Of Terror, the IMF, Keynes, and the Fiscal Multiplier

OCTOBER 17, 2012 – Thursday October 11, International Monetary Fund (IMF) managing director Christine Lagarde said that both Greece and Spain should slow down their cuts to government spending. Well, not exactly. Her exact words were: “time is of the essence, meaning that instead of frontloading heavily, it is sometimes better, given circumstances and the fact that many countries at the same time go through that same set of policies with a view to reducing their deficit, it is sometimes better to have a bit more time” (Lagarde 2012). On its face, this makes little sense. But after wading through the doublespeak, and putting the entire quote in context, what it turns out she is saying is “slow down the cuts”. This is a complete reversal of two generations of neoliberal orthodoxy, and an implicit repudiation of the policies carried out by the IMF and its “sister” organizations in that period.

It is difficult to overstate the hypocrisy of Lagarde’s about face. The cuts against which she is now cautioning, were recommended in the first instance by … the IMF. It operates together with the European Central Bank (ECB) and the European Commission (EC), as the so-called “troika”, which arrogantly entered the waters of economic crisis in Greece, and then Spain, saying that there would be help for these troubled economies, but at a price – absolutely severe and damaging cuts to services, pensions and jobs.


The resulting “adjustment” of economies in Greece and Spain has proven more catastrophic than the IMF had anticipated. At the same press conference where Lagarde argued it was time to slow the cuts, she had earlier said: “the unemployment rates that we see in advanced economies, in particular, and among young people, are terrifying and unacceptable” (Lagarde 2012).

Indeed. In Greece, overall unemployment in the first quarter of 2012 stood at 22.5%. By July the rate had risen to 23.6%. When that rate is “seasonally adjusted”, it rises to 25.1%. For young people aged 15-24 unemployment is even worse, in the first quarter standing at a horrendous 51.2% (ELSTAT 2012a; ELSTAT 2012b). In Spain, overall unemployment in August stood at 25.1%, for young people, hitting 52.9% (Eurostat 2012a; Eurostat 2012b). These terrible statistics can, unfortunately, be quite easily summarized: in these two countries, fully one-quarter of those who want to work are unemployed, half of all young people.

These statistics are, in fact, terrifying. But why has the IMF waited until 2012 to become terrified? It should have been terrified in Bolivia in the 1980s when IMF-sponsored “shock therapy” cuts smashed that country’s tin industry, driving thousands of miners back to the countryside to eke out a living in the coca fields (Kohl and Farthing 2006). It should have been terrified in Rwanda in the early 1990s, when IMF-sponsored structural adjustment helped to precipitate a catastrophic shredding of civil society, laying the basis for the genocide which riveted the world in 1994 (Chossudovsky 1998, 111–120). It should have been terrified in Indonesia in 1998, when structural adjustment led to a massive increase in poverty (Stiglitz 2003, 89–132).

The Washington Consensus 

Focus on the latter country for a moment. One of the key policy recommendations of the IMF and friends in Indonesia in 1998 was to eliminate government subsidies for food and fuel – measures which devastated the lives of the poorest in the country, and led to quite understandable riots (2003, 119). This is in line with the anti-state-intervention, pro-free-market ideology which underlies all IMF-backed structural adjustment programmes. This ideology is more than just prejudice – it is a complete, carefully worked out worldview. The IMF is associated – along with two other Washington D.C. based institutions, the World Bank and the U.S. Treasury Department – with what since 1989 has been known as the “Washington Consensus” (Williamson 1990). That consensus maintains that, in the face of economic crisis, governments should cut spending and open their doors to the wonders of the free market. Being faithful to this ideology does, in fact, mean targeting policies such as fuel and food subsidies as “market-distorting” which, if left in place, will hold an economy back.

Let’s examine the question of subsidies in just a bit more detail. In Rwanda, for instance, the question of subsidies was huge – but not subsidies to the poor. The market-distorting subsidies which were blocking development in Rwanda, were billions of dollars of subsidies given every year to Global North multinationals – a class of subsidies treated somewhat differently, however, than the food and fuel subsidies in Indonesia.

Emerging from colonialism with a very poor and very rural economy, Rwanda attempted to develop by acquiring foreign exchange for investment through a shift from subsistence farming to growing crops for export. This has proven to be a difficult road for many Global South countries, and Rwanda was no exception. In the Global North, governments spend tens of billions of dollars – particularly in the European Union and the United States – to subsidize key agricultural products. Cotton production in the United States, for instance, received $24 billion in subsidies from 2001 to 2011 (Kinnock 2011). Through a “complex system of loans and quotas” sugar production (and hence sugar export) from the United States receives billions of dollars of government support (Zumbrun).

These subsidies can’t be understood as support for the beleaguered, small farmer in either the U.S. or the E.U. The real beneficiary is not the poor farmer in rural Pennsylvania with 16 head of Angus, but rather the huge agribusinesses. Between 1995 and 2010, in the U.S. – according to the Environmental Working Group – 74% of all subsidies ($166 billion in total) were collected by just 10% of farmers, 62% of farmers received nothing (Mercola 2012). In 2009 in the E.U, “one of the biggest subsidies was $223 million, given to the French sugar conglomerate Tereos, one of whose subsidiaries produces rum on France’s Indian Ocean territory of Réunion. France’s Saint Louis Sucre also received multimillion-dollar subsidies and the British sugar giant Tate & Lyle received hundreds of thousands of dollars” (Walt 2010).

So countries like Rwanda get forced – by this system of subsidies to Global North agribusiness – into certain “niches” of agricultural commodities, such as coffee, not easily grown in the US or Europe. State support for agribusiness in the Global North squeezes them out of other potential export areas (Okonski). By the 1980s, Rwanda was dependent for 80% of its foreign exchange earnings on the export of coffee (Chossudovsky 1998, 114). But coffee is notoriously vulnerable to price volatility resulting from over-production. So when in 1989 the price of coffee collapsed, so did the Rwandan economy. This was reflected in ever growing levels of external debt. In 1985, the country’s total stock of external debt was just over 200% of its export earnings. By 1990, this had grown to 480% (The World Bank Group 2012).

Logically, a pro free-market institution like the IMF, implementing the “Washington consensus” should have said “free the market – eliminate subsidies to Global North agribusiness.”

There are other logics at work, however. The whole systemic issue of why Rwanda had been forced into the unsustainable niche of coffee-export driven growth was never addressed. The question of eliminating subsidies given by the rich countries to Global North agribusiness was never part of the discussion – that form of state intervention is tolerated by the IMF. The IMF insisted that the problems were internal to Rwanda, and in September 1990, it “imposed a structural adjustment program on Rwanda that devalued the Rwandan franc and further impoverished the already devastated Rwandan farmers and workers. The prices of fuel and consumer necessities were increased, and the austerity program imposed by the IMF led to a collapse in the education and health systems” (Robbins 1999, 271–272). The Rwandan state was massively downsized, its capacity to support health and education completely undermined, but the states of the Global North were left untouched, free to dole out billions to multinational agribusinesses.

In addition to impoverishing Rwanda’s people, this IMF imposed structural adjustment did nothing to restart the economy. Above we looked at figures for stock of external debt as a percent of export earnings. By 1991, this was 568%; by 1992, 821%; by 1993, 864%; and in 1994, it peaked at a horrendous 1,890% (The World Bank Group 2012). This didn’t terrify the IMF into rethinking its austerity prescriptions. Apparently, neither did the 1994 genocide, a genocide in large part triggered by these policies.

Finally – with this round of capitalist crisis coming home to roost in Europe – the IMF has succumbed to terror. The terror is not at the human devastation caused by its policies. If that were the case, the feeling of terror would have happened years earlier in Bolivia, Rwanda or Indonesia. The feeling of terror is happening now because the IMF is seeing what its policies are doing to countries in its own heartland, on the continent of Europe. It is looking down the road at the crisis spreading from the small economy of Greece to the medium-size economy of Spain, and then to a G-7 economy like Italy – and it has finally felt the terror and started to rethink its policies.

The Fiscal Multiplier

Lagarde’s public rethinking of the austerity agenda being imposed on Greece and Spain, was triggered by a perceptive question at a press conference, where a reporter asked her about “research that appeared in the World Economic Outlook about fiscal multipliers” (Lagarde 2012). The reporter had taken the time to read the 2012 edition of the IMF’s World Economic Outlook, and get to Box 4.1 on pages 41 to 43. The contents of this box are explosive. Entitled “Are We Underestimating Short-Term Fiscal Multipliers?” it, like Lagarde’s gloss on it, requires a little translation.

The term “fiscal multiplier” is used to describe the effect of government spending on national income. “A multiplier greater than one shows that government spending on national income levels is deemed to have been enhanced” (Investopedia 2012). True to their Washington Consensus ideology, IMF staff reports, prepared to justify the structural adjustment being imposed on Greece and being proposed for Spain, based their recommendations on an assumed fiscal multiplier of 0.5 (International Monetary Fund 2012, 43). This is worth dwelling on. These IMF staff reports were assuming that $1 spent by the government would lead to just 50 cents growth in national income. In other words, government spending was a net drain on economic growth.

Now – if that were true – well then, cut everything, cut it all. If government spending of $1 leads to only 50 cents of income growth, then this is unbelievably wasteful and inefficient. If that is the case, then it would be better to spend nothing, and just give the $1 to the private sector, where that $1 will at least be a $1 increase in income, and not the measly 50 cents the IMF staff were predicting. With this as an assumption, you can see how eager IMF staff would be to slash spending in Greece, Spain and elsewhere.

Except – they know think they were wrong. After doing some more investigation, “results indicate that multipliers have actually been in the 0.9 to 1.7 range since the Great Recession … in today’s environment of substantial economic slack … multipliers may be well above 1” (International Monetary Fund 2012, 43). If that is the case – if the fiscal multiplier is above 1 – then cutting $1 in government spending will reduce national income by more than $1. In other words, cutting $1 billion in government spending will lead to a greater than $1 billion cut in national income, and will accelerate economic decline.

