The Global Economic Crisis

excerpted from the book

The Global Economic Crisis

The Great Depression of the XXI Century

Michel Chossudovsky and Andrew Gavin Marshall, Editors

Global Research, 2010, paperback

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The U.S.-NATO military agenda serves to endorse a powerful business elite which relentlessly overshadows and undermines the functions of civilian government.

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A complex web of deceit and media distortion serves to conceal the workings of the global economic system and its devastating impacts on people's lives.

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The meltdown of financial markets in 2008-2009 was the result of institutionalized fraud and financial manipulation. The "bank bailouts" were implemented on the instructions of Wall Street, leading to the largest transfer of money wealth in recorded history, while simultaneously creating an insurmountable public debt.

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Media disinformation largely serves the interests of a handful of global banks and institutional speculators which use their command over financial and commodity markets to amass vast amounts of money wealth. The corridors of the state are controlled by the corporate establishment including the speculators.

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The financial] apparatus has developed sophisticated instruments of outright manipulation and deceit. With inside information and foreknowledge, major financial actors, using the instruments of speculative trade, have the ability to rig market movements to their advantage, precipitate the collapse of a competitor and wreck havoc in the economies of developing countries. These tools of manipulation have become an integral part of the financial architecture; they are embedded in the system.

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The economics profession, particularly in the universities, rarely addresses the actual "real world" functioning of markets. Theoretical constructs centered on mathematical models serve to represent an abstract, fictional world in which individuals are equal. There is no theoretical distinction between workers, consumers or corporations.

... By failing to examine the interplay of powerful economic actors in the "real life" economy, the processes of market rigging, financial manipulation and fraud are overlooked. The concentration and centralization of economic decision-making, the role of the financial elites, the economic think tanks, the corporate boardrooms: none of these issues are examined in the universities' economics programs.

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Economic science is an ideological construct which serves to camouflage and justify the New World Order. A set of dogmatic postulates serves to uphold free market capitalism by denying the existence of social inequality and the profit-driven nature of the system is denied. The role of powerful economic actors and how these actors are able to influence the workings of financial and commodity markets is not a matter of concern for the discipline's theoreticians. The powers of market manipulation which serve to appropriate vast amounts of money wealth are rarely addressed.

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The development of America's war economy, supported by a near-trillion dollar defense budget, has reached new heights ... the advanced weapons industries, the military and national security contractors and the up-and-coming mercenary companies have experienced a thriving and booming growth of their various activities.

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War is inextricably linked to the impoverishment of people at home and around the world. Militarization and the economic crisis are intimately related. The provision of essential goods and services to meet basic human needs has been replaced by a profit-driven "killing machine" in support of America's "Global War on Terror". The poor are made to fight the poor. Yet war enriches the upper class, which controls industry, the military, oil and banking. In a war economy, death is good for business, poverty is good for society, and power is good for politics. Western nations, particularly the United States, spend hundreds of billions of dollars a year to murder innocent people in far-away impoverished nations.

... An outright "economic war" resulting in unemployment, poverty and disease is carried out through the free market... The last twenty years of global "free market" economy have destroyed, through poverty and social destitution, . the lives of millions of people.

Rather than addressing an impending social catastrophe, Western governments, which serve the interests of the economic elites, have installed a "Big Brother" police state, with a mandate to confront and repress all forms of opposition and social dissent.

***

Michel Chossudovsky

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Starting the 1980s during the Reagan-Thatcher era, local and regional level enterprises, family farms and small businesses were displaced and. destroyed. In turn, the merger and acquisition boom of the 1990s led to the concurrent consolidation of large corporate entities both in the real economy as well as in banking and financial services.

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"Financial intelligence" and the powers of deceit were the driving forces behind the 2008 financial meltdown. Covert undercover financial operations were waged. Those powerful financial institutions, which had the ability to drive the market up at an opportune moment and then drive it down, had placed their bets accordingly. As a result, they reaped billions of dollars in windfall gains both on the upturn as well as on the downturn.

In contrast, for those who had put their faith in the free market, lifelong savings were erased in one fell swoop, appropriated by the shadow banking system. The crash of financial markets had led to a massive concentration of financial wealth.

