to be a model for what’s happening in the United States with the ethnic war here.

Essentially, it’s a tragedy what’s happening in Brazil, but it’s pretty much what happened in Chile under Pinochet which is why they have the Pinochetistas and the Chicago boys that you mentioned.

Pepe: Absolutely. Coming back to China, Michael, and the [recent] approval of the Five-Year Plan, which is not actually the five-year plan. It’s actually three five-year plans in one because they are already planning 2035, which is something absolutely unimaginable anywhere in the West. Right?

So, it’s a different strategy of productive investment, of expansion of social welfare and solidifying social welfare, technological improvements.  I would say by 2025 China would be very close to the same infotech level of the U.S., which is part of “Made in China 2025,” which is fantastic. They stopped talking about it, but they are still implementing it, the technological drive in all those standard areas that they had codified a few years ago. And of course, this notion, which I found particularly fascinating because it is in one sense socialism with some Confucianist elements, but it’s also very Taoist: The dual development strategy, which is inversions and expansion of domestic investment and consumption and balancing all the time with projects across Eurasia, not only affiliated with the Belt and Road, with the New Silk Road, but all other projects as well. So, when you have a leadership that is capable of planning with this scope, amplitude breadth and reach, and when we compare it to the money managers in the West, which basically their planning goes, not even quarterly in many cases, it’s 24 hours.

So our dichotomy between rentier capitalism, financialization, or whatever we want to define it, and state planning with the view of social benefit is even starker in fact, and I’m not saying that the Chinese system can be exported to the rest of the world, but I’m sure that, all across the Global South, when people look at Chinese policies, long-term, how they are planning, how they are developed and how they are always fine tuning what they developed and discuss…. As you said in the beginning, this is a frontal shock of two systems and sooner or later we’re going to have the bulk of the Global South including nations which nowadays are still American vassals or satrapies or puppets or poodles, et cetera.

They’re going to see which way the wind is blowing. Right?

Michael: Why can’t the Chinese system be exported to the West? That’s a good question…. How would you make American industry able to follow the same productive path that China did? Well for one thing the biggest element in workers’ budget today is housing, 40 percent. There was one way to get rid of it, get rid of the high housing prices that essentially, or whatever a bank would lend. And the banks lend essentially the economic rent. There’s a very simple way to keep housing prices down. You tax the land rent, you use your tax system, not on taxing labor, that increases the cost of labor, not increasing capital, that leaves less, industrial capital, but your tax of the land and the real estate and the banks.

Well, suppose you were to lower the price of housing in America from 40 percent to 10 percent like China has, and this is the big element in the cost structure difference. Well, if all of a sudden people only had to pay 10 percent of their income for housing, then all the banks would go under because 80 percent of the bank loans are mortgage loans.

The whole idea is that the purpose of housing is to force how many buyers and renters go into debt to the banks so that the banks end up with all of the lend rent that the landlord class used to get. This is what’s preventing America from being like China. What if America would try to develop a high-speed railroad like China?

Well, then you need the right of way. You’d need to have the railroads go in a straight line. … They need a right of way and it doesn’t have a right of way because that conflicts with private property and most of the right of way is a very expensive real estate.

So, you can’t have high-speed rail in the United States, like in China.  Suppose you would have a low-cost education. Well then, you get rid of the whole means of siphoning off labor’s income to pay for education loans. You could go, suppose you had private healthcare and prevent Americans from getting sick like they do in China and Thailand, where you are.

High speed electric train arrives at a Shanghai rail station. (Wikimedia)

Well, then the health insurance companies and the pharmaceutical companies wouldn’t be able to make their rent. So you could not have America adopt a China type industrial program without what would be really a revolution against the legacy of the monopoly of private banking, of finance and all of the fortunes that have been built up financially really in the last 40 years since 1980.

Pepe: So, what’s going to happen in the, let’s say, short to mid-term in the U.S.? Michael, we are seeing the corrosion of the whole system, not only externally in terms of foreign policy and the end of the free lunch, but internally with those 70-million-plus “deplorables” being literally canceled from public debate, the impoverishment of the middle classes, with over 50 million people in America who are practically becoming literally poor. And obviously the American dream ended a few decades ago, maybe, but now there’s not even a glimpse of it, that there could be a renewal of the  American dream. So we have a larval civil war situation, degrading on a daily basis.  What’s the end game in fact? And what exactly does Wall Street, the American ruling class —the guys who have those lunches at the Harvard club — what do they ultimately want?

Michael: Well, what you call a disaster for the economy, isn’t it a bonanza for the 1 percent?  This is a victory of finance. You look at it as a collapse of industrial capitalism. I look at it as the victory of rentier finance capitalism.  You’re having probably 10 million Americans that are going to be thrown out of their apartments and their homes in June when the moratorium on rents and mortgages ends. You’re going to have a vast increase in the homeless population. That will probably represent an increase in people who use the subways. Where else are they going to live? And all of this, there’s an immense amount of private capital firms that have all been created in the last year of just wealth accumulations and they’re saying there are going to be such great opportunities to pick up real estate at bargain prices, all of this for the commercial real estate, that’s broken, all the buildings and the restaurants that have to be sold because they can’t meet their mortgage payments and their rents, all the houses that are going to be under, private capital can come in and do what was done after the Obama evictions.

We can do what Blackstone did. We can buy them all out for pennies on the dollar. So, for them, they’re looking at their own 20-year plan. And their 20-year plan is to grab everything!

consortiumnews.com

Gallup (an employee-owned company) normally sells the findings to wealthy investors throughout the world. In 2015, Gallup headlined, “75% in U.S. See Widespread Government Corruption”, and ranked only the 37 countries that the U.S. regime approves of, which the U.S. regime’s ‘Freedom House’ had ranked as having a ‘free press’ (meaning a press whose major ‘news’-media adhere sufficiently to the U.S. CIA’s advices). In rank order, the least corrupt of those 37 countries were: Sweden, Denmark, Switzerland, Luxembourg, Finland, New Zealand, Norway, and Germany — all of them ranging from only 14% corrupt, to 40% corrupt. The most corrupt, in rank order starting with the most corrupt, were: Lithuania, Portugal, Ghana, Spain, Czech Republic, and Slovenia — all of them at least 80% corrupt, which were actually ranked from 82% corrupt to 90% corrupt. 75% of Americans told Gallup they thought “corruption widespread throughout the government.” (We thus will call America “75% corrupt.”) Latvia was in the middle of the 37, at 63% corrupt. So: amongst ‘free press’ countries (governments that the U.S. regime isn’t aiming to regime-change), this percentage (63%) was the average rate of corruption (that is, of the population’s alleging corruption to be “widespread throughout the government”).

When Gallup published their complete poll-report, on 18 October 2013, which was headlined “Government Corruption Viewed as Pervasive Worldwide”, it included 129 countries. Shown here in rank order will be the 11 least-corrupt nations as indicated in that October 2013 Gallup news-report; and, for each nation, also — by way of comparison — the Transparency International (TI) corruption-rankings, in 2012, will be shown, because that was the year when Gallup’s data were being collected. (Click onto the link just above, if you want to see the complete 2013 Gallup article, with the scores shown for all 129, but Gallup provided there only the nation-by-nation scores, no rankings, and presented the 129 nations only in alphabetical order, instead of in rank order, perhaps so as not to give offence which might drive away potential clients that are in disappointingly low-scoring countries, such as America.) What is to be be shown here — for the first time anywhere — are the ranks that are based upon those Gallup-published scores.

