Wednesday, May 30, 2012

BUSH CONVICTION OF WAR CRIMES AT A TRIBUNAL IN MALAYSIA NOW UNDER CONSIDERATION BY THE INTERNATIONAL CRIMINAL COURT


 theREALnews                                                                               Permalink

MAY 29, 2012

Bush Convicted of War Crimes at Tribunal

Francis Boyle: Judgement at Malaysian hearing may help push case at ICC; Obama in violation for not pursuing indictment


More at The Real News


Bio

Francis Boyle is a Professor of Law at the University of llinois School of Law, where he currently teaches courses on Public International Law and International Human Rights. He was a part of the prosecution team that tried former US President George W. Bush, Dick Cheney, Donald Rumsfeld and their legal advisors in absentia in Malaysia.

A MEMORIAL DAY SPECIAL (TWO DAYS LATE)









This video was discovered on Democracy Now on Monday.  Democracy Now's embed codes are no longer recognized by blogspot (wonder why?).  So I had to search for it on YouTube, where it was still hard to find...

Rise Against - Hero of War (13,456, 414 views as of mine)

http://www.youtube.com/watch?v=_DboMAghWcA&feature=colike

Uploaded by RiseAgainstVEVO on Nov 25, 2009

Music video by Rise Against performing Hero Of War. YouTube view counts pre-VEVO: 1,972,407. (C) 2009 DGC Records

Monday, May 28, 2012

IF YOUR BUSINESS SHOULD BE RUNNING PRIVATE PRISONS, YOU HAVE NO SCRUPLES, AND YOUR COUNTRY CHOOSES TO LOOK THE OTHER WAY, YOU'D BE FEEDING GRADE SCHOOL CHILDREN HEROIN. PERSONALLY, I WOULD FIND THIS TOTALLY APPALLING WHEN AND WHEREVER IT IS DONE, BUT I AM REALLY REALLY PISSED TO FIND THAT IT IS *MY* GRADE SCHOOL THAT RECENTLY MADE THE EVENING NEWS. SEE ME CIRCLED BELOW IN OUR 5TH GRADE CLASS PICTURE ON THE FRONT STEPS OF TURNER SCHOOL:



























Opium Wonderland Afghan Style



Uploaded by PigMine3 on Jul 11, 2010

"LOUISIANA'S INCARCERATION RATE IS NEARLY TRIPLE IRAN'S, SEVEN TIMES CHINA'S AND 10 TIMES GERMANY'S." "LOUISIANA WAS ONE OF THE THREE STATES AND THE DISTRICT OF COLUMBIA TO RECEIVE AN F FOR K-12 ACHIEVEMENT IN 2012." GOT IT? KEEP PEOPLE SUFFICIENTLY UNEDUCATED AND POOR AND YOU HAVE A SOURCE OF (SLAVE) LABOR CHEAPER THAN CHINA'S.








OP-ED COLUMNIST

Plantations, Prisons and Profits


Charles M. Blow
“Louisiana is the world’s prison capital. The state imprisons more of its people, per head, than any of its U.S. counterparts. First among Americans means first in the world. Louisiana’s incarceration rate is nearly triple Iran’s, seven times China’s and 10 times Germany’s.” 

That paragraph opens a devastating eight-part series published this month by The Times-Picayune of New Orleans about how the state’s largely private prison system profits from high incarceration rates and tough sentencing, and how many with the power to curtail the system actually have a financial incentive to perpetuate it.

The picture that emerges is one of convicts as chattel and a legal system essentially based on human commodification.

First, some facts from the series:
• One in 86 Louisiana adults is in the prison system, which is nearly double the national average.
• More than 50 percent of Louisiana’s inmates are in local prisons, which is more than any other state. The next highest state is Kentucky at 33 percent. The national average is 5 percent.
• Louisiana leads the nation in the percentage of its prisoners serving life without parole.
• Louisiana spends less on local inmates than any other state.
• Nearly two-thirds of Louisiana’s prisoners are nonviolent offenders. The national average is less than half.
In the early 1990s, the state was under a federal court order to reduce overcrowding, but instead of releasing prisoners or loosening sentencing guidelines, the state incentivized the building of private prisons. But, in what the newspaper called “a uniquely Louisiana twist,” most of the prison entrepreneurs were actually rural sheriffs. They saw a way to make a profit and did.

It also was a chance to employ local people, especially failed farmers forced into bankruptcy court by a severe drop in the crop prices.

But in order for the local prisons to remain profitable, the beds, which one prison operator in the series distastefully refers to as “honey holes,” must remain full. That means that on almost a daily basis, local prison officials are on the phones bartering for prisoners with overcrowded jails in the big cities.

It also means that criminal sentences must remain stiff, which the sheriff’s association has supported. This has meant that Louisiana has some of the stiffest sentencing guidelines in the country. Writing bad checks in Louisiana can earn you up to 10 years in prison. In California, by comparison, jail time would be no more than a year.

There is another problem with this unsavory system: prisoners who wind up in these local for-profit jails, where many of the inmates are short-timers, get fewer rehabilitative services than those in state institutions, where many of the prisoners are lifers. That is because the per-diem per prisoner in local prisons is half that of state prisons.

In short, the system is completely backward.

Lifers at state prisons can learn to be welders, plumbers or auto mechanics — trades many will never practice as free men — while prisoners housed in local prisons, and are certain to be released, gain no skills and leave jail with nothing more than “$10 and a bus ticket.”

These ex-convicts, with almost no rehabilitation and little prospect for supporting themselves, return to the already-struggling communities that were rendered that way in part because so many men are being extracted on such a massive scale. There the cycle of crime often begins again, with innocent people caught in the middle and impressionable young eyes looking on.

According to The Times-Picayune: “In five years, about half of the state’s ex-convicts end up behind bars again.”

This suits the prison operators just fine. They need them to come back to the “honey holes.”
Furthermore, the more money the state spends on incarceration, the less it can spend on preventive measures like education. (According to Education Week’s State Report Cards, Louisiana was one of three states and the District of Columbia to receive an F for K-12 achievement in 2012, and, this year, the state, over all, is facing a $220 million deficit in its $25 billion budget.)

Louisiana is the starkest, most glaring example of how our prison policies have failed. It showcases how private prisons do not serve the public interest and how the mass incarceration as a form of job creation is an abomination of justice and civility and creates a long-term crisis by trying to create a short-term solution.

As the paper put it: “A prison system that leased its convicts as plantation labor in the 1800s has come full circle and is again a nexus for profit.”
I invite you to join me on Facebook and follow me on Twitter, or e-mail me at chblow@nytimes.com.

Saturday, May 26, 2012

ROBERT REICH ON THE DIFFERENCE BETWEEN PRIVATE AND PUBLIC MORALITY AND WHY ONLY THE LATTER IS IN NEED OF GOVERNMENT REGULATION



http://youtu.be/4TB73Lw1XtE

TUESDAY, MAY 15, 2012

ROMNEY HAS PUBLIC AND PRIVATE MORALITY UPSIDE DOWN

Mitt Romney’s reaction to J.P. Morgan Chase’s mounting losses from reckless trades is “the market will take care of it.” His spokesman says “no taxpayer money was at risk” so we don’t need more financial regulation. Romney has even promised to repeal Dodd-Frank if he’s elected president.