The weapons used on Wall Street are prior knowledge and inside information, the ability to manipulate with the capacity to predict results and the spreading of misleading or false information on economic occurrences and market trends.

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Those who have access to privileged information ... will invariably have the upper hand in the conduct of highly leveraged speculative transactions, which are the source of tremendous financial gains. The CIA has its own financial institutions on Wall Street.

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Merrill Lynch was bought and Lehman Brothers was pushed into bankruptcy [2008]. These are not haphazard occurrences. They are the result of manipulation, using highly leveraged speculative operations to achieve their objective... The 2008 financial meltdown has nothing to do with free market forces: it is characterized by financial warfare between competing institutional speculators.

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The Federal Reserve Bank of New York and its powerful Wall Street stakeholders - which are Wall Street's largest private banks - have inside information on the conduct of U.S. monetary policy. They are therefore in a position to predict outcomes and hedge their bets in highly leveraged operations on the futures and derivatives markets. They are in an obvious conflict of interest.

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Links to U.S. intelligence, the CIA, Homeland Security and the Pentagon are crucial in the conduct of speculative trade, since that allows the speculators to predict events through prior knowledge of foreign policy and/or national security decisions which directly affect financial markets. An example: they purchased "put options" on airline stocks in the days preceding the 9/11 attacks.

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The institutional speculators, the hedge funds ... are the ultimate creditors. They trigger the collapse of listed companies through short selling and other speculative operations and then cash in on their large scale speculative gains.

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The financial meltdown on Wall Street largely benefits Bank of America and J.P. s Morgan Chase, which is part of the Rockefeller empire.

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Resulting from the multitrillion dollar trade in derivatives, a new generation of powerful financiers has emerged. This purchasing power of the ultimate creditors is virtually unlimited.

... The financiers are not buying consumer goods, nor is this money being used extensively to invest in new plant and equipment. This increased liquidity, resulting from an unlimited capacity to create fiat money, is not driving up prices; instead it is being used to acquire existing real economy assets. The financiers are using worthless paper wealth to acquire real wealth. What we are dealing with is a large scale process of expropriation, unprecedented in history.

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The financial establishment ultimately calls the shots on the restructuring and privatization of the State.

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The upper spheres of Wall Street overshadow the real economy. The accumulation of large amounts of money wealth by a handful of Wall Street conglomerates and their associated hedge funds is reinvested in the acquisition of real assets. Paper wealth is transformed into the ownership and control of real productive assets, including industry, services, natural resources and infrastructure.

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Industrial corporations are being driven into bankruptcy, taken over by the global financial institutions. Credit, which constitutes the lifeline of production, is controlled by a handful of financial conglomerates. America is the most indebted country on earth.

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Credit is the supply of loanable funds.

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The debt crisis of the early 1980s had unleashed a wave of corporate mergers, buyouts and bankruptcies. These changes have, in turn, paved the way for the consolidation of a new generation of financiers. clustered around the merchant banks, the institutional investors, stock brokerage firms, large insurance companies. In this process, commercial banking functions have coalesced with those of the investment banks and stock brokers.

While these "money managers" play a powerful role on financial markets, they are, nonetheless, increasingly removed from entrepreneurial functions in the real economy. Their activities which often escape state regulation include speculative transactions in commodity futures and derivatives, and the manipulation of currency markets.

What we are facing is the development of a shadow banking system, which operates outside the sphere of financial regulation.

... Legal and illegal business activities have become increasingly intertwined; vast amounts of unreported private wealth have been accumulated. Favored by financial deregulation, the criminal mafias have also expanded their roles in the spheres of inter-national banking.

... The shadow banking system is an appendage of the global financial system, controlled by the financial elites.

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The debt crisis of the early 1980s unleashed a wave of corporate mergers, buyouts and bankruptcies. These changes then paved the way for the consolidation of a new generation of financiers clustered around the large merchant banks, the institutional investors, stock brokerage firms and large insurance companies. In this process, commercial banking functions have coalesced with those of the investment banks and stock brokers, leading to the consolidation of a handful of global financial conglomerates.

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The unregulated use of complex speculative instruments has provided Wall Street with the means to extend its global financial empire. The main thrust of this process does not consist in overseeing the stock market per se. Rather it resides in controlling the lucrative markets of speculative trade (e.g. derivatives, options, futures and hedges) where the scope for manipulation and insider trade is far greater.