As was noted at the outset here, Rwanda ranked there as #1 (it had the lowest percentage — it was the least viewed as corrupt) that year. Only 5% of Gallup’s Rwandan respondents answered “Yes” to “Is corruption widespread throughout the government in Rwanda or not?” For purposes of simplicity and brevity, we may call that a finding of “only 5% corrupt.”

Here, then, to start with, are listed the corruption-percentages, and ranks, of the 11 least-corrupt nations, out of the Gallup-surveyed 129 nations:

1=Rwanda (ranked in 2012 TI as #50 out of 176 [but they say ‘198’] countries) 5%

2=Sweden (in 2012 TI #4 of 176) 14%

3&4=Singapore (in 2012 TI #5) & Denmark (in 2012 TI tied as #s1-3, one through three) 15%

5=Switzerland (in 2012 TI #6) 23%

6=NZ (in 2012 TI tied as #s1-3) 24%

7&8=Georgia (in 2012 TI #51) & Norway (in 2012 TI #7) 25%

9=Luxembourg (in 2012 TI #12) 26%

10&11=HongKong (in 2012 TI #14) & Finland (in 2012 TI tied as #s1-3) 30%

Near the middle of that Gallup 2013 ranking was:

63&64&65&66=U.S., tied with Guatemala, Nepal, Philippines, & Taiwan

At the very bottom were:

129=Tanzania 95% (ranked #102 out of ‘198’ — actually 176 — by TI)

(At the bottom of the TI rankings were 3 tied: Afghanistan, N. Korea, & Somalia.)

128=Kenya 93%

125&126&127=Greece, Nigeria, & Chad 92%

124=Uganda 91%

123=Lithuania 90%

120&121&122=Ghana, Cameroon, & Bosnia 89%

118&119=Portugal & Indonesia 88%

116&117=South Africa & Thailand 87%

U.S. ranked in the 2012 TI as being #19 out of 176 (‘198’), which, of course, is considerably worse than being #64 out of 129 (in the much more reliable Gallup survey), because TI itself is corrupt: it’s a U.S.-regime front.

Transparency International was founded in 1993 by former top officials of the World Bank. The World Bank had been initiated at the three-week, 1-22 July 1944 Bretton Woods Conference, in New Hampshire, and this was being done by appointees of the anti-imperialist Franklin Delano Roosevelt, and of the imperialist (or “pro-imperialist”) Winston Churchill, and so it wasn’t clear whether or not it would support imperialism. In fact, Wikipedia’s article on the “Bretton Woods Conference” states that:

In his closing remarks at the conference, its president, U.S. Treasury Secretary Henry Morgenthau, stated that the establishment of the IMF and the IBRD marked the end of economic nationalism. This meant countries would maintain their national interest, but trade blocs and economic spheres of influence would no longer be their means. The second idea behind the Bretton Woods Conference was joint management of the Western political-economic order, meaning that the foremost industrial democratic nations must lower barriers to trade and the movement of capital, in addition to their responsibility to govern the system.

This was before FDR died and Truman and the Cold War fundamentally changed things; and that Wikipedia article (being part of U.S. propaganda) falsely says that the attendees were representing “the foremost industrial democratic nations”, though many of those nations were actually dictatorships, such as Brazil, Cuba, El Salvador, Honduras, Haiti, Egypt, China, and the Soviet Union.

Democracy had nothing to do with it. Imperialism did — and, after FDR’s death, nothing could stop the Bretton Woods system from being imperialistic at its very start. The exhaustively documented study by Eric Toussaint, The World Bank — A Critical Primer, opens its Introduction by noting that, “The list of governments resulting from military coups that were supported by the World Bank is impressive,” and these have all been U.S.-supported (and mostly were U.S.-perpetrated) coups. He also noted that, “the U.S. government has indeed enforced its views in those areas [of the World Bank’s operations] in which it is directly concerned.” Furthermore, and more generally: “The hidden agenda of the Washington Consensus aims … at maintaining the US global leadership. … For instance, the World Bank will only grant a loan on condition that a country’s water and sanitation services are privatized.” Billionaires — mostly American ones — end up receiving the profits from what would otherwise have been public works in foreign countries. Those “works” consequently ignore the poor. This is why the interests of the local poor are ignored, while the interests of global billionaires (and especially of U.S.-based billionaires) are advanced. On page 134, Toussaint refers to “the total cynicism inherent in the system, which results in artificially increased debt loads [in poor countries] that in no way correspond to the money injected into the economies of these countries.” The existing World Bank’s system is exactly what FDR had condemned and said absolutely must be replaced (and explained why it needed to be replaced). The book’s Chapter “24: An Indictment of the World Bank” is a scathing summary of this international gangland operation. (FDR had similarly described imperialism.) As one review of Toussaint’s book summed up the work: “The strategy, in a nutshell, is that providing infrastructure should fall on the state sector, and anything that might prove profitable should be given to the private sector (preferably favouring multinational corporations), i.e. privatisation of profits combined with the socialisation of the cost of anything not profitable.” John Perkins’s classic Confessions of an Economic Hit Man details the operations that Perkins had done for the World Bank and the benefits he had been providing to billionaires, and the destruction he had been perpetrating upon the residents in those vassal-nations. This wealth-transfer, from the masses to the classes — further impoverishment of the poor — is similarly the agenda of Transparency International, not just the World Bank’s agenda. TI assists it by producing their faked rankings. In a sense, boosted rankings are being bought and paid for.

So, actually, the World Bank’s history is also TI’s history — its pre-history, which shaped it. That goes back to the Bretton Woods Conference, on 1-22 July 1944.

Wikipedia’s article on the “Bretton Woods Conference” says that, “The institutions [World Bank and IMF] were formally organized at an inaugural meeting in Savannah, Georgia, on March 8–18, 1946.[13] Notably absent from Savannah was the USSR, which had signed the Bretton Woods Final Act but had then decided not to ratify it. The USSR never joined the IMF and IBRD.” However, actually, the Soviet Union did not sign the “Bretton Woods Agreements”. The U.S.S.R. was the only Bretton Woods attendee which did not. Signing was done actually at a ceremony in Washington, DC, on 27 December 1945. In the U.N.’s online pdf of that final document, at page 120, where it says, “Pour l’Union des” (Républiques socialistes soviétiques), there is a blank, no one listed even as attending, and it’s the only blank. Every other Bretton Woods attendee sent a representative, who signed. As early as 26 July 1945, Truman had personally expressed his hostility to Stalin; and, clearly, from that moment on, Stalin knew that the death of FDR on 12 April 1945 had changed everything. (Which it did.)

The reason why TI was created by the World Bank in 1993 is that, at that time, the World Bank’s Chief Economist was the extremely pro-imperialist and highly political American, Larry Summers; and the World Bank’s President was J.P. Morgan’s former long-serving CEO, Lewis Preston, who became appointed by U.S. President G.H.W. Bush as the World Bank’s President in 1991. On 24 February 1990, just before the Soviet Union and its communism and its Warsaw Pact equivalent to America’s NATO military alliance all ended in 1991, G.H.W. Bush secretly started instructing America’s allies that though the Cold War was ending on the Soviet side, the Cold War was secretly to continue on the U.S.-and-allied side. Consequently, a new excuse for it — no longer ‘capitalism versus communism’ — was needed; and anti-corruption would be that excuse. That’s why TI was created. I previously explained in detail how “TI was instituted by the U.S.-created World Bank, in order to handle the ‘corruption’-propaganda portfolio for the U.S. empire.” TI is specifically a U.S. imperialist operation. It’s an intrinsic part of the U.S. regime’s operation for achieving all-encompassing U.S. empire. It is not an objective credible rating-system, for anything.