Yet at the same time, Romney has come out strongly against same-sex marriage. He’s also against abortion. He has no problem with government intruding on the most intimate of decisions a person makes.

He’s got private and public morality upside down. He doesn’t want to regulate where regulation is necessary — at the highest reaches of the economy, where public immorality has cost us dearly, and will cost even more unless boardroom behavior is constrained. Yet he wants to regulate where regulation is least appropriate — at the level of the individual, in bedrooms and other intimate spaces, where private morality should govern.

This is a dangerous confusion. It should be a matter of personal choice whom to marry and when to have children. But it is undoubtedly a matter of public choice whether big banks should be allowed to take the kind of risky bets that plunged the economy into the worst downturn since the Great Depression, and whether people with great wealth and should be able to buy our democracy with huge campaign contributions.

Please see the attached video and pass it on.



ROBERT B. REICH, Chancellor’s Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including the best sellers “Aftershock" and “The Work of Nations." His latest is an e-book, “Beyond Outrage.” He is also a founding editor of the American Prospect magazine and chairman of Common Cause.

Friday, May 25, 2012

Thursday, May 24, 2012

SOME GOOD NEWS FOR A CHANGE: A FEDERAL JUDGE RULED IN FAVOR OF A LAWSUIT ALEGING THAT THE NATIONAL DEFENSE AUTHORIZATION ACT (NDAA) SIGNED INTO LAW BY PRESIDENT OBAMA, BY AUTHORIZING ARREST AND INDEFINITE DETENTION BY THE U.S. MILITARY OF ANY AMERICAN CITIZEN ANYWHERE, VIOLATES THE PLAINTIFF'S 1ST AND 5TH AMENDMENT RIGHTS.













Federal court enjoins NDAA

An Obama-appointed judge rules its indefinite detention provisions likely violate the 1st and 5th Amendments



President Obama (Credit: AP/Carolyn Kaster)



















(updated below)

A federal district judge today, the newly-appointed Katherine Forrest of the Southern District of New York, issued an amazing ruling: one which preliminarily enjoins enforcement of the highly controversial indefinite provisions of the National Defense Authorization Act, enacted by Congress and signed into law by President Obama last December. This afternoon’s ruling came as part of a lawsuit brought by seven dissident plaintiffs — including Chris Hedges, Dan Ellsberg, Noam Chomsky, and Birgitta Jonsdottir — alleging that the NDAA violates ”both their free speech and associational rights guaranteed by the First Amendment as well as due process rights guaranteed by the Fifth Amendment of the United States Constitution.”

The ruling was a sweeping victory for the plaintiffs, as it rejected each of the Obama DOJ’s three arguments: (1) because none of the plaintiffs has yet been indefinitely detained, they lack “standing” to challenge the statute; (2) even if they have standing, the lack of imminent enforcement against them renders injunctive relief unnecessary; and (3) the NDAA creates no new detention powers beyond what the 2001 AUMF already provides.

As for the DOJ’s first argument — lack of standing — the court found that the plaintiffs are already suffering substantial injury from the reasonable fear that they could be indefinitely detained under section 1021 of the NDAA as a result of their constitutionally protected activities. As the court explained (h/t Charles Michael):
In support of their motion, Plaintiffs assert that § 1021 already has impacted their associational and expressive activities–and would continue to impact them, and that § 1021 is vague to such an  extent that it provokes fear that certain of their associational and expressive activities could subject them to indefinite or prolonged military detention.
The court found that the plaintiffs have “shown an actual fear that their expressive and associational activities” could subject them to indefinite detention under the law,and “each of them has put forward uncontroverted evidence of concrete — non-hypothetical — ways in which the presence of the legislation has already impacted those expressive and associational activities” (as but one example, Hedges presented evidence that his “prior journalistic activities relating to certain organizations such as al-Qaeda and the Taliban” proves “he has a realistic fear that those activities will subject him to detention under § 1021″). Thus, concluded the court, these plaintiffs have the right to challenge the constitutionality of the statute notwithstanding the fact that they have not yet been detained under it; that’s because its broad, menacing detention powers are already harming them and the exercise of their constitutional rights.

Significantly, the court here repeatedly told the DOJ that it could preclude standing for the plaintiffs if they were willing to state clearly that none of the journalistic and free speech conduct that the plaintiffs engage in could subject them to indefinite detention. But the Government refused to make any such representation. Thus, concluded the court, “plaintiffs have stated a more than plausible claim that the statute inappropriately encroaches on their rights under the First Amendment.”

Independently, the court found that plaintiffs are likely to succeed on their claim that the NDAA violates their Fifth Amendment due process rights because the statute is so vague that it is virtually impossible to know what conduct could subject one to indefinite detention. Specifically, the court focused on the NDAA’s authorization to indefinitely detain not only Al Qaeda members, but also members of so-called “associated forces” and/or anyone who “substantially supports” such forces, and noted:
Plaintiffs have shown a likelihood of success on their vagueness challenge. The terms upon which they focused at the hearing relate to who is a “covered person.” In that regard, plaintiffs took issue with the lack of definition and clarity regarding who constitutes an “associated forces,” and what it means to “substantially” or “directly” “support” such forces or, al-Qaeda or the Taliban. . . .
The Government was unable to define precisely what ”direct” or “substantial” “support” means. . . .Thus, an individual could run the risk of substantially supporting or directly supporting an associated force without even being aware that he or she was doing so.
Perhaps most importantly, the court categorically rejected the central defense of this odious bill from the Obama administration and its defenders: namely, that it did nothing more than the 2001 AUMF already did and thus did not really expand the Government’s power of indefinite detention. The court cited three reasons why the NDAA clearly expands the Government’s detention power over the 2001 AUMF (all of which I previously cited when denouncing this bill). 

First, “by its terms, the AUMF is tied directly and only to those involved in the events of 9/11,” whereas the NDAA “has a non-specific definition of ‘covered person’ that reaches beyond those involved in the 9/11 attacks by its very terms.” Second, “the individuals or groups at issue in the AUMF are also more specific than those at issue in § 1021″ of the NDAA; that’s because the AUMF covered those “directly involved in the 9/11 attacks while those in § 1021 [of the NDAA] are specific groups and ‘associated forces’.” Moreover, “the Government has not provided a concrete, cognizable set of organizations or individuals that constitute ‘associated forces,’ lending further indefiniteness to § 1021.” Third, the AUMF is much more specific about how one is guilty of “supporting” the covered Terrorist groups, while the NDAA is incredibly broad and un-specific in that regard, thus leading the court to believe that even legitimate activities could subject a person to indefinite detention.

The court also decisively rejected the argument that President Obama’s signing statement – expressing limits on how he intends to exercise the NDAA’s detention powers — solves any of these problems. That’s because, said the court, the signing statement “does not state that § 1021 of the NDAA will not be applied to otherwise-protected First Amendment speech nor does it give concrete definitions to the vague terms used in the statute.”