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In the 1987 [stock market] meltdown, 22.6 percent of the value of U.S. stocks was wiped out largely during the first hour of trading on Monday morning.

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In the wake of the 1987 crisis [stock market meltdown], a massive concentration of financial power has taken place... the institutional speculator emerged as a powerful actor overshadowing and often undermining bonafide business interests... these institutional actors appropriate wealth from the real economy... Totally removed from entrepreneurial functions in the real economy, they have the power of precipitating large industrial corporations into bankruptcy.

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An old boys' network of officials, advisers and CEOs at the Treasury, the Federal Reserve, the IMF, World Bank and the Washington think tanks are in permanent liaison with leading financiers on Wall Street.

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The 1997 and 1998 financial meltdowns had set the stage for major changes in the global financial architecture. 1999 was a watershed year in the passage of key legislation in the U.S. Congress. The last months of the Clinton administration represented a major turning point in the process of financial deregulation. Under the Financial Services Modernization Act adopted in November 1999 ... U.S. lawmakers had set the stage for a sweeping deregulation of the U.S. banking system.

The Financial Services Modernization Act (Gramm-Leach Bliley Act) was adopted by the U.S. Congress in the wake of lengthy negotiations. Clinton's Secretary of the Treasury Lawrence Summers ... played a key role: all regulatory restraints on Wall Street's powerful banking conglomerates were revoked with a stroke of the pen. .

Under the 1999 Financial Services Modernization Act ... commercial banks, brokerage firms, institutional investors and insurance companies could freely invest in each other's businesses as well as fully integrate their financial operations. The legislation repealed the Glass-Steagall Act of 1933, a pillar of President Roosevelt's New Deal, which was put in place in response to the climate of corruption, financial manipulation and insider trading that resulted in more than 5 000 bank failures in the years following the 1929 Wall Street crash.

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The institutional changes which [the 1999 Financial Services Modernization Act (FSMA) brought about, including the concentration and centralization of power in the hands of a small number of financial giants, largely contributed to Wall Street's unswerving quest for global financial domination.

The tendency was towards a worldwide financial supermarket controlled by a handful of global financial institutions which penetrate and permeate the fabric of national economies. The sweeping deregulation of U.S. banking imparted unprecedented powers to Wall Street's financial conglomerates to acquire and take over banking institutions all over the world.

The worldwide scramble to appropriate wealth through financial manipulation was the driving force behind this restructuring of the global financial architecture of which the 1999 U.S. legislation was an integral part, setting the pattern of financial reform in different parts of the world.

The 1999 legislation empowered Wall Street's key players to enter the financial services markets of developing countries and consolidate a hegemonic position in global banking, overshadowing and ultimately destabilizing financial systems in Asia, Latin America and Eastern Europe.

The global financial supermarket created under the FSMA is to be overseen by the Wall Street giants; competing banking institutions are to be removed from the financial landscape. State level banks across America will be displaced or bought up, leading to a deadly string of bank failures.

... Free from government regulation, the financial giants were given the ability to strangle local-level businesses in the U.S. and overshadow the real economy. In fact, due to the lack of competition, the 1999 legislation also entitled the financial services giants ... to set interest rates as they pleased. In turn, financial deregulation in the U.S. had created an environment which favored an unprecedented concentration of global financial power.

The FSMA had also set the pace of global financial and trade reform under the auspices of the IMF, the World Bank and the WTO. The 1999 banking legislation adopted in the U.S. empowered a handful of banking conglomerates with the ability of destabilizing the domestic financial landscape of developing countries. The legislation was implemented alongside the concurrent reshaping of the global trade and financial architecture under the WTO agenda. Under the General Agreement on Trade in Services (GATS), developing countries have committed themselves to full liberalization of financial services. In other words, national governments, which are already controlled by their external creditors, would be unable to deflect the Wall Street giants from entering and swallowing up national banks and! financial institutions.

The provisions of both the WTO General Agreement on Trade in Services and of the Financial Services Agreement (FA) imply the breaking down of remaining impediments to the movement of finance capital: J.P. Morgan Chase, HSBC, Citigroup or Deutsche Bank can go wherever they please, triggering, in country after country, the bankruptcy of national banks and financial institutions.