Whereas Gallup is honest, Transparency International (TI) is corrupt. Instead of being owned by its employees, TI is funded by the U.S. and its European allies (in other words, it’s a U.S. Cold War, CIA-affiliated, operation), a U.S.-regime PR gimmick, in order for them to use those ‘corruption’-rankings against governments (ones that consequently get scored lower) which the U.S. aristocracy — its billionaires — want to regime-change — overthrow, control, take over, conquer. Almost all on the list of TI’s donors are controlled by U.S. billionaires. America’s TI ranking, as of 9 July 2019, of 23 out of 180 (and that’s a real “180”: TI didn’t fake that count, in that year), is said there to be from “Corruption Perceptions Index 2018”, but if one clicks through to the complete list (it’s in .xlxs, but also here for anyone to see), then the U.S. actually ranks there tied as #23-#24, below (starting from #1):

1-2=Denmark&NZ,

3=Finland,

4-6=Singapore&Sweden&Switzerland,

7=Norway,

8=Netherlands,

9-10=Germany&Luxembourg, 11=Iceland,

12-15=Australia&Austria&Canada&UK,

16=HongKong,

17=Belgium,

18&19=Estonia&Ireland,

20=Japan,

21=UAE&Uruguay,

23-24France&U.S.

All of those governments — both directly and indirectly — fund TI.

TI’s methodology is based on officials’ opinions, not on data. Their published “Methodology” is a scandal, filled with opacities, easy to manipulate in the dark, such as: “Transparency International reaches out to each one of the institutions providing data in order to verify the methodology used to generate their scores. Since some of the sources are not publicly available, Transparency International also requests permission to publish the rescaled scores from each source alongside the composite CPI score. Transparency International is, however, not permitted to share the original scores given by private sources with the general public.” (Elsewhere, I have further discussed TI’s methodology.) Their rankings are PR tools, not trustworthy information-sources. Anyone who cites TI’s ‘findings’ (except critically) is not to be trusted, because even if they are honest, they are trusting a hoax. Gallup is vastly more trustworthy than TI.

Not only do Rwandans know that their country is relatively outstanding against corruption, but even the countries that fund TI begrudgingly acknowledge it. On 22 July 2010, the BBC headlined “Rwanda has negligible corruption – Transparency” and reported that, “Incidents of bribery in Rwanda are negligible, anti-corruption watchdog Transparency International says.” But TI’s rating of Rwanda was systematically an under-rating of that country’s outstanding performance, because the industrialized nations donate to TI, and they don’t want to be outshone by a third-world nation. “He that pays the piper calls the tune.” Rwanda has not been paying the piper. However, even the CIA-edited (and even written) Wikipedia acknowledges that Rwanda’s leader, Paul Kagame, “is popular in Rwanda,” and that “Rwanda’s economy has grown rapidly under Kagame’s presidency, with per-capita gross domestic product (purchasing power parity) estimated at $1,592 in 2013,[212] compared with $567 in 2000.[213] Annual growth between 2004 and 2010 averaged 8% per year.[214]” Unfortunately, this situation could rapidly change. For example: starting, in 2013, Rwanda’s debt/GDP ratio soared, from a long stable 20%, up to around 40% in 2017, and, during the three years of 2019 through 2021, Rwanda’s monthly debt-service payments due, mainly to the World Bank, will have soared from $2.688 billion to 23.341 billion. Will Rwanda still be enforcing its anti-corruption laws in 2022? Or will foreign billionaires instead be effectively in control over that country? Who knows? However, even on public debt, Rwanda isn’t yet anywhere near the worst countries. As of 2018, these were the 12 countries (out of 186) where public debt/GDP was actually over 100%: Barbados 123%; Cabo Verde 130%; Congo Republic 101%; Cyprus 112%; Greece 188%; Italy 130%; Japan 238% (but almost all domestic-owned); Lebanon 150%; Portugal 121%; Sudan 168%; U.S. 106%; Venezuela 159%. So, even on that, Rwanda outperforms U.S.

China’s Xinhua News Agency headlined on 10 December 2019, “What makes Rwanda one of least corrupted countries in Africa?” and opened with some of the explanation for Rwanda’s recent outstanding performance:

Rwanda, which ranks as one of the least corrupted countries in Africa, has made holistic efforts to fight corruption, officials and scholars told Xinhua on Monday, the date of this year’s International Anti-Corruption Day. The central African country ranked 48th among 180 countries across the world in the Corruption Perceptions Index 2018 published by Transparency International, making it the least corrupted country in East and Central Africa and the fourth least corrupted in the entire African continent.

Rwanda’s achievements in its fight against corruption can be attributed to several factors, including political will, awareness campaigns, and enforcement of laws, said Clement Musangabatware, Rwanda’s deputy ombudsman in charge of preventing and fighting corruption. … The unity of the Rwandan people in the fight against corruption has also contributed to eliminating vice, according to Rwandan Senator Juvenal Nkusi.

The government of Rwanda has effectively combated corruption by creating a culture of transparency and accountability while making the cost of getting involved in corruption high, said Nkusi, noting that Rwandan officials are aware of the dire consequences of corruption.

The nation’s zero-tolerance policy, which is maintained by top leaders, is an “apparent consensus” among the political community regardless of party affiliation, said Frederick Golooba-Mutebi, an independent researcher on politics and public affairs.

On 4 August 2020, Kenya’s The East African headlined “KAGAME: We’re putting maximum pressure on the corrupt” and opened, “Rwandan public officials convicted of corruption risk facing hefty fines and auctioning of their property if convicted as the country steps up the fight against the vice in the face of dwindling domestic revenues which have come under enormous pressure during the coronavirus pandemic.” Another reason for this intensified enforcement might be to police the increased investment into the country by foreigners.

Furthermore, there are also other indicators of the rankings of various countries as regards corruption. On 15 April 2013, I headlined “How the U.S. Performs in Recent International Rankings” and reported that:

A much broader ranking-system, from the World Economic Forum, is “The Global Competitiveness Report 2012-2013,” which ranks 144 countries, on a wide range of factors related to global economic competitiveness. … Corruption seems to be a rather pervasive problem in the U.S. On “Diversion of Public Funds [due to corruption],” the U.S. ranks #34. On “Irregular Payments and Bribes” (which is perhaps an even better measure of lack of corruption) we are #42. On “Public Trust in Politicians,” we are #54. On “Judicial Independence,” we are #38. On “Favoritism in Decisions of Government Officials” (otherwise known as governmental “cronyism”), we are #59. On “Organized Crime,” we are #87. On “Ethical Behavior of Firms,” we are #29. On “Strength of Auditing and Reporting Standards,” we are #37. On “Reliability of Police Services,” we are #30. On “Transparency of Governmental Policymaking,” we are #56. On “Efficiency of Legal Framework in Challenging Regulations,” we are #37. On “Efficiency of Legal Framework in Settling Disputes,” we are #35. On “Burden of Government Regulation,” we are #76. On “Wastefulness of Government Spending,” we are also #76. On “Property Rights” protection (the basic law-and-order measure), we are #42.

