Professor Chossudovsky interprets the current financial crisis. He is not optimistic about the outcome.

The Great Depression of the 21st Century: Collapse of the Real Economy

Michel Chossudovsky is Professor of Economics at the University of Ottawa and Director of the Centre for Research on Globalization (CRG), which hosts the critically acclaimed website www.globalresearch.ca.

I became acquainted with Chossudovsty’s writings around the time the Clinton administration decided to bomb Serbia, ostensibly on behalf of the Albanians in Kosovo. Chossudovsky, in his paper, Dismantling Former Yugoslavia,
Recolonising Bosnia (1996), exposed the deliberate and ultimately successful campaign to dismantle Yugoslavia by the western powers. A later article also posted on this website, NATO’s War of Aggression Against Yugoslavia: An Overview (1999), is a powerful indictment against the entire war. There are some interesting tidbits in that report:

An Unholy "Marriage of Convenience"

In addition to the dispatch of Western special forces, Mujehadeen mercenaries and other Islamic fundamentalist groups (financed inter alia by Iran and Saudi financier Osmane Bin Laden) have been collaborating with the KLA in the ground war.

"[B]y early December 1997, Iranian intelligence had already delivered the first shipments of hand grenades, machine-guns, assault rifles, night vision equipment, and communications gear... Moreover, the Iranians began sending promising Albanian and UCK [KLA] commanders for advanced military training in al-Quds [special] forces and IRGC camps in Iran.....

Bin Laden's Al Qa'ida allegedly responsible for last year's African embassy bombings "was one of several fundamentalist groups that had sent units to fight in Kosovo, ... Bin Laden is believed to have established an operation in Albania in 1994 ... Albanian sources say Sali Berisha, who was then president, had links with some groups that later proved to be extreme fundamentalists".

The reader will recall that prior to 9/11, hardly anyone in the U. S. had ever heard of Osama bin Laden, and even fewer were aware that he was allied to the Kosovo Liberation Army, an organization that the U. S. was supporting.

Interestingly enough, the Kosovo Pages on the Jackson Progressive, even though seldom updated now, are some of the most frequently-visited pages on this website. It is as though the entire Balkans have slipped down a memory hole.

Tags: Chossudovsky

According to the Associated Press, the government-chartered mortgage company Freddie Mac “secretly paid a Republican consulting firm $2 million to kill legislation that would have regulated and trimmed the mortgage finance giant and its sister company, Fannie Mae, three years before the government took control to prevent their collapse.” The target of the lobbying effort was a bill by Senator Charles Hagel that would have strengthened oversight and tightened regulation over Freddie Mac and Fannie Mae. The bill was supported by Republicans and (sad to say) opposed by Democrats. The lobbying campaign, focused on 17 Republican senators, was successful in turning enough of them around to keep the bill from passing or even coming to the floor. The “turned” senators were Mitch McConnell of Kentucky, Christopher "Kit" Bond and Jim Talent of Missouri, Conrad Burns of Montana, Mike DeWine of Ohio, Lamar Alexander of Tennessee, Olympia Snowe of Maine, Lincoln Chafee of Rhode Island and George Allen of Virginia.

S. 190 - Federal Housing Enterprise Regulatory Reform Act of 2005

It is possible that all this was perfectly legal—but it stinks of corruption. In fact, it was corrupt.

I’m a lawyer, and I know how easy it is to find a way to violate the spirit of a law without violating the letter, and that is particularly true of criminal statutes, which must be strictly interpreted to avoid running afoul of the due process requirements of the U. S. Constitution. On the other hand, using corporate funds to lobby lawmakers for the specific purpose of passing legislation to keep the investigators away from an ongoing crime (or a conspiracy) ought to be a crime, both for the corporations and their officers, and for the lobbyists that do the actual dirty work. It is obstruction of justice, pure and simple.

Part of the problem with our national government is a weak alignment in interest between high government officials in all three branches and the guy on the street.

Here’s a proposal for part of the solution: Pass a constitutional amendment fixing the salaries and pensions of the president, vice president, senators, congressmen and all federal judges at a multiple (not necessarily the same multiple for all of them, however) of the 20th percentile of family income. These are folks who are struggling hard to stay in their houses and put food on their tables, so if our congresscritters continue what they have been doing since 1981, their income will either stagnate or decline. Make the salary generous.

Interestingly enough, the income of the president and members of congress have actually been going down as a multiple of the 20th percentile’s family income. For instance, the president’s pay in 1951 was 51.2 times the 20th percentile’s family income (100,000/1953), whereas the multiple in 2003 was 16.6 (400,000/24,117). A fair multiple would be 25.

Congressional salaries, on the other hand, have moved less but still ought to be raised to at least a multiple of 10 times the 20th percentile.

