Thursday, December 10, 2015

Banking as an act of war

One of the lasting lessons of the early 1980s economic catastrophe was that for much of USA, local law enforcement didn't have much to do besides throwing good honest farmers off their land.  After awhile, Nancy Reagan's War on Drugs would give the local shire reeves something else to occupy their time but in 1982, I remember a Minnesota sheriff explain that except for farm foreclosures, his department had only made four arrests in a whole year.  That's when I first learned how little "law enforcement" had to do with protecting the average citizen and everything to do with protecting the interests of the usurers.

Of course, if I had already heard of Smedley Butler and his idea that the USA military was merely muscle for Wall Street, the 1980s war on agriculture would have not come as such a shock to me.  As a multiple-decorated Marine Colonial, his thoughts tend to have weight.

So now we see Michael Hudson explain that the IMF has become little more than muscle for the current crop of banksters and warmongers.  It could be argued, of course, that the IMF has never been anything else.  Which is a damn shame because if the financial system were to be run by other than crooks and liars, maybe it could come up with the $318 Trillion the IEA says we will need to do something meaningful about climate change.

The IMF Joins the New Cold War


On December 8, the IMF’s Chief Spokesman Gerry Rice sent a note saying:
“The IMF’s Executive Board met today and agreed to change the current policy on non-toleration of arrears to official creditors. We will provide details on the scope and rationale for this policy change in the next day or so.”
Since 1947 when it really started operations, the World Bank has acted as a branch of the U.S. Defense Department, from its first major chairman John J. McCloy through Robert McNamara to Robert Zoellick and neocon Paul Wolfowitz. From the outset, it has promoted U.S. exports – especially farm exports – by steering Third World countries to produce plantation crops rather than feeding their own populations. (They are to import U.S. grain.) But it has felt obliged to wrap its U.S. export promotion and support for the dollar area in an ostensibly internationalist rhetoric, as if what’s good for the United States is good for the world.

The IMF has now been drawn into the U.S. Cold War orbit. On Tuesday it made a radical decision to dismantle the condition that had integrated the global financial system for the past half century. In the past, it has been able to take thelead in organizing bailout packages for governments by getting other creditor nations – headed by the United States, Germany and Japan – to participate. The creditor leverage that the IMF has used is that if a nation is in financialarrears to any government, it cannot qualify for an IMF loan – and hence, for packages involving other governments.

This has been the system by which the dollarized global financial system has worked for half a century. The beneficiaries have been creditors in US dollars.

But on Tuesday, the IMF joined the New Cold War. It has been lending money to Ukraine despite the Fund’s rules blocking it from lending to countries with no visible chance of paying (the “No More Argentinas” rule from 2001). With IMF head Christine Lagarde made the last IMF loan to Ukraine in the spring, she expressed the hope that there would be peace. But President Porochenko immediately announced that he would use the proceeds to step up his nation’s civil war with the Russian-speaking population in the East – the Donbass.

That is the region where most IMF exports have been made – mainly to Russia. This market is now lost for the foreseeable future. It may be a long break, because the country is run by the U.S.-backed junta put in place after the right-wing coup of winter 2014. Ukraine has refused to pay not only private-sector bondholders, but the Russian Government as well.

This should have blocked Ukraine from receiving further IMF aid. Refusal to pay for Ukrainian military belligerence in its New Cold War against Russia would have been a major step forcing peace, and also forcing a clean-up of the country’s endemic corruption.

Instead, the IMF is backing Ukrainian policy, its kleptocracy and its Right Sector leading the attacks that recently cut off Crimea’s electricity. The only condition on which the IMF insists is continued austerity. Ukraine’s currency, the hryvnia, has fallen by a third this years, pensions have been slashed (largely as a result of being inflated away), while corruption continues unabated.

Despite this the IMF announced its intention to extend new loans to finance Ukraine’s dependency and payoffs to the oligarchs who are in control of its parliament and justice departments to block any real cleanup of corruption.

For over half a year there was a semi-public discussion with U.S. Treasury advisors and Cold Warriors about how to stiff Russia on the $3 billion owed by Ukraine to Russia’s Sovereign Wealth Fund. There was some talk of declaring this an “odious debt,” but it was decided that this ploy might backfire against U.S. supported dictatorships.
In the end, the IMF simply lent Ukraine the money.

By doing so, it announced its new policy: “We only enforce debts owed in US dollars to US allies.” This means that what was simmering as a Cold War against Russia has now turned into a full-blown division of the world into the Dollar Bloc (with its satellite Euro and other pro-U.S. currencies) and the BRICS or other countries not in the U.S. financial and military orbit.

What should Russia do? For that matter, what should China and other BRICS countries do? The IMF and U.S. neocons have sent the world a message: you don’t have to honor debts to countries outside of the dollar area and its satellites.