You can see why this is explosive. If this is in fact true, then policy should be for increasing government spending, not cutting it. The IMF document cites a series of studies – and it would benefit from studying them and not just citing them. According to one, written by Michael Woodford, when the fiscal multiplier is in excess of 1, then “welfare increases if government purchases expand to fill the output gap that arises from the inability to lower interest rates” (Woodford 2011, 1).

Lagarde is terrified (see above) because the unemployment levels in Greece and Spain are equivalent to those during the Great Depression. So read on … “Under circumstances like those of the Great Depression … government expenditure multiplier should be larger than one, and may be well above one. … Hence, a case can be made for quite an aggressive increase in government purchases under such circumstances, even taking account of the increased tax distortions required in order to finance the increase in government purchases” (Woodford 2011, 33).

From Keynes to the movements 

This is a very old idea. In the context of another period of rather slack demand – the 1930s Great Depression – John Maynard Keynes organized his most influential work around exactly this notion – the relationship between government expenditure (public investment), national consumption, and thus aggregate employment (Keynes 2010, chap. 10). The irony couldn’t be greater. In the 21st century, sitting in the long shadow of the Great Recession of 2008 and 2009, the vehemently anti-Keynesian Washington Consensus ideologues are slowly, cautiously, stumbling back towards – Keynes.

It won’t be enough. Keynes is a whole lot better than the free market evangelism which has governed public policy in the neoliberal era. But we know from the difficulties the world economy entered into during the Keynesian era itself in the 1960s and 1970s that Mr. Keynes himself did not have all the answers.

Real policy reform will require immersing ourselves in the social movements which crises often generate. The people of Indonesia were not content to be passive objects of IMF, Washington Consensus, experimentation. In 1998 they rose up in a revolution, overthrew the dictator Suharto, and began the long march toward a society based on democracy and social justice. The tin miners who lost their jobs through IMF-imposed shock therapy in Bolivia, went to the coca fields, combined their forces with the rural coca growers (including Evo Morales), formed a powerful social movement, and became part of the revolutionary processes which stopped privatization of water in Bolivia, overthrew successive neoliberal regimes, and led to the installation of Morales as president of the now plurinational state of Bolivia.

The IMF is terrified. On the ground, the Spanish people have a better emotion – outrage. The movement of the indiganados (the outraged) in Spain, the rise of Syriza in Greece – these are some of the elements of the new social movements shaping a response to the IMF as this article is being written.

© 2012 Paul Kellogg


Chossudovsky, Michel. 1998. The Globalization of Poverty and the New World Order. 2nd ed. Halifax: Fernwood Publishing.

ELSTAT. 2012a. Employment-Unemployment. Labour Force (Quarterly) – Timeseries. Athens: Hellenic Statistical Authority.

———. 2012b. Labour Force Survey: April 2012. Athens: Hellenic Statistical Authority.

Eurostat. 2012a. “Harmonised Unemployment Rate by Sex, % (seasonally Adjusted).” Eurostat – Tables, Graphs and Maps Interface (TGM) Table.

———. 2012b. “Unemployment Statistics.” Statistics Explained.

International Monetary Fund. 2012. World Economic Outlook, October 2012 – Coping with High Debt and Sluggish Growth. World Economic and Financial Surveys.

Investopedia. 2012. “Fiscal Multiplier Definition.” Investopedia.

Keynes, John Maynard. 2010. The General Theory of Employment, Interest and Money. Orlando: Signalman Publishing.

Kinnock, Glenys. 2011. “America’s $24bn Subsidy Damages Developing World Cotton Farmers.” Poverty Matters.

Kohl, Benjamin H., and Linda C. Farthing. 2006. Impasse in Bolivia: Neoliberal Hegemony and Popular Resistance. New York: Zed Books.

Lagarde, Christine. 2012. “Transcript of a Press Conference by International Monetary Fund Managing Director Christine Lagarde and First Deputy Managing Director David Lipton.” International Monetary Fund.

Mercola, Dr. 2012. “Do You Have ANY Idea How Absurd U.S. Farm Subsidies Are?” Mercola.com.

Okonski, Kendra. “Who’s Really to Blame for Low Coffee Prices?” International Policy Network.

Robbins, Richard Howard. 1999. Global Problems and the Culture of Capitalism. Boston: Allyn and Bacon.

Stiglitz, Joseph E. 2003. Globalization and Its Discontents. New York: W. W. Norton & Company.

The World Bank Group. 2012. “World Development Indicators (WDI) & Global Development Finance (GDF).”

Walt, Vivienne. 2010. “E.U. Farm Subsidies: Agriculture Benefits Raise Eyebrows.” Time.com.

Williamson, John. 1990. “What Washington Means by Policy Reform.” In Latin American Adjustment How Much Has Happened?, ed. John Williamson. Washington, D.C.: Institute for International Economics.

Woodford, Michael. 2011. “Simple Analytics of the Government Expenditure Multiplier.” American Economic Journal: Macroeconomics 3 (1) (January): 1–35. doi:10.1257/mac.3.1.1.

Zumbrun, Joshua. “Sugar’s Sweet Deal.” Forbes.com.

Message to the U.S. – Blame the Wars, not China

DECEMBER 2, 2010 – There is a growing chorus of voices in the media and the academy singling out the actions of the Chinese state as central to the dilemmas of the world economy. This focus finds its most articulate presentations, not in the xenophobia of the right, but in the polite analysis of many left-liberals. Paul Krugman, for instance, writing in the run-up to November’s G20 summit in South Korea, praised the United States’ approach of creating money out of nothing (“Quantitative Easing”) as being helpful to the world economy, and criticized the Chinese state’s attempts to keep its currency weak as being harmful. “The policies of these two nations are not at all equivalent,” he argues, adding his influential voice to the chorus which is increasingly targeting China for the world’s woes.[1] Krugman’s, however, is a simplistic analysis which overlooks the role of the U.S. over decades in creating huge imbalances in the world economy, and has the dangerous effect of scapegoating one of the poorest nations of the world (China) for the problems created by the world’s richest.

Krugman’s argument proceeds through a sleight of hand. He objects to the attempts by the Chinese state to keep down the value of its currency – the yuan – as a series of policies whose “overall effect … on foreign economies is clearly negative.” This is a common theme – China’s “weak-yuan” currency being good for China (making its exports cheaper in world markets) and bad for the rest of the world.

But there is a problem. By his own admission, the U.S. policy of creating money out of nothing will result in a “weaker American dollar.” What he doesn’t say, but what is implicit in his analysis, is that this U.S. policy is identical to China’s – a “weak-yuan” policy in the latter, matched by a weak-dollar policy in the former. Krugman nonetheless lets the U.S. off the hook because, he argues, even though the U.S. dollar is certain to fall in value as a result of the new trillions being created, “that is not the ultimate goal.”

Judging a policy on its intent rather than its effect is disingenuous. Brian Burke’s intent as General Manager of the Toronto Maple Leafs has been to deliver a Stanley Cup to Toronto. Hockey fans are unlikely to forgive him, though, for the fact that his policies see the Leafs sitting, again, near the basement of their conference. However, let’s take Krugman at face value. Why does he see the U.S. policy as good for the world? Because, he argues, “basically, the United States is pursuing a policy that increases overall world demand” and China “is pursuing a contractionary domestic monetary policy, reducing overall world demand.”

Let’s begin with some of the key facts. At the peak of the economic crisis, the United States, Canada, and the European Union had to borrow hundreds of billions of dollars from the rest of the world to finance stimulus programs to stabilize their economies. China also engaged in serious fiscal stimulus (relative to GDP virtually on the same scale as the United States)[2], but unlike the North American and European powers, it was able to do so without borrowing a penny from the rest of the world.[3]

One of the reasons the U.S. had to resort to large-scale foreign borrowing, was because of years of high levels of central government deficit spending. Charts accompanying this analysis can be found at the end of the article. The first one shows the last twenty years of central government spending, a story of only momentary surpluses and a “norm” of deficits in the hundreds of billions of dollars – in 2009 and 2010 in the wake of the financial crisis, passing the one trillion dollar mark.[4]

Because the United States central government had been running very large deficits for years, borrowing on a large scale was inevitable to do the very necessary work of trying to “stimulate” the economy at the peak of the crisis in 2009. But with these deficits pushing debt levels very high very quickly, there has been increasing nervousness about both deficits and debts getting out of hand. Enter, “Quantiative Easing.” As an alternative to creating more government debt, the world’s most powerful economy can, for the moment, simply “create more money,” push it into the economy, and hope that this has the desired stimulus effect.

Krugman assesses the merits of these actions solely on their effect on world demand. But is this a sufficient criteria? There are all sorts of policies pursued by the U.S. over generations which have increased overall world demand. One in particular comes to mind. The U.S. central government has for a long time been the centre of military expenditure in the world, and its role as such is accelerating. In 1990 its military expenditures represented 36.19% of the military expenditures in the entire world. By 2009, its military expenditures had grown to fully 44.13% of world military expenditures. In other words, almost half of the money spent on war in the world is spent by the U.S. state.

This huge infrastructure of planes, missiles, bases, tanks, guns, ammunition and personnel has a powerful effect on demand in the world economy. For instance, “the U.S. military is the single largest consumer of energy in the world.”[5] This might be bad in terms of global warming. Nonetheless gobbling up millions of barrels of oil certainly helps stimulate world demand for petroleum. The trillions spent on war and militarism do meet Krugman’s criterion in that they “stimulate world demand.” But they do so in perverse ways. In particular, they are the principal reason for the desperate fiscal weakness of the U.S. central government, documented above, fiscal weakness which is driving the move to Quantitative Easing.

Let’s try on three different scenarios to examine the relationship between military expenditures and U.S. deficits. Begin with one aspect of arms spending, the “War on Terror.” Launched in 2001 it has had three components – Operation Enduring Freedom (the war in Afghanistan), Operation Iraqi Freedom (the war in Iraq) and Operation Noble Eagle (beefing up U.S. military bases and homeland security). The official bill to-date for this “War on Terror” is almost identical to the amount of money created in the first round of Quantitative Easing – $1.1 trillion dollars.[6] This is probably an understatement, perhaps a gross understatement. Joseph Stiglitz and Linda Bilmes estimate that the true cost of the war in Iraq alone will be in excess of $3 trillion.[7] However, for arguments sake we will take the official figures. If those official figures are removed from the books (scenario 1) – that is, if we see what the picture would be like had the War on Terror not been launched – then a change begins to take place in the picture of U.S. deficit spending. It doesn’t eliminate the deficit problem. But it does lessen it, to the extent that as late as 2007 – the year the financial crisis first revealed itself – the U.S. central government would have actually have run a modest surplus.