In practice, this process had already occurred in a large number of developing countries under bankruptcy and privatization programs imposed on an ad hoc basis by the Bretton Woods institutions. By the late 1990s, the mega-banks had already penetrated the financial landscape of developing countries,, taking control of banking institutions and financial services... Wall Street banks in countries like Korea, Pakistan, Argentina or Brazil became bona fide "national banks", operating as domestic institutions and governed by domestic laws established under advice from IMF and the World Bank. The large U.S. and European financial services giants did not require the formal adoption of the GATS to be able to dominate banking institutions worldwide, as well as overshadow national governments.

By early 2000, the process of global financial deregulation was in many regards a fait accompli. Wall Street routinely invaded country after country. The domestic banking system was put on the auction block and reorganized under the surveillance of external creditors. National financial institutions were systematically destabilized and driven out of business; mass unemployment and poverty are the invariable results.

Moreover, with the support of the IMF, the Wall Street conglomerates and their European and Japanese partners reinforced and consolidated their roles as the world's major creditor institutions, routinely underwriting the public debt, overseeing the conduct of state budgetary policy, issuing syndicated loans to troubled industrial corporations and overseeing the privatization of state corporations which have been put on the auction block in the context of an IMF bailout agreement.

Assisted by the IMF - which routinely obliges countries to open up their domestic banking sector to foreign investment retail banking, stock brokerage firms and insurance companies are taken over by foreign capital and reorganized. Citigroup, among other Wall Street majors, has gone on a global shopping spree buying up banks and financial institutions at bargain prices in Asia, Latin America and Eastern Europe. In one fell swoop, Citigroup acquired the 106-branch network of Banco Mayo Cooperativo Ltda., becoming Argentina's second largest bank.

Following the adoption of the 1999 Financial Services Modernization Act, a new era of intense financial rivalry was set in motion. The New World Order - largely under the dominion of American finance capital - was eventually intent on dwarfing rival banking conglomerates in Western Europe and Japan, as well as sealing strategic alliances with a select club of German and British-based banking giants.

Several mammoth bank mergers (including NationsBank with BankAmerica, and Citibank with Travelers Group had, in fact, already been implemented and rubber-stamped by the Federal Reserve Board, in violation of the pre-existing legislation, prior to the adoption of the 1999 Financial Services Modernization Act. Citibank, the largest Wall Street bank, and Travelers Group Inc., the financial services and insurance conglomerate (which also owns Solomon Smith Barney a major brokerage firm) combined their operations in 1998 in a 72 billion dollar merger.

Strategic mergers between American and European banks had also been negotiated, bringing into the heart of the U.S. financial landscape some of Europe's key financial players, including Deutsche Bank AG (linked up with Banker's Trust) and Credit Suisse (linked up with First Boston). The Hong Kong Shanghai Banking Corporation (HSBC), the British-based banking conglomerate - which had already sealed a partnership with Wells Fargo and Wachovia Corporation - had acquired the late Edmond Safra's Republic New York Bank in a nine billion dollar deal.

In the meantime, rival European banks excluded from Wall Street's inner circle were scrambling to compete in an increasingly unfriendly global financial environment. Banque Nationale de Paris (BNP) had acquired Société Générale de Banque and Paribas to form one of the world's largest banks. BNP eventually aspires "to move into North America in a bigger way."

The bank mergers carried out prior to the 1999 legislation in violation of the Glass-Steagall Act were but the tip of the iceberg, the shape of things to come. The repeal of the Glass-Steagall Act had created an environment which favored an unprecedented concentration of global financial power.

Effective control over the entire U.S. financial services industry had been transferred to a handful of financial conglomerates.

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The architects of both the 1997 Asian Bailout agreements and the 1999 Financial Services Modernization Act, which paved the way for the 2008-2009 financial meltdown, were put in charge of President Obama's economic stimulus and bank bailout programs: Lawrence Summers, Robert Rubin, Paul Volcker, Timothy Geithner

What is striking in the various appointments is the how these individuals are shuffled back and forth from Wall Street to the Treasury, to the World Bank and the IMP, to the Federal Reserve and the Council on Foreign Relations. These government appointments indelibly serve the interests of the financial elites.