Year Salary 20th per. multiple
1951 12500 1953 6.4
1969 42500 5000 8.5
1979 60662 8000 7.6
1994 133600 17949 7.4
2003 154700 24117 6.4

In order to reinforce this alignment, forbid all outside income, gifts or speculative earnings, irrespective of the source, to all these officials. All outside income goes into the treasury, period. No exceptions. That includes income from blind trusts and retirement income. Officials must live on their government salary as long as they remain in the government. If you happen to own a private jet, you can use it, but you must make the payments for it, maintain it and pay for fuel out of your government earnings. You get the idea ....

There are other provisions that could further strengthen that alignment. For instance, we could add an additional factor - the Gini ratio, a measure of income inequality that has been climbing ever since Ronald Reagan became president. Zero is perfect equality and 1 is total inequality. Subtract the Gini ratio from 1 and multiply the difference by the multiple above, increasing the multiple to meet the initial income target. Then the more unequal society becomes, the higher the Gini index goes, and the folks ultimately responsible for the increasing inequality get a taste of what it is like to see their incomes decline.

Another possibility would be to tie executive and legislative income to the minimum wage. The president’s income has declined compared the minimum wage, but Congress’s income has grown almost twice as fast as the minimum wage since 1951.

Establish a retirement system that enables public servants to retire with a generous stipend, on the condition that they do not lobby or work for the federal government or a corporation that does business with the government until they have been out of office at least 6 years.

Establish progressive tax brackets that are multiples of the 20th percentile of family incomes. In 2007 the 20th percentile earned $27,864, so any family earning less than $27,864 pays nothing, which is a good thing; at that income, taxes literally take food off the table. The brackets would then go $27,865-55,728; $55,729--83,592; $83,593--111,456, etc. If everyone’s income rises in the same proportion, then the brackets would proportionately expand and no one’s tax bite would change. If the income at the bottom stagnates, however, then the brackets stay put and the higher earners suffer tax bracket creep as their income increases. This would have the effect of aligning the interest of the wealthy with the welfare of the far-less-wealthy. It would then be in everyone’s interest to adopt policies to pull up the income at the bottom.

Needless to say, such an arrangement would have to be done by constitutional amendment, as no congress would vote to tie their incomes to the fortunes of the less well-off.

Finally, the money-chase for campaign contributions must cease. It is unrealistic (I originally wrote idiotic) to expect our representatives in Washington to do their job if they must spend most of their time begging the rich and powerful for campaign contributions. All elective federal offices simply must be financed by public funds and those funds must be dispensed in a way that will shorten the campaigns to a reasonable length. Television, radio and cable must, as a condition of doing business, furnish adequate prime time at no cost for the candidates to put their messages before the voters. If it takes a constitutional amendment to make this work, then enact it.

References:

http://www.uscourts.gov/judicialpay.pdf
http://www.senate.gov/reference/resources/pdf/97-1011.pdf
http://www.census.gov/hhes/www/income/histinc/f01AR.html
http://www.lib.umich.edu/govdocs/fedprssal.html
http://usgovinfo.about.com/library/blminwage.htm
http://www.census.gov/hhes/www/income/histinc/f04.html

It looks as though the gloves are finally coming off in the presidential race. McCain is excoriating Obama for his association with a former Weatherman, now an education professor, named Ayers, and Obama is wading into McCain’s role in the catastrophic fall of Lincoln Savings and Loan, part of the S&L debacle of the late ’80s. My impression then and now is that McCain is lucky that he didn’t spend some time behind bars for bribery and obstruction of justice.

Here is a film from the Obama campaign exploring what happened.



Looks like this election could become very interesting.

Via the Raw Story, Naomi Klein explains on the Colbert Report that the Wall Street collapse is merely another planned disaster to rob the nation of even more money and resources and enrich Bush’s friends.

http://rawstory.com/news/2008/Naomi_Klein_Bush_admin_invented_no_1003.html

Click to see The “Free Market System” - September 2008”

Tags: economics

The bailout of Wall Street went down in the House of Representatives this afternoon. A majority of Republicans opposed it and a majority of Democrats supported it. Shame! The Federal Reserve has announced massive support of banks to maintain liquidity, which is what it is in the business of doing.

The proposed bailout was a gift to a gang of thieves.

Back to the drawing board. No mitigation without regulation.

Upon sober reflection, the bailout is beginning to look more and more like a huge gift to the banks and Wall Street.

Dean Baker in the Huffington Post writes that The Banks Have a Gun Pointed at Their Head and Are Threatening to Pull the Trigger:

The basic argument for the bailout is that the banks are filled with so much bad debt that the banks can't trust each other to repay loans. This creates a situation in which the system of payments breaks down. That would mean that we cannot use our ATMs or credit cards or cash checks.

That is a very frightening scenario, but this is not where things end. The Federal Reserve Board would surely step in and take over the major money center banks so that the system of payments would begin functioning again. The Fed was prepared to take over the major banks back in the 80s when bad debt to developing countries threatened to make them insolvent. It is inconceivable that it has not made similar preparations in the current crisis.