But the War on Terror is just the tip of the iceberg. The United States, as documented above, spends money on the military at a rate far greater than any country in the world. In 2010 for instance, the War on Terror costs of $130 billion were dwarfed by the $534 billion spent on other aspects of the military. Since 2006, the total “defence” budget of the U.S. has been over half a trillion dollars. By 2011 it is projected to be closing in on three quarters of a trillion dollars. Now imagine a pacific instead of a militaristic United States. In other words, see what the picture would be like without sustaining this massive war machine. When this military spending is removed (scenario 2), the picture of the U.S. central government budget is completely different.

In 2009 and 2010 there are of course quite large deficits. This is the normal “Keynesian” turn to deficit spending that occurs in any economic downturn. What is remarkable however, is the fact that in terms of non-military spending, before 2009 and 2010, there would have been no deficit whatsoever. In fact in many years there would have been surpluses, twice (in 2000 and 2007) touching half a trillion dollars. With a budget history for the last 20 years resembling this graph, a pacific U.S. government could have spent billions on its stimulus package, without borrowing a dime. Stimulus could have been completely financed out of accumulated surpluses from the last 20 years.

And in fact, this understates the situation. Many of the costs of the U.S. bloated war budget are hidden. It would take a team of forensic accountants with unlimited time and unlimited funds to sort through government finances and corporate balance sheets to tease out the actual costs of sustaining the world’s biggest military, and the world’s only truly global empire. But there are two “non-defence” line items that we can say with certainty are directly related to the U.S. military. Veterans Affairs spending is extremely high in the U.S. precisely because so many young people have come back maimed and broken through U.S. military adventures abroad. And the space program is a barely disguised excuse to develop and test the rocket technology that is the backbone of the U.S. nuclear arsenal. When these two are factored in (scenario three), the picture is breathtakingly clear.

The U.S. central government deficit problem has one source – addiction to war and empire. That addiction has led to borrowing on an unprecedented scale, making it impossible for the U.S. to stimulate its economy through accumulated savings and making it increasingly nervous about the accelerating practice of borrowing on a mass scale. The Quantitative Easing approach – creating money out of nothing – has been made inevitable by the massive deficits used to sustain empire abroad.

Return, then, to Krugman’s argument. If we only have one criterion by which to assess this – the creation of demand in the world economy – then there is no problem here. Massive levels of arms spending create demand. Years and years of arms-related U.S. budget deficits do “stimulate” the world economy. But downing two or three pots of coffee in one setting will similarly “stimulate” a person’s metabolism. That doesn’t mean it is a recommended method by which to obtain our nutrition.

Obviously “the creation of demand” is not the only criteria we should use. When trillions are spent, it is useful to us ordinary folk when these trillions are spent in productive ways – on homes for the homeless, on childcare, on healthcare, on education, on infrastructure, on subways, on clean energy, on water purification in the Global South – the list is endless. But when the trillions are wasted on grenades, nuclear weapons, M-16 rifles, nuclear submarines, aircraft carriers and all the other paraphernalia of the U.S. killing machine – this is ultimately the equivalent of taking those trillions and flushing them down the toilet. It is “investment” which leaves nothing behind – except nuclear waste that future generations will have to dispose of, deadly munitions that will exist for generations to maim and kill peasants in the field, and broken bodies and minds chewed up in endless wars. The creation of “demand” is not the only criteria. It matters – and it matters desperately – exactly what kind of “demand” we are feeding.

And think this through. This creation of money from nothing will systematically drive the U.S. dollar lower relative to other currencies. For those holding billions (and in some cases trillions) of U.S. dollar denominated debt, the devaluation of the U.S. dollar means a devaluation of the worth of their holdings. In effect, the United States through Quantitative Easing is forcing the rest of the world to pay for its empire, to pay for the costs it has incurred through sustaining a bloated Permanent Arms Economy.

It is irresponsible to assess the value of the policies of the U.S. and Chinese governments by narrowly focussing in on momentary decisions related to their currencies, and by pretending that these policies happen in a vacuum. There is a history to the current predicament of the United States, a predicament of its own making. When put in this bigger context, the message that must be sent to Krugman and others making similar arguments is quite clear: blame the wars, not China.

Currency Wars and the Privilege of Empire
Another G20 Summit: The new club of ‘hostile brothers’

Charts referenced in the article

(c) 2010 Paul Kellogg

Publishing History

This article has been published as “War and the Global Economic Crisis: Blame America’s War Economy rather than China,” Global Research, 23 December 2010. Also published as “War and the Global Economic Crisis,” Нова српска политичка мисао, 25 December 2010; “Message to the US – Blame the wars, not China,” Links, 2 December; “Message to the U.S. – Blame the Wars, not China,” The Bullet No. 444, 23 December.

[1] Paul Krugman, “When China Exports, Everyone Pays,” Truthout, 4 November, 2010.
[2] Eswar Prasad, “Assessing the G-20 Stimulus Plans: A Deeper Look,” Brookings, 2 December, 2010.
[3] Joseph Trevisani, “While Many Countries Must Borrow, China and Japan Can Fund Their Own Stimulus,” Seeking Alpha, 28 January, 2009.
[4] Figures for this and the next three charts (Scenarios 1-3) are primarily derived from “Budget of the United States Government: Historical Tables Fiscal Year 2011: Table 4.1 – Outlays by Agency, 1962-2015.” For the years 2001 to 2010, the charts are based on figures in Office of the Under Secretary of Defense (Comptroller) / CFO, United States Department of Defense Fiscal Year 2011 Budget Request: Overview, February 2010: 1-1. The latter differ slightly from the former, but have the advantage of explicitly incorporating the military portion of the War on Terror, euphemistically referred to as “Overseas Contingency Operations.”
[5] Sohbet Karbuz, “US Military Energy Consumption – Facts and Figures,” Sohbet Karbuz, 20 May 2007.
[6] Amy Belasco, “The Cost of Iraq, Afghanistan, and Other Global War on Terror Operations Since 9/11,” Congressional Research Service, 2 September 2010: 1 and 3.
[7] Joseph E. Stiglitz & Linda J. Bilmes, “The true cost of the Iraq war: $3 trillion and beyond,” The Washington Post, 5 September 2010.

Another G20 Summit: The new club of ‘hostile brothers’

The G20 – an entity virtually unknown just two years ago – now seems to be holding meetings every month. While people in Canada were still reeling from the militarized display of force that accompanied G20 meetings in Toronto, Canada, last June, a second summit was held November 11 and 12 in Seoul, South Korea. In general, it is the rhythm of economic slump which is driving these recurring summits. In particular, the Korea summit was fixated on the danger of currency wars between the major powers – in particular between the United States and China.

In the 1990s, there was no notion of the need to expand beyond the G8. The richest and most powerful nations of the world – the United States, Japan, Germany, France, the United Kingdom, Italy, Canada along with Russia (pulled in for geopolitical reasons after the collapse of the Soviet Union) – formed an exclusive club which arrogantly assumed it could alone determine the course of the world economy.

By 1999, some had started to rethink this. “For the past five years, the global economy had shuddered under a string of massive debt defaults – first in Mexico, and then in Southeast Asia and Russia.”[1] The scale of this crisis, outside the core of the system, was staggering. Russia had collapsed to the extent that through the winter of 1998, hunger stalked the countryside. “Maybe we’ll all die in the winter” said one 44-year old Russian mother trying to cope with her five children in a rural settlement.[2] According to Fareed Zakaria, then managing editor of Foreign Affairs, by July 1998, Indonesia’s economy had “shrunk by almost 80 percent, Thailand’s by 50 percent, South Korea’s by 45 percent, Malaysia’s by 25 percent.”[3]

It took a crisis this severe to reveal the inadequacies of the G8 as a governing instrument – not to speak of the fact that in Indonesia, the crisis had seen not just economic turmoil, but political upheaval. The year 1998 was, after all, the year of the massive uprising which overthrew one of the G8’s closest supporters in the Global South, the dictator Suharto.

It was Canada’s own Paul Martin – then finance minister in Jean Chrétien’s Liberal administration – who, in the wake of the these events, mooted the issue of expanding beyond the G8. His method will not lead to confidence in the processes by which the world is run. April 27, 1999 Martin was sitting in the office of Lawrence Summers – then nominee for U.S. treasury secretary in Bill Clinton’s second term as president. Confronted with economic collapse, the spectre of mass hunger and the threat of revolution, Martin could not find a piece of paper. So – on the back of a manila envelope – he and Summers started to jot down the countries that should be brought to the table to deal with a crisis that was beyond the capacities of the G8. “I would love to say we sat down and ran the numbers on whose GDP was bigger, but we didn’t,” said Martin reflecting on the process. So it was “literally, a back-of-the envelope blueprint for what would become, today, the most powerful forum on economic and political matters in the world: the G20.”[4]

But if the idea emerged in 1999, it mouldered on the back of Martin’s and Summers’ envelope for almost a decade. The 1990’s crisis was centred in the Global South, and while severe, was not felt as profoundly in Washington and Berlin as compared to Jakarta and Seoul. Further, that slump was followed by the long expansion of the first years of the 21st century, which made memories of the late-1990’s crisis fade.

But in 2007, a new slump was gathering steam, and this time it was the G8 countries that were in trouble. While the financial crisis which erupted that year had an initial impact in China, India, Brazil and the other big countries of the Global South, they very quickly recovered, even as the United States, Europe and Japan remained mired in stagnation and slump. The rich countries could no longer pretend to steer the world economy on their own. More to the point, they needed the help of the emerging powers in the world. So it was that the G20 convened its first summit in November 2008. The Financial Times was not alone in calling this a “shift in economic power,”[5] bringing countries like China, India, Brazil and Indonesia to the table alongside the now crisis-ridden economies of the old G8.