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THE WALL STREET - WASHINGTON CONSENSUS

The term "Washington Consensus" was initially formulated by economist John Williamson. It described a set of accepted neoliberal economic propositions. It was subsequently understood as the consensus on macroeconomic issues underlying several Washington-based institutions, including the IMF, the World Bank, the U.S. Treasury and Washington think tanks, including the Brookings Institution.

Lawrence Summers, Timothy Geithner, Stanley Fischer, Phil Gramm, Paul Volcker, Ben Bernanke, Hank Paulson, Robert E. Rubin, not to mention former Fed Chairman Alan Greenspan, belong to the Washington Consensus. They have links to Wall Street, the Council on Foreign Relations and the Bilderberg Group. They act concurrently in accordance with the interests of Wall Street. They meet behind closed doors; they are on the same wavelength. They are Democrats and Republicans. We are looking at the broader Washington-Wall Street consensus, whereby the decisions taken by various governmental and intergovernmental bodies including the U.S. Treasury and the Bretton Woods institutions serve the interests of Wall Street.

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The stated priorities of the Obama economic package are health, education, renewable energy, investment in infrastructure and transportation... The budget proposal had all the appearances of an expansionary program, a demand-oriented "Second New Deal" geared towards creating employment, rebuilding shattered social programs and reviving the real economy.

... To reach these stated objectives, a significant hike in public spending on social programs (health, education, housing, social security) would be required, as well as the implementation of a large-scale public investment program. Major shifts in the composition of public expenditure would also be required, i.e. a move out of a war economy, requiring a shift - out of military-related spending in favor of civilian programs.

In actuality what we are dealing with is the most drastic curtailment in public spending in American history, leading to social havoc and the potential impoverishment of millions of people.

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The Obama promise largely serves the interests of Wall Street, the defense contractors, the oil conglomerates and Big Pharma. In turn, the Bush-Obama bank "bailouts" have led America into a spiraling public debt crisis. The economic and social dislocations are potentially devastating.

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THE HEDGE FUNDS

Hedge funds are private investment funds, which manage the pooled funds of wealthy investors. While they are often linked to major financial institutions, they are totally unregulated. They operate with a large pool of money capital, which is used to undertake highly leveraged speculative transactions. The latter have the characteristic that profits can be reaped when the market goes up, but also when the market goes down.

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The powerful financial groups which routinely manipulate stock markets, currency and commodity markets, are also promoting the continuation and escalation of the Middle East war. The financial crisis is related to the structure of U.S. public investment in the war economy versus the funding, through tax dollars, of civilian social programs.

... The war is profit-driven, financed through the massive worldwide expansion of dollar denominated debt. War and globalization go hand in hand. Wall Street, the oil companies and the defense contractors have concurrent and overlapping overlapping interests ... resulting from the military agenda, the U.S. civilian economy is in crisis as the nation's resources, including tax dollars, are diverted into funding a multibillion dollar Middle East war.

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In 2000, J.P. Morgan merged with Chase Manhattan, leading to the integration of J.P. Morgan, Chase, Chemical and Manufacturers Hanover into a single financial entity. Bear Stearns was acquired in 2008 by J.P. Morgan Chase following its collapse. This banking empire controlled by the Rockefeller family has assets of more than 1.6 trillion dollars.

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Both the Bush and Obama bank bailouts were handouts to major financial institutions... The bailouts have contributed to financing the restructuring of the banking system, leading to a massive concentration of wealth and centralization of banking power.

A large part of the bailout money granted by the U.S. government has already been transferred electronically to various affiliated accounts including the hedge funds. The largest banks in the U.S. are also using this windfall cash to buy out their weaker competitors.

... The financial elites will use these large amounts of liquid assets (paper wealth), together with the hundreds of billions acquired through speculative trade, to buy out real economy corporations (airlines, the automobile industry, telecoms, media, etc.), whose quoted value on the stock markets has tumbled. In essence, a budget deficit (combined with massive cuts in social programs) was required to fund the handouts to the banks, as well as finance defense spending and the military surge in both Iraq and Afghanistan.