In other words, the worst case scenario is that we have an extremely scary day in which the markets freeze for a few hours. Then the Fed steps in and takes over the major banks. The system of payments continues to operate exactly as before, but the bank executives are out of their jobs and the bank shareholders have likely lost most of their money. In other words, the banks have a gun pointed to their heads and are threatening to pull the trigger unless we hand them $700 billion.

Michael Moore puts it even more bluntly on his mailing list:

Let me cut to the chase. The biggest robbery in the history of this country is taking place as you read this. Though no guns are being used, 300 million hostages are being taken. Make no mistake about it: After stealing a half trillion dollars to line the pockets of their war-profiteering backers for the past five years, after lining the pockets of their fellow oilmen to the tune of over a hundred billion dollars in just the last two years, Bush and his cronies -- who must soon vacate the White House -- are looting the U.S. Treasury of every dollar they can grab. They are swiping as much of the silverware as they can on their way out the door.

As usual, the taxpayers are getting screwed.

Remember, Mississippi Republicans, you voted this gang of thieves into office and kept them there. Now all of us are going to pay hell for this folly.

The crisis currently roiling the financial world is the result of greed, ingenuity, stupidity and arrogance, all in large portions. Like all disasters--and it is a disaster--no one knows precisely the correct procedure to limit the damage, because history never repeats itself exactly.

Clouds have been forming on the horizon for at least 15 years. Whenever a CEO can continue to be paid millions while running a corporation into bankruptcy, there is a severe disconnect between performance and reward which bodes ill for the corporate world, as well as for the entire economy.

Opposition to Treasury Secretary Paulsen’s request for virtually unlimited powers is mounting, even among conservatives, who are suddenly worried about unaccountable executive power. Funny, it hasn’t bothered them for the last seven years, as Glenn Greenwald points out.

Economist Dean Baker writes the most intelligent suggestions I have yet seen on the subject, Progressive Conditions for a Bailout.

Perhaps his most logical proposal, which would be resisted by the banks to the last man, is to reform the governance of the Federal Reserve:

The structure of the Fed should be changed so that all the officials with a direct say in monetary policy are appointed by the president and approved by Congress. The Fed is supposed to act in the public interest, not in the service of the financial industry. It is disturbing that the public is being represented in this debate over the restructuring of the financial industry almost entirely by top figures from the financial industry. This would be comparable to having national policy on the auto industry determined by former top officials with the United Auto Workers. It is difficult to believe that the views of Treasury Secretary Paulson and other government officials from the financial industry are not influenced by their long association with the industry.

This problem should not be worsened by giving the banking industry a direct voice in the conduct of monetary policy, by allowing it to appoint Federal Reserve district bank presidents who take part in open market committee discussions. There should be a strict separation between the conduct of open market policy, which should be done exclusively by people appointed by the president and approved by Congress and the responsibilities of the district bank presidents. The banking industry deserves no special voice in the conduct of monetary policy.

Social Security is a moral issue, not an exclusively economic or financial one.

Read the article. PDF version.

Via Dean Baker, The Economist notes that an increasing number of Americans are travelling abroad for expensive medical procedures and discovering that they receive equal or better care in places like Singapore or India than here, often for less than the deductables and copayments that their domestic healthcare insurance requires.

Real competition can have some good effects. I wonder how the increase in air fares will affect medical tourism? Perhaps someone will convert a cruise ship into a first-class hospital. Recuperate while sailing to France — or back home. There are many opportunities to capture American medical dollars.

The Economist: Operating profit

It was predictable that India and China would refuse to play along with the usual trade liberalization game. They know what the western nations--especially the U.S.--are up to and they are big and powerful enough to tell the Bush administration to take a hike. China, in particular, is not about to allow a flood of subsidized farm products from the U.S. to wipe out their farmers, as happened in Mexico and a host of African and South American nations. Moreover, as one of the major holder of dollars, China can laugh at the IMF's prescriptions for "structural adjustment" that have plunged so many Asian nations into dire poverty as the price of being bailed out. Instead, it's been lending to us by accepting our dollars in return for low-cost manufacturing products. Now the U.S.—that's us--is the debtor and we get to pay the interest.

It would have been nice to know exactly what each side proposed in the trade talks, but apparently our government does not have much confidence in the ability of Americans to understand the fine points of international trade. Or perhaps it's the opposite fear--that the people will understand all too well.

Of course, those fine points have made the difference between the industrial powerhouse this nation was before Reagan and his wrecking crew took power and starting sending manufacturing overseas and concentrating the wealth of the nation into the hands of the superrich, and what it is today, a declining power, foolishly squandering its diminishing resources on a colonial war intended to make a few people rich and to establish control of oil production in the middle east. Fine points, indeed!

I would like to believe that an Obama presidency would at least attempt to encourage capital formation in the U.S., but I don't have much faith that it will.

