Why does Greece not simply get it over with and default?

By Jerome Roos On May 21, 2015

Post image for Why does Greece not simply get it over with and default?

History has shown that defaulting countries tend to fall harder but recover faster. So why does Greece’s left-led government not simply get it over with?

Photo: healthcare workers march in Athens, 20/05/2015 (Louisa Gouliamaki).

As the Greek debt drama finally comes to a head these weeks, with the Syriza-led government quietly warning the U.S. Treasury Secretary and the chief of the International Monetary Fund that its cash reserves are now all but empty and that the government will not be paying the Fund if it does not receive an infusion of new cash before early June, a critical question arises: why do the radical leftists not simply get it over with and declare a moratorium on the outstanding debt? Why do they care about their creditors in the first place?

The question may sound trite, but it becomes increasingly perplexing once we place Greece’s never-ending debt crisis in historical perspective. During the Great Depression of the 1930s, Greece — along with most Eastern and Southern European countries and practically all of Latin America — responded to its fiscal troubles by forcefully suspending debt payments to foreign bondholders. Economic history is replete with such unilateral moratoriums. In fact, before World War II, default was simply part of the rules of the game.

A remarkable contrast

Take the first wave of sovereign defaults following the independence struggles of the Latin American countries in the 1820s. Between 1822 and 1825, London and Amsterdam-based financiers — blinded by the prospect of easy profits — gobbled up Latin American government bonds like hotcakes. Some European investors were even deceived by a legendary swindler into buying the bonds of the non-existent newly independent nation of Poyais. In those years, financial euphoria (and investor myopia) reigned supreme.

The lenders’ fall was swift and painful. Lured by cheap credit, the young Latin American debtors massively over-borrowed, while the European creditors wildly overextended themselves. After the wars were over, nearly every newly independent government fell into default. As one of the leading historians of the episode noted, “during a quarter of a century most of the borrowing countries maintained an effective moratorium on their external debts, which indicated an appreciable degree of economic autonomy from the great powers of the day.”

It is not difficult to understand why the Latin American governments would have wanted to exert this autonomy to full effect. Economists have found that countries that defaulted in the 1930s, for instance, recovered faster than those that did not. The countries that repaid their debts were forced to carry out contractionary policies (i.e., austerity measures) in order to free up the currency reserves with which to pay their debts. Transferring these scarce resources abroad directly contributed to a deepening of the crisis.

Why, then, would Greece not simply go down the same path today? The country has spent about a half of its history in a formal state of default. It defaulted on its first independence war loans in the 1830s, along with the Latin American countries. It defaulted again in 1843, in 1860 and in 1893. After the latter episode, German bondholders demanded international control over Greek finances — which they obtained with the establishment of the International Committee for Greek Debt Management following the Greco-Turkish war of 1897. Still, Greece managed to default again during the 1930s. None of these defaults occurred under radical governments.

Yet today, even under an anti-austerity government led by the radical left Syriza party, whose ranks contain an array of old-school Marxists, Greece has been scrupulously obedient to the dictates of its foreign creditors, at least when it comes to repaying the debt. This is all the more remarkable because, in a previous election campaign just three years ago, the same party still pledged tounilaterally suspend debt payments and to hold an audit of the national debt with a view to repudiating all illegal and illegitimate obligations. While the Speaker of Parliament, Zoe Konstantopoulou, has since called into life such an audit committee, Prime Minister Tsipras has sworn not to take unilateral action.

So what’s really going on here…? If less radical governments defaulted one after another in previous eras, why does Europe’s most left-wing government in recent memory not simply do the same?

Structural changes in capitalism

The short answer is that the world has changed in dramatic ways since the mid-1970s. The kind of capitalism we have today is not like the capitalism of yore. It is not like the Keynesian compromise that reigned during the post-war decades and that formed the bedrock of the Bretton Woods regime, when debt crises were practically non-existent. Nor is it like the laissez-faire liberalism of the so-called “first wave of globalization” in the classical gold standard era (1880-1914), when default was still widespread.

Unlike previous eras, today’s capitalism has been thoroughly financialized. This, in turn, has had major consequences not only for the dominance of finance within the overall regime of accumulation; it has also affected the nature of the capitalist state and its relationship to private creditors. To summarize a long and complicated story, we can identify at least three structural changes that have been seminal in shifting the loyalty of governments away from their domestic populations and towards international lenders and domestic elites.

First, the growing concentration of financial markets has rendered peripheral countries increasingly dependent on an ever-smaller subgroup of systemically important and politically influential international banks and institutional investors. Second, a host of international financial institutions have been created, most importantly the IMF and the ECB, which can jump in whenever a debtor is in distress to provide emergency “bailout” loans (under strict policy conditionality) so the debts can be repaid. Third, financialization has contributed to the entrenchment of what David Harvey calls the state-finance nexus, to the point where national governments and economies have become increasingly dependent on central banks and on domestic private banking systems just to survive. As a result, bankers have obtained vast leverage over economic policy, even when they (or their friends) are not in government themselves.