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Under a "balanced-budget" criterion - which has been a priority of government economic policy since the Reagan era - almost all the revenues of the federal government amounting to 2.381 trillion dollars would be used to finance the bank bailout (1.45 trillion), ( the war (739.5 billion) and interest payments on the public debt (164 billion). In other words, no money would be left over for other categories of public expenditure.

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Three categories of expenditure, namely defense, the bank bailout and interest on the public debt, had virtually swallowed up the entire 2010 federal government revenue of 2381.0 billion dollars.

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A major crisis of the federal fiscal structure was in the making. The multibillion dollar allocations to the war budget and to the Wall Street bank bailout program [2008] backlash on all other categories of public expenditure.

... Public spending will be slashed with a view to curtailing a spiraling budget deficit. Health and education programs will be cut, revamped and privatized.

The likely outcome is the outright privatization of public services and the sale of state assets, including public infrastructure, urban services, highways and national parks. Fiscal collapse leads to the privatization of the state.

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America is the most indebted country on earth. The United States (federal government) gross public debt is currently of the order of fourteen trillion dollars.

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With the markets for U.S. dollar denominated debt in crisis, further pressure will be exerted on the Treasury to slash (civilian) public expenditure to the bone, exact user fees for public services and sell off public assets, including state infrastructure and institutions. In all likelihood, this crisis is leading us to the privatization of the state, where activities hitherto under government jurisdiction will be transferred into private hands.

Who will be buying state assets at rock bottom prices? The financial elites, who are also the recipients of the bank bailout.

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The mainstream media suggests that the banks are being nationalized as a result of TARP. In fact, it is exactly the opposite: the state is being taken over by the banks, the state is being privatized. The establishment of a worldwide unipolar financial system is part of the broader project of the Wall Street financial elites to establish the contours of a world government.

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The Wall Street banks are the brokers and underwriters of the U.S. public debt. Although they hold only a portion of the debt, they transact and trade in U.S. dollar denominated public debt instruments worldwide. They act as creditors of the U.S. State; they evaluate the creditworthiness of the U.S. government; they rank the public debt through Moody's and Standard and Poor; they control the U.S. Treasury, the Federal Reserve Board and the U.S. Congress; they oversee and dictate fiscal and monetary policy, ensuring that the state acts in their interest.

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Since the Reagan era, Wall Street dominates most areas of economic and social policy. It sets the budgetary agenda, ensuring the curtailment of social expenditures.

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The massive increase in the public debt (2009-2010) required to "rescue the banks" was financed and brokered by the financial institutions which were the direct beneficiaries of the Bush and Obama bank bailouts.

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The Federal Reserve System is a privately owned central bank. While the Federal Reserve Board is a government body, the process of money creation is controlled by the twelve Federal Reserve banks, which are privately owned. The shareholders of the Federal Reserve banks (with the New York Federal Reserve Bank playing a dominant role) are among America's most powerful financial institutions.

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The U.S. government is in a sense financing its own indebtedness: the money granted to the banks is in part financed by borrowing from the banks. To finance the 1.45 trillion dollar bailout, the government needs to borrow, through the emission of public debt. Where does the government go? To the banks. In other words, with the money the banks lend to the government, the Treasury finances the bailout in favor of the banks.

In turn, the banks impose conditionalities on the management of the U.S. public debt. They dictate how the money should be spent. After having cashed in on their bailout money, they impose "fiscal responsibility" on the U.S. Treasury; they demand massive cuts in public spending, which eventually results in the collapse and/or privatization of public services.

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All public debt operations go through the Federal Reserve, which is in charge of monetary policy, acting on behalf of private financial interests. The government as such has no authority over money creation. This means that public debt operations essentially serve the interests of the banks.

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Large amounts of money transit through the banking system, from the banks to the hedge funds, to offshore banking havens and back to the banks.

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The financial institutions are transferring billions of dollars into their affiliated financial entities and hedge funds. From these hedge funds, money is also being used to acquire real economy assets.

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Financial manipulation is an integral part of the New World Order. It constitutes a powerful means to accumulate wealth. It has contributed to destabilizing the U.S. fiscal structure. Under the present political arrangement, those responsible for monetary policy are quite deliberately serving the interests of the financiers, to the detriment of working people, leading to economic dislocation, unemployment and mass poverty.