The U.S.’s overall “global competitiveness” ranking was #7. All of the “corruption” factors were listed under the heading of “Institutions,” and the United States’ overall “Institutions” ranking was #41. (Singapore had the #1 “Institutions” ranking. NZ was #2 on “Institutions.” All nations’ “Institutions” rankings were shown on pages 16-17. However, some of the “Institutions” factors, on the basis of which those ranks are generated, do not concern corruption. Furthermore, most of the information that was inputted to calculate these rankings came from the World Bank. Only the Gallup surveys are based upon perceptions by the public within each of the ranked nations.)

The summary for Rwanda said: “Rwanda moves up by seven places this year to 63rd position, continuing to place third in the sub Saharan African region. As do the other comparatively successful African countries, Rwanda benefits from strong and relatively well-functioning institutions, with very low levels of corruption (an outcome that is certainly related to the government’s non-tolerance policy), and a good security environment. Its labor markets are efficient, its financial markets are relatively well developed, and Rwanda is characterized by a capacity for innovation that is quite good for a country at its stage of development. The greatest challenges facing Rwanda in improving its competitiveness are the state of the country’s infrastructure, its low secondary and university enrollment rates, and the poor health of its workforce.”

Here were a few of Rwanda’s corruption (“Institutions”) ranks (shown in the report’s page 307): On “Diversion of Public Funds,” Rwanda was #37. On “Irregular Payments and Bribes,” it was #21. On “Public Trust in Politicians,” it was #6. On “Strength of Auditing and Reporting Standards,” it was #69 (and that was Rwanda’s worst “Institutions” rank). Rwanda’s overall “Institutions” ranking was #20. (However, page 77 of the report indicated that Rwnda was being rated on the basis of 2011 data, not 2012.)

So: for “Institutions,” U.S. was #41, and Rwanda was #20, whereas the 2012 TI “corruption” rankings were U.S. #19 and Rwanda #50. That contrast in rankings might be a fair indicator of how corrupt (bought and paid for) TI is. (Of course, if Gallup’s findings were the best measure of a country’s “corruption,” then that contrast against TI’s U.S. #19 and Rwanda #50 would instead be U.S #65 versus Rwanda #1.) Anyway, Rwanda was vastly less corrupt than the U.S. is. Whether Rwanda might have been #1 out of 129, or #20 out of 144, can be reasonably debated, but that it would have been #50 out of 176 (which TI claimed was instead out of 198) can be simply ignored — it is outside the bounds of reasonable credibility.

Associated with lack of corruption is honest police forces. On 28 June 2018, Rwanda’s leading daily newspaper, The New Times, headlined “Gallup report: Rwanda is second safest place in Africa”, and reported that 83% “of Rwandan residents have confidence in the local police force and … feel safe walking alone at night.” The safest countries were: Singapore 97%, and — in second through fourth place — “Norway, Iceland and Finland who tied at 93 per cent respectively. Rwanda came at 40 globally.” U.S. ranked at #35 out of 142 countries in this survey.

By contrast, as compared to the case of Rwanda — a country that is trying hard not to be corrupt — the U.S. Supreme Court has (see “Federal Public Corruption Prosecution After ‘Bridgegate’”) unanimously ruled, on 7 May 2020 (in Kelly v. U.S.), that unless direct bribery can be proven against a public official, any other type of abuse of public office (than direct bribery) is entirely legal, and not subject to penalty, under any U.S. criminal laws, regardless of any suffering that might have been perpetrated upon the general public, or upon any individual, by that official’s action, or decision. This landmark ruling concerned two subordinates, not the elected official himself; and, so, of course, elected officials themselves are now, essentially, totally immune in the U.S. Even their subordinates are safe, and therefore won’t have incentive to give plea-bargained testimony against their boss in complex corruption-cases. They’re already “home free.” A month later, on June 15th, this same U.S. Supreme Court, in yet another landmark decision, ruled by 8 to 1 that even low officials, such as police, are beyond the reach of the law if they even murder totally innocent persons, if it’s being done while they are on the job. The badge is their protection. (Of course, both of those rulings are likely to cause corruption in the U.S. to grow yet higher.)

As Nicole M. Argentieri, one of America’s top experts on corporate crime, commented about the Kelly v. U.S ruling, one result of the ruling is that “even conduct that the court unanimously characterized as an ‘abuse of power’ can escape prosecution.” The 9 ‘Justices’ didn’t consider the prevention of abuse of power by public officials to be a sufficiently high priority for it to be prosecuted, or even to be at all illegal. Of course, America’s courts aren’t supposed to be writing the laws, but prior rulings, from prior U.S. Supreme Courts, had interpreted America’s laws regarding corruption very differently. As Argentieri observed, “Between the 1940s and the 1980s, it was common for federal prosecutors to use federal fraud laws to prosecute public officials for ‘schemes to defraud citizens of their intangible rights to honest and impartial government’.” Corruption was prosecuted, but now it virtually cannot be. U.S. Supreme Court rulings such as these have made public corruption increasingly legal, and this year’s two rulings make it henceforth entirely legal. And, regardless of whether America’s now allowing public corruption should be attributed primarily to the legislative or to the judicial branch, it’s the current situation. And, yet, TI’s latest, 2019, ranking for the U.S. is #23 out of 198 countries (actually out of 176 countries); and their ranking for Rwanda is #51 (out of ‘198’), which pretends that Rwanda is quite a bit more corrupt than is the United States. TI’s rankings are thus worthless. They are pure propaganda, no news-value except for their own scandalousness and TI’s corruptness. And, as far as TI’s own ‘transparency’ is concerned, it’s yet another fraud. Itself is both opaque, and corrupt. Rwanda has tried hard to be neither.

TI’s ‘corruption’ scores affect how high an interest-rate the nation will pay on its sovereign debt. The IMF’s Public Financial Management Blog headlined on 15 September 2016 “The (Fiscal) Benefits of Transparency”, and reported: “A series of studies (Ciocchini et al 2003; Depken et al 2007; Remolona et al 2008) show that as scores on Transparency International’s (TI’s) Corruptions Perception Index (CPI) decrease, borrowing costs increase. These studies all show direct causality between corruption risk and borrowing costs, controlling for other influences.” Investors trust the fraud and therefore pay lots more for debt from ‘Transparent’ regimes than from low-scored ones. The IMF (the U.S. regime) can only be happy that the TI fraud works. However: taxpayers in any non-U.S.-allied country can only be sad that it does, because it raises their nation’s debt even further. The entire existing World Bank, IMF, and IBRD (‘International Bank for Reconstruction and Development’) system is set up so as to steal from taxpayers in low-income countries — such as Rwanda — in order to increase the wealth of foreign investors who invest in low-scored countries (which America’s billionaires want to conquer — which, if that happens, would increase their own wealth even more).

So: when the U.S. empire, starting in 1991, took anti-corruption as its new excuse for being imperialistic, replacing its old anti-communist excuse, what actually emerged in the U.S. itself has been a country in which around three-quarters of its own residents believe “corruption widespread throughout the government.” That’s tied with Guatemala, Nepal, Philippines, & Taiwan. According to any measure (except the fraudulent TI), Rwanda is far less corrupt than that. Whether it will remain so is another matter.

It was probably the worst kept secret in Lebanon during most of 2018 and 2019. But the Ministry of Environment had been earmarked for a staggering 5bn dollars of aid, as part of the so-called 11bn dollar ‘Cedar’ aid package negotiated provisionally in Paris. Yet officials in this ministry were rubbing their hands in glee as they were not jubilant over the aid allocation being used legitimately, but were bragging as to how much of this sum was going to be embezzled to a certain political party.