But bringing together all the big economies – including the poor countries of the Global South – did not mean that agreement could be reached as to how to solve the problems facing the world economy. The recent South Korea summit was preceded by a storm of controversy over the unilateral actions of the United States. Before the summit was convened, U.S. Federal Reserve Board Chairman Ben Bernanke, announced that as at the peak of the financial crisis in 2008 and 2009, the U.S. was going to create money out of nothing – a strategy called “Quantitative Easing” – and “push” this new money into the system to try and kick start the U.S. economy.[6] In 2008-2009, Bernanke had “created” $1.2 trillion to rescue the U.S. economy. In November 2010 he announced the second round – QE2 – which would mean creating another $600 billion of “new money.”[7]

Officials in Germany, China and elsewhere were furious. The fear was that this unprecedented creation of money out of nothing would lead to a steep decline in the value of the U.S. dollar, and as a result inflation in the rest of the world. “If the domestic policy is optimal for the United States alone, but at the same time it is not an optimal policy for the world, it may bring a lot of negative impact to the world,” said China’s Central Bank chief Zhou Xiaochuan.[8]

In the 19th century, Karl Marx argued that “the capitalists, like hostile brothers, divide among themselves the loot of other people’s labour.”[9] The tensions between the two hostile brothers staring at each other across the G20 table – the world’s biggest economy (the United States) and the new, as of this year, number two economy (China) – are now defining the problems and difficulties which the G20 has, so far, proved incapable of handling.

Previous: “Currency Wars and the Privilege of Empire
Next: “Message to the U.S. – Blame the wars, not China

(c) 2010 Paul Kellogg


[1] John Ibbitson and Tara Perkins, “How Canada made the G20 happen,” The Globe and Mail, 18 June 2010.
[2] John-Thor Dahlburg, “Hunger in Russia’s Heartland,” Los Angeles Times, 20 October 1998.
[3] Fareed Zakaria, “Will Asia Turn Against the West?The New York Times, 10 July 1998.
[4] Ibbitson and Perkins.
[5] “G20 marks a shift in economic power,” Financial Times, 16 November 2008.
[6] For an explanation of Quantitative Easing, see Paul Kellogg, “Currency Wars and the Privilege of Empire,” Links, 23 October, 2010.
[7] Ellen Brown, “What’s Really Behind Quantitative Easing QE2? The Looming Threat of a Crippling Debt Service,” Globalresearch.ca, 20 November 2010.
[8] “China, Germany and South Africa criticise US stimulus,” BBC News, 5 November 2010.
[9] Karl Marx, Theories of Surplus Value 1861-3.

‘Progressive’ Europe’s Reactionary Stew

The bailout of the debt-ridden Greek government seems finally to be complete. The European Union (EU) – most centrally the French and German treasuries – along with the International Monetary Fund (IMF) will provide €110-billion ($150-billion) in emergency loans. The price for these loans will be high. Along with steep tax increases and cuts in spending, the loans are conditional on a public sector wage freeze being extended through to 2014.[1] This is in reality a wage cut, as there will be drastic changes to the so-called “bonuses” – holiday pay that has become an essential part of the income package of low-paid public sector workers. The anger at these cuts is everywhere in Greek society. Giorgos Papadapoulos is a 28-year-old policeman who normally confronts demonstrators. But in March he put aside his riot shield and joined the mass protests which have become a regular part of life in Greece. “It’s a different feeling for me,” he told journalists while he was on the demonstration. “But this is important. It hurts me and my family.”[2] However, the crisis in Greece has revealed not just a shift to the left in Europe. It has also brought to the surface a seamy reactionary underside to politics in the EU portion of the Eurasian landmass.

The April 29 front page of the mass circulation German daily Bild screamed out “The Greeks want even more billions from us!”[3] The echoes of a half-forgotten German nationalism gave shivers to those with an historic memory. One who has such a memory – Greece’s deputy prime minister Theodoros Pangalos – reminded Greek voters of the horrors of World War II. “They [the Germans] took away the gold that was in the Bank of Greece,” he said. “They took away Greek money, and they never gave it back.”[4] It was a thinly-disguised attempt to divert attention from a crisis over which his party (the Panhellenic Socialist Movement or PASOK) has helped create. These kinds of reactionary nationalisms were supposed to have been superseded by the progressive cosmopolitanism of the EU.

That many have clung to a hope that the EU contains within it the seeds of a progressive capitalism, is not in itself news. Antonio Negri, co-author of Empire, supported a call for a “yes” vote on the European Constitution in 2004-2005. His rationale was explained very well by Salvatore Cannavò, then deputy editor of Liberazione, the daily paper of Italy’s Rifondazionie Comunista.

Empire, for Negri, is the new globalized, capitalistic society. He thinks of Europe as being a “brake on the ideology of economic unilateralism which is capitalist, conservative and reactionary. So Europe can become a counterweight against US unilateralism.”[5]

Another with faith in the EU was Christopher Hitchens, who describes himself as “one of the few on the Left to advocate enlargement of the European Union and to identify it with the progressive element in politics.”[6] But really, Hitchens needn’t describe himself as being so alone. In their hope that the EU represents a “nicer” capitalism than that in the United States, the very radical Negri and the ex-left gadfly Hitchens are actually trailing behind the very mainstream “social liberal” politics of very traditional European Social Democratic parties, still by far the principal force in the workers’ movement and the left in Europe. Hitchens’ and Negri’s pro-EU stances place them within the hegemonic project of European capitalism, mediated – as is so often the case – by European social democracy.

This hope for a progressive EU has been sorely tested by the most recent slump in the capitalist economy – the so-called “Great Recession” of 2008-9 – the trigger for the debt problems in Greece and elsewhere. November 2009, 57 per cent of the 53 per cent who participated in a referendum in Switzerland, voted to ban the building of minarets in that country. This reactionary trend is not restricted to Switzerland. In April we learned that the home affairs committee of the Brussels federal parliament in Belgium voted unanimously to ban Muslim women from veiling their face in public. “Support for the ban … transcended party lines, ranging from the Greens to the far right.” Similar restrictions are being contemplated elsewhere in Europe, including in France and the Netherlands. That this reflected a rise in Islamophobia and anti-Arab racism is revealed by the fact that “only four modest sized or small minarets exist in Switzerland,”[7] and that in Belgium “very few women wear the full veil, and there has been little public debate about the need to ban it.”[8]

It needs little analysis to see what is at work here. The deep crisis of 2008 and 2009 triggered huge government-spending programs across the continent. That spending worked to stem the crisis, but left governments saddled with unsustainable debts. Every government is now preparing to address this debt crisis by slashing government spending. The anti-Arab racism is a deeply reactionary, very old-fashioned and very predictable way for ruling elites to try and “change the channel” and make working people and the poor look at scapegoats, rather than at the deep attacks on social services and public sector workers that are around the corner throughout the continent. The anti-Greek nationalism in Germany – which threatens to derail a bailout sorely needed by German as well as Greek capital – reflects this politics of scapegoating getting out of the hands of German capital, and opening the door to populist far-right forces, an increasingly sombre menace on the fringes of the European political landscape.

This shift right is not a big step for politics in the EU. The EU could present itself as a force for progress, given the barbaric history of European civilization. A collection of nations – whose continent had, in a century and a half, witnessed the bloodiest wars ever seen in human history – had found a way to unite and partially reduce their divisions. Holders of an EU passport could travel easily from one country to the next – and more importantly work in any country of the Union. The emergence of a common currency for some of the EU states seemed to indicate an even greater reduction in tensions in a continent comprised of historic rivals.

But this progressive surface appearance masked another aspect of the barbarism that has been European civilization. Its roots are not just in the 150 years of intra-European rivalry which resulted in the Napoleonic Wars, World Wars I and II. Those roots are even more in the 500 years of colonial conquest of the Global South, which resulted in the depopulation of whole sections of Latin America and the Caribbean, the horrors of the Atlantic Slave Trade, and the long humiliation and plunder of three of the four most populated regions in the world – China, the Indian sub-continent, and the Indonesian archipelago. If the creation of the EU muted intra-European rivalries, it did not lessen European pressure on the Global South. If anything, it led to an intensification of European imperialism abroad. European corporations, from Latin America to Africa to Asia, have been as much a part of the story of imperialism in the late 20th and early 21st century as has been the much more recognizable hand of the United States. In fact, an argument could be made that the very reluctant decision to embark on the process of European integration was spurred not so much by a desire to create a progressive Europe, but rather by the recognition that another round of wars between the European states would make all of Europe incapable of participating with the United States in the ongoing plunder of the great riches in the Global South. It was either all-in or not at all – and the EU was the result.

In other words, there has always been a reactionary side to the EU project. Internal migration for holders of EU passports was wonderful for the workers of Europe. But for those outside the EU, what it meant was “Fortress Europe” – a wall of anti-immigrant rules and regulations from Italy to Spain to Germany. And while it was one thing to push forward with a unity project so long as each country in the project was in its majority white and Christian – when the project faced up to its next task, expanding to include the largely Islamic country of Turkey – a sudden reluctance showed its hand, a reluctance which could only with difficulty conceal its xenophobia and racism.

There is another aspect to the imperialist roots of the project of European Union – the unequal relations between states inside the Union. Doug Saunders, writing in The Globe and Mail, is going too far when he calls Greece, Portugal and Spain “economic colonies” of Germany. But he is highlighting something important about the unequal structure which is the EU. There is an inner core of dominant countries – on the continent, Germany and France in particular – and an outer layer of countries which has a very unequal relationship with that core.

Germany is the world’s second-largest exporter, ahead of the United States and exceeded only by China, and its largest markets are its European neighbours. These countries are net importers … These importing countries have more money flowing out of their borders than they have coming in – for Greece, an amount equivalent to a tenth of the entire economy – and Germany has a surplus, with piles of it stacking up. Money cannot sit still, and nature abhors a vacuum, so German banks disposed of those heaps of surplus export-payment cash by lending it to companies, especially property developers, in those same countries at low interest rates. And they lent it to their governments, too, to fill their need for missing cash, which would in turn be spent on more German goods and services.[9]

This is the toxic brew which is now bubbling over as the EU finalizes details on its bailout of the debt in Greece. The fact, outlined by Saunders above, that much of this debt is held by German banks, means that there is every reason for German capitalism to support such a bailout – but the terms that are being demanded are very severe, and it is Greek workers who are being asked to pay the price.