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What we are dealing with is the fraudulent confiscation of lifelong savings and pension funds and the appropriation of tax revenues to finance the bank bailouts... What is at stake is then outright criminalization of the financial system, financial theft on an unprecedented scale.

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Economic policy quite deliberately serves the interests of the financial elites, who in turn control the political process. Meaningful policies cannot be achieved without radically reforming the workings of the international banking system. What is required is an overhaul of the monetary system.

***

Tanya Cariina Hsu

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US. President Thomas Jefferson; Letter to John Taylor, May 1816

I sincerely believe ... that banking establishments are more dangerous than standing armies.

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America is dying. It is self-destructing and bringing the rest of the? world down with it.

Often referred to as a sub-prime mortgage collapse, this obfuscates the real reason. By associating tangible useless failed mortgages, at least something 'real' can be blamed for the carnage.

The banking industry renamed insurance betting guarantees as "credit default swaps" and risky gambling wagers were called "derivatives".

Financial managers and banking executives were selling the ultimate con to the entire world, akin to the snake-oil salesmen from the 18th century but this time in suits and ties. And by October 2008, it was a quadrillion-dollar (that's 1,000 trillion dollar) industry that few could understand.

Propped up by false hope, America is now falling like a house of cards.

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When signed into law in 1913, the Federal Reserve would loan and supply the nation's money, but with interest. The more money it was able to print, the more "income" it generated for itself. By its very nature, the Federal Reserve would forever keep producing debt to stay alive. It was able to print America's monetary supply at will, regulating its value.

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The Federal Reserve doubled America's money supply and in 1920, it called in a mass percentage of loans. Over five thousand banks collapsed overnight. One year later, the Federal Reserve again increased the money supply by 62 percent, but in 1929, it again called the loans back in, en masse. This time, the crash of 1929 caused over sixteen thousand banks to fail and an 89 percent plunge on the stock market. The private and well-protected banks within the Federal Reserve system were able to snap up the failed banks at pennies on the dollar.

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The derivatives trade was "worth" more than one quadrillion dollars, or larger than the economy of the entire world.

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The [derivatives] market had become the largest industry in the world, and all the financial giants were cashing in.

***

John Bellamy and Fred Magdoff

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Federal Reserve Governor Ben Bernanke in a 2002 talk

The U.S. government has a technology, called a printing press that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

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Stagnation in the 1970s led capital to launch an accelerated class war against workers to raise profits by pushing labor costs down. The result was decades of increasing inequality - a sharp decline in the share of wages and salaries in GDP between the late 1960s and the present. This reflected the fact that real wages of private nonagricultural workers in the United States (in 1982 dollars) peaked in 1972 at $8.99 per hour, and by 2006 had fallen to $8.24 (equivalent to the real hourly wage rate in 1967), despite the enormous growth in productivity and profits over the past few decades.

This was part of a massive redistribution of income and wealth to the top.

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Household consumption continued to rise from a little over sixty percent of GDP in the early 1960s to around seventy percent in 2007. This was only possible because of more two-earner households (as women entered the labor force in greater numbers), people working longer hours and filling multiple jobs, and a constant ratcheting up of consumer debt. Household debt was spurred, particularly in the later stages of the housing bubble, by a dramatic rise in housing prices, allowing consumers to borrow ore against their increased equity (the so-called housing "wealth effect") - a process that came to a sudden end when the bubble popped, and housing prices started to fall. Household debt increased from about forty percent of GDP in 1960 to one hundred percent of GDP in 2007, with an especially sharp increase starting in the late 1990s.

This growth of consumption, based in the expansion of household hold debt, was to prove to be the Achilles heel of the economy. The housing bubble was based on a sharp increase in household mortgage-based debt, while real wages had been essentially frozen for decades. The resulting defaults among marginal new, owners led to a fall in house prices. This led to an ever increasing number of owners owing more on their houses than they were worth, creating more defaults and a further fall in house prices. Banks seeking to bolster their balance sheets began to hold back on new extensions of credit card debt. Consumption fell, jobs were lost, capital spending was put off, and a downward spiral of unknown duration began.