These three changes have been foundational to the generalized move away from widespread default, as was the norm prior to World War II, and towards the incredible track record of debtor compliance that has been established under the neoliberal regime of financialization. Ever since the Mexican debt crisis of 1982 — and the Latin American and Third World debt crises that followed in its wake — governments have generally tried to avoid a suspension of payments at all costs. As Harvey has put it:

What the Mexico case demonstrated was one key difference between liberalism and neoliberalism: under the former lenders take the losses that arise from bad investment decisions while under the latter the borrowers are forced by state and international powers to take on board the cost of debt repayment no matter what the consequences for the livelihood and well-being of the local population.”

Of course there have been exceptions. Russia defaulted in 1998, although the fallout was limited mostly to domestic creditors and a rogue speculative hedge fund in the US. The Argentine crisis briefly punctuated the aura of neoliberal invincibility in late 2001, but as I have argued in a previous column, a closer look reveals that the country’s default was in fact triggered by deliberate actions on the part of the Wall Street-IMF-Treasury complex. This leaves Ecuador as the only country to have imposed a unilateral default in recent decades — but even Ecuador did not do so in the outright fashion of the 1930s.

The structural power of creditors

By and large, it is therefore safe to say that the overarching rule governing international finance today is that countries will repay even under the harshest of conditions, and will rarely — if ever — default on their external obligations. This has led to a bizarre situation in which Yanis Varoufakis, the fervid Greek finance minister, has pledged to “repay private creditors to the last penny,” even promising to “squeeze blood out of a stone” to repay the IMF. These statements are patently absurd, as it was Varoufakis himself who, prior to taking office, claimed that the debt cannot be paid and argued that Greece should have “stuck the finger” to Germany and defaulted a long time ago.

Still, it should be clear by now that Syriza’s backtracking and Varoufakis’ wavering statements on whether or not the debt can and should be repaid are not the result of some personal disloyalty to the cause, nor of some grand scheme of betrayal playing out between Syriza and its supporters. Instead, what has happened is that the Greek government has run headlong into the structural power of its official creditors, and the party’s leadership does not have the guts to confront it by pursuing a rupture. The power of Greece’s creditors revolves around the fact that the IMF, the ECB and the Eurogroup, which now collectively hold about 80 percent of the country’s debt, are the only ones capable of providing the Syriza-led government with what it so urgently needs: cash.

In the end, all capitalist states stand or fall by the soundness of their finances. What matters to a government in charge of such a state is whether it can pay public sector wages and pensions — and, ultimately, police and the army. What matters, in addition, is that credit keeps circulating through the domestic economy and that cash keeps coming out of ATMs when people withdraw funds from their accounts. If, within this complex system of credit circulation, there is a sudden hiccup or a systemic blockage — if the state can no longer pay its employees, or if the banks are forced to close doors and private businesses can no longer obtain trade credit — the whole system literally grinds to a halt.

The results of such an economic freeze-up, history tells us, are usually not very pretty for those in power. Argentina’s implosion following its record default in December 2001 is a case in point. Similar revolts took place during financial crises in early-modern Europe, like when the wool carders of Florence rose up in the Ciompi revolt of 1378, or when the working classes and bourgeoisie of Paris rose up against Louis XIV during the public debt crisis in 18th-century France. Just a few days ago, a Bank of Greece official ominously warned that a bank closure might have similar consequences in Greece today: “We would see the revolt that this crisis has not yet produced. There would be blood in the streets.”

Spillover costs of default

In the past, defaulting governments were able to avoid such domestic “spillover costs” by defaulting only on foreign lenders. In the process, the burden of adjustment was effectively shifted onto private bondholders in the creditor countries, and scarce resources could be reinvested domestically in order to dampen the social consequences of the crisis and hasten the recovery. But in the complex and highly intertwined financial markets of our day and age, such discrimination between externally and domestically held debt is no longer possible. Default on one becomes default on all.

The result is to make a suspension of payments very costly in the short term. In addition to the oft-repeated “calamity” of being forced out of the Eurozone, the spillover effects of default would extend all the way down into the domestic economy and would ripple out into the social fabric, threatening political stability. No democratically elected government — let alone a leftist one — would like to take responsibility for triggering (let alone putting down) a popular revolt over disappeared pensions and wages.

The flip-side of the story, of course, is that such spillover costs generally turn out to be relatively short-lived, and may therefore end up paying off over time — ifthe government is prepared for the shock and manages to hold onto power, that is. Aided by good external conditions, Argentina’s recovery began after 6 months. Greece’s conditions may be less rosy, but there is nevertheless reason to believe that unilateral default followed by a break with the euro would lead to recovery within months. Obviously, the government would need to have a well thought-out Plan B that would allow it to bridge the difficult transition period.