Why then should these non-dollarized countries remain in the IMF – or the World Bank, for that matter? The IMF move effectively splits the global system in half,between the BRICS and the US-European neoliberalized financial system.

Should Russia withdraw from the IMF? Should other countries?

The mirror-image response would be for the new Asian Development Bank to announce that countries that joined the ruble-yuan area did not have to pay US dollar or euro-denominated debts. That is implicitly where the IMF’s break is leading. more


  1. Given Tony's new post today this is catch up. I didn't want to let it pass without saying that “Banking as an act of war” connects back to Sunday, Nov 1, 2015 “Michel Hudson on the American School of Political Economy," and one of my favorite quotes from you (a comment you made in that post): “[how...] the best part about economics [] -— we don't have to make up one thing -— our ancestors had it figured out long ago. We just have to rediscover our roots!”

    You and Tony and all your links are way ahead of the curve of trying to help... All I need to do is figure out a way to explain it to my grandsons. (I find myself wondering if “real economics” can really be so complex -- or convoluted and complicated for some that they "really can't" get it -- or if some just pretend they can’t get it because they've already "got it" and just want to "keep it" that's all.)

    Tony’s post on Friday, Dec 4, 2015 “Paul Krugman on Challenging the Oligarchy” is another connection to "Banking as an act of war," isn't it? (On the one hand, economics is arithmetic not high level math. On the other hand, arithmetic is just too simple for a ruling class of oligarchs to allow as a ruling principle of life on earth!)

    Money, the root of all evil. Banking, the ultimate act of war. We've been carefully taught to believe we really can't get along without banks and money...nor should we waste our time trying to figure a way around it. (We have been rendered incapable of having a conversation on earth about anything...without money taking over as the ultimate consideration in, or conclusion of, the conversation.) Money is the only thing everyone universally wants, worships, loves and needs... The only thing that can buy everything else we want, worship, love and need -- especially if it's on sale or being sold at a discount!

    1. I think trying to explain these subjects to people like your grandsons would be fun. The reason I say this is the guy who first explained fractional banking to me when I was 14 was clearly enjoying himself. If they ever get their arms around the subject of money, it really will change their worldview. And it isn't so hard. Galbraith used to say that money and banking were such simple subjects that the mind was repelled.

      Oh, and to be Biblically accurate. Money is not the root of all evil. It's the LOVE of money that's the problem. (I Tim 6:10. For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.) After all, money is just a convenience. And banking done in the public name and for the public good is a real community builder—see postal banking, the Bank of North Dakota, etc.

  2. I am happy to be corrected that LOVE of money is the problem…and small public banks of convenience are not necessarily acts of war. (I agree.) So here’s what I’m really thinking/wondering:

    If proper regulation of all banks and money on earth could be successfully established (or reestablished) somehow, do you suppose a proper balance between public good and private enterprise could also become established somehow? (And if so what would it look like?)

    Jared Diamond (Pulitzer Prize winner in 1998 for “Guns, Germs, and Steel: The Fates of Human Societies”) makes the case in his latest book (“The Third Chimpanzee for Young People,” 2014) that in our globalized world, “it’s no longer possible for societies to collapse one by one.” He says the collapse we face, if there’s going to be one, “it will be a global collapse.” Can you imagine that?

    If our future is truly global in size and shape and nature from now on…can you imagine how we get to being a global community at the rate we’re going? Are you and Tony imagining how different our world is going to have to be (become) if we are going to survive?

    Families, neighborhoods, communities and lifestyles that are sustainable, yes.
    States, nation states, arbitrary lines on a map and business as usual, no way!

    A new global world order that makes sense, how?
    Nuclear weapons, armed forces, corporations of any kind, why?

    If time is all we really have in life (to live and learn, suffer and enjoy) how much longer can we afford to allow on earth unsustainable lifestyles of any kind?

    I think your post on Dec 1 is the answer, “Time to Choose”

    1. Yes indeed. You have hit on THE question—one that has bugged me most of my life. The Question: What is the appropriate scale? The reason this is so interesting is because not everything (or almost nothing) scales. I first discovered this problem building model airplanes. People who try to make scale versions of say, WW II fighters like the Spitfire or P-47, soon discover that those models barely fly because the tail feathers are too small—in fact, this problem is so well known that model competitions allow for non-scale oversized tail surfaces. Then when I started learning city planning, I soon discovered that ideas that work magnificently in cities of 250,000 almost never work at 2.5 million. And Chairman Mao proved that steel mills could not be scaled down to community-sized during the Great Leap Forward. Etc.

      I probably should write on the subject of scale some day. In the meantime, I will TRY to include notes on scale whenever I suggest that there might be a solution to some problem.

      Great catch! Now I know what I'll be thinking about today.