Without a robust industrial capacity, we are destined to loose our economic and technological preeminence, if, indeed we have not already lost it.

According to the New York Times today, the mortgage crisis is growing deeper. In plain language, that means that because of escalating mortgage payments, second mortgage payments, or job loss, more and more homeowners cannot keep their mortgage payments current. Moreover, with home values declining significantly, many homeowners have seen their equity vanish and become negative.

When a home is sold under foreclosure, the lender usually winds up buying it for the mortgage balance. If the value of the home exceeds the debt, the lender can sell it at a profit, but when the housing market is down, the lender must sell at a loss, that is, if it can find a buyer. As every JP reader knows, investors in mortgages and securities based on mortgages have seen their investments lose much of their value in the last six months. Since most of these investors are either very wealthy individuals or institutions with political clout, Congress is struggling to find ways to keep them solvent.

There is also some talk of helping homeowners threatened by foreclosure.

This crisis was predictable long ago. So was the Savings & Loan Crisis, the Dot Com Crisis, the stock market collapse, and the Asian meltdown. The problem each time was that no one who was able was willing to put a damper on what anyone with a grain of sense could see was a bubble — Congress, the Federal Reserve, the Treasury Department, the SEC, or even the mainstream media. Mainstream economists are just now noticing the problem, it appears. Dean Baker, of the Center for Economic and Policy Research, goes beyond sarcasm in criticizing an article in the Washington Post:

The [Washington] Post bizarrely describes a scenario in which Greenspan "puzzled over one piece of data a Fed employee showed him in his final weeks. A trade publication reported that the subprime mortgages had ballooned to 20 percent of all loans, triple the level of a few years earlier."

If this is true, then it implies an incredible level of incompetence on Greenspan's part. The rise in subprime lending was not some obscure fact known only to a privileged few. It was a widely noted development in the housing market over the years 2003-2005. If Greenspan was just made aware of this growth as in the last month of his tenure in January of 2006, then he was incredibly negligent in performing his job.

The growth in housing prices had been the central fuel of the U.S. economy in the recovery following the 2001 recession. Greenspan had been an eager proponent of housing dismissing the concerns of those who warned of a housing bubble. If he did not even know of the surge in subprime lending, then it is difficult to imagine any possible basis on which he could have ruled out the existence of a bubble in the housing market. (The article says that Greenspan "did not recall" whether he mentioned the growth in subprime lending to Bernanke. If Bernanke, did not already know about the growth in subprime, then he is not competent to be chairman of the Fed.)

In short, this article does more to conceal than reveal the developments that led to the current housing crash. There were no deep mysteries that had to be uncovered. House prices had gotten badly out of line with fundamentals by 2002. This was possible for any competent analyst to recognize just as it was possible to recognize the stock bubble by 1998. Unfortunately, the Post and the rest of the media relied almost exclusively on analysts who somehow failed to recognize the housing (and stock) bubbles or worse, had a direct interest in perpetuating these bubbles. Even after the fact, the Post is still choosing to rely almost exclusively on those who failed to see the bubble, rather than the experts who foresaw and warned of the problems ahead.

Dean Baker: The Post Misses the Housing Bubble Yet Again

We have seen all this before. Bubbles and busts have been part of the American experience since the time of Andrew Jackson. Economic systems structured around debt leverage are inherently unstable. A debt doesn't automatically change when the situation of the debtor changes; debt is inflexible, whereas income, equity, and value are at the mercy of the market. Debts are like shoals; inconsequential when the water is high, but deadly when just beneath the surface.

Now that the weaknesses of the mortgage industry are becoming apparent, I would invite readers with imagination to brainstorm in the comments a different system of providing housing to the vast majority of the public. Given the power of the financial sector, it is unlikely that radical restructuring of home financing would have a chance of becoming a reality any time soon, but, given an extended crisis, who knows how many minds might be open to something fundamentally different?

The problem, as conceived by the economists, the media, and government, is how to keep the present system going.

The question we ought to be asking is how we can house people as cheaply and comfortably as possible without pauperizing them, and at the same time giving them the maximum freedom to choose where to live and what to live in.

There has got to be a better way.

Since the '30s, government policy has had a profound effect upon what kind of homes were built, where they were built and how they were paid for. There is no reason why that policy cannot be altered for beneficial results.

For what it's worth, here's a proposal: The government lends you up to, say $150,000, on a house valued at no more than $175,000, interest-free, with equal monthly payments for 20 years. If you sell it at a profit, you have to put it into another house or the government gets to recoup the foregone interest out of the equity. After age 65 you get to keep the equity. You would still have to qualify for the loan, however, and a house whose price exceeds the $175,000 maximum (indexed for inflation) + any equity you might have accumulated in the sale of your previous house, would not qualify. If you want a MacMansion, you would still have to go to the bank and pay the interest on the entire amount financed.