This is why some of Syriza’s more radical factions are now urging the government to take this gamble and pursue a rupture with the creditors. The party’s moderate and euro-friendly leadership, however, does not appear to be willing to do so. While the divide between the two camps can partly be ascribed to ideological differences within Syriza and the fear of being punished by voters for crashing out of the Eurozone, it should be clear that the predominance of creditor-friendly solutions to international debt crises cannot be ascribed purely to a lack of “political willingness” on the part of government officials. The spillover costs of default structurally limit the room for maneuver of heavily indebted peripheral states, compelling them to repay no matter who is in charge of the government and no matter how radical their ideas may be.

These limiting factors are related to the three structural changes mentioned before. In the case of Greece, the country remains dependent on foreign sources of credit — at least in the short-term — to pay pensions and wages. Since private investors have long since stopped buying Greek debt, the only ones capable of furnishing the Greek government with much-needed cash are the Eurogroup and the IMF. Both are currently withholding promised credit tranches and refusing to extend further loans unless the Syriza government surrenders to the creditors’ dictates by effectively renouncing the anti-austerity and anti-reform platform on which it was elected.

Meanwhile, the Greek state and economy remain dependent on the functioning of the domestic credit system, which is currently kept alive with drip-feed infusions of emergency liquidity assistance (ELA) from the European Central Bank. The ECB sets the ceiling for the total amount of ELA that Greek banks are entitled to, raising this amount only marginally every two weeks. This is clearly a deliberate attempt to starve the Greek economy of liquidity and thereby put pressure on the government to surrender.

Unsurprisingly, in such a context of growing financial insecurity, ordinary Greeks fear that the government may soon impose capital controls to prevent a banking collapse, so they have begun to withdraw their bank deposits in droves: more than 35 billion has been withdrawn since December. If these trends continue, the banks may have to shut their doors within three weeks. The consequences for the Greek economy would be immediate. Without ECB help, the government would be forced to come to the rescue of the banking system with an infusion of liquidity — thus forcing it to print a new currency.

At the edge of a cliff

So for all the obvious drama, there is a grave irony in all of this. The structural power of creditors in today’s heavily financialized world economy may have succeeded in preventing the vast majority of borrowing countries from pursuing unilateral default in response to a sovereign crises; but in the case of Greece the extreme stance of the creditors, in their dogged insistence on full repayment and a complete surrender of Syriza’s radicals, is threatening to produce precisely that which it is supposed to prevent: a disorderly unilateral default.

The Eurogroup seems blind to the fact that Tsipras and Varoufakis are probably the creditors’ most reliable allies in Greece today. Both are moderate reformists with widespread popular support who are actually willing to repay, even if they know they cannot. By forcing Syriza’s relatively cooperative leadership into a humiliating cash-for-reforms deal, the creditors may actually end up strengthening the hand of the pro-default radicals inside the government. Alternatively, if they refuse to sign a deal and continue to deprive the Greek government of the emergency credit on which it depends to service its maturing obligations, they may simply make default unstoppable.

This shows that even the most watertight regimes of financial control may end up backfiring into the faces of those who run them — and while there is no way to predict that this will actually happen in Greece, the creditors clearly cannot rest on their laurels just yet. Yes, unilateral default has been largely banished from the global political economy in recent decades. And yes, national governments have long since been shackled to their creditors in an all-encompassing system of hyper-financialized capitalism. But none of this provides any guarantees that Greece’s banking system will survive long enough and its cash reserves will be replenished in time for the government to be able to pay the 1.5 billion euros falling due to the IMF over the course of June.

Standing at the edge of a cliff and confronted with such a deeply entrenched and extremely asymmetric balance of power, we should not be surprised that a young and ill-prepared government like Greece’s is hesitant to jump voluntarily. Still, no one can predict how they will react when they are pushed. Maybe it’s time to give them a little nudge from below?

Jerome Roos is a PhD researcher in International Political Economy at the European University Institute, and founding editor of ROAR Magazine. Follow him on Twitter at @JeromeRoos. This article was written for TeleSUR English.

 

http://roarmag.org/2015/05/why-does-greece-not-simply-default/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+roarmag+%28ROAR+Magazine%29

Why aren’t the banksters in prison?

banksters

22 May 2015

On Wednesday, five major international banks, including JPMorgan Chase and Citigroup, America’s largest and third-largest financial institutions, pleaded guilty to felony charges for helping to manipulate global foreign exchange markets, paying a wrist-slap fine of about $1 billion apiece.