The court concluded by taking note of what is indeed the extraordinary nature of her ruling, but explained it this way:
This Court is acutely aware that preliminarily enjoining an act of Congress must be done with great caution. However, it is the responsibility of our judicial system to protect the public from acts of Congress which infringe upon constitutional rights.
I’ve been very hard on the federal judiciary in the past year due to its shameful, craven deference in the post-9/11 world to executive power and, especially, attempts to prosecute Muslims on Terrorism charges. But this is definitely an exception to that trend. This is an extraordinary and encouraging decision. All the usual caveats apply: this is only a preliminary injunction (though the court made it clear that she believes plaintiffs will ultimately prevail). It will certainly be appealed and can be reversed. There are still other authorities (including the AUMF) which the DOJ can use to assert the power of indefinite detention. Nonetheless, this is a rare and significant limit placed on the U.S. Government’s ability to seize ever-greater powers of detention-without-charges, and it is grounded in exactly the right constitutional principles: ones that federal courts and the Executive Branch have been willfully ignoring for the past decade.

UPDATE: I really should mention the rest of the plaintiffs who brought this lawsuit beyond the four well-known ones I named above, because each deserves immense credit for doing this. Alexa O’Brien is an independent journalist who writes for WL Central, regarding WikiLeaks, Guantanamo and other issues, and founded a website to work on America’s corrupted elections, U.S. Day of Rage. Kai Wargalla is a British activist who founded Occupy London and has done extensive work in advocating for WikiLeaks. Jennifer Bolen, who along with Hedges spearheaded the organization of this lawsuit, is an activist with Revolution Truth who did substantial work to defeat the NDAA.

Though I knew a fair amount about it as it proceeded, I hadn’t written about this lawsuit before, largely because I did not expect it to succeed; I anticipated that it would be dismissed on “standing” grounds, the favored tactic (along with the State Secrets privilege) for both the Bush and Obama DOJs to persuade federal courts not to even adjudicate constitutional challenges to the War on Terror powers. Serious kudos to all of the plaintiffs and lawyers here who persevered in what I’m certain they knew would be an uphill battle.

Glenn Greenwald (email: GGreenwald@salon.com) is a former Constitutional and civil rights litigator and is the author of three New York Times Bestselling books: two on the Bush administration's executive power and foreign policy abuses, and his latest book, With Liberty and Justice for Some, an indictment of America's two-tiered system of justice. Greenwald was named by The Atlantic as one of the 25 most influential political commentators in the nation. He is the recipient of the first annual I.F. Stone Award for Independent Journalism, and is the winner of the 2010 Online Journalism Association Award for his investigative work on the arrest and oppressive detention of Bradley Manning.

Wednesday, May 23, 2012

ARGUEABLY NATO NOW EXISTS MAINLY TO SOCIALIZE THE COSTS OF U.S. WARS (1ST VIDEO). THE NEWLY MILITARIZED U.S. POLICE FORCES EXIST PRIMARILY TO TERRORIZE FOLKS BY VIOLATING THEIR 1ST AND 4TH AMENDMENT RIGHTS IN THE COURSE OF ARRESTING THEM ON SUSPICION OF THEIR BEING "TERRORISTS" (2ND VIDEO).








TUESDAY, MAY22, 2012                                                               Permalink

Should NATO Exist? Phyllis Bennis vs. Ex-CIAer Stan Sloan on Alliance’s Purpose, Afghan War’s Future



As NATO concludes its largest-ever summit in Chicago, we host a debate on whether the trans-Atlantic military alliance should exist at all and its new agreement to hand over control to Afghan forces next year. "When you’re a hammer, everything looks like a nail. When you’re a military alliance, every problem looks like it requires a military solution," argues Phyllis Bennis, an author and fellow at the Institute for Policy Studies. "NATO is a giant, big hammer. The problem is, Afghanistan is not a nail, Libya is not a nail. These are political problems that need to be dealt with politically. And by empowering ... a military alliance, NATO is really serving to undermine the goal of the United Nations Charter, which speaks of the importance of regional organizations, in political terms, for nonviolent resolution of disputes, not to put such a primacy and privilege on military regional institutions that really reflect the most powerful parts of the world." Speaking in support of NATO, Stan Sloan, a 30-year security analyst at the CIA and former senior specialist at the Congressional Research Service, counters: "I believe that having allies in this alliance for the United States serves our interests, serves our national interests. ... [NATO] has always been a political alliance. ... I think as long as the member states regard cooperation among them as valuable and even necessary if they have to use military force, they will continue to judge that we need the alliance." [original includes rush transcript] 
Guests:
Phyllis Bennis, fellow at the Institute for Policy Studies. She’s written several books, including Ending the US War in Afghanistan: A Primer and Challenging Empire: How People, Governments, and the UN Defy US Power.
Stan Sloan, European security expert at the CIA from the late 1960s until 1999. He was also a senior specialist at the Congressional Research Service. Since retiring from government service, he has taught at Middlebury College in Vermont. His most recent book is Permanent Alliance? NATO and the Transatlantic Bargain from Truman to Obama.

Attorney: "NATO 3" Activists Detained on Terror Charges in Chicago Are Victims of Police Entrapment



Following a weekend that saw nearly 100 arrests of protesters at the NATO summit in Chicago, we speak with National Lawyers Guild attorney Sarah Gelsomino, who represents one of the five activists charged with terror-related crimes. Two are accused of attempted possession of explosives or incendiary devices, and three more are accused of conspiracy to commit terrorism, material support for terrorism and possession of explosives. Gelsomino says the so-called "NATO Three" were set up by government informants who planted the explosives. "Our clients who are facing the most serious charges of terrorism are actually in solitary confinement right now, we just learned," Gelsomino says. "A very top priority this week is to get them out of that extremely punitive and extremely dangerous condition that they’re in right now." [original includes rush transcript] 
Guest: 
Sarah Gelsomino, attorney with the People’s Law Office and the National Lawyers Guild. She is representing one of the protesters facing terrorism charges from the NATO summit.

Tuesday, May 22, 2012

SENATOR TIM JOHNSON, CHAIR OF THE SENATE BANKING COMMITTEE, WANTS JAMIE DIMOND, HEAD OF JPMORGAN CHASE (AND JOHNSON'S LARGEST CONTRIBUTOR), TO COME TESTIFY HOW THEY LOST $2 BILLION "HEDGING." HOWEVER, THE FOX GUARDING THE CHICKEN COOP IS JUST THE TIP OF THE ICEBERG: DIMOND HAS ALREADY DEMONSTRATED THAT HE DOESN'T UNDERSTAND THE KIND OF HEDGING HIS COMPANY HAS BEEN DOING, LEHMAN BROTHERS' MISTAKES CRASHED THE WHOLE WORLD'S BANKING SYSTEM 4 YEARS AGO, AND NOW THERE IS A MAJOR FINANCIAL CRISIS BREWING IN EUROPE THAT COULD EXPLODE INTO A GLOBAL CRISIS AT ANY MOMENT ...PARTICULARLY IF REST OF THE BIG U.S. BANKS HAVE BUNGLED THEIR "HEDGING" AGAINST A LIKELY GREEK DEFAULT AS BADLY AS JPMORGAN JUST ADMITTED TO.


 theREALnews                                                                               Permalink


J.P. Morgan Funds Senate Finance Chair, Even Bigger Problem in the Wings

Tom Ferguson: Euro crisis may have more devastating effect on US banks than previously thought


More at The Real News


Bio 

Thomas Ferguson is Professor of Political Science at the University of Massachusetts, Boston and a Senior Fellow of the Roosevelt Institute. He received his Ph.D. from Princeton University and taught formerly at MIT and the University of Texas, Austin. He is the author or coauthor of several books, including Golden Rule (University of Chicago Press, 1995) and Right Turn (Hill & Wang, 1986). Most of his research focuses on how economics and politics affect institutions and vice versa. His articles have appeared in many scholarly journals, including the Quarterly Journal of Economics, International Organization, International Studies Quarterly, and the Journal of Economic History. He is a long time Contributing Editor to The Nation and a member of the editorial boards of the Journal of the Historical Society and the International Journal of Political Economy.