Here's another idea: Finance mortgages the traditional way, but limit annual total payments to a fixed percentage of the homeowner's gross adjusted income for the year (with a reasonable floor to protect the lender), with any shortfall subtracted from interest and automatically forgiven. That way, the lender assumes some of the risk of declining wages and rising unemployment.

Neither of these suggestions may turn out to be practical or even possible, but I am offering them in an effort to stimulate some creative thought about our way of housing Americans.

It would be desirable, in my opinion, to eliminate debt completely from housing transactions, but I'm not sure that is possible. For many years, a home has been the nest egg for the middle class, subsidized by the mortgage interest deduction and capital gains tax break, and fed by the rising value of residential real estate. Now that many nest eggs are vanishing, it behooves us to examine the laying of nest eggs. A speculative nest egg is about as secure as Humpty-Dumpty, and just as likely as Humpty-Dumpty to be put back together again after it goes.

Of course, it is entirely possible that the bursting of the housing bubble and the "great fall of the offwall entailed at such short notice," is merely another phase of the great campaign to fleece the middle class of its remaining wealth, a campaign that has been effectively waged since Reagan became president.

Put your out-of-the-box ideas for housing in the comments.

Amory Lovins came to Jackson as a speaker for one of the Alternative Futures conferences sponsored by Mississippi 2020 during the '80s and made a deep impression on everyone who heard his talk or attended his energy workshop. Now that oil is hovering around $100/bbl and the dollar is plunging against other currencies, Lovins's message is particularly pertinent: our use of oil can be drastically reduced by policies that make it profitable for the private sector to reduce its energy costs.

The following is a talk Lovins made in 2005.

It pains me to see highly educated economists shilling for industry when they know better. Case in point: Dr. William F. Shughart II, who holds the F.A.P. Barnard Distinguished Professor chair of Economics at the University of Mississippi, wrote a guest editorial in the October 1, 2007 Clarion- Ledger entitled "New taxes would cut oil production, harm small stockholders," wherein he wrote the following propositions:

1. Imposing additional taxes on the U.S. oil and gas industry undermines the goal of providing stable and cost-effective supplies of energy for consumers and discourages the enormous capital investments needed to meet the nation's growing energy demands. The House energy bill would reduce incentives to develop domestic energy resources and would discourage investment in new refinery capacity–thereby increasing our dependence on foreign suppliers.

2. We haven't built a new refinery since 1976, in part because of "not-in-my-backyard" attitudes and costly environmental regulations. As a result, U.S. oil refining capacity is nearly 4 million barrels a day below current consumer demand, a shortfall that must be met by importing petroleum products.

3. The absurd windfall profits tax on oil companies imposed during the Carter administration reduced U.S. oil production, cost thousands of jobs and let to an increase in imports.

The very heart of the argument for Capitalism is that the system rewards those who create wealth, as opposed to systems that merely siphon off wealth from the many for the benefit of the few. There is no other moral argument that justifies the enormous concentration of wealth and power that characterizes the modern capitalistic system.

The record profits reaped by Exxon, BP and the other major oil producers, however, have not come about through their own efforts (other than perhaps backing George W. Bush and his Iraq invasion), but through the increase in the price of oil. Speculative profits amount to a transfer of wealth from someone—in this case, the purchaser of petroleum products—to the speculator, who has created no wealth in return. Translated into simple terms, we pay more at the pump and Exxon makes higher profits without lifting a corporate finger. No capital investments are necessary, no sacrifice required. Just rake in the dough and contribute to friendly politicians who will let you keep that dough.

Keeping this in mind, we first examine points 1 and 3. I happened to work for a small independent oil company during the time that the windfall profits tax was in effect. The tax was an effort to recoup some of the windfall profits of oil producers when OPEC raised the price of oil in the late 1970s. The statute made a distinction between existing production (old oil) and production from newly-drilled wells (new oil). Only the old oil was subject to the windfall profits tax.

The result was an explosion of oil exploration in the U.S.A. During the early '80s the most valuable piece of property you could possibly own was an oil rig, because the demand for oil rigs was astronomical. The oil companies were spending money like drunken sailors and the wealth seemed inexhaustible.

Then it all went away.

Shughart indirectly blames the WFT for the collapse of the domestic oil industry in the early '80s, but that signal honor must go to Ronald Reagan, who cut a deal with the Saudis to increase production and lower the price of oil close to $10/bbl. All the independent oil producers went out of business in short order, including the company I worked for. It was good for the economy overall, but it made domestic exploration unprofitable. Thousands of producing wells were plugged and abandoned in the '80s. Oil at $10/bbl rendered the WFT irrelevant and inoperative. It expired by its own terms shortly thereafter. It had no effect whatever on exploration.