This is Lebanon.

And this is the crux of the problem that any international donor faces when talking about aid in any context: massive, off-the-scale corruption which forgot the wisdom or merit decades ago of merely skimming 10 of 15% off the top in preference for at least half of what’s on offer.

Which is why recent news that IMF talks had broken down in Lebanon is the best piece of news this troubled country has had since October of last year when the country’s economy went into freefall following protests, initially sparked by a government initiative to tax WhatsApp calls.

The last thing Lebanon needs right now is aid which comes in the form of cash. In any formula. All it would do would simply enfeeble any opposition to the present puppet government led by the all-time diabolical muppet PM who surely won’t last the year in office. All any aid deal would do would be to support the mindset of the super-rich who believe that time is on their side in a long drawn-out war against the madding crowd of street parties, or rather street protests which are both dwindling anyway and were never really serious in their objectives. An aid package from the IMF or even the EU would simply be the pat on the back that the elite would welcome as most of it would end up in their pockets, while most Lebanese wonder how they are even going to be able to afford bread.

Recently, when IMF talks with the political elite broke down, no one was surprised to the gall of the politicians who, more or less, said that they wanted some benefits in the package towards themselves, a get-out-of-jail-card while rejecting a mega audit of the central bank and floatation of the local currency. Regulation of the ‘black hole’ of Lebanon’s crumbling electricity provider EDL, which constantly makes the news with its hilarious corruption scandals, is also held up as a good starting point. EDL loses around 2bn dollars a year, simply due to deliberate mismanagement – so as to allow corrupt government ministers to cash in on ‘emergency’ schemes while paying off their friends who run the neighbourhood generator racket.

Corruption comes in many forms other than cash. A local gangster who allows a generator operator to set up shop is worth thousands in an envelope every month compared to the one who gets blocked. And this scam has got so out of control that there are some generator operators who, given the permission by a political figure to set up in a given neighbourhood, actually take electricity from one neighbourhood (which is connected) and sell it on to the adjacent one which is in a blackout without even the generator turning.

And so it’s hardly surprising that Lebanon’s politicians more or less asked the IMF for a brown envelope themselves.

Lebanon faces really very tough times ahead. A brain drain in the next few months is inevitable as the local currency is expected to continue sliding as this battle between the elite and humble people looks set to be drawn out for months and perhaps years.

But if the EU and the IMF can’t do anything in Lebanon, then who can? How is it that the whole world just sits still and watches the suicide rates climb, people’s fridges empty and hospitals shut down due to no diesel in their generators?

Lebanon’s capital appears to be overburdened with too many UN agencies. Can’t the UN at least provide food aid? Or is that linked to a massive bung as well? In one sense, you can almost understand the culture that prevails with those in power to factor in kickbacks and assurances for themselves to not only stay in power but to continue with their unique management of the economy. Just take one look at how the UN operates there with its Syrian refugee program. An investigation I carried out myself in 2015, revealed that up to 70% of all aid coming into the entire program was swallowed up with operating costs [read salaries for UN workers and running costs for the NGOs which administer the programs]. That’s before anyone gets their sweaty hands on any of the cash before it reaches the mouths of starving refugees.

And this is the example that the international community serenades to the Porsche Cayenne gangsters who run Lebanon?

One of the arguments against the president’s son-in-law’s rant recently about kicking the Syrians and Palestinian refugees out of Lebanon is that the hard currency which flows into Lebanon from the UN is one of its last remaining lifelines in terms of buying power for essential commodities.

Think about that for a second. The elite actually regard the refugees as essential aid-bait for dollars needed to buy oil, flour and other such goods. It’s a game they play via pay-per-view journalists in their pocket in Beirut. Announce that refugees will soon be kicked out in a bid to stir the EU and its member states to come up with more money. In reality though the game’s up. EU apaches in Brussels know only too well that in reality the Syria refugees are paying into the system, as their slave labour makes the farms work and their pennies paid for water and electricity actually adds up to quite a tidy sum. And the neo-fascists like Bassil know that the donors know. But they try. It’s a win-won for his own racist white supremacist supporters who dream of the day when he is the President although it’s hard to imagine anyone remaining in Lebanon when that day comes. Bassil is an extreme leader brought in when Lebanon is pushed to an extreme, similar to the Boris vote in the UK which was entirely about getting on with Brexit.

Yet increasingly it appears that the real power in Lebanon – Hezbollah – is reluctant to let Bassil take the reins. And it’s not just because he sucked up to the Americans recently but its more about his lack of political clout where it matters. More likely when push comes to shove after the U.S. elections, we will see Frangieh enter the Presidential limelight as a more pliable Hezbollah-aligned President which might unite the Christians, if there are any left in Lebanon by 2022.

In reality, people aren’t waiting for an IMF deal. This is considered a cash cow only for the elite as no Lebanese person, regardless of which political party he or she follows, sees such an aid plan as beneficial. The Lebanese are not stupid. They know that the cash will only make the elite dig in for longer. It’s a waiting game. And in many respects people are waiting for a miracle in something which might jolt the present stalemate off its rails, like perhaps earlier presidential elections if President Aoun would stand down due to failing health. People starving to death and an economy in freefall is not exactly a shining eulogy for a political legacy and his family might be urging him now to consider how the history books will recall his period on office. But the last thing Lebanon needs in the short term is money. It would be like using gasoline to put out a fire. What it needs is food aid. But where is the UN?

And it’s been no secret that the elite of the world want us to stop transacting in cash because it is something they can’t track. Sweden has flirted with the cashless society while the European Union did away with large denomination bills the same way the U.S. has been phasing them out.

A few years ago, India created a huge stir removing the 500 and 1000 rupee note from circulation. All of these moves have been, nominally, in service of stamping out corruption. They are sold to the public as a way to punish criminals and money launderers.

But the reality is that the push for removing cash from society is to put all of our financial dealings in databases which gives authorities a record of everything you do. As governments around the world become increasingly bankrupt they naturally look for ways to improve tax compliance as well as create profiles of anyone they deem a threat to their continued existence.

That’s the real reason for why ‘cash is trash’ to authorities. And the moves towards digital only versions of national currencies is an extension of the power grab currently underway as a response to the crisis of COVID-19.

But, more than that, the reason for this demonization of cash has as much to do with the understanding that the current global financial system is broken and will need a global coordinated bailout.

The easiest way to effect that is to be able to create digital money at the stroke of a keyboard.

The crisis of 2008 was bigger than the Federal Reserve. To survive it required the coordinated effort of all the major central banks along with support from the International Monetary Fund (IMF).

So, color me not shocked when I see this report from Sputnik that the head of the Shanghai Gold Exchange publicly make the case in favor of a transnational digital currency to replace the U.S. dollar as the world’s trade settlement currency.

According to Wang Zhenying, quoted by Reuters, the dollar, as a weapon of US pressure and a source of vulnerability for other countries, can no longer be the standard global currency. He admits that gold is also not an ideal means of exchange, as its quantity is limited and it cannot meet the needs of growing international trade. Therefore, a supranational currency for settlements independent of any country is needed.

This idea is not something new and was already promoted by China during the last financial crisis of 2008-2009. Then Chinese central bank chief Zhou Xiaochuan proposed to reform the system of international settlements through special drawing rights (SDR).