These conditions also run counter to the lessons learned so painfully in 2007 and 2008. The biggest lesson of the Great Recession was that it is neo-liberal folly to cut government spending when economies are shrinking. Such cuts make economic decline even worse. In fact what is needed is an increase in government spending, so that government demand can compensate for declining private sector demand. But if Germany has returned to economic growth and can now contemplate cuts to government spending, Greece has not. It is estimated that the Greek economy – after contracting through all of 2009 – will shrink by a further 4% in 2010 and another 2% in 2011.[10] The cuts being demanded by the EU and the IMF will make a bad situation worse in the coming weeks and months.

There is hope in the situation – the evolving resistance emerging in Greece. One poll indicated that “more than half of Greeks say they will take to the streets if the government agrees to new austerity measures.”[11] The growing mass movement and opening to the left underway in Greece, is extremely encouraging. It is with that movement that hopes ultimately lie for the emergence of a really progressive Europe.

But we should temper these hopes with a sober assessment of the reality of the situation. Social Democracy – and the union bureaucracies on which it stands – is deeply implicated in the construction of the structures which are today being used to orchestrate an attack, across the continent, on social services and the working class. Social Democracy remains the leading force in the workers’ movement, and we can have no illusions in its capacity to lead a serious fightback. In Greece the movement has necessarily broken in part with PASOK, as it is a PASOK-led government which is implementing the attacks. But in Greece as throughout Europe, social democracy is only a reflection of the problem. The material foundation of social democracy is comprised of the union bureaucracies entrenched in the workers’ movements in Europe and throughout the Global North. Ultimately the task facing the workers’ movement and the left is not just a political break from social democracy, but organizational independence from these union bureaucracies.

Winning that independence will be bound up with creating a counter-hegemonic project whose horizons are not just the internal politics of Europe, but the fact of Europe’s implication in the imperialism which oppresses the majority of the world’s population. Our counter-hegemonic project, in other words, cannot simply focus on economic issues. A counter-hegemonic project in Europe – as in North America – has to simultaneously involve a break from chauvinism and racism.

Such a recognition has practical implications. Greece’s small role in Europe’s noxious imperialism has been a series of chauvinistic rows over Macedonia and Cyprus, and its irresponsible and long-running feud with neighbouring Turkey. This has translated into an inflated military budget, keeping “Greek military spending well above that of other EU members, reaching €14-billion, or 6 percent of GDP, in 2007 and 2009.”[12] In other words, fully half of the deficit problem – which stands at between 13 and 14 percent of GDP – is caused by inflated spending on war preparation. Breaking from chauvinism and militarism opens the door to a simple demand which can be a modest, but necessary part of the counter-hegemonic project – cut spending on war, not spending on welfare.

© 2010 Paul Kellogg


[1] Eric Reguly (Rome), “Greece swallows tough medicine in bailout,” The Globe and Mail. May 3, 2010, p. B1. www.theglobeandmail.com. Accessed May 3, 2010.
[2] Nicole Itano (Athens), “Why the Greeks are protesting,” www.globalpost.com. March 11, 2010. Accessed May 3, 2010.
[3] Tony Paterson (Berlin), “As size of Greek bailout soars, supply of German sympathy runs short,” Independent – London. Apr. 30, 2010, p. 16. eLibrary. Accessed May 2, 2010.
[4] Cited in Timothy Garton Ash, “The agonies of the eurozone reflect a far more significant hidden deficit,” The Guardian. Feb. 25, 2010, p. 31. www.guardian.co.uk. Accessed May 2, 1020.
[5] Salvatore Cannavò, “Toni Negri in favour of free-market constitution,” International Viewpoint 377, April 2006. www.internationalviewpoint.org. Accessed May 2, 2010.
[6] Christopher Hitchens, “What now for the European Dream?” Australian, Apr. 28, 2010, p. 8. eLibrary. Accessed May 2, 2010.
[7] Charles Bremner, “Swiss back right-wing minaret ban [Eire Region],” Times of London. Nov. 30, 2009, p. 3. elibrary. Accessed May 2, 2010.
[8] Ian Traynor, “Belgium to introduce first European ban on burqa and niqab,” The Guardian, April 1, 2010, p. 21. eLibrary. Accessed May 2, 2010.
[9] Doug Saunders (London), “Life in the German empire,” The Globe and Mail, May 1, 2010, p. A23. www.theglobeandmail.com. Accessed May 2, 2010.
[10] Global Economics Research, “Greece GDP Growth Rate,” TradingEconomics. Accessed May 3, 2010. “Greek Stocks Decline Amid Recession Concerns,” www.Capital.gr, May 3, 2010.
[11] Jason Subler, “Greek austerity measures will work: deputy PM,” Reuters, May 1, 2010. www.reuters.com. Accessed May 3, 2010.
[12] Eric Reguly and Brian Milner, “The bigger fear behind Greece: contagion,” The Globe and Mail, May 1, 2010, p. B7. www.theglobeandmail.com. Accessed May 2, 2010.

The year ‘laissez-faire’ became profane

Pity the poor priests of laissez-faire (the French phrase associated with the advocates of free market capitalism). They want to name a building at the University of Chicago after Milton Friedman. Milton was teaching there in 1976 when he won the Nobel Prize in economics. But 100 faculty members have signed a petition objecting. One of the 100, Bruce Lincoln told the press: “He was the darling of the Reaganite revolution and the American right … He was a scathing critic of the state playing a role of any importance … It’s now a whole lot more obvious to everyone that [Mr. Friedman] got us into some problems and that he didn’t have the final solution to everything that makes an economy work.”[1] That’s an understatement. The financial markets are breathing thanks only to a $3 trillion injection of public funds.[2] Laissez-faire has never been so discredited.

Others are figuring this out. We saw this in the run-up to the October 14 vote in Canada’s federal election. The Bloc Québécois were expected to lose a fair number of seats when Stephen Harper launched his 2008 bid for a majority. But they roared back into contention, ending up with 50 seats, just one shy of their 2006 result. There were several reasons for this comeback. The Tories alienated Quebec voters with a reactionary attack on culture, and an even more reactionary attack on youth “criminals.” But Bloc leader Gilles Duceppe, before any other leader, figured out that with the crisis wracking financial markets, “free-market” had become a swear word.

• During the French language leaders’ debate October 1, Duceppe charged that “Mr. Harper is a laissez-faire-ist like Mr. Bush and we see the disaster happening in the United States now.”[3]

• October 6, Duceppe demanding a recall of Parliament to debate the economic crisis said that Harper had no clue how to fix the broken economy “It is still the economic laissez-faire of George W. Bush.”[4]

• In Trois Rivières, October 7 he took it further. “With his economic philosophy, Harper is the worst thing that could happen to Quebec. It’s laissez faire … It is exactly like (George W.) Bush’s Republican policies and we see the results today.”[5]

• A week after the election, responding to Tories injecting money into Canada’s banking system, Duceppe said: “I think he [Harper] had to do that, but this is not enough. At first they said there was no problem at all. It was the George Bush laissez-faire (approach), and that was a huge error, with the results that we are seeing now.”[6]

What a sea-change. Starting with the entire Reagan-Thatcher years, and continuing during the so-called “neo-liberal revolution,” we were told that the state had caused all our problems. We were told that the market would cure our ills. We were told that if you let the free market do its work, incomes for the rich would go way up, but incomes for the rest of us would follow, even if at a slower pace. Wealth would trickle down, and incomes would trickle up. Language was easy. State, bad; market, good. “Laissez-faire” – the great slogan of Adam Smith, was a badge to be worn with pride.

Now, just one little $3-trillion bailout later, everyone is quietly hiding those badges. Laissez-faire has become a swear word.

© 2008 Paul Kellogg


[1] Cited in Paul Waldie, “He inspired Reagan’s revolution,” The Globe and Mail Report on Business, October 22, 2008, p. B1
[2] According to Barry Ritholtz, cited in Alice Gomstyn, “Bailout Critic: Plan Could Cost $3 Trillion,” ABC NEWS Business Unit, Oct. 13, 2008
[3] “Harper targeted on economy, crime in French debate,” cbc.ca, Oct. 2, 2008
[4] Rhéal Séguin, “Duceppe wants Parliament recalled over economy,” The Globe and Mail, Oct. 6, 2008
[5] “Harper improvising on economy, Duceppe charges,” The Gazette, Oct. 7, 2008
[6] “Ottawa has linguistic double standard: Duceppe,” The Gazette, October 22, 2008

The Septembers of Neoliberalism

It was September 11, 1973, that the neo-liberal experiment began. The brutal U.S.-backed coup against Salvador Allende’s government opened the door for the “Chicago Boys” – a group of Chilean economists who had studied under Milton Friedman at the University of Chicago[1] – to “reconstruct the Chilean economy … along free-market lines, privatizing public assets, opening up natural resources to private exploitation and facilitating foreign direct investment and free trade.”[2] September 7, 2008 – thirty-five years later – that experiment came to an end, not with a whimper, but a bang. The neo-liberal regime of George Bush – more closely identified than any other world figure with the politics of keeping government out of the market – is now presiding over a state intervention into the so-called “free” market that is without parallel. When the dust settles: a) hundreds of billions of dollars will have been spent to try and fix a broken financial system; b) a generation of free-market arrogance and ideology will lie in ruins, its ideological clarion call “neo-liberalism” completely discredited; and c) the U.S. empire will be exposed as a declining (if vicious) beast. The events of September 2008 mark a watershed in the history of capitalism.

Fannie and Freddie

The first act in this story is in many ways still the most significant if not the most dramatic. September 7, 2008, the United States Treasury announced it would seize control of two institutions called Fannie Mae and Freddie Mac. At the time, this represented “the world’s biggest financial bailout” (a record it would only claim for a few dozen hours). The U.S. government pledged to guarantee literally trillions in the two companies’ investments, something that estimates said would end up costing U.S. taxpayers in the order of $25 billion.