With respect to point 2, the investment argument, stark reality refutes Dr. Schughart. If it had been profitable to construct refineries, then the major oil companies would have been building them all along. They have never lacked the resources to do whatever they needed in that respect. The fact that they have not been building, are not now building, nor are they planning to build new refineries any time soon is a dramatic demonstration that they are satisfied with their capacity as it now stands. The environmental regulations that prevent them from operating unsafe and unhealthy workplaces and poisoning the groundwater and air are neither onerous nor unreasonable. In planning and operating new refineries they would merely have to pay costs that were formerly paid by their employes, their neighbors and the environment.

Most likely, the petroleum industry has not constructed new refineries because world oil production has either peaked or will soon peak, and thus additional refining capacity will never be needed. Considering the 5-10 years it takes to bring a refinery on-line from the planning stage, it would be insane to begin the process now, no matter how much money is available to invest.

Dr. Shugart's curriculum vitae reveals that he is an apologist for powerful corporations, with ties to the right-wing Heartland Institute, George Mason University, and a number of other pro-corporate organizations. The ideological threads that run through all these institutions are the sanctity of private property, corporate profits and the highly-managed and controlled industrial/financial system whose plutocratic nature is concealed by the term "market economy."

Always beware of economists that seek to justify the powerful acquiring more power and the wealthy acquiring more wealth.

James K Galbraith (son of late economist John K. Galbraith) has an excellent article on the sub-prime mortgage crisis in Mother Jones. Once again, manipulators forced the Federal Reserve to bail them out when they should have gone directly to jail, with a short side trip to bankruptcy court. Of course, the Fed cannot permit them to go bankrupt because of the dire consequences of widespread economic collapse. Galbraith:

This is how the system works. Big players can, and do, put the Federal Reserve over a barrel. The Fed doesn't like it, but what can it do? Not to bail, when the markets implode, isn't an option. Too many innocents would get massacred on the way by.

Sordid necessity thus killed Bernanke's "inflation targeting" approach to monetary policy. And this leaves the true nature of Fed policy plainly exposed. In normal times, a Fed chair can pretend to follow his academic formulae. But once the air-raid sirens sound, policy isn't made on Constitution Avenue at all. It's made on Wall Street, and don't let us forget it.

Wall Street likes volatility. And so we have a system based on credit bubbles, one after the other. The information-technology bubble from the late nineties to 2001 brought us full employment and budget surpluses, but it could not be sustained. The housing bubble has kept us going ever since. It too was bringing us high employment and falling budget deficits. And it too could not be sustained.

I suppose this is one of the reasons that economics is not a required subject, either in high school or college. Most people, even if taught badly, would know that this is a shell game designed to fleece one more time the great unwashed, as well as most of the washed.

These con games will continue until the economy completely collapses or we restructure the financial system. Don't bet on the latter.

Last night, some words by Bernard Lietaer from an interview with Sarah van Gelder kept going through my mind:

...I believe that greed and competition are not a result of immutable human temperament; I have come to the conclusion that greed and fear of scarcity are in fact being continuously created and amplified as a direct result of the kind of money we are using. For example, we can produce more than enough food to feed everybody, and there is definitely enough work for everybody in the world, but there is clearly not enough money to pay for it all. The scarcity is in our national currencies. In fact, the job of central banks is to create and maintain that currency scarcity. The direct consequence is that we have to fight with each other in order to survive.

Lietaer, a former Belgian banker instrumental in the establishment of the Euro and a recognized world authority on money, believes that people should create their own currencies—he calls them "complementary currencies"—as a part of the answer.

The problem with our current system is not hard to define: There is not enough money in circulation to mediate the optimal number of transactions in our society and world. Put more simply, work needs to be done and there are workers needing work, and the only thing keeping them from doing the work is the lack of money. Lietaer believes that people can overcome many of these problems by creating their own currencies that operate alongside the official money system. In his book, The Future of Money, he makes a powerful argument for complementary currencies based on actual human experience, citing historical examples from ancient Egypt to the present time.

Unfortunately, Amazon.com lists the book as "unavailable," but it is available on amazon.co.uk, which will ship to the U.S.

It is time to bring some of the most brilliant minds to bear upon the subject of our monetary/financial system and how it may be changed to reverse its mindless rush towards ecological, political and social disaster for the whole Earth. In order to make our civilization sustainable, people must be rewarded for actions that promote sustainability. The system now rewards people for exactly the opposite behavior. Classical economics, with its one-dimensional conception of humankind as homo acquisitivus, has become no more than an elaborate mathematical justification for even more destructive corporate and national behavior, if such a thing were possible.

Having been immersed all our lives in the world of fiat currencies, it is hard for us to imagine something different. It is even more difficult, if not impossible, to comprehend how the very nature of the money we earn, spend, and think about so much of the time contributes to many, if not most, of the world's major problems. But Lietaer shows that is indeed the case and it doesn't have to be that way. We humans created money a certain way and we can change it. Most professional economists, unfortunately, will be of little help; they have too much stake in existing theory and their paymasters have too much at stake in keeping the present system going as long as possible. Solving the current crisis will require leaders with the openness and breadth of intelligence of an Adam Smith, and they are rare in any age. Let us hope.