Monday, May 21, 2012

HOW AND WHY THE CURRENT FINANCIAL CRISIS COULD DESTROY WESTERN CIVILIZATION: DEREGULATION HAS FREED THE TOO-BIG-TO-FAIL BANKS TO SELL NAKED SHORTS AND ENGAGE IN RECKLESS GAMBLING THAT WILL ULTIMATELY IMPLODE, REQUIRING THE GENERAL PUBLIC TO ABSORB THE COSTS OF THEIR MISTAKES ...WHICH COULD BE AS MUCH AS 10 TIMES THE U.S. GDP! "FEW AMERICANS AND NO WASHINGTON POLICY MAKERS UNDERSTAND THE DIRE SITUATION."











Recovery or Collapse? Bet on Collapse



The US financial system and, probably, the financial system of Europe, like the police, no longer serves a useful social purpose.

In the US the police have proven themselves to be a greater threat to public safety than private sector criminals. I just googled “police brutality” and up came 183,000,000 results. (Here are two recent brutal assaults, one deadly, by police on hapless individuals: http://latimesblogs.latimes.com/lanow/2012/05/kelly-thomas-video-dad-they-are-killing-me-.html and http://www.informationclearinghouse.info/article31364.htm )

The cost to society of the private financial system is even higher. Writing in CounterPunch (May 18), Rob Urie reports that two years ago Andrew Haldane, executive Director for Financial Stability at the Bank of England (the UK’s version of the Federal Reserve) said that the financial crisis, now four years old, will in the end cost the world economy between $60 trillion and $200 trillion in lost GDP. If Urie’s report is correct, this is an astonishing admission from a member of the ruling elite. http://www.counterpunch.org/2012/05/18/the-true-costs-of-bank-crises/print

Try to get your mind around these figures. The US GDP, the largest in the world, is about 15 trillion. What Haldane is telling us is that the financial crisis will end up costing the world lost real income between 4 and 13 times the size of the current Gross Domestic Product of the United States. This could turn out to be an optimistic forecast.

In the end, the financial crisis could destroy Western civilization.

Even if Urie’s report, or Haldane’s calculation, is incorrect, the obvious large economic loss from the financial crisis is still unprecedented. The enormous cost of the financial crisis has one single source — financial deregulation. Financial deregulation is likely to prove to be the mistake that destroys Western civilization. While we quake in our boots from fear of “Muslim terrorists,” it is financial deregulation that is destroying us, with help from jobs offshoring. Keep in mind that Haldane is a member of the ruling elite, not a critic of the system like myself, Gerald Celente, Michael Hudson, Pam Martins, and Nomi Prins. (This is not meant to be an exhaustive list of critics.)

Financial deregulation has had dangerous and adverse consequences. Deregulation permitted financial concentration that produced “banks too big to fail,” thus requiring the general public to absorb the costs of the banks’ mistakes and reckless gambling.

Deregulation permitted banks to leverage a small amount of capital with enormous debt in order to maximize return on equity, thereby maximizing the instability of the financial system and the cost to society of the banks’ bad bets.

Deregulation allowed financial institutions to sweep aside the position limits on speculators and to dominate commodity markets, turning them into a gambling casino and driving up the prices of energy and food.

Deregulation permits financial institutions to sell naked shorts, which means to sell a company’s stock or gold and silver bullion that the seller does not possess into the market in order to drive down the price. http://www.rollingstone.com/politics/blogs/taibblog/accidentally-released-and-incredibly-embarrassing-documents-show-how-goldman-et-al-engaged-in-naked-short-selling-20120515

The informed reader can add more items to this list.

The dollar in its role as world reserve currency is the source of Washington’s power. It allows Washington to control the international payments system and to exclude from the financial system those countries that do not do Washington’s bidding. It allows Washington to print money with which to pay its bills and to purchase the cooperation of foreign governments or to fund opposition within those countries whose governments Washington is unable to purchase, such as Iran, Russia, and China. If the dollar was not the world reserve currency and actually reflected its true depreciated value from the mounting US debt and running of the printing press, Washington’s power would be dramatically curtailed.

The US dollar has come close to its demise several times recently. In 2011 the dollar’s value fell as low as 72 Swiss cents. Investors seeking safety for the value of their money flooded into Swiss francs, pushing the value of the franc so high that Switzerland’s exports began to suffer. The Swiss government responded to the inflow of dollars and euros seeking refuge in the franc by declaring that it would in the future print new francs to offset the inflows of foreign currency in order to prevent the rise in the value of the franc. In other words, currency flight from the US and Europe forced the Swiss to inflate in order to prevent the continuous rise in the exchange value of the Swiss currency.

Prior to the sovereign debt crisis in Europe, the dollar was also faced with a run-up in the value of the euro as foreign central banks and OPEC members shifted their reserves into euros from dollars. The euro was on its way to becoming an alternative reserve currency. However, Goldman Sachs, whose former employees dominate the US Treasury and financial regulatory agencies and also the European Central Bank and governments of Italy and, indirectly, Greece, helped the Greek government to disguise its true deficit, thus deceiving the private European banks who were purchasing the bonds of the Greek government. Once the European sovereign debt crisis was launched, Washington had an interest in keeping it going, as it sends holders of euros fleeing into “safe” dollars, thus boosting the exchange value of the dollar, despite the enormous rise in Washington’s own debt and the doubling of the US money supply.

Last year gold and silver were rapidly rising in price (measured in US dollars), with gold hitting $1,900 an ounce and on its way to $2,000 when suddenly short sales began dominating the bullion markets. The naked shorts of gold and silver bullion succeeded in driving the price of gold down $350 per ounce from its peak. Many informed observers believe that the reason Washington has not prosecuted the banksters for their known financial crimes is that the banksters serve as an auxiliary to Washington by protecting the value of the dollar by shorting bullion and rival currencies.

What happens if Greece exits the EU on its own or by the German boot? What happens if the other EU members reject German Chancellor Merkel’s austerity, as the new president of France promised to do? If Europe breaks apart, do more investors flee to the doomed US dollar?

Will a dollar bubble become the largest bubble in economic history?

When the dollar goes, interest rates will escalate, and bond prices will collapse. Everyone who sought safety in US Treasuries will be wiped out.

We should all be aware that such outcomes are not part of the public debate.

Recently Bill Moyers interviewed Simon Johnson, formerly chief economist of the International Monetary Fund and currently professor at MIT. It turns out that deregulation, which abolished the separation of investment banks from commercial banks, permitted Jamie Dimon’s JPMorganChase to gamble with federally insured deposits. http://www.informationclearinghouse.info/article31356.htm Despite this, Moyers reports that Republicans remain determined to kill the weak Dodd-Frank law and restore full deregulation.

