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Tuesday, November 10, 2015

Losing Control over the money Supply

Bretton Woods, NeoColonialism and the "Money Men."

In the final chapter of James Galbraith's book "The Predator State", titled "Paying For It", James Galbraith talks about Bretton Woods, how the United States opened itself up to becoming an open economy by turning over it's money supply to becoming the reserve currency of the "free world." The context of that was that the two previously dominant World Powers; France and Britain had failing economies during World War II. Their vast colonial empires had done as little for their masses as the previous vast colonial powers of the Spanish, Dutch, Portuguese and Belgians; while the USA had emerged triumphant from World Wars. We agreed to save those countries, their economies and the "free world" from complete collapse.

Mephistophelian Bargain

But it was a mephistophelian bargain. James Galbraith opens his chapter with the question:

"Does the United States face a financial limit on it's ability to implement a plan [for policies and programs to actually fix our internal problems with degraded "infrastructure", "social development", "environment", or "setting standards for pay and income" top and bottom]? "Or does the market,...effectively rule these things out?"

Is our choice between letting markets rule us? Do they have the power to command us to privatize Social Security, cut medicare, "deregulate banking (and bail out the perpetrators of every resulting [swindle] bubble)?"

"Is it true, as President William Jefferson Clinton exclaimed in frustration in 1993, that the world and the country are run by the 'Fucking Bond Market"?

Bretton Woods and Neo Colonialism

These issues trace to Bretton Woods and this opening up of our markets to the world that occurred then. When my friends talk about sovereign money, ending the control of banks and bond markets over our money supply and lay out the calculations and arguments, they usually are thinking of the United States as a closed system. But it hasn't been a closed system, ever, completely and we lost control of our money supply with Bretton Woods. Like it or not we are bound to a mast of the ship of the rest of the world. We can't jump off this ship and swim to the sirens. Our problems are linked with those of Greece, Brazil, and even the once closed economies that Bretton Woods was negotiated to protect "the free world" from. We aren't a closed economy, and that is both our strength and an Achilles Heel.

A Closed economy can allocate "those resources it commands"... "any way it likes". One of the purposes of Colonialism was to open up the rest of the world to pirates, to privateers, who could then trade, buy and sell; loot and steal, with impunity. Such colonialism allowed people from all over to participate. Not all the people, just those with nature's bounty or resources to trade. And not all of them, colonialism was and neocolonialism still is, a privateering enterprise. It's purpose was and always was, to get hands on resources the home country couldn't otherwise command.

But when a country opens its economy enough to bring in resources from outside, it loses control over its economy. Thus when Japan became adventurist abroad it lost control inside. When Spain and Portugal became empires they lost their previously robust economy at home, and previous privateering mercenaries like the Dutch or British took advantage. Privateering, private war, may waste resources, but they are great ways to immense wealth and a delusional ego for a few people. The Captains profit, the crew may or may not share in the spoils, and .... dead men tell no tales (unless you are a forensic archeologist).

And we stepped right into neocolonialism

"the use of economic, political, cultural, or other pressures to control or influence other countries, especially former dependencies.

...with World War II and Bretton Woods.

Except now the world is a colony -- because now these same economic, political and cultural pressures are used to control not only former colonies, but the previous centers for colonial empires. And that includes the United States.

"Democracies Banker"

The USA profited from both World War I and World War II. Our initial neutrality allowed us to sell arms to all sides and beef up our economy while the Europeans and their patsies squandered millions of lives and the equivalent of billions of dollars on bombs and destruction, death and mayhem. We eventually got drawn into both conflicts. And Bretton Woods was one of the results. As Galbraith notes:

"In World War I and II, the United States was far more than a military ally: it was also the 'arsenal of democracy.' and in addition to that 'democracies banker.'"

Bretton Woods, was part of a "new world order" with US at the Center.

"We provided..."security"...and "US protection"... in return for our allies accepting a "subordinate diplomatic and financial role, and continuing to accept it long after their own economies had fully recovered from the war."

The world community thus has been led by the United States "centered on a common defense of managed capitalism. The World Bank, the International Monetary Fund, even the United Nations, were our creations. The result is that, like with Spain whose currencies propelled economies around the world during the Sea Dog age;

"The American trade deficit is nothing more, or less, than the normal consequence of that system, and particularly of what emerged after the formal mechanism of international financial management and exchange rate stabilization were abandoned between 1971 and 1973."

When Bretton Woods was first negotiated it was premised on the notion that the USA dollar would be the reserve currency for the rest of the world, and that premise was initially enforced by the ability of other central banks to demand settlement in gold. But that meant that we could not control our own currency. So;

We could not adjust our "trade deficit using devaluation; devaluation by the currency to which other currencies were tied was a system-breaking move. Thus, if other countries were not prepared to tolerate U.S. deficits at high employment, the United States could either retreat from full employment at home or break the system.

He explains how Richard Nixon first tried to "retreat from full employment:"

"In 1969-1970, Richard Nixon had tried [retreat from full employment] to near political disaster. In 1971-1972, he took the second course, ensuring his own reelection at the expense of plunging the World Economy into turmoil."

And the United States paid the price of that decision and the resulting "uncertainty" with a decade of Inflation and Stagflation.

The Rise of a Neocolonial Empire

He then notes:

"Reagan's macroeconomics ended the uncertainty and resolved the contradiction. And although monetarism and supply-side economics wrecked major sectors of American Industry, drove up the rate of unemployment and made the nation far more unequal, they also fundamentally established American Financial Power. The same high interest rates that did so much damage to Ohio and Michigan were even more damaging outside the country."

Our Bankers merged with and became worldwide bankers. They learned from Reaganomics and history how usury and neo-colonial methods could be used to privateer around the World. Th current problems in Greece and Ireland reflect lessons learned from Reagan and Thatcher.

Living on Borrowed Money

He then notes:

"The post-1981 position of the dollar meant ... that " not only that Americans could import much more ... but that we must import more than we export. We routinely cover the difference with nothing more than a note and a promise to pay interest down the road. The extent that we can do this ... is determined by the willingness and the desire of other countries to hold the bonds."

Our deficits inflate the world economy. In the realm of Imperial Finance our and our allied international banks can impose austerity and poverty around the World. Reagan had to abandon Monetarism after it led to the 1982 recession, Supply Side economics has been revealed as a fraud from the beginning. It is time to shake off the failed policies and the premises they are based on. Key to that is recognizing that fixing our economy in the United States is tied to fixing that of the rest of the world.

Eventually this system, built on usury, banking trickery and our deficits, will end. The only question is whether there will be a soft landing or a hard one. Galbraith's book ends just as the Housing Crisis Swindle Bubble was just getting going.

A Way Forward

Galbraith ends his book on a note of hope:

"Our government can be repaired, Mechanisms for creating new institutions as they are needed and for forging new directions for those we already have, exist. The way forward is to use them."


Further Reading & Sources
The Predator State
This was the latest of a related series of Posts inspired by James Galbraith's and his father's writings, including the 2007 book "The Predator State."
Economics of Innocent Fraud
Newspeak of the Reagan Admin
Tory or Privateering Economics
When Market Solutions are Absurd
The End of Normal -- Galbraith and a Way forward [more to come on this one]
The Sabotage of the New Deal - how con artists corrupted New Deal Institutions
The Third Way and the Fraud of Privateering
Second Bill of Rights versus Third Way
Reagan's Subversion of the Four Freedoms
Guelphs and Tories, Wolves and Plunderers
Privateering Through Banks and the Euro Zone
Mt Pelarin and Milton Friedman -- Fighting to make the world safe for Oligarchy since the 1940s

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