I recently went to a birthday party at the clubhouse of a gated community near Jackson. Carefully secluded (I missed the entrance and had to turn around), the community first presents itself to a visitor as an upscale planned development behind electronically-controlled iron gates with an unoccupied brick guardhouse. The gates close at 10 in the evening. Once inside, the visitor drives upon what seems like endless winding streets past immaculately-manicured lawns and 3,000+ square-feet dwellings with expensive, late-model automobiles parked in double or triple garages. There are no sidewalks.

When was a kid in the '50s, gated communities were unknown in Jackson and the very idea of building a suburban McMansion 30 or 45 minutes out of town in a walled enclosure was not only unthinkable, but would have been regarded as contemptible. Why would anyone other than a farmer or a hermit choose to isolate himself (or especially herself) from the life of the city, the very word from which the term "civilization" is derived?

The answer stares us in the face. We have convinced ourselves that we are helpless in the face of economic laws that dictate constantly increasing inequality. They cannot be resisted, because, like a Calvinistic deity that foreordained from the beginning of creation who is to be damned and who is to be saved by some unknowable divine decision-making process, we believe that the almighty market has declared there must be winners and losers and the best a person can do is to try to be a winner by whatever means are available, and the devil take the hindmost.

From the time of the New Deal until the conservative counter-revolution in the '70s and '80s, most Americans saw through this market theology as so much plutocratic claptrap. They would not had changed their minds, either, had the right-wing forces, through their bogus think-tanks and their increasing control over a rapidly consolidating mass media, not, in effect, edited reality, so that news that did not support the conservative agenda simply ceased to exist in the public mind. The dominance of television news, to which superficiality comes naturally, made the task far easier than it would have been in print media alone.

Aside from the almost incontrovertible fact that these remote, gated communities will not survive in an energy-scarce world, there are other policy considerations that make these communities highly undesirable:

1. They are energy-intensive in many ways: obviously the long commute, either to work or shop requires a lot of gasoline. Walking anywhere is simply out of the question. In addition, these homes are large, single family dwellings that must be heated and cooled. Sizable lawns must be fertilized and watered. Because they are usually located away from lower-income areas, their "help" must drive to work, often over long distances. I read recently that workers in Aspen, Colorado have to commute 50-60 miles because they cannot afford housing any closer to their jobs. None of this is going to work when oil becomes $150/bbl or $250/bbl. These communities will become foreclosure cites when that happens.

2. It is bad for society when the rich and powerful are able to isolate themselves from even the middle class. In the case of Jackson, it is obvious that the leadership vacuum is harming not only the city itself, but the entire metropolitan area. A large piece of Jackson's leadership has moved into gated communities in Madison and Rankin counties, and even though it continues to conduct business and exert influence over city policy, it is mostly insulated from the effects of those policies upon the citizens of Jackson. When the rich and powerful must live amongst the hoi polloi and rub elbows with one and all, they tend to be more aware of this relationship and consequently more concerned for the general welfare.

3. Taxes. It has always been a mystery to me why people who benefit the most from the wealth generated by the community and who are most able to afford paying taxes are the most resistant to giving back their fair share to the community. The entire history of English property law from the Norman conquest until the modern era can largely be explained as the efforts of the nobility to avoid paying feudal land taxes to the Crown. The Republican Party since 1980 often seems to have had no other significant economic policies than cutting taxes for the wealthy and lowering wages for everyone else through union-busting. Gated communities are invariably built in areas with low property taxes. They therefore represent a reduction of the urban tax base and an increase in the suburban (or more likely, exurban) tax base. In order to provide municipal services to a population that cannot afford their own private security guards and to pay for the infrastructure that modern cities must have, cities must raise taxes, which increasingly drives out more of the well-to-do. It's a vicious circle.

Because of a leadership vacuum--especially a vacuum of talented leadership that experiences what it's like to actually live in a Jackson neighborhood--the city is faced with a scarcity from which all other scarcities spring: a scarcity of imagination.

Clearly, there exists a crying need for new ideas about how to make cities work. Increasingly higher energy prices will force most exurbanites and many suburbanites to move closer to their work, thus raising the cost of housing in the city and putting pressure on the poor to find affordable housing in a rapidly-gentrifying city. Will the poor then gravitate to the suburbs, where there is no public transportation worth speaking of and, because of low-density development, where public transportation will be prohibitively expensive? The prospects do not look good.

Committees and blue-ribbon commissions have met and made recommendations world without end, and nothing happens. Societies die when they lose their imagination, when they cannot change because change is blocked by the forces that have grown fat on the status quo and would lose their privileged position if what is needed to be done were done.

Have we reached that point in our society?

We will probably know the answer to that question in the next few years.