The financial impact on JPMorgan and the other banks for pleading guilty to a felony will be effectively zero. As part of the deal, the Securities and Exchange Commission issued waivers exempting the banks from the legal repercussions arising from their status as criminal organizations, giving them continued preferential treatment in issuing debt, as well as the continued right to operate mutual funds.

Despite the claims by Justice Department officials of a criminal conspiracy “on a massive scale,” carried out with “breathtaking flagrancy,” there was no talk of breaking up JPMorgan or any other bank, let alone bringing criminal charges against any of their executives.

The rigging of global foreign exchange rates is only the latest in the string of crimes, frauds and criminal conspiracies for which JPMorgan has been fined by US and international regulators.

* In January 2013, JPMorgan, together with 10 other banks, agreed to pay a combined $8.5 billion to settle charges that they forged documents to foreclose homes more quickly.

* In November 2013, the bank agreed to pay $13 billion to settle charges that it defrauded investors by selling fraudulent mortgage-backed securities in the run-up to the housing bubble collapse in 2007 and 2008.

* That same month, JPMorgan paid $4.5 billion to settle charges that it defrauded pension funds and other institutional investors to whom it sold mortgage bonds.

* In December 2013, JPMorgan and eight other banks were fined $2.3 billion for manipulating the London Interbank Offered Rate (Libor), the global benchmark interest rate on which the values of trillions of dollars in securities are based.

* In January 2014, JPMorgan paid $2 billion in fines and penalties to settle charges that it profited from and helped operate Bernard L. Madoff’s Ponzi scheme.

As a result of the crimes perpetrated by JPMorgan and other banks over the past decade, millions of people have had their homes foreclosed, and millions more have lost their jobs, while countless university endowments, pension plans, and municipalities have been swindled out of billions of dollars.

Based on this partial list of only the latest and largest crimes carried out by JPMorgan, it is no exaggeration to conclude that America’s largest bank is a criminal organization. Why then is it impossible to prosecute, much less jail, JPMorgan CEO Jamie Dimon, the mastermind of all of these crimes and conspiracies?

The answer to this question lies in the vast retrogression in social relations that has taken place in America amid the enormous growth of social inequality. Behind the increasingly threadbare outwards trappings of democracy, America has become an aristocratic society, with entrenched legal and social privileges for the ruling elite.

Before the French Revolution of 1789, European society was divided into feudal estates, such as the nobility, the church prelates, and the commoners. The estate into which someone was born was not only an economic category, but affected all aspects of life, from the laws that applied to him, to the types of taxes he paid, even to the kind of clothes he was legally allowed to wear.

The foundations of American democracy, laid in the aftermath of the American Revolution, were set up in opposition to the rigid social hierarchy that dominated contemporary Europe. The American Constitution prohibits the granting and holding of titles of nobility, while the 14th Amendment explicitly guarantees “the equal protection of the laws” to all people.

But could anyone argue that this is the case now? According to the American Bar Association, there are more than three hundred people serving sentences of life without parole for shoplifting in the state of California alone, while countless thousands of men throughout the United States are imprisoned for being too poor to pay child support.

Meanwhile the financial oligarchy and the state officials who defend their interests are effectively immune from prosecution. This tiny elite constitutes not merely a separate economic class, but effectively a separate estate, judged under what are, in effect, a different set of laws. A worker can be thrown in jail for failing to show up for a court date, while bankers who steal billions of dollars get off scot-free.

The American financial aristocracy is an inherently criminal class. Its wealth is based not on production, but on plunder, speculation and the upward redistribution of wealth through the impoverishment of the great majority of the population.

This financial oligarchy controls all the levers of power in contemporary society. The media, courts, politicians and so-called financial regulators are all under the thumb of the Wall Street mafiosos. Far from seeking to restrain Wall Street’s criminality, the government functions to facilitate and cover up for its crimes.

In exchange, politicians are provided with millions of dollars in campaign contributions and “speaking fees,” while top financial regulators are invariably assured high-paying positions on Wall Street after their stints with the government.

Ben Bernanke, the former Federal Reserve chairman who funneled trillions of dollars to Wall Street during the 2008 bank bailout, announced this year that he has been hired by two major Wall Street firms, the hedge fund Citadel and the bond trading firm Pimco, each of whom will presumably pay him a seven-figure salary. Bernanke followed in the footsteps of his colleague Timothy Geithner, who became the head of hedge fund Warburg Pincus in November 2013, following his stint as Treasury Secretary.

There is no way to break the power of the criminal cabal that dominates political life in the United States within the framework of the present social order. Holding the Wall Street criminals to account requires a radical reorganization of society. Only then can the criminals who head the major US financial institutions be arrested, tried and convicted of the crimes that they have orchestrated against the populations of the United States and the whole world. Their ill-gotten gains must be seized, and the major Wall Street banks must be put under democratic control by the international working class.