Simon Johnson says: “I think it [deregulation] is a recipe for disaster.” The problem is, Johnson says, that correct economic policy is blocked by the enormous donations banks make to political campaigns. This means Wall Street’s attitudes and faulty risk models will result in an even bigger financial crisis than the one from which we are still suffering. And it will happen prior to recovery from the current crisis.

Johnson warns that the Republicans will distract everyone from the real crisis by concocting another “crisis” over the debt ceiling.

Johnson says that “a few people, particularly in and around the financial system, have become too powerful. They were allowed to take a lot of risk, and they did massive damage to the economy — more than eight million jobs lost. We’re still struggling to get back anywhere close to employment levels where we were before 2008. And they’ve done massive damage to the budget. This damage to the budget is long lasting; it undermines the budget when we need it to be stronger because the society is aging. We need to support Social Security and support Medicare on a fair basis. We need to restore and rebuild revenue, revenue that was absolutely devastated by the financial crisis. People need to understand the link between what the banks did and the budget. And too many people fail to do that.”

Consequently, Johnson says, the banksters continue to receive mega-benefits while imposing enormous social costs on society.

Few Americans and no Washington policymakers understand the dire situation. They are too busy hyping a non-existent recovery and the next war. Statistician John Williams reports that when correctly measured as a cost of living indicator, which the CPI no longer is, the current inflation rate in the US is 5 to 7 percentage points higher than the officially reported rate, as every consumer knows. The unemployment rate falls because, and only because, people unable to find jobs drop out of the labor force and are no longer counted as unemployed. Every informed person knows that the official inflation and unemployment rates are fictions; yet, the presstitute media continue to report the rates with a straight face as fact.

The way the government has rigged the measure of unemployment, it is possible for the US to have a zero rate of unemployment and not a single person employed or in the work force.

The way the government has the measure of inflation rigged, it is possible for your living standing to fall while the government reports that you are better off.

Financial deregulation raises the returns from speculative schemes above the returns from productive activity. The highly leveraged debt and derivatives that gave us the financial crisis have nothing to do with financing businesses. The banks are not only risking their customers’ deposits on gambling bets but also jeopardizing the country’s financial stability and economic future.

With an eye on the approaching dollar crisis, which will wreck the international financial system, the presidents of China, Russia, Brazil, South Africa, and the prime minister of India met last month to discuss forming a new bank that would shield their economies and commerce from mistakes made by Washington and the European Union. The five countries, known as the BRICS, intend to settle their trade with one another in their own currencies and cease relying on the dollar. The fact that Russia, the two Asian giants, and the largest economies in Africa and South America are leaving the dollar’s orbit sends a powerful message of lack of confidence in Washington’s handling of financial matters.

It is ironic that the outcome of financial deregulation in the US is the opposite of what its free market advocates promised. In place of highly competitive financial firms that live or die by their wits alone without government intervention, we have unprecedented financial concentration. Massive banks, “too big to fail,” now send their multi-trillion dollar losses to Washington to be paid by heavily indebted US taxpayers whose real incomes have not risen in 20 years. The banksters take home fortunes in annual bonuses for their success in socializing the “free market” banks’ losses and privatizing profits to the point of not even paying income taxes.

In the US free market economists unleashed avarice and permitted it to run amuck. Will the disastrous consequences discredit capitalism to the extent that the Soviet collapse discredited socialism?

Will Western civilization itself survive the financial tsunami that deregulated Wall Street has produced?

Ironic, isn’t it, that the United States, the home of the “indispensable people,” stands before us as the likely candidate whose government will be responsible for the collapse of the West.



Sunday, May 20, 2012

IF YOU EVER WISHED THE CURRENT FISCAL CRISIS COULD BE SUCCINCTLY EXPLAINED IN PLAIN ENGLISH BY A BONA FIDE EXPERT (i.e., WHAT REALLY CAUSED IT AND WHY AUSTERITY WOULD SERVE ONLY THE PERPS), DON'T MISS THIS INTERVIEW!









TUESDAY, MAY 15, 2012                                                                                             Permalink

Crony Capitalism: After Lobbying Against New Financial Regulations, JPMorgan Loses $2B in Risky Bet



JPMorgan Chase, the nation’s largest bank, is under fire after losing at least $2 billion in derivatives trading it was warned carried high risk. The loss has renewed calls for tougher regulation of Wall Street, with critics saying JPMorgan could have avoided it under regulations the bank opposed. We’re joined by former financial regulator, white-collar criminologist, and University of Missouri-Kansas City Professor William Black, author of "The Best Way to Rob a Bank is to Own One." Black says JPMorgan’s latest woes stem from the flaws endemic to "too big too fail." "Allowing [banks] to be this big, even conservative economists call this crony capitalism," Black says. "The only way this can work is to shrink the systemically dangerous institutions — this is the 20 largest banks in the United States — down to the point that they no longer pose a systemic risk, they are no longer too big to fail, and therefore, they will no longer have this implicit federal subsidy that completely distorts competition [and] ... destroys democracy, because these giant institutions have so much political power." [original includes rush transcript] 

Guest: 
William Black, author of the book, The Best Way to Rob a Bank is to Own One. He is associate professor of economics and law at the University of Missouri-Kansas City. He is also a white-collar criminologist and former senior financial regulator.


Ex-Financial Regulator William Black: Austerity is Sinking Economies from Europe to U.S.




Friday, May 18, 2012

IF THE OFFICIAL STORY IS TRUE THAT ON 9/11/2001 A HANDFUL OF MUSLIMS DEFEATED THE CIA, FBI, NSA, MOSSAD, NORAD, NATIONAL SECURITY COUNCIL, USAF, AIR TRAFFIC CONTROL, AND AIRPORT SECURITY FOUR TIMES IN ONE HOUR ON THE SAME MORNING, WHY HAVE THESE SUPER TERRORISTS NOT RETURNED EVEN ONCE IN THE PAST 11 YEARS TO SLAY THOSE AMERICANS WHO HAVE PUBLICALLY REVELED IN THEIR SUCCESSES IN TORTURING AND MURDERING MUSLIMS?



The Case of the Missing Terrorists


May 14, 2012 | Original here

If there were any real terrorists, Jose Rodriguez would be dead.

Who is Jose Rodriguez? He is the criminal who ran the CIA torture program. Most of his victims were not terrorists or even insurgents. Most were hapless individuals kidnapped by warlords and sold to the Americans as “terrorists” for the bounty paid.

If Rodriguez’s identity was previously a secret, it is no more. He has been on CBS “60 Minutes” taking credit for torturing Muslims and using the information allegedly gained to kill leaders of al Qaeda. If terrorists were really the problem that Homeland Security, the FBI and CIA claim, Rodriguez’s name would be a struck through item on the terrorists’ hit list. He would be in his grave.

So, also, would be John Yoo, who wrote the Justice (sic) Department memos giving the green light to torture, despite US and International laws prohibiting torture. Apparently, Yoo, a professor at the Boalt School of Law at the University of California, Berkeley, was ignorant of US and international law. And so was the US Department of Justice (sic).

Notice that Rodriguez, “The Torturer of the Muslims,” doesn’t have to hide. He can go on national television, reveal his identity, and revel in his success in torturing and murdering Muslims. Rodriguez has no Secret Service protection and would be an easy mark for assassination by terrorists so capable as to have, allegedly, pulled off 9/11.