Author and commentator Jim Rickards has been making this point for more than a decade. He’s talked openly in his previous books The Death of Money and Currency Wars about the plans for the IMF to assume the role as the world’s central bank because the crisis in process will be greater than all the central banks.

I agree with Jim on this and have for years. The world’s elite have discussed these things openly. They’ve written white papers on this.

But what is interesting now is that Mr. Wang is modifying this idea slightly, talking in terms of a hard currency of some form to replace the U.S. dollar. But, look at his argument closely and you’ll see the bait and switch for while he doesn’t believe we’ll get consensus on using IMF Special Drawing Rights (SDR) as a way to settle accounts he doesn’t believe gold is viable either.

So what will it be, then?

Countries, like China, are already working on digital versions of their national currencies. The U.S. Congress tried to slip this language into the recently-passed first CARES Act authorizing trillions in bailouts and stimulus money.

Russia has been working on a digital as well as a cryptocurrency version of the ruble. The EU desperately wants member states to agree to debt mutualization and fiscal integration under the auspice of the European Central Bank to create digital only euros and end physical euros once and for all.

Gold ownership in Germany is now highly suspect with the German government openly tracking all gold sales greater than 1000 euros, less than one ounce.

Financial privacy is, effectively, already a thing of the past. Even the cryptocurrency markets in the so-called first world have to be AML (Anti-Money Laundering) and KYC (Know Your Customer) compliant to get the ability to operate with the existing financial infrastructure.

The push for the end of cash is a real thing. It’s a dangerous and worrying trend because it assumes all taxes and fees demanded by governments are legitimate. It assumes that if you want to remain private you are a money launderer and a cheat.

And what’s most worrying is that opposition to U.S. hegemonic behavior, weaponizing the dollar the way the Trump administration has, will be used as the rallying cry for an even worse system of social and financial control.

I’m all for the multi-polar world but we don’t need a global trade settlement currency as administered by governments. Do you really think that any other country wouldn’t eventually come to look like the U.S. after nearly a century of dominating the world’s financial landscape?

If you do then I assert you are either terminally naïve or a shill.

That’s what this story is really all about. The Davos Crowd never sets up a dynamic like this which leaves people with anything other than a Hobson’s Choice. You can either suffer under the tyranny of the U.S.’s rapacious banking oligarchy or you can choose an equally bad one administered as a global one.

But that isn’t the only choice. Mr. Wang isn’t wrong that something new is needed but it needs to be a real hard currency based on antecedent value, not birthed out of thin air or backed by future labor (debt).

The dollar reserve standard is in the process of dying. The great financialization of the world and the multiple levels of credit bubbles its engendered are bursting. People are open to alternatives. And in the great game of global capital a country only has to be slightly better than the current dominant player to attract the lion’s share once the outflows begin.

China is positioning itself to be a bigger player here but the IMF, governed and controlled by the U.S., is not the solution. That’s a ‘meet the new boss, same as the old boss’ scenario.

Right now gold is seeing a strong bid the world over and Bitcoin is rising into the halving of its reward pool which occurs every four years. There has never been a better opportunity for people to reject the pronouncements and solutions of the very people who have so thoroughly destroyed our ability to assess risk and value.

And it will be the discipline of cash tied to real assets, birthed from human toil but free from human manipulation that will return sanity to our markets and local economies. That’s what a hard currency is. That’s what Mr. Wang administers at the SGE and that’s what needs to come back.

Well, the calculus for Moscow on whether to cut production (to help Trump) was never simple. There were geo-political and domestic economic considerations – as well as the industry ones – to weigh. But, perhaps one issue trumped all others?

Since 2007, President Putin has been pointing to one overarching threat to global trade: And that problem was simply, the U.S. dollar.

And now, that dollar is in crisis. We are referring, here, not so much to America’s domestic financial crisis (although the monetisation of U.S. debt is connected to threat to the global system), but rather, how the international trading system is poised to blow apart, with grave consequences for everyone.

In other words, Covid-19 may be the trigger, but it is the U.S. dollar – as President Putin has long warned – that is the root problem:

“We’re looking at a commodity-price collapse and a collapse in global trade unlike anything we’ve seen since the 1930s”, said Ken Rogoff, the former chief economist of the IMF, now at Harvard University. An avalanche of government-debt crises is sure to follow, he said, and “the system just can’t handle this many defaults and restructurings at the same time”.

“It’s a little bit like going to the hospitals and they can handle a certain number of Covid-19 patients but they can’t handle them – all at once”, he added.

More than 90 countries have inquired about bailouts from the IMF—nearly half the world’s nations—while at least 60 have sought to avail themselves of World Bank programs. The two institutions together [only] have resources of up to $1.2 trillion”.

Just to be clear, this amount is not nearly sufficient. Rogoff is saying that $1.2 trillion is a drop in the ocean – for what lies ahead. The health of the global economy thus has attenuated down to a race between dollars flooding out of this ‘complex self-organising’ system amidst the coronavirus pandemic, versus the very limited resources of the IMF and World Bank to pump dollars in.

Simple? Just ramp up the dollar flow into system. But whoa there! This would mean the U.S. providing a flow of dollars sufficient to meet ‘rest of world’ needs – ‘during the biggest collapse since the 1930s’? There is $11.9 trillion of U.S. denominated debt out there alone, plus the dollar float required to finance day-to-day international trade (usually held as national, foreign exchange reserves).

That however, is only a fraction of the dollar-denominated debt ‘problem’, since a part of that debt takes the characteristics of a distinct ‘currency’ used in international trade, called Eurodollars. Mostly (but not exclusively), they present themselves as if ordinary dollars, but what distinguishes them is that they are overseas dollar deposits that exist outside of U.S. regulation, in one sense.

But which – in the other sense – they become the tools extending U.S. jurisdiction (think Treasury sanctions), across the globe, through the use of U.S. dollars, as its medium of trade. That is to say, this huge Eurodollar market serves Washington’s geo-political interests by enabling it to sanction the world. Hence, the Eurodollar market is a main tool to the U.S.’ covert ‘war’ against China and Russia.

Eurodollars just ‘emerged’, (initially) in Europe after WW2 (no-one is sure quite how), and they grew organically to huge size, by the European banking system simply electronically creating more of them. The Achilles’ Heel is that it lacks any Central Bank to supply it with liquid dollars, as and when, payments into the U.S. sphere are sucked out of it.

This happens especially in times of crisis, when there is flight to the onshore dollar. Oh, no. Oh yes: It’s another self-organising dynamic system that can only ‘grow’ under the right conditions, but will be prone to dynamic de-construction if too many dollars are withdrawn from it. And now, with the Covid-19 pandemic, the Eurodollar market is in a near panic for dollars: liquid dollars.

The U.S. Fed does ‘help out’, at its own discretion, but mainly through offering to swap other currencies for dollars, and by extending short term dollar loans. But this ‘swap bandage’ cannot of course staunch full-blown global trade blowout – in the same way that the Fed is ‘supporting’ U.S. domestic financial system – by throwing trillions of dollars at it.

President Putin saw this eventuality long ago, and predicted the dollar’s ultimate collapse, as a result of the world’s trade becoming too large and too diverse to be sustained on the slender back of the U.S. Fed. And because the world is no longer ready for the U.S. to be able to sanction it, willy-nilly, and at will.