 

Andre Damon

 

http://www.wsws.org/en/articles/2015/05/22/pers-m22.html?view=mobilearticle

 

Token fines for banks caught rigging foreign exchange markets

OB-VT039_LiborQ_G_20121219124812

By Andre Damon and Barry Grey
21 May 2015

In yet another wrist-slap settlement for bankers involved in criminality on a massive scale, the US government on Wednesday announced that five major banks had pleaded guilty to felony conspiracy and antitrust charges and agreed to pay a combined total of approximately $5 billion in fines.

The payouts, much of them tax deductible, are a fraction of the combined profits of the banks. The amounts have already been set aside by bank CEOs as the cost of doing business in an environment in which banks routinely break the law, secure in the knowledge that there will be no serious consequences.

The banks—JPMorgan Chase, Citigroup, UBS, Barclays and RBS—admitted to conspiring to rig global currency exchange rates. They made billions of dollars by illegally manipulating rates affecting countless businesses and individuals around the world. All of the banks were previously implicated in rigging Libor (the London Interbank Offered Rate), the global benchmark used to set short-term interest rates for hundreds of trillions of dollars in loans.

Two of the banks, UBS and Barclays, carried out the foreign exchange fraud in violation of the terms of their non-prosecution agreements with the US government stemming from their involvement in the Libor scandal.

The documents released by the Justice Department in relation to the settlement point to the culture of fraud and criminality on Wall Street. As one Barclays vice president put it, “If you ain’t cheating, you ain’t trying.”

Since the Wall Street crash of 2008, these and other major banks have been cited for crimes ranging from fraudulently selling worthless mortgage securities, to laundering money for Mexican drug lords, facilitating Bernard Madoff’s Ponzi scheme, and concealing billions in speculative losses. For these crimes they have suffered no serious consequences.

Instead, regulators in the US and internationally have crafted settlements in backroom negotiations with the criminals involving token fines that turn out to be significantly smaller than the nominal figures announced by government officials.

“The criminality occurred on a massive scale,” said FBI Assistant Director Andrew McCabe, announcing the foreign exchange fraud settlement on Wednesday. He explained that traders at multiple banks rigged estimates of global currency exchange rates every day for up to five years.

US Attorney General Loretta Lynch spoke of the conspiracy’s “breathtaking flagrancy, its systemic reach, and its significant impact.” Aitan Goelman, the head of enforcement at the Commodity Futures Trading Commission, called the five banks a “cabal.”

These statements, meant to give the appearance of government toughness toward the banks, only underscored the gaping discrepancy between the scale of the crimes and the toothless character of the punishment. Wednesday’s announcement was further confirmation that the US and international financial aristocracy is above the law.

Not a single major bank has been closed down or broken up since the 2008 crash, triggered by reckless and illegal speculative activities. Not a single bank CEO or top official has been prosecuted or jailed for crimes that have led to the impoverishment of countless millions of people.

But a petty crime carried out by a US worker or working-class youth brings down the wrath of a so-called “justice system” that is merciless when it comes to the lower social orders. Tens of thousands of workers and poor people are cast into America’s prison gulag every year for offenses that pale in comparison to the crimes carried out by Wall Street CEOs.

Or they are killed outright by the militarized police who occupy America’s working-class neighborhoods. Michael Brown, an 18-year-old unarmed youth, was gunned down last August by a Ferguson, Missouri cop who was tracking him for allegedly stealing a package of cigarillos from a convenience store.

In the deal announced Wednesday, the banks pleaded guilty to felony charges. This is a departure from previous settlements in which the government allowed the banks to avoid any admission of guilt.

But the guilty pleas were part of a scheme worked out between the government and the banks to render the pleas virtually meaningless. The Securities and Exchange Commission issued waivers exempting the banks from the legal repercussions of committing a felony, giving them continued preferential treatment in issuing debt as well as the continued ability to operate mutual funds.

In today’s thoroughly corrupt political environment, totally dominated by corporate money, there is no stigma attached to a bank that effectively admits to being a criminal enterprise. The media pays no attention and the markets could care less. Shares of most of the banks involved in the settlement spiked on Wednesday. UBS and Barclays both rose 3.4 percent. RBS finished the day up by 1.9 percent.

Wednesday’s settlement is further evidence of the reassertion of the aristocratic principle in contemporary capitalist society: there is one set of laws for the vast majority, the working people, and an entirely different legal framework for the financial oligarchs—one that can be summed up with the phrase “Anything goes.”

 

http://www.wsws.org/en/articles/2015/05/21/bank-m21.html?view=mobilearticle

U.S. Wakes Up to New (Silk) World Order

About Those Missiles…
222

by PEPE ESCOBAR

The real Masters of the Universe in the U.S. are no weathermen, but arguably they’re starting to feel which way the wind is blowing.