What are these peculiarly named institutions? Fannie Mae stands for “Federal National Mortgage Association” and Freddie Mac stands for “Federal Loan Mortgage Corporation.” Both are GSEs – “government-sponsored enterprises,” creations of the U.S. government, but which operate as shareholder run companies. Fannie Mae’s roots go back to the depression-era. It was created in 1938 to “provide funding to the housing market … Freddie Mac was created in 1970 to provide competition to Fannie Mae.”[3]

Their role in the housing market is indirect. Homeowners in the United States borrow money from lenders (banks and other financial institutions) just as in other countries. What Fannie and Freddy do is to buy these mortgages from the lenders. This gives the “mortgage initiators” instant cash, and a little bit of profit, allowing them to go back and quickly offer new mortgages. Fannie and Freddy then turn around and repackage the various mortgages they have purchased as “mortgage-backed securities.” They sell these securities on the secondary mortgage market – in effect borrowing money, but using these “securities” as collateral – counting on the income from the payment of mortgage principle and interest to give them cash to repay these loans.[4]

This “provides liquidity” to the housing market. It also has the effect of creating a huge incentive to get more and more people to buy houses, as at every level of this structure, incomes and profits are dependent on a constantly expanding base of home ownership. In the scheme above, there are massive fortunes to be made – by the banks and other mortgage issuers, by Fannie and Freddy and their hangers-on, and by the investors who buy up the Fannie and Freddy debt. Former Fannie CEO Daniel Mudd was in line to receive up to $8.4 million in compensation. Freddie Mac’s former CEO was in line for $15.5 million.[5] And John McCain’s campaign for the U.S. presidency, suffered a setback when it was revealed that Freddy Mac had been paying $15,000 a month from the end of 2005 until September 2008 to a firm owned by McCain’s campaign manager.[6] All had an incentive in “priming the pump” – creating incentives for working people to pony-up and enter the world of home ownership. The whole scheme works fine as long as homeowners can pay their mortgages. But if they can’t …

So base greed is an element that fed this bonfire. But that wasn’t the only, or even the biggest issue – the problems were structural. In the stock market crash at the turn of the century, huge fortunes were lost when the dot-com bubble burst. With investors burned from their experience in the stock market, U.S. interest rates were reduced to unprecedentedly low levels, as the U.S. federal reserve essentially “printed money” to stave off a deeper crisis. One key measure of interest rates, the U.S. federal funds rate, dropped below two percent in November 2001, and stayed below two percent for three years, bottoming out at just below one percent in December 2003.[7] Mortgage rates don’t track Federal Funds Rates exactly, but mortgage rates did come down, so that at their lowest point in 2003 and 2004, it was possible to get Adjustable Rate Mortgages (mortgages which increase or decrease with the rise and fall of interest rates) for between 3 and 4 percent.[8] In fact, people often were able to get mortgages below that rate – with incentives of very low interest rates in the first few years of the mortgage to encourage the plunge into home ownership. With millions moving into home ownership, the mortgage-backed securities market prospered. The effect was to create an environment where billions of dollars could flee an insecure stock market, and find a “safe haven” in the housing market, by investors moving from speculating in stocks to speculating in “mortgage-backed securities.”

This structure was riven with problems. The rush into home buying which this created, pushed house prices very high very fast. This has been a visible problem for some time. In 2006, one analyst wrote: “Cheap money turned the real estate boom into a frenzy … prices in most hot markets … soared by 55 per cent to 100 per cent (on top of inflation). Trying to keep pace, buyers increasingly resorted to riskier loans to lower monthly payments. Two types became the rage: adjustable rate mortgages and exotics.” We have already looked at the ARMs. The Exotics bear a little examination, the most extreme of which was “the negative-amortization loan, which allows borrowers to pay less than the interest due. The unpaid interest is tacked onto the principal, so the size of the loan grows every month. In 2004 and 2005, no less than 75 per cent of all mortgages were either ARMs or exotic loans, compared to 20 per cent in the late 1990s.”[9]

This outline is important. Some are blaming poor home buying decisions by ordinary working people for the way in which this crisis has unfolded. But it was not “reckless spending” by the poor. It was a structure, driven by greed, which created enormous pressures and incentives to abandon renting and jump into the home-buying game – simply because massive fortunes were being made. Suddenly, working people were being pressured to take on debt far in excess of their capacity to pay. The best way of measuring this is looking at the ratio of house prices to household income. The graph here shows a steady upward climb in that ratio for the United States as a whole, from the late 1990s to the mid-point of this decade – in some cities, an extremely steep rise.[10]

But interest rates don’t stay low forever. Here the story has another layer of complications. There is a close relationship in most countries between the health of the currency and the trend in interest rates. Roughly, if the country is increasing its international indebtedness, there will be downward pressure on its currency relative to other currencies. This can be countered by increasing interest rates to attract investors in spite of the increasing debt burden. At times these rates have to go up considerably to prevent a precipitous fall in the currency.

There are some who say this pressure has yet to make itself felt in the United States. The entire post-war period has been defined by the domination of the international economy by the U.S. dollar. Its “unique” place in the world economy is often seen as making it relatively immune to the downward pressure that other currencies experience when their economies become increasingly indebted. A commonly used measure of this is a comparison of the U.S. dollar to major currencies. The resulting graph does not show overwhelming U.S. dollar weakness, but rather a generations-long fluctuation with no clear trend either up or down.[11]

But there is a problem with this way of representing the health of the U.S. Dollar. The figures in this comparison go back only until 1973. This leaves out of the picture the biggest story in the history of the U.S. dollar, the effect of it “freeing itself” from the gold standard. This was the decision Richard Nixon took in 1971, allowing the U.S. to “print dollars” unencumbered by maintaining an equivalent stock in gold. The most readily accessible international comparative figures, because they begin in 1973, do not factor this epochal event into their picture. But it is possible to improvise a comparison.

The chart “Decline of the U.S. Dollar” shows the U.S. Dollar measured against the Yen (currency of Japan) and something that is being called the “EuroMark” – a statistical composite of the Mark, formerly the currency of Germany, Europe’s biggest economy, and the Euro which has now replaced the Mark and most other major European currencies. The result is very clear. The U.S. dollar is approximately 1/3 of what it was in 1971, compared to the Yen and the “EuroMark”.[12]

The U.S. Dollar has been steadily declining against its major competitors for years. The devaluation that happened after the abandonment of the gold standard was immediate and quick, becoming precipitous in the late 1970s. This was reversed in the early 1980s by a policy of very high interest rates, then fell steadily until the 1990s, recovering somewhat in the Clinton years, but returning to decline under Bush. As the dollar declines, it inevitably leads to a day when interest rates have to go up, or the dollar’s fall could accelerate dangerously. So in Bush’s second term, interest rates have inched upwards, and this in turn became part of an environment pushing higher and higher the interest rates on millions of peoples’ mortgages.

Finally, none of this works if homeowners start to lose their jobs. When this cycle began, unemployment was at historically low levels – just 3.9 per cent, in the last four months of 2000. That increased to 6.3 percent by September 2003, dropped below five percent through the last half of 2005 and the first two months of 2008, but has since climbed steadily to 6.1 percent by August of 2008.[13]

The effects of these problems became visible in the summer of 2007. With interest rates rising, some homebuyers could not make the payments, and the number of defaults began to rise. Rising interest rates and rising unemployment, started to decrease demand for houses, so prices began to fall. And with house prices falling, many saw the value of their house fall far below the principal remaining on their mortgage – creating an incentive to simply walk away from the debt – default on the mortgage, and go back to renting. The result has been the highest rates of foreclosures in the modern era. A report from the Mortgage Bankers’ Association indicated that: ”about 2.75 percent of all home loans, or about 1.75 million mortgages, were in foreclosure at the end of June [2008], up from 2.47 percent in March. That was the highest foreclosure rate since 1979, when the Mortgage Bankers first collected the data.”[14]

As these millions of foreclosures rippled through the system, the whole flimsy structure started to shake. Between them, Fannie and Freddy had issued $3.7 trillion worth of mortgage-backed securities.[15] But suddenly, as mortgage payments started to fall because of defaults, as the assets backing these mortgages started to lose value with the falling prices of houses in the United States, these securities looked a whole lot less secure.

Bankers’ Strike

Neo-liberalism is a modern restatement of an old “free-market” orthodoxy. Markets know best. Let the “hidden hand” of the market do its magic, and a million individual decisions based on individual self-interest, will end up with a virtuous direction for the economy and society as a whole. Sometimes there are barriers to the operation of this hidden hand – too much government intervention, too much regulation being two of the most often cited. Get rid of them. The state’s role is to do away with regulation, to unfetter the markets from the hands of government, to let the markets do their work.

So – from the standpoint of neo-liberal orthodoxy, it is a matter of some indifference that Fannie and Freddy were under stress. Joseph Schumpeter argued last century that capitalism worked through processes of “creative destruction” where periodically whole sections of capital are destroyed in economic slump. This process, while painful, was central to the working of capitalism, clearing the ground for a new round of investment, the way in which a forest fire burns away the underbrush, allowing new saplings to reach for the sky. In Schumpeter’s words the “creative destruction” of competition, bankruptcy and consolidation “revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist has got to live with.”[16]

But the capitalists who made the decisions leading to the impasse of the U.S. financial system are not going to live with the consequence of their actions. Something pushed the neo-liberals into acting against neo-liberal orthodoxy and save those capitalists from the consequences of their actions. What the neo-liberals discovered was that the U.S. economy was not all-powerful, that had they let the process go too far, and the consequences of a full-blown cycle of “creative destruction” would have been disastrous. The issue was not simply one of mortgages – it was about the structural problems of the international, not just the U.S., capitalist system.

So far only one part of the story has been told, the story of mortgages, Fannie and Freddy, and their selling of “mortgage-backed securities”. The next question that has to be asked is, who buys these securities? The economists’ answer is that they are bought by “risk-averse investors such as banks, pension funds and central banks around the world,”[17] investors in other words who want a guaranteed return on their investments, and little or no risk of these investments turning into worthless paper. Fannie and Freddy’s total liabilities is mostly debt, most of it from the sale of mortgage-backed securities, and it totals in excess of $1.7 trillion dollars.[18] Significantly, increasing portions of that debt have been sold to non-U.S. banks and investors. The top five in reverse order, as of June 2007 were Taiwan ($55 billion), South Korea ($63 billion), Russia ($75 billion), Japan ($228 billion) and China ($376 billion).[19] The entire structure then was increasingly dependent on the willingness of banks and other institutions in these countries, to continue giving Fanny and Freddy billions of dollars.