Another easy mark for assassination would be former Secretary of Defense Donald Rumsfeld, who staffed up the Pentagon with neoconservative warmongers such as Paul Wolfowitz and Douglas Feith, who in turn concocted the false information used to justify the invasions of Iraq and Afghanistan. Rumsfeld himself declared members of al Qaeda to be the most vicious and dangerous killers on earth. Yet Rumsfeld, Wolfowitz, Feith, Richard Perle, together with neoconservative media propagandists, such as William Kristol and Max Boot, have been walking around safe for years unmolested by terrorists seeking revenge or bringing retribution to those responsible for as many as 1,000,000 Muslim deaths.

Condi Rice, Colin Powell, who delivered the Speech of Lies to the UN inaugurating the invasion of Iraq, and Dick Cheney, whose minimal Secret Service protection could not withstand a determined assassination attempt, also enjoy lives unmolested by terrorists.

Remember the deck of cards that the Bush regime had with Iraqi faces? If terrorists had a similar deck, all of those named above would be “high value targets.” Yet, there has not been a single attempt on any one of them.

Strange, isn’t it, that none of the above are faced with a terrorist threat. Yet, the tough, macho Navy Seals who allegedly killed Osama bin Laden must have their identity kept hidden so that they don’t become terrorist targets. These American supermen, highly trained killers themselves, don’t dare show their faces, but Rodriguez, Rumsfeld, and Condi Rice can walk around unmolested. Indeed, the Seals’ lives are so endangered that President Obama gave up the enormous public relations political benefit of a White House ceremony with the heroic Navy Seals. Very strange behavior for a politician. A couple of weeks after the alleged bin Laden killing, the Seals unit, or most of it, was wiped out in a helicopter crash in Afghanistan.

If you were a Muslim terrorist seeking retribution for Washington’s crimes, would you try to smuggle aboard an airliner a bomb in your underwear or shoe in order to blow up people whose only responsibility for Washington’s war against Muslims is that they fell for Washington’s propaganda? If you wanted to blow up the innocent, wouldn’t you instead place your bomb in the middle of the mass of humanity waiting to clear airport security and take out TSA personnel along with passengers? Terrorists could coordinate their attacks, hitting a number of large airports across the US at the same minute. This would be real terror. Moreover, it would present TSA with an insolvable problem: how can people be screened before they are screened?

Or coordinated attacks on shopping malls and sports events?

Why should terrorists, if they exist, bother to kill people when it is easy to cause mayhem by not killing them? There are a large number of unguarded electric power substations. Entire regions of the country could be shut down. The simplest disruptive act would be to release large quantities of roofing nails in the midst of rush hour traffic in Boston, New York, Washington DC, Atlanta, Dallas, Chicago, Los Angeles, San Francisco. You get the picture: thousands and thousands of cars disabled with flat tires blocking the main arteries for days.

Before some reader accuses me of giving terrorists ideas, ask yourself if you really think people so clever as to have allegedly planned and carried out 9/11 couldn’t think of such simple tactics, plots that could be carried out without having to defeat security or kill innocent people?  My point isn’t what terrorists, if they exist, should do. The point is that the absence of easy-to-do acts of terrorism suggests that the terrorist threat is more hype than reality. Yet, we have an expensive, intrusive security apparatus that seems to have no real function except to exercise power over American citizens.

In place of real terrorists carrying out easy plots, we have “terrorist” plots dreamed up by FBI and CIA agents, who then recruit some hapless or demented dupes, bribing them with money and heroic images of themselves, and supplying them with the plot and fake explosives. These are called “sting operations,” but they are not. They are orchestrations by our own security agencies that produce fake terrorist plots that are then “foiled” by the security agencies that hatched the plots. Washington’s announcement is always: “The public was never in danger.” Some terrorist plot! We have never been endangered by one, but the airports have been on orange alert for 11.5 years.

The federal judiciary and brainwashed juries actually treat these concocted plots as real threats to American security despite the government’s announcements that the public was never in danger.
The announcements of the “foiled” plots keep the brainwashed public docile and amenable to intrusive searches, warrantless spying, the growth of an unaccountable police state, and endless wars.

The “War on Terror” is a hoax, one that has been successfully used to destroy the US Constitution and to complete the transformation of law from a shield of the people into a weapon in the hands of the state. By destroying habeas corpus, due process, and the presumption of innocence, the “War on Terror” has destroyed our security.


Thursday, May 17, 2012

PRESIDENTS CARTER AND REAGAN TRULY BELIEVED IN "LIBERTY AND JUSTICE FOR ALL," WHEREAS TODAY'S REPUBLICAN AND DEMOCRAT PRESIDENTS AND CONGRESS PERSONS ARE CONDEMNING MILLIONS OF AMERICANS TO LIVES OF INDENTURED SERVITUDE TO THE TOO-BIG-TO-JAIL CRIMINAL BANKING SYSTEM.


Indentured Servitude for Seniors: Social Security Garnished for Student Debts


Tuesday, May 15, 2012

UBER ECONOMIST BILL BLACK TAKES THE MAINSTREAM MEDIA TO TASK FOR FALSELY SPEAKING OF AUSTERITY AS A NECESSARY SOLUTION TO THE NATION'S ECONOMIC PROBLEMS


 theREALnews                                                                               Permalink

Corporate Media and the Austerity Campaign

Bill Black: Most media treats austerity as a necessary solution, not a means to enforce the interests of finance


More at The Real News

Bio

William K. Black, author of THE BEST WAY TO ROB A BANK IS TO OWN ONE, teaches economics and law at the University of Missouri at Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics. Black was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and general counsel of the Federal Home Loan Bank of San Francisco, and senior deputy chief counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement. Black developed the concept of "control fraud" as frauds in which the CEO or head of state uses the entity as a "weapon." Control frauds cause greater financial losses than all other forms of property crime combined. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae's former senior management.

UBER ECONOMIST MICHAEL HUDSON TAKES TO TASK MY ECONOMIST HERO OF SOME TIME AGO, PAUL KRUGMAN







Paul Krugman’s Economic Blinders

Posted on by |


By Michael Hudson

Paul Krugman is widely appreciated for his New York Times columns criticizing Republican demands for fiscal austerity. He rightly argues that cutting back public spending will worsen the economic depression into which we are sinking. And despite his partisan Democratic Party politicking, he warned from the outset in 2009 that President Obama’s modest counter-cyclical spending program was not sufficiently bold to spur recovery.

These are the themes of his new book, End This Depression Now. In old-fashioned Keynesian style he believes that the solution to insufficient market demand is for the government to run larger budget deficits. It should start by giving revenue-sharing grants of $300 billion annually to states and localities whose budgets are being squeezed by the decline in property taxes and the general economic slowdown.

All this is a good idea as far as it goes. But Mr. Krugman stops there – as if that is all that is needed today. So what he has done is basically get into a fight with intellectual pygmies. Thus dumbs down his argument, and actually distracts attention from what is needed to avoid the financial and fiscal depression he is warning about.

Here’s the problem: To focus the argument against “Austerian” advocates of fiscal balance, Mr. Krugman hopes that economists will stop distracting attention by talking about what he deems not necessary. It seems not necessary to write down debts, for example. All that is needed is to reduce interest rates on existing debts, enabling them to be carried.