History may signal it all started with this week’s trip to Sochi, led by their paperboy, Secretary of State John Kerry, who met with Foreign Minister Lavrov and then with President Putin.

Arguably, a visual reminder clicked the bells for the real Masters of the Universe; the PLA marching in Red Square on Victory Day side by side with the Russian military. Even under the Stalin-Mao alliance Chinese troops did not march in Red Square.

As a screamer, that rivals the Russian S-500 missile systems. Adults in the Beltway may have done the math and concluded Moscow and Beijing may be on the verge of signing secret military protocols as in the Molotov-Ribbentrop pact. The new game of musical chairs is surely bound to leave Eurasian-obsessed Dr. Zbig “Grand Chessboard” Brzezinski apoplectic.

And suddenly, instead of relentless demonization and NATO spewing out “Russian aggression!” every ten seconds, we have Kerry saying that respecting Minsk-2 is the only way out in Ukraine, and that he would strongly caution vassal Poroshenko against his bragging on bombing Donetsk airport and environs back into Ukrainian “democracy”.

The ever level-headed Lavrov, for his part, described the meeting with Kerry as “wonderful,” and Kremlin spokesman Dmitry Peskov described the new U.S.-Russia entente as “extremely positive”.

So now the self-described “Don’t Do Stupid Stuff” Obama administration, at least apparently, seems to finally understand that this “isolating Russia” business is over – and that Moscow simply won’t back down from two red lines; no Ukraine in NATO, and no chance of popular republics of Donetsk and Lugansk being smashed, by Kiev, NATO or anybody else.

Thus what was really discussed – but not leaked – out of Sochi is how the Obama administration can get some sort of face-saving exit out of the Russian western borderland geopolitical mess it invited on itself in the first place.

About Those Missiles…

Ukraine is a failed state now fully converted into an IMF colony. The EU will never accept it as a member, or pay its astronomic bills. The real action, for both Washington and Moscow, is Iran. Not accidentally, the extremely dodgy Wendy Sherman — who has been the chief U.S. negotiator in the P5+1 nuclear talks — was part of Kerry’s entourage. A comprehensive deal with Iran cannot be clinched without Moscow’s essential collaboration on everything from the disposal of spent nuclear fuel to the swift end of UN sanctions.

Iran is a key node in the Chinese-led New Silk Road(s) project. So the real Masters of the Universe must have also — finally — seen this is all about Eurasia, which, inevitably, was the real star in the May 9 Victory Day parade. After his pregnant with meaning Moscow stop — where he signed 32 separate deals — Chinese President Xi Jinping went to do deals in Kazakhstan and Belarus.

So welcome to the New (Silk) World Order; from Beijing to Moscow on high-speed rail; from Shanghai to Almaty, Minsk and beyond; from Central Asia to Western Europe.

By now we all know how this high-speed trade/geopolitical journey is unstoppable — spanning the Beijing-led, Moscow-supported Asian Infrastructure Investment Bank (AIIB) and the BRICs Development Bank. Central Asia, Mongolia and Afghanistan — where NATO has just lost a war — are being inexorably pulled into this trade/geopolitical orbit covering all of central, northern, and eastern Eurasia.

What could be called Greater Asia is already shaping up — not only from Beijing to Moscow but also from business center Shanghai to gateway-to-Europe St. Petersburg. It’s the natural consequence of a complex process I have been examining for a while now — the marriage of the massive Beijing-led Silk Road Economic Belt with the Moscow-led Eurasia Economic Union (EEU). Putin described it as “a new level of partnership.”

The real Masters of the Universe may have also noted the very close discussions between Russian Defense Minister Sergei Shoigu and the deputy chairman of the Central Military Council of China, Gen. Fan Changlong. Russia and China will conduct naval exercises in the Mediterranean Sea and the Sea of Japan and will give top priority to their common position regarding U.S. global missile defense.

There’s the not-so-negligible matter of the Pentagon “discovering” China has up to 60 silo-based ICBMs – the CSS-4 – capable of targeting almost the whole U.S., except Florida.

And last but not least, there’s the Russian rollout of the ultra-sophisticated S-500 defensive missile system — which will conclusively protect Russia from a U.S. Prompt Global Strike (PGS). Each S-500 missile can intercept ten ICBMs at speeds up to 15,480 miles an hour, altitudes of 115 miles and horizontal range of 2,174 miles. Moscow insists the system will only be operational in 2017. If Russia is able to rollout 10,000 S-500 missiles, they can intercept 100,000 American ICBMs by the time the U.S. has a new White House tenant.

Once again, the real Masters of the Universe seem to have done the math. Can’t reduce Russia to ashes. Can’t win in the New (Silk) World Order. Might as well sit down and talk. But hold your (geopolitical) horses; they might still change their mind.