Open Democracy: A Tale of Two Towns

Steve Clements and Micheal Lind explore the immigration controversy surrounding foreign students in our colleges and universities and professionals moving here to work. It's not a simple matter, but it helps to remember that Einstein was an immigrant and came to this company in the '30s and '40s along with a gaggle of geniuses who enriched our nation both intellectually and financially to an unbelievable degree.

Congress at the moment seems to favor low-skill, low-wage immigrants and to disfavor the more intelligent and skilled ones, on the grounds that the high-level ones tend to displace Americans who would otherwise be holding those high-level tech jobs. There is some truth in the latter accusation, as has been discussed previously here and here. Smart, highly trained people, however, create wealth. We ultimately gain and their foresaken homelands ultimately lose. It seems that other nations have learned this lesson and our leaders have forgotten it:

While the United States perversely tries to corner the market in uneducated hotel maids and tomato harvesters, other industrial democracies are reshaping their immigration policies to invite the skilled immigrants that we turn away. Britain is following Australia and Canada in adopting a points system that gives higher scores to skilled immigrants with advanced education and proficiency in English. British, Canadian, German and even French universities are overflowing in undergraduate and graduate enrollment as they absorb the foreign talent that America is repelling.

The number of outstanding persons in a multitude of fields who have come to this land is simply staggering. To name some of the 20th Century's greatest merely scratches the surface: Einstein, Stravinsky, Von Neuman, Fermi, Strauss, Arendt, Tillich, Heifetz, Toscanini, Nabokov .... the list is endless.

Even now, the Mississippi Symphony would be almost fatally crippled without its Polish, Russian, Lithuanian, Moldavian, Chinese, and Japanese musicians who have helped it become an orchestra of which the city and state can be proud.

Talented, intelligent people give to society far more than they take. Congress should be mindful of this when it formulates our nation's immigration policies.

Via Sirotablog, Congressional leaders are hatching a new "free" trade agreement with the White House. Mississippians ought to know from their own experience what free trade does to workers--there are few towns in this state that have not lost at least one factory to NAFTA, with little to show for it in return. Now there's a new free trade agreement being drafted in secret by the Bush administration with the approval of Democratic leaders to be sprung upon the American people in due time.

Last night Bill Moyers interviewed John MacArthur, author of The Selling of Free Trade and critic of NAFTA and other free trade agreements, who believes that the new free trade agreement in the works is no more or less than an attempt by the Democratic leadership to attract political contributions from Wall Street by offering something that the large manufacturing and retailing corporations want: fewer restraints on employing overseas labor to undercut jobs and wages in the U.S. The bill has not reached Congress, but the big players, such as the National Chamber of Commerce and the National Association of Manufacturers, have already endorsed it, which means that it bodes ill for the American worker.

Expect our Republican senators and representatives to vote for it automatically. Unless pushed, Gene Taylor will vote for it, just as he voted for the corrupt Bankruptcy Bill. Bennie Thompson will probably do the right thing, especially if he knows that Mississippians are watching.

Bill Moyers Journal: Trade Talks

Biofuels have been receiving a lot of favorable publicity recently. You can buy biodiesel at selected gas stations, and, if you are adventurous, you can drive your diesel-powered car or motor home with discarded cooking oils from fast food restaurants. I have heard that the oil from Chinese restaurants is the most desirable.

Biofuels are being widely acclaimed as the solution to the energy crisis.

There's one catch, however. Crops grown for fuel require the same land as food crops, and given the increasing demand for fuel and current world population trends, the transformation of crop lands to fuel lands will inevitably collide with the need for food, a development which has ominous implications for the vast majority of the world's peoples who barely have enough to eat even now. The price of corn has already doubled since last year, principally due to the demand for biofuel.

There's even a bigger catch, however: It takes energy to produce biofuels. In the case of ethanol, the cost of fertilization, harvesting, fermentation and distillation require so much energy input that gasohol, for example, a popular blend of gasoline and alcohol, must be subsidized through tax breaks to make its production possible.

So how does Fidel Castro, communist dictator of Cuba, come into the picture?

Simple. Since the fall of the Soviet Union, and thus the cessation of its oil subsidies to Cuba, the latter has been forced to adapt to an energy-poor and petroleum-poor (and thus fertilizer-poor) economy that likely foreshadows our own future here in the U.S. Considering the unremitting hostility of the U.S. to the Castro regime and the resulting long-term economic sanctions imposed by the U. S. government on Cuba, the Cuban people have done admirably well under the circumstances.

Via Stan Goff's Feral Scholar, Casto, who has earned the right to comment upon such matters, has written a thoughtful paper based on the writings of Atilio Borón, a prestigious leftist intellectual who until recently headed the Latin American Council of Social Sciences (CLACSO), on the pitfalls of biofuels. He spares no words:

Transforming food into fuels is a monstrosity.

Capitalism is preparing to perpetrate a massi