This summer, it came to an end. Under pressure from their eroding mortgage business, Fannie stocks fell from $67.30 a share October 5 2007, to just $7 a share, September 4, 2008.[20] Freddy stocks followed the same downward slide, from $63.43 to $4.95.[21] Suddenly, non-U.S. investors, particularly in Asia, began to worry. The slide in share value of Fannie and Freddy raised the possibility that the two companies could go bankrupt. That would leave banks and investors in Asia and elsewhere holding pieces of paper worth billions of dollars less than their face value. “Chinese banks ‘were probably facing significant losses,’ says Logan Wright, an analyst with Stone & McCarthy Research.”[22]

Bankers from outside the United States began to apply leverage. In the first half of 2007, central bank holdings of Fannie and Freddie securities increased on average by $22 billion a month. But in 2008, those holdings fell by $27 billion from mid-July through early September.[23] And the Financial Times reported in August under the headline “Bank of China flees Fannie-Freddie,” that “Bank of China has cut its portfolio of securities issued or guaranteed by troubled US mortgage financiers Fannie Mae and Freddie Mac by a quarter since the end of June. The sale by China’s fourth largest commercial bank, which reduced its holdings of so-called agency debt by $4.6bn, is a sign of nervousness among foreign buyers of Fannie and Freddie’s bonds and guaranteed securities.”[24] “The threat of a central bank buyers’ strike was real,” accord to Brad Setser, a former Treasury Dept. official and now a fellow at the Council on Foreign Relations.[25]

Neo-liberal orthodoxy dictated “let the market rule,” let the processes of creative destruction work themselves out. But bankers outside the U.S. who stood to lose billions from this market failure said; “Creative Destruction be damned. If you don’t act, we will start withdrawing our money. We are already doing it. We will not let you ‘cleanse’ your economy by leaving us holding worthless pieces of paper.” So facing an enormous catastrophe, Bush and the U.S. administration suddenly switched from the world’s biggest neo-liberals, to the world’s biggest state-capitalists, when they intervened to guarantee the debt held by Fannie and Freddy. Many of their neo-liberal ideologues were left wondering what had hit them. This whole thing might, said one commentator become a “nightmare scenario, the descent into quasi-socialism” which “balloons the national debt and wrecks foreign investors’ faith in the economy.”[26]

The state and capital

But of course this has nothing to do with “socialism” – unless it is a kind of Frankenstein’s Monster socialism, where the state robs from the poor to give to the rich – because that is exactly what is happening: tax dollars from U.S. workers to be used to pour into the balance sheet of two failed corporations. It is a myth of the neo-liberals that the state is separate from the market. There is of course the central role of state militarism. The British Navy ruled the waves so that British business could penetrate every corner of the globe in the 19th century. The U.S. military has time and again overthrown governments in Latin America to keep the hemisphere open for business. But there are also the directly economic ways in which the state is intimately tied to the development of capitalism. British imperialism jealously protected its industries behind the walls of empire. India did not build its rail network with British steel and rolling stock because of the market, but because of imperialism.[27] Japanese capitalism burst into the 20th century after the Meiji Restoration used the Japanese state to mobilize resources in order to industrialize.[28] Canadian capitalism had at its core the construction of a continental rail network, which bankrupted the private capitalists, and was only finished because of the state-capitalist “National Policy.”[29] In South Korea, the industrial revolution in the post-war era was inconceivable without the “chaebols”, very much creatures of the South Korean state.

The myth that capitalism is about the retreat of the state, and that socialism is about its reverse – state intervention – is a myth made easier by the long nightmare of Stalinism, where there were states which called themselves “socialist” and which said the same thing as the neo-liberals only in reverse: “We are socialist because the state owns everything: never mind the absence of civil rights and the absence of democracy.” But the Stalinist states are long gone, and a new generation is returning to the roots of the socialist movement, understanding that socialism is about popular control, workers’ control of the economy and the state, or it is about nothing. It can be important to have the state intervene to fix problems in the economy. But the key question becomes – who controls that state? In the United States, we can be pretty sure that the state is controlled by the corporate elite.

That capitalist state, having got the taste of government intervention to save capitalism from itself, has now become ravenous for more. Fannie and Freddy were only two of the institutions under stress because of economic problems in the United States. September 16, the U.S. Federal Reserve took over American Insurance Group for $85 billion. House Speaker Nancy Pelosi criticized the rescue, calling the $85 billion a “staggering sum.” Ms. Pelosi said the bailout was “just too enormous for the American people to guarantee.”[30] But that staggering sum has now been dwarfed by another even larger sum. United States’ Treasury Secretary Henry Paulson is asking Congress to come up with $700-billion to clean “toxic assets” out of the U.S. financial system. What he wants is to have enough money on hand so that any bank or financial institution which has a piece of paper that is looking pretty worthless, Paulson will have the money to say “no problem, we’ll take it off your hands.”

How do you come up with this “worst-case scenario” figure? Federal Reserve Chairman Ben Bernanke said in testimony that “ ‘various metrics’ could be used to arrive at that $700 billion number. It is 5% of $14 trillion in outstanding mortgage debt and roughly the same percentage of the $10 trillion to $12 trillion of commercial bank assets. ‘So it seems like an appropriate amount relative to the size of the problem.’”[31]

Seems like an appropriate amount. You would have thought he would have hired someone to get figures so that he could be a little more definitive given the “size of the problem.” What we are looking at is a trillion-dollar intervention by the U.S. government into the financial system of the world’s biggest economy – the biggest ever economic intervention by a state into any economy anywhere – that is going to change the shape of economics and politics for a generation. The crisis brings into focus three central points.

1) The decline of the U.S. and the Danger of Militarism

There has been a sharp divide in anti-capitalist circles over the position of the U.S. in the world system. Theorists like Antonio Negri and Michael Hardt argued that empire had become disembodied from the state.

In contrast to imperialism, Empire establishes no territorial centre of power and does not rely on fixed boundaries or barriers. It is a decentred and deterritorialized apparatus of rule that progressively incorporates the entire global realm within its open, expanding powers. Empire manages hybrid identities, flexible hierarchies, and plural exchanges through modulating networks of command. The distinct national colours of the imperialist map of the world have merged and blended in the imperial global rainbow.[32]

The actions of states in the context of the current crisis shows this analysis to be inadequate. The states of the various central banks which had holdings of U.S. securities, including the state in China – all have particular interests that they seek to assert. Similarly, the state in the U.S. is suddenly enormously and obviously important to Empire – doing what no corporation on its own can do, mobilizing the tax resources of working people to bail out the financial system. “Empire” is just as bound up with the state system – a system of competing and predatory states – as were all previous systems of imperialism.

Theorists like Leo Panitch and Sam Gindin have challenged Hardt and Negri on exactly this point, seeing very clearly the continuing role of the state in shaping the field of power that has been called “Empire.” However, in the place of a system of imperialist states, they tend to reduce “Empire” to just one state – the overwhelmingly dominant U.S. state. They have argued that U.S. penetration of European and Asian capital is so profound as to make irrelevant and archaic any notion of inter-imperial rivalry.[33] But this view too is being revealed as problematic. The long decline of the U.S. dollar, documented above, is an indication of the worsening competitive position of the United States against its rivals in Europe and Asia. And the way in which this bailout took shape – in part from the threat of a strike by central bankers outside the United States, refusing to further invest in U.S. securities, is another powerful indicator of a changing world order. The U.S. remains the world’s biggest economy and most powerful state. But its position relative to others has been in decline for decades, and this débacle shows that the decline is ongoing.

There is a very developed literature, under the heading of the “Permanent Arms Economy,” that makes a compelling case to explain this decline.[34] The long-term structural shift of resources into arms has effectively starved key sections of the U.S. economy of investment, allowing others in the world system to catch-up and in some cases economically overtake the United States. The massive military presence sustained by the U.S. since the Korean War, has been accomplished at the cost of its international competitiveness. Other countries have invested in their “civilian economies” to a much greater extent than the U.S., overtime weakening the relative position of the U.S. in the world system, something now being starkly revealed in the current economic crisis.

But we also know from the last empire to fall under the weight of its arms spending – the Soviet Union – that an addiction to war might have negative effects for an economy, but it is still an addiction. The Soviet Union stayed mired in pointless and bloody wars abroad virtually until it collapsed in the years 1989-1991. The U.S. addiction to arms spending is likely to have the same contours – bad for the economy, but unshakeable for the state. It means that the wars in Iraq and Afghanistan are likely to be with us for some time.

2) Ideological crisis of neo-liberalism

This September financial shock, has opened up a period of deep confusion and splits for the hegemonic ideology of neo-liberalism. The $700-billion bailout is being pushed by Republican George W. Bush, the world’s pre-eminent neo-liberal. Its principal opposition has come from – the staunchly neo-liberal Congressional Caucus of his own party.[35] It was these neo-liberal hardliners who were at the core of the defeat of the $700-billion bailout package in the first vote in Congress.[36] The neo-liberal monolith has cracked over its key precept – that markets should be “free” of the state.

Without any question, this chaotic, sudden shift from the neo-liberal orthodoxy of the small state and the free market to a new state-capitalist interventionism – this shift will like a thunderbolt make millions question the orthodoxies of neo-liberalism. Why are the bankers being given billions, while those who have lost their homes get nothing? In the parlance of the journalists, “why is Wall Street getting billions that come from the pockets of the ordinary folk of Main Street”? If we are going to have state intervention, why not go all the way – use the money for public transit, green jobs, public housing, schools and education, investments that help ordinary people not overpaid bankers?

But as Naomi Klein has pointed out, a crisis in the ideology of neo-liberalism is not the same thing as a retreat from the policies of neo-liberalism – the privatization and deregulation which have so plagued working peoples’ lives for more than a generation.