Pepe Escobar is the author of Globalistan: How the Globalized World is Dissolving into Liquid War (Nimble Books, 2007), Red Zone Blues: a snapshot of Baghdad during the surge and Obama does Globalistan (Nimble Books, 2009).  His latest book is Empire of ChaosHe may be reached at pepeasia@yahoo.com.

This piece first appeared at Asia Times.

http://www.counterpunch.org/2015/05/19/u-s-wakes-up-to-new-silk-world-order/

Obama’s paramilitary police

obama-police-state

19 May 2015

On Monday, US President Barack Obama travelled to Camden, New Jersey, America’s poorest city, to praise its brutal police department and reaffirm his support for federal programs that have transferred billions of dollars in military hardware to local police departments.

Reports of police brutality by Camden cops have nearly doubled since 2011, and last year Camden had substantially more reported brutality complaints than Jersey City, which has four times more people.

“This city is on to something,” Obama declared, referring to Camden.

America’s major news outlets, which function as little more than state propaganda outlets, could be counted on to report the exact opposite of reality. According to the New York Times, Obama used his visit to “crack down on overly aggressive police tactics,” and “limit … military-style equipment for police forces.”

These claims are based on Obama’s announcement that the White House will no longer transfer a small range of highly-specialized military assets to local police departments, including bayonets, .50 caliber rifles and tracked fighting vehicles.

These types of ordnance are, from a military counterinsurgency standpoint, either obsolete or inappropriate. The US Army, for example, has dropped bayonet training for recruits, while .50 caliber rifles are generally not considered anti-personnel weapons. They are used instead to target communications systems, grounded aircraft and radar installations, meaning that no sensible anti-civilian death squad would carry them.

Other restrictions proposed by Obama are almost entirely meaningless. TheTimes reports that the list of prohibited items includes “camouflage uniforms,” but a quick glance at the White House document outlining the proposals notes that the restriction does not include “woodland or desert patterns or solid color uniforms,” i.e., the great majority of US military combat uniforms.

Obama’s order explicitly permits the provision of wheeled armored combat vehicles known as MRAPs, as well as assault and sniper rifles, belt-fed machine guns and military aircraft and helicopters.

In fact, essentially none of the hardware deployed by militarized police during the crackdown on peaceful protests in Ferguson, Missouri last year falls under the White House’s prohibitions.

Recent deployments of combat weapons by local police forces have been criticized by sections of the military, which chided the unprofessional character with which police handled their weapons while cracking down on mass demonstrations. Monday’s announcement is the administration’s response to such criticisms: the ordinance transferred to local police will now be more closely monitored, and police will be better trained to use it.

In other words, use of combat weapons by the police will be institutionalized, regularized, and made more like the military, not less.

Together with the new police militarization guidelines, Obama announced an additional $163 million in funding for local police forces, with a large share of the funds targeted for training police to use military hardware.

Obama’s announcement was also timed to correspond with the release of a report by his so-called Task Force on 21st Century Policing, which issued a set of non-binding recommendations for local police departments to rebuild “community trust.”

The actual content of these proposals, however, can be seen in Camden, which recently overhauled its police department to implement “community policing” practices, cracking down on minor crimes and responding to opposition with extreme violence. As a result, arrests for minor offenses soared, with citations for broken taillights increasing by more than 300 percent, according to the ACLU. Reports of police brutality also increased sharply.

In his remarks, Obama offered effusive praise for the police, declaring, “The overwhelming number of police officers are good, fair, honest and care deeply about their community, putting their lives on the line every day.”

These remarks were aimed at solidarizing the White House with the police amid a continuing wave of violence directed against the population, giving rise to protests in St. Louis, New York City, Baltimore and other cities. Through the end of April, police killed 392 people in the US, putting them on track to take significantly more lives in 2015 than even the 1,100 they killed last year.

Every year, cops kill more people in the United States than the number of US soldiers killed in Iraq in 2004, at the height of the conflict.

This reign of police murder and violence takes place with the full support of the Obama administration, which has transferred billions of dollars in military armaments to local police, while working behind the scenes with local authorities to acquit killer cops, such as Darren Wilson, who killed Michael Brown in Ferguson, Missouri and Daniel Pantaleo, the killer of Eric Garner in Staten Island.

Even while working to shield cops from prosecution, the White House has helped to coordinate the military/police crackdown on peaceful demonstrators in Ferguson, Missouri in 2014, and in Baltimore last month.

The ultimate root of the ongoing wave of police violence and the militarization of society is the pervasive growth of social inequality. Camden, with 40 percent of its residents below the poverty line, embodies the disastrous impoverishment of the American working class that has taken place over the past several decades. The fact that Obama chose this city to tout his proposals on more aggressive policing expresses the fundamental reality that the ruling class has no answer to poverty besides ever-greater police repression.