Mr. Krugman also does not advocate shifting taxes off labor onto property. The implication is that California can afford its Proposition #13 – the tax freeze on commercial property and homes at long-ago levels, which has fiscally strangled the state and led to an explosion of debt-leveraged housing prices by leaving the site value untaxed and hence free to be pledged to banks for larger and larger mortgage loans instead of being paid to the public authorities. There is no hint in Mr. Krugman’s journalism of a need to reverse the tax shift off real estate and finance (onto income and sales taxes), except to restore a bit more progressive taxation.

The effect of Mr. Krugman’s suggestions is for the government to subsidize the existing financial and tax structures, leaving the debts intact and ignoring the largely regressive, unfair and inefficient system of taxation. It is unfair because the profits of the rich – and even worse, their asset-price (“capital”) gains are taxed at lower rates and riddled with tax loopholes and giveaways. The wealthy benefit from the windfall gains delivered by the public infrastructure investment advocated by Mr. Krugman, but there is not a word about the public recouping this investment. Governments are indeed able to create their own money as an alternative to taxing, but some taxes – above all, on windfall gains, like site value resulting from public investment in roads or other public transportation – are justified simply on grounds of economic fairness.

So it is important to note what Mr. Krugman does not address these issues that once played so important a role in Democratic Party politics, before the Wall Street faction gained control via the campaign financing process – even before the Citizens United case. For over a century, economists have recognized the need for financial and fiscal reform to go together. Failure to proceed with a joint reform has led the banking and financial sector – along with its major client base, the real estate sector – to scale back property taxes and “free” the economy with taxes so that the revenue can be pledged to the banks as interest to carry larger loans. The effect is to load the economy at large down with private and public debt.

In Mr. Krugman’s reading, private debts need not be written down or the tax system made more efficient. It is to be better subsidized – mainly with easier bank credit and more government spending. So I am afraid that his book might as well have been subtitled “How the Economy can Borrow its Way Out of Debt.” That is what budget deficits do: they add to the debt overhead. In Europe, which has no central bank permitted to monetize the deficit spending, this pays interest to transfers to the bondholders (and their descendants). In the United States the Federal Reserve can monetize this indebtedness – but the effect is to subsidize domestic debt service.

Mr. Krugman has become censorial regarding the debt issue over the last month or so. In last Friday’s New York Times column he wrote: “Every time some self-important politician or pundit starts going on about how deficits are a burden on the next generation, remember that the biggest problem facing young Americans today isn’t the future burden of debt.”[1] Unfortunately, Mr. Krugman’s failure to see today’s economic problem as one of debt deflation reflects his failure (suffered by most economists, to be sure) to recognize the need for debt writedowns, for restructuring the banking and financial system, and for shifting taxes off labor back onto property, economic rent and asset-price (“capital”) gains. The effect of his narrow set of recommendations is to defend the status quo – and for my money, despite his reputation as a liberal, that makes Mr. Krugman a conservative. I see little in his logic that would oppose Rubinomics, which has remained the Democratic Party’s program under the Obama administration.

Many of Mr. Krugman’s readers find him the leading hope of opposing even worse Republican politics. But what can be worse than the Rubinomics that Larry Summers, Tim Geithner, Rahm Emanuel and other Wall Street holdovers from the Democratic Leadership Committee have embraced?

Perhaps I can prod Mr. Krugman into taking a stronger position on this issue. But what worries me is that he has moved sharply to the “Rubinomics” wing of his party. He insists that debt doesn’t matter. Bank fraud, junk mortgages and casino capitalism are not the problem, or at least not so serious that more deficit spending cannot cure it. Criticizing Republicans for emphasizing structural unemployment, he writes: “authoritative-sounding figures insist that our problems are ‘structural,’ that they can’t be fixed quickly. … What does it mean to say that we have a structural unemployment problem? The usual version involves the claim that American workers are stuck in the wrong industries or with the wrong skills.”[2]

Using neoclassical sleight-of-hand to bait and switch, he narrows the meaning of “structural reform” to refer to Chicago School economists who blame today’s unemployment as being “structural,” in the sense of workers trained for the wrong jobs. This diverts the reader’s attention away from the pressing problems that are genuinely structural.

The word “structural” refers to the systemic imbalances that neoclassical economists dismiss as “institutional”: the debt overhead, the legal system – especially unfair and dysfunctional bankruptcy and foreclosure laws, regulations against financial fraud, and wealth distribution in general. In 1979, for example, I juxtaposed economic structuralism to Chicago School monetarism in my monograph on Canada in the New Monetary Order. I have elaborated that discussion my textbook on Trade, Development and Foreign Debt (new ed. 2010). The tradition is grounded in the Progressive Era’s reform program. Correcting such structural and institutional defects, parasitism and privilege seeking “free lunches” is what classical political economy was all about – and what the neoclassical reaction sought to exclude from the economic curriculum. But from the perspective of neoclassical writers through Rubinomics deregulators, the problem of massive, unpayably high debt expanding inexorably by compound interest (and penalty fees) simply disappears

So the great problem today is whether to stop the siphoning off of income and wealth to financial institutions at the top of the economic pyramid, or reverse the polarization that has taken place over the past thirty years between creditors and debtors, financial institutions and the rest of the economy. I realize that it is more difficult to criticize someone for an error of omission than for an error of commission. But the distinction was erased a month ago when Mr. Krugman got lost in the black hole of banking, finance and international trade theory that has engulfed so many neoclassical and old-style Keynesian economists. But last month Mr. Krugman insisted that banks do not create credit, except by borrowing reserves that (in his view) merely shifts lending savings from wealthy people to those with a higher propensity to consume. Criticizing Steve Keen (who has just published a second edition of his excellent Debunking Economics to explain the dynamics of endogenous money creation), he wrote:

Keen then goes on to assert that lending is, by definition (at least as I understand it), an addition to aggregate demand. I guess I don’t get that at all. If I decide to cut back on my spending and stash the funds in a bank, which lends them out to someone else, this doesn’t have to represent a net increase in demand. Yes, in some (many) cases lending is associated with higher demand, because resources are being transferred to people with a higher propensity to spend; but Keen seems to be saying something else, and I’m not sure what. I think it has something to do with the notion that creating money = creating demand, but again that isn’t right in any model I understand.

Keen says that it’s because once you include banks, lending increases the money supply. OK, but why does that matter? He seems to assume that aggregate demand can’t increase unless the money supply rises, but that’s only true if the velocity of money is fixed;[3]

But “velocity” is just a dummy variable to “balance” any given equation – a tautology, not an analytic tool. As a neoclassical economist, Mr. Krugman is unwilling to acknowledge that banks not only create credit; in doing so, they create debt. That is the essence of balance sheet accounting. But writing like a tyro, Mr. Krugman offers the mythology of banks that can only lend out money taken in from depositors (as though these banks were good old-fashioned savings banks or S&Ls, not what Mr. Keen calls “endogenous money creators”). Banks create deposits electronically in the process of making loans.

Mr. Krugman then doubled down on his assertion that bank debt creation doesn’t matter. People decide how much income they want to save, or decide how much to borrow to buy goods that their stagnant wage levels no longer enable them to afford. Everything is a matter of choice, not a necessity (“price-inelastic” is the neoclassical euphemism):

First of all, any individual bank does, in fact, have to lend out the money it receives in deposits. Bank loan officers can’t just issue checks out of thin air; like employees of any financial intermediary, they must buy assets with funds they have on hand.