And here ‘is’ that moment – very possibly. So, the collapse in the oil price is a piece to this much bigger story. Putin – not so surprisingly – thus cooperated with Trump’s OPEC initiative, no doubt guessing that the attempt to ramp prices higher would never ‘fly’. Putin may not want to see the dollar hegemony renewed, but nor would he want Russia to be viewed as a main contributor to a global blow-out. The blame being heaped on China over coronavirus serves as a potent alert in this context.

This – emphatically – is not an essay about barely-understood Eurodollars. It is about real global risk. Take the Middle East, as one example. Oil is trading currently at $17 (Friday’s WTI). No producer state’s Middle East business-model is viable at this price level. National budget ‘break-evens’ require a price of oil to be at least three times higher – maybe more. And this, comes on top of the collapse of the Gulf air-travel hub business and tourism. The northern tier of states additionally, is being pressed hard by U.S. sanctions, with the latter tightening the sanctions tourniquet, as Covid-19 strikes, rather than relaxing it. Lebanon, Jordan, Syria – and Iraq. All have national business-models that are bust. They all require bail-outs.

And into this bleak picture, coronavirus has gripped precisely that class of expatriates and migrant workers that sustain the Gulf ‘way of life’ and its business model. NGOs presently are scouring the UAE for empty buildings, and Bahrain is re-purposing closed schools in order to re-house migrant-labourers from cramped accommodation where one room with bunk-beds would sleep a dozen workers.

The virus has also spread to densely populated commercial districts of cities, where many expatriates share housing to save on rent. Many have lost jobs and are struggling. The authorities are trying to deport the migrants home; but Pakistan and India both are refusing them immediate entry. These victims have lost their livelihood, and any chance to escape their misery.

Just to be clear: Gulf élites are not exempt from Covid-19. The al-Saud have been particularly hit by what they sometimes call the “Shi’i virus”. The situation is turning explosive. Gulf economies are held aloft by expatriates, migrant workers and domestic help, and coronavirus has upended the pillars of their economies.

The state looms large over the financial sector in the Gulf, and this makes financial institutions especially vulnerable, because the proportion of loans that local banks extend to the government or to government-related entities, has been rising since 2009. As the authorities draw further on these institutions, so the Gulf economies will prove more vulnerable to Eurodollar stress – absent huge Fed bail-outs.

The global impact of Covid-19 is only beginning, but one thing is abundantly clear: Middle Eastern states will be needing a great deal of spending money, just to fend off social disorder. An economic breakdown is more than just economic. It leads quickly to a social breakdown that involves looting, random violence, fraud and popular anger directed at authorities. Global trade is going to be hit hard, and U.S. imports are going to tumble, which threatens one of the main USD liquidity channels into the Eurodollar system.

This fear of a systemic dynamic destruction of the trading system has led the BIS (Bank for International Settlements: the Central Bankers’ own Central Bank) to insist that: “… today’s crisis differs from the 2008 GFC, and requires policies that reach beyond the banking sector to final users. These businesses, particularly those enmeshed in global supply chains, are in constant need of working capital, much of it in dollars. Preserving the flow of payments along these chains is essential if we are to avoid further economic meltdown”.

This is a truly revolutionary warning. The BIS is saying that unless the Fed makes bail-outs and working capital available on a massive scale – all the way down, and through, the supply-pyramid to nitty-gritty individual enterprises – trade collapse cannot be avoided. What is hinted at here is the concern that when multiple dynamic complex systems begin to degrade, they can, and often do, enter into a spiralling feedback-loop.

There may be agreement in the G7 on the principle of a limited debt moratorium to be offered to struggling economies, but an approach à outrance – on the BIS lines – apparently is being blocked by U.S. Treasury Secretary Mnuchin (the U.S. enjoys a veto at the IMF by virtue of its quota): No more U.S. cash is being offered to the IMF by Mnuchin, who prefers to keep the U.S. Fed front and centre of the USD liquidity roll-out process.

In other words, Trump wishes to keep intact the scaffolding of the ‘hidden’ dollar-based, sanctions and tariff ‘war’ against China and Russia. He wants the Fed to be able to determine who does, and who does not, get help in any ‘liquidity roll-out’. He wants to continue to be able to sanction those he wants. And he wants to maintain as large an external footprint of the dollar as possible.

Here then, is the crux to Putin’s complaint: “At root, the Eurodollar system is based on using the national currency of just one country, the U.S., as the global reserve currency. This means the world is beholden to a currency that it cannot create as needed”.

When a crisis hits, as at present, everyone in the Eurodollar system suddenly realizes they have no ability to create fiat dollars, and can rely only on that which exists in national foreign exchange reserves, or in ‘swap lines’. This obviously grants the U.S. enormous power and privilege.

But more than subjecting the world to the geo-political hegemony of Washington, the crucial point is made by Professor Rogoff: “We’re looking at a commodity-price collapse – and a collapse in global trade unlike anything we’ve seen since the 1930s. An avalanche of government-debt crises is sure to follow, he said, and “the system just can’t handle this many defaults and restructurings – at the same time”.

This simply is beyond the U.S. Fed, or the U.S. Treasury’s capacities, by a long shot. The Fed is already set to monetize double the total U.S. Treasury debt issuance. The global task would overwhelm it – in an avalanche of money-printing.

Does Mnuchin then, believe his and Trump’s narrative, that the virus will soon pass, and the economy will rapidly bounce-back? If so, and it turns out that the virus does not rapidly disappear, then Mnuchin’s stance portends a coming, tragic débacle. And with further massive money issuance, a collapse in confidence in the dollar. (President Putin would have been proved right, but he will not welcome, assuredly, being proved right in such a destructive manner).

In a parallel sphere, the global trade plight is being mirrored in the microcosm by that of EU states, such as Italy, whose economies similarly have been racked by Covid-19. They too, are beholden to a currency – the Euro – that Italy and others cannot create as needed.

With this crisis hitting Europe, everyone in the Euro system is experiencing what it means to have no ability to create fiat currency, and be entirely subject to a non-statutory body, the Eurogroup, which – like Mnuchin – simply says ‘no’ to any BIS-like approach.

Again, it is about scale: this is not business as usual, as in some neo-‘Greek’ eruption, to be countered with EU ‘discipline’. This crisis is much, much greater than that. The absence of monetary instruments – in crisis – can become existential.

Some muse might recall to Mnuchin and the Eurogroup, Alexander del Mar’s 1899 Monetary History, in which he observes how the manoeuvres of the British Crown, in constricting the export of gold and silver (i.e. money) to its American colonies, led to the Crown’s ‘war’ on the paper monetary instruments – Bills of Credit – issued by the Revolutionary Assemblies of Massachusetts and Philadelphia, to compensate for this British monetary starvation.

Finally, it left the desperate colonists with but one resort: “to stand by their monetary system. Thus the Bills of Credit of this era … were really the standards of The [American] Revolution. They were more than this: They were the Revolution itself!”

Unlike the U.S. which has committed over $4.5 trillion to bailout criminal speculators amidst the crisis which is only enflaming the meltdown of the financial system, Obrador took a different approach last week saying: “No more rescues in the style of the neoliberal period, that provided for banks, big companies. They shouldn’t even be thinking that there will be tax forgiveness or other mechanisms that were used before.”

The End of the Neo-Liberal Order

This comes in the wake of Obrador’s recent anno the creation of a new network of national banks which I discussed in my last paper Mexico’s Fight for National Banking Revives a Forgotten History. Imposing the power of sovereign controls over private finance will give Mexico the capacity to direct productive credit towards things which the IMF/World Bank and international vulture funds have outlawed for decades: Advanced infrastructure and scientific progress needed to achieve economic independence.