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Profits were increasingly directed away from investment in the expansion of productive capacity and toward financial speculation, while the financial sector seemed to generate unlimited types of financial products designed to make use of this money capital... enormous amounts of investment-seeking capital circling the world and increasingly drawn to the United States because of its leading role in financialization.

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Since financialization can be viewed as the response of capital to the stagnation tendency in the real economy, a crisis of financialization inevitably means a resurfacing of the underlying stagnation endemic to the advanced capitalist economy. The deleveraging of the enormous debt built up during recent decades is now contributing to a deep crisis... The prognosis is that the economy, even after the immediate devaluation crisis is stabilized, will at best be characterized for some time by minimal growth, and by high unemployment, underemployment, and excess capacity.

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Capitalism takes advantage of social inertia, using its power to rob outright when it can't simply rely on "normal" exploitation. Without a revolt from below the burden will simply be imposed on those at the bottom. All of this requires a mass social and economic upsurge, such as in the latter half of the 1930s, including the revival of unions and mass social movements of all kinds, using the power for change granted to the people in the Constitution, even going so far as to threaten the current duopoly of the two-party system.

***

James Petras

p105
Super profits from world production, trade and the recycling of overseas earnings back to the U.S. created enormous liquidity. It was far beyond the historical capacity of the U.S. and European economies to absorb such profits in productive sectors.

The dynamic and voracious exploitation of the huge surplus labor forces in China, India, and elsewhere and the absolute pillage and transfer of hundreds of billions from ex-communist Russia and "neo-liberalized" Latin America filled the coffers of new and old financial institutions.

p108
The Western pillage of the former-USSR, with the collaboration of gangster-oligarchs, led to the massive flow of looted capital into Western banks throughout the 1990s... While the trillion dollar pillage of Russia and the entire former Soviet Union bloated the West European and U.S. financial sector, the massive growth of billions of dollars in illegal transfers and money laundering toward U.S. and U.K. banks added to the overdevelopment of the financial sector.

p108
The dynamic growth of Western capitalist wealth was based, in part, on the brutal pillage of the USSR and Latin America, which profoundly lowered living standards throughout the 1990s.

p110
The current U.S. depression takes place in the context of a de-industrialized economy, an insolvent financial system, record fiscal deficits, record trade deficits, unprecedented public debt, multitrillion dollar foreign debt and well over 800 billion dollars committed in military expenditures for several ongoing wars and occupations. All of these variables defy the contexts in which previous depressions occurred. Nothing in previous contexts leading up to a crisis of capitalism resembles the present situation.

p111
Never in the history of capitalism has a deep economic crisis occurred without any alternative socialist movement, party or state present to pose an alternative. Never have states and regimes been under such absolute control by the capitalist class especially in the allocation of public resources. Never in the history of an economic depression has so much of government expenditures been so one-sidedly directed towards compensating a failed capitalist class with so little going to wage and salaried workers.

p113
The U.S. economic structure, which once generated employment, profits and growth, no longer exists. It has been dismantled in the course of diverting capital overseas and into financial instruments and other non-productive economic sectors.

p114
Recovery from the deepening depression does not reside in running a multitrillion dollar printing operation, which only creates conditions for hyperinflation and the debasement of the dollar. The root cause is the over-accumulation of capital resulting from over-exploitation of labor, leading to rising rates of profit and the collapse of demand.

***

Claudia von Werlhof

p117
Neoliberalism as an economic policy agenda which began in Chile in 1973. Its inauguration consisted of a U.S.-organized coup against a democratically elected socialist president and the installment of a bloody military dictatorship notorious for systematic torture. This was the only way to turn the neoliberal model of the so-called "Chicago Boys" under the leadership of Milton Friedman - a student of Friedrich von Hayek - into reality.

p126
Since the 1980s, it is mainly the Structural Adjustment Programs (SAPs) of the World Bank and the IMF that act as the enforcers of neoliberalism. These programs are levied against the countries of the South which can be extorted due to their debts. Meanwhile, numerous military interventions and wars help to take possession of the assets that still remain, secure resources, install neoliberalism as the global economic politics, crush resistance movements (which are cynically labeled as "IMF uprisings"), and facilitate the lucrative business of reconstruction.

The Global Economic Crisis - The Great Depression of the XXI Century

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