So how much currency does the public choose to hold, as opposed to stashing funds in bank deposits? Well, that’s an economic decision, which responds to things like income, prices, interest rates, etc.. In other words, we’re firmly back in the domain of ordinary economics, in which decisions get made at the margin and all that. Banks are important, but they don’t take us into an alternative economic universe.

As I read various stuff on banking — comments here, but also various writings here and there — I often see the view that banks can create credit out of thin air. There are vehement denials of the proposition that banks’ lending is limited by their deposits, or that the monetary base plays any important role; banks, we’re told, hold hardly any reserves (which is true), so the Fed’s creation or destruction of reserves has no effect.[4]

Not only do banks create new credit – debt, from the vantage point of their customers – but in the absence of government spending and regulation along more progressive lines, this new debt creation is the only way that the economy has avoided a sharp shrinking of consumption as real wages have remained stagnant since the late 1970s. The banks offer is one most people can’t refuse: “Take out a mortgage or go without a home,” or “Take out a student loan or go without an education and try to get a job at McDonald’s.” In other words, “Your money or your life.” It is what banks have been saying through the ages. The difference is that they can now create credit freely – and as Alan Greenspan has pointed out to Senate committees, workers are so debt-burdened (“one check away from homelessness”) that they are afraid that if they complain about working conditions, ask for higher salaries (to say nothing of trying to unionize), they will be fired. If they miss a paycheck their credit-card rates will soar to about 29%. And if they miss a mortgage payment, they may face foreclosure and lose their home. So the banking system has cowed the population with its credit- and debt-creating power.

Mr. Krugman’s blind spot with regard to the debt overhead derails trade theory as well. If Greece leaves the Eurozone and devalues its currency (the drachma), for example, debts denominated in euros or other hard currency will rise proportionally. So Greece cannot leave without repudiating its debts in today’s litigious global economy. Yet Mr. Krugman believes in the old neoclassical nonsense that all that is needed is “devaluation” to lower the cost of domestic labor. It is as if he is indifferent to the suffering that such austerity imposes – as Latin American countries suffered at the hands of IMF austerity plans from the 1970s onward. Costs can “be brought in line by adjusting exchange rates.”[5] The problem thus is simply one of exchange rates (which translates into labor costs in short order). Currency depreciation will (in Mr. Krugman’s trade theory) reduce labor’s cost and other domestic costs to the point where governments can export enough not only to cover their imports, but to pay their foreign-currency debts (which will soar in depreciated local-currency terms).

If this were the case, Germany could have paid its reparations debt by depreciating the mark in 1921. But it did so by a billion-fold, even this did not suffice to pay. Neither neoclassical trade theorists nor Chicago School monetarists get the fact that when public or private debts are denominated in a foreign (hard) currency, devaluation devastates the economy. The past half-century has shown this again and again (most recently in Iceland). Domestic assets are transferred into foreign hands – including those of domestic oligarchies operating out of their offshore dollar or Swiss-franc accounts.

Blindness to the debt issue results in especial nonsense when applied to analysis of why the U.S. economy has lost its export competitiveness. How on earth can American industry be expected to compete when employees must pay about 40 percent of their wages on debt-leveraged housing, about 10 percent more on student loans, credit cards and other bank debt, 15 percent on FICA, and about 10 to 15 percent more in income and sales taxes? Between 75 and 80 percent of the wage payment is absorbed by the Finance, Insurance and Real Estate (FIRE) sector even before employees can start buying goods and services! No wonder the economy is shrinking, sales are falling off, and new investment and hiring have followed suit.

How will the government running a larger deficit cope with today’s dimension of the debt problem – except by taking Mr. Krugman’s suggestion to enable states and localities to spend marginally more revenue and avoid further layoffs, while the military industrial complex steps up its “Pentagon capitalism”? So far, the great increase in recent government debt has been to bail out the banking sector, not to help the “real” economy recover.

Increasing the debt burden of European nations has the same dire consequences. Germany balks at bailing out Greece unless Greece moves to streamline its bloated government and inefficient bureaucracy, stop tax evasion by the wealthy, clean up corruption and, in a word, be more Germanic. The U.S. “Austerian” budget cutters whom Mr. Krugman criticizes likewise can point to wasteful government spending, failing to distinguish positive infrastructure investment from pork-barrel “roads to nowhere” and tax loopholes promoted by Congressional politicians whose campaigns are sponsored by special financial interests, real estate and monopolies.

But I fear that Mr. Krugman is being drawn into the gravitational pull of Rubinomics, the Democratic Party’s black hole from which the light of clarity dealing with the debt issue and bad financial and legal structures simply cannot escape. The only variables he admits are structure-free: The federal government can indeed spend more and reduce interest rates (especially on mortgages) so that the higher mortgage debt, student debt, personal debt and corporate debt overhead can be afforded more easily. No need to write any of these debts down. That seemingly obvious and sensible structural solution lies outside the scope of Mr. Krugman’s neoclassical economics. He fails to recognize that debts that can’t be paid, won’t be. This is the immediate problem facing the U.S. and European economies today – and the way in which it is resolved will shape the coming generation.

The problem with Mr. Krugman’s analysis is that bank debt creation plays no analytic role in Mr. Krugman’s proposals to rescue the economy. It is as if the economy operates without wealth or debt, simply on the basis of spending power flowing into the economy from the government, and being spent on consumer goods, investment goods and taxes – not on debt service, pension fund set-asides or asset price inflation. If the government will spend enough – run up a large enough deficit to pump money into the spending stream, Keynesian-style – the economy can revive by enough to “earn its way out of debt.” The assumption is that the government will revive the economy on a broad enough scale to enable the individuals who owe the mortgages, student loans and other debts – and presumably even the states and localities that have fallen behind in their pension plan funding – to “catch up.”

Without recognizing the role of debt and taking into account the magnitude of negative equity and earnings shortfalls, one cannot see that what is preventing American industry from exporting more is the heavy debt overhead that diverts income to pay Finance, Insurance and Real Estate (FIRE) expenditures. How can U.S. labor compete with foreign labor when employees and their employers are obliged to pay such high mortgage debt for its housing, such high student debt for its education, such high medical insurance and Social Security (FICA withholding), such high credit-card debt – all this even before spending on goods and services?

In fact, how can wage earners even afford to buy what they produce? The problem interfering with the circular flow between producers and consumers (“Say’s Law”) is not “saving” as such. It is debt payment. And unless debts are written down, the U.S. economy will shrink just as will the economies of Greece, Spain, Portugal, Italy, Ireland, Iceland and other countries subjected to the Washington Consensus of neoliberal austerity.

Michael Hudson’s new book summarizing his economic theories, “The Bubble and Beyond,” will be available in a few weeks on Amazon.




[1] Paul Krugman, “Easy Useless Economics,” The New York Times, May 11, 2012.
[2] Ibid.
[3] Paul Krugman, “Conscience of a Liberal” blog, March 27, 2012, Minsky and Methodology (Wonkish).
[4] Banking Mysticism, Continued, “The Conscience of a Liberal,” March 30, 2012.
http://krugman.blogs.nytimes.com/2012/03/30/banking-mysticism-continued/?emc=eta1
[5] Paul Krugman, “The Euro Trap,” The New York Times, April 30, 2010.