This use of national power over banking, alongside the wise application of a protective tariff is the right of every nation, but since the post-1971 “globalized laws of free trade” outlawed the obstructing influence of nations into the world markets, very few nations have acted upon that right. Faced with the oncoming meltdown of the western financial bubble economy and the proven superior model of China’s Belt and Road Initiative that is all beginning to change.

Already 17 nations of Central and South America have signed agreements with China’s BRI joining a growing array of 160 nations operating in different degrees under this new multipolar system which focuses on real economic development of nations and people over the common practice of worshipping financial profit for the sake of speculators. Meanwhile the March 20 call for total Ibero-American debt forgiveness drafted by the Latin American Strategic Center for Geopolitics (LASCG) and endorsed by dozens of former Latin-American statesmen has put a renewed focus on the need for a re-organized financial system cleanse of debt slavery, speculation and rule by private finance.

Due to pressure imposed by imperial forces in the US State Department, Mexico’s desires to collaborate with China’s Belt and Road Initiative have been terribly set back even as these words are written.

In spite of this, AMLO has made one of his leading initiatives since his 2018 election the Mexico-Central American Development Plan which is a revolutionary $40 billion system of mega projects for the poverty prone South Mexico and Northern Triangle of El Salvador, Guatemala and Honduras. This development plan which Foreign Secretary Marcelo Ebrard called “a Marshall Plan for Latin America” is built entirely around the Belt and Road Model and infuses BRI principles into North American long term planning as it is designed around a Cross Isthmus and North/South railway, ports, new electricity grid, and massive agro-industrial development.

Set side by side with his crackdown on Mexico’s deep state, and national banking renaissance AMLO is reviving a fight which last took place nearly 40 years ago when Mexico’s great president Lopez Portillo took a major stand in defense of both his nation and the world as a whole.

Portillo’s 1982 Fight for a Multipolar System

Standing defiantly against the empire of Wall Street and the City of London, Portillo recognized that his nation had been targeted for depopulation and destruction. Henry Kissinger’s 1974 National Security Study Memorandum 200 (NSSM 200) had outlined 13 developing nations who aspired to end their colonial scars by following the Japan model of advanced scientific and technological progress. Kissinger’s bone chilling report stated that should these nations succeed, then they would cause an overpopulation crisis. America’s duty, in Kissinger’s twisted mind, had to become wired towards a strict policy of de-population using every mechanism available with a focus on economic warfare. Mexico was at the top of this list.

Trapped under years of conditionality-laden loans from the IMF and World Bank, Mexico and other nations of the Global South were trapped under usurious debts, underdevelopment (loans were given on the condition that money would rarely be spent on any advanced infrastructure or industrialization), and poverty with no hope in sight.

Lopez Portillo was trapped. But unlike many others at this time, he didn’t give up.

In order to escape this trap, several major (yet little known) decisions were made by Portillo at this time which led into his declaration of war against the oligarchy.

How Portillo Played the LaRouche Card

The first major decision occurred when Portillo invited American economist Lyndon LaRouche to the Presidential Palace at Los Pinos in May 1982 where after a long meeting, Portillo requested the economist draft a policy program for Mexico’s resistance to the empire and broader economic recovery. This program was given to Portillo in August 1982 entitled Operation Juarez (named after Mexico’s first revolutionary President Benito Juarez).

Within weeks, Portillo followed the advice of LaRouche and attempted to gain the support of Argentina and Brazil to stand together against the oligarchy using their most powerful weapon: The debt bomb (a threat to default on their usurious debts). On September 1, 1982, Portillo nationalized the banks of Mexico to the ire of the financial oligarchy.

Portillo moved quickly to nationalize much of Mexico’s oil while preparing for capital controls to combat speculation, and manoeuvred to use Mexico’s oil revenues to maximize advanced technological growth in agriculture and nuclear energy as outlined in detail in Operation Juarez. Then came Portillo’s greatest moment when on October 1st 1982, he stood for all people of the earth at the United Nations in speech which must be heard to be believed.

In his speech Portillo said:

“The most constant concern and activity of Mexico in the international arena, is the transition to a New Economic Order…. We developing countries do not want to be subjugated. We cannot paralyze our economies or plunge our peoples into greater misery in order to pay a debt on which servicing tripled without our participation or responsibility, and with terms that are imposed upon us. We countries of the South are about to run out of playing chips, and were we not able to stay in the game, it would end in defeat for everyone. I want to be emphatic: We countries of the South have not sinned against the world economy. Our efforts to grow, in order to conquer hunger, disease, ignorance, and dependency, have not caused the international crisis….

We have been a living example of what occurs when an enormous, volatile, and speculative mass of capital goes all over the world in search of high interest rates, tax havens, and supposed political and exchange stability. It decapitalizes entire countries and leaves destruction in its wake. The world should be able to control this; it is inconceivable that we cannot find a formula that, without limiting necessary movements and flows, would permit regulation of a phenomenon that damages everyone. It is imperative that the New International Economic Order establish a link between refinancing the development of countries that suffer capital flight, and the capital that has fled.

The reduction of available credit for developing countries has serious implications, not only for the countries themselves, but also for production and employment in the industrial countries. Let us not continue in this vicious circle: it could be the beginning of a new medieval Dark Age, without the possibility of a Renaissance….”

Ultimately, without the support of a debtors alliance for progress, Portillo’s plans were sabotaged under a barrage of speculative attacks on the peso which drove his plans into the ground, and his nation into turmoil and economic hell for the next 40 years. Those nations which were too cowardly to stand alongside Portillo suffered as gravely as did Mexico in the coming decades*.

During the last 3 minutes of this video, Portillo is featured at a conference in 1998 sitting beside LaRouche’s wife Helga Zepp-LaRouche (chairwoman of the Schiller Institute). In this recording one can listen to the old statesman describe his 1982 battle and his debt to the LaRouches:

“I congratulate Doña Helga for these words, which impressed me, especially because first they trapped me in the Apocalypse, but then she showed me the staircase by which we can get to a promised land. Many thanks, Doña Helga.

Doña Helga—and here I wish to congratulate her husband, Lyndon LaRouche…. And it is now necessary for the world to listen to the wise words of Lyndon LaRouche. Now it is through the voice of his wife, as we have had the privilege to hear.

How important, that they enlighten us as to what is happening in the world, as to what will happen, and as to what can be corrected. How important, that someone dedicates their time, their generosity, and their enthusiasm to this endeavor.”

It is noteworthy, that less than one year before Portillo spoke these words, Helga LaRouche presented a program entitled the New Silk Road to a conference in Beijing calling for a new system of economic development corridors and sea routs to be developed by China’s government as a means of breaking other nations free from neo-colonialism. A selection from a 1997 Washington Conference features an incredible preview into the Chinese Grand design which has come to life over two decades later under the leadership of Xi Jinping.

It is important to recall that even though Mexico and the USA currently have many obstacles between them and the New Silk Road, they are both led by two leaders who have struggled with the deep state structures within their nations and who would be very open to collaborating with the new multipolar system led by China and Russia as an alternative to burning in the meltdown of the western financial system. The spirits of both Lopez Portillo and Lyndon LaRouche would certainly smile at this emerging potential.

* A complete overview of the 40 year fight for a new multipolar economic system can be found on the Schiller Institute site here:

The author can be reached at matt.ehret@tutamail.com