It would be a grave mistake to underestimate the right’s ability to use this crisis – created by deregulation and privatization – to demand more of the same. … the dumping of private debt into the public coffers is only stage one of the current shock. The second comes when the debt crisis currently being created by this bailout becomes the excuse to privatize social security, lower corporate taxes and cut spending on the poor. A President McCain would embrace these policies willingly. A President Obama would come under huge pressure from the think tanks and the corporate media to abandon his campaign promises and embrace austerity and “free-market stimulus.”[37]

It is worth remembering that one of the modern architects of neo-liberalism, Margaret Thatcher, was very clear on this point. Thatcher is associated with the phrase “there is no alternative” or “TINA” – usually seen as justifying the unbridled rule of competition. Susan George writes that Thatcher:

… was well known for justifying her programme with the single word TINA, short for There Is No Alternative. The central value of Thatcher’s doctrine and of neo-liberalism itself is the notion of competition – competition between nations, regions, firms and of course between individuals. Competition is central because it separates the sheep from the goats, the men from the boys, the fit from the unfit. It is supposed to allocate all resources, whether physical, natural, human or financial with the greatest possible efficiency.[38]

But in Thatcher’s classic and most often cited use of the term, this was not quite what she said and this was not quite her point. At a speech to the Conservative Women’s Conference, May 21, 1980, Thatcher’s theme was the way in which wages were increasing too quickly.

Wages in the public sector are still higher than the country can afford … earnings will have to rise much more slowly if we are to avoid still more unemployment and if we are to get inflation down. It is too often forgotten that during the last two years there has been considerable increase in average living standards. What we produce has been growing much more slowly. We have to get our production and our earnings into balance. There’s no easy popularity in what we are proposing but it is fundamentally sound. Yet I believe people accept there’s no real alternative.[39]

The point is, Thatcher was not in the first instance driven by an abstract commitment to the market, but by a class commitment to transferring wealth from workers to employers. In this, the role of the state is a tactic, not a principle. The Thatcherite state showed its capacity to intervene against workers’ wages with real brutality during the bitter miners’ strike of 1984-1985.[40] Neo-liberal orthodoxy may lie exposed as nonsensical, but the class which brought us neo-liberalism remains in power, motivated by the same project – capturing the wealth produced by “Main Street” and making sure it ends up in the pockets of “Wall Street.”

3) The need for social movements against capitalism in all its forms

Which leads to the most important point, the need to insist that Thatcher and the neo-liberals are wrong – there is an alternative. In the 1990s and early 21st century, there was a magnificent international movement against neo-liberal globalization. The great protests against NAFTA led by the Zapatistas, the protests against the WTO in Seattle, against the FTAA in Quebec City, against the G8 in Genoa – these protests mobilized hundreds of thousands.

But the political leadership of these movements rested in groups like ATTAC in France or the Workers’ Party of Brazil. For them the target was not capitalism itself, but capitalism in its neo-liberal form. Neo-liberalism is now in open crisis, but the alternative on offer is not re-assuring – a strong state that protects corporations from their own excesses, and does so by taxing and squeezing the wages of ordinary workers. The problem is not just neo-liberalism. The problem is capitalism, whether in its “neo-liberal” or “state-interventionist” form. The next round of anti-corporate mobilizations needs that understanding at its centre.

We are seeing today in North America the hollowness of the neo-liberal dystopia. Others saw it earlier. It was after all the indigenous people of Chiapas who rose up against the neo-liberal North American Free Trade Agreement (NAFTA) in January, 1994, the peasants of Cochabamba in 2000 who stopped the water privatizers in their tracks, the masses of Caracas who in 2002 prevented the coup d’état which would have restored neo-liberalism in Venezuela, part of the swelling rage of all the oppressed in Latin America who, the principal road-block to the 2005 imposition of the U.S. led neo-liberal Free Trade Area of the America (FTAA). Perhaps just as neo-liberalism’s birth was in Latin America, it will similarly be Latin America where we will see the beginnings of the new social movements challenging capitalism in all its forms.

© 2008 Paul Kellogg


[1] Gilberto Villarroel, “La herencia de los ‘Chicago boys’,” BBCMUNDO.com, December 10, 2006, http://news.bbc.co.uk
[2] David Harvey, Spaces of Global Capital: Towards a Theory of Uneven Geographical Development (New York: Verso, 2006), p. 12
[3] “US rescues giant mortgage lenders,” BBC News, September 7, 2008
[4] Alana Semuels, “Q&A about mortgage giants Fannie Mae, Freddie Mac,” Los Angeles Times, September 8, 2008, www.latimes.com
[5] The Associated Press, “Answers to your Fannie Mae, Freddie Mac takeover questions,” New York Daily News, September 11, 2008, www.nydailynews.com
[6] Jackie Calmes, David D. Kirkpatrick, “McCain Aide’s Firm Was Paid by Freddie Mac,” The New York Times, September 23, 2008
[7] Bank of Canada, “Monthly Series: V122150: Federal Funds Rate”, www.bankofcanada.ca
[8] HSH Associates Financial Publishers, “HSH’s National Monthly Mortgage Statistics,” www.hsh.com
[9] Shawn Tully, “Real Estate Survival Guide,” Fortune, Vol. 153 Issue 9, May 11, 2006, pp. 94-102
[10] Calculated from Joint Centre for Housing Studies, The State of the Nation’s Housing 2007, “Additional Table: Metropolitan Area House Price-Income Ratio, 1980-2006,” www.jchs.harvard.edu. Figures are not yet readily available for 2007 and 2008. However, an update has been released to one analyst, which shows the same general trend, with the addition that from 2007 on, house prices have started to fall – the graphical representation of the bursting of the housing bubble. See CalculatedRisk, “Update: Ratio Median House Price to Median Income (2008 Report),” June 24, 2008, http://calculatedrisk.blogspot.com
[11] U.S. Federal Reserve Board, Federal Reserve Statistical Release, H.10 “Foreign Exchange Rates,” “Price-adjusted Major Currencies Dollar Index,” www.federalreserve.gov
[12] Derived from “FXHistory®: historical currency exchange rates,” accessed September 24, 2008.
[13] Bureau of Labor Statistics, U.S. Department of Labor, “Labor Force Statistics from the Current Population Survey,” http://data.bls.gov
[14] Vikas Bajaj, “Foreclosures Rose as Delinquencies Eased in Quarter,” The New York Times, September 5, 2008
[15] According to Peter Coy, “Back on Track – Or Off The Rails?” Businessweek, September 22, 2008, p. 24
[16] Joseph Schumpeter, Capitalism, Socialism and Democracy (New York: Routledge, 1994), p. 83
[17] Coy, “Back on Track,” p. 24
[18] MarketWatch, The Wall Street Journal Digital Network, www.marketwatch.com and Forbes.com
[19] U.S. Treasury Dept., as reported by Bruce Einhorn and Theo Francis, “Asia Breathes a Sigh of Relief,” Businessweek, September 22, 2008, p. 32.
[20] Yahoo Finance, http://yahoo.finance.com
[21] Yahoo Finance, http://yahoo.finance.com
[22] Einhorn and Francis, “Asia Breathes A Sigh of Relief,” p. 32
[23] Einhorn and Francis, “Asia Breathes A Sigh of Relief,” p. 32
[24] Saskia Scholtes and James Politi, “Bank of China flees Fannie-Freddie,” Financial Times, August 28, 2008
[25] Einhorn and Francis, “Asia Breathes A Sigh of Relief,” p. 32
[26] Coy, “Back on Track – Or Off the Rails,” p. 25
[27] Clarence Baldwin Davis, Kenneth E. Wilburn, Ronadl Edward Robinson, Railway Imperialism (Westport: Greenwood Press, 1991)
[28] Colin Barker, “Origins and Significance of the Meiji Restoration,” 1982, www.marxists.de
[29] Stanley Ryerson, Unequal Union (New York: International Publishers, 1968)
[30] Edmund L. Andrews, “Fed’s $85 Billion Loan Rescues Insurer,” The New York Times, September 16, 2008
[31] Joshua Zumbrun and Liz Moyer, “Your Guide To The Bailout Debate,” September 24, 2008, Forbes.com
[32] Michael Hardt, Antonio Negri, Empire (Boston: Harvard University Press, 2000), pp. xii-xiii
[33] See essays in Leo Panitch and Colin Leys, eds., Socialist Register 2004: The New Imperial Challenge and Socialist Register 2005: The Empire Reloaded (London: Merlin Press). For an exchange that goes over this controversy in detail, see: Alex Callinicos, “Imperialism and Global Political Economy,” International Socialism 108 (Autumn 2005); Leo Panitch and Sam Gindin, “ ‘Imperialism and Global Political Economy’ – A Reply to Alex Callinicos,” International Socialism 109 (Winter 2006); and Alex Callinicos, “Making sense of imperialism: a reply to Leo Panitch and Sam Gindin,” International Socialism 110 (Spring 2007) – all available online at www.isj.org.uk.
[34] See Michael Kidron, Capitalism and Theory (London: Pluto Press, 1974) for a classic development of this thesis. Some of Kidron’s writings are available at The Marxists Internet Archive, www.marxists.org
[35] Sheldon Alberts and Don MacDonald, “Bailout plan stalls as conservative Republicans voice their opposition,” The Vancouver Sun, September 26, 2008
[36] Carl Hulse and David M. Herszenhorn, “Lawmakers Defy Bush and Party Leaders, Rejecting Bailout,” The New York Times, September 29, 2008
[37] Naomi Klein, “Now is the Time to Resist Wall Street’s Shock Doctrine,” The Huffington Post, September 25, 2008
[38] Susan George, “A Short History of Neoliberalism: Twenty Years of Elite Economics and Emerging Opportunities for Structural Change,” Transnational Institute,, March 24, 1999, www.tni.org
[39] Margaret Thatcher, “Speech to Conservative Women’s Conference,” Margaret Thatcher Foundation, May 21, 1980, www.margaretthathcer.org
[40] See, among other accounts, Alex Callinicos and Mike Simons, The Great Strike: The Miners’ Strike of 1984-5 And Its Lessons (London: Socialist Worker, 1985)