Andre Damon

 

http://www.wsws.org/en/articles/2015/05/19/pers-m19.html

Bad Apple: 5 Ways the Computer Giant is Plundering America

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No amount of clever branding can hide these harsh truths.

An emotional response to any criticism of the Apple Corporation might be anticipated from the users of the company’s powerful, practical, popular, and entertaining devices. Accolades to the company and a healthy profit are certainly well-deserved. But much-despised should be the theft from taxpayers and the exploitation of workers and customers, all cloaked within the image of an organization that seems to work magic on our behalf.

1. Apple Took Years of Public Research, Integrated the Results, and Packaged it As Their Own

Apple’s stock market value of over $700 billion is about twice the value of any other company. It is generally regarded as innovative, trendy, and sensitive to the needs of phone and computer users all around the world. Many of us have become addicted to the beautifully designed iPhone. But the design goes back to the time before Apple existed.

Steve Jobs once admitted: “We have always been shameless about stealing great ideas.” And reaping most of the benefits. As economist William Lazonick put it, “The iPhone didn’t just magically appear out of the Apple campus in Cupertino. Whenever a company produces a technology product, it benefits from an accumulation of knowledge created by huge numbers of people outside the company, many of whom have worked in government-funded projects over the previous decades.”

In her revealing book, The Entrepreneurial StateMariana Mazzucato explains that “Apple concentrates its ingenuity not on developing new technologies and components, but on integrating them into an innovative architecture.” She goes on to describe 12 major technologies that have their roots in government research, including memory and hard disks, displays, cellular technology, GPS, and all the Internet protocols. Much of it came from the Department of Defense, the Department of Energy, NASA, the Air Force, and other U.S. agencies. The biggest expense in the iPhone is the touchscreen, which was developed at the CERN laboratories in Europe.

The “stealing of ideas” has not been accompanied by a reciprocal contribution to research. Apple spends much less than Microsoft and Google on R&D as a percentage of revenue.

It gets worse. Apple effectively takes all the credit for much of our public R&D by invoking the 1980 Bayh-Dole Act, which allowed publicly-funded work to be patented by companies. In 2011, for the first time, Apple spent more on patent purchases and lawsuits than on R&D. And worst of all, patents can make it extremely difficult for other researchers to continue work on the ideas behind newly developed products.

2. Even After Taking Our Research, Apple Does Everything in its Power to Avoid Taxes

In 2013 Apple CEO Tim Cook proclaimed, “We pay all the taxes we owe – every single dollar.” Delusion teams with denial. When questioned about the “Double Irish” scheme that allowed Apple’s Irish subsidiary to pay ZERO taxes from 2009 to 2012, Apple executive Tony King said he had “no idea” what the questioner was talking about.

Apple recently announced that its overseas, untaxed cash hoard, currently about $157 billion, is expected to reach $200 billion by 2017. But rather than pay taxes, Apple, along with other tech companies, has been part of a “fierce attack” on plans to crack down on tax avoidance, lobbying instead for a repatriation tax holiday to allow the billions of overseas dollars to come home at a greatly reduced tax rate.

3. Overcharging Customers 

The manufacturing cost of a 16 GB iPhone 6 is about $200, and with marketing it comes to about $288. But without an expensive phone contract with Verizon, AT&T, or one of the other wireless carriers, the cost to the customer is at least $650.

4. Underpaying and Mistreating Employees 

In response to criticisms of Apple, Rand Paul advised us to “apologize to Apple and compliment them for the job creation they’re doing.” The company claims to have “created or supported” over a million jobs in the United States. But in reality it has 66,000 employees in the U.S., about half of them retail store workers.

Apple has an efficient way of undermining workers, earning nearly $600,000 profit per employee while paying their full-time retail “specialists” less than $30,000 per year. Thus each store worker gets about $1 for every $20 in profits that he or she helps to generate. As for higher-level employees, Apple is alleged to have conspired with Google and other Silicon Valley each firms to hold down the salaries of engineers and analysts.

Regarding laborers at notorious Chinese factories like Foxconn, Apple CEO Tim Cook said in 2012: “We care about every worker in our worldwide supply chain.” The sentiment went deeper three years later in 2015, when Apple VP Jeff Williams assured us that “We care deeply about every worker in Apple’s global supply chain.” But investigations have revealed little change, with a continuation of low wages, forced overtime, safety hazards, employee abuse, increased production quotas, and manipulation of student interns. Before the launch of the iPhone 6 in late 2014, workers put in 15 hours a day for 10 weeks without a day off.

5. Apple Has Figured Out How to Spend Most of its Untaxed Money on Itself 

Much of Apple’s ‘offshore’ money is reportedly held in the U.S., in the form of U.S government securities, earning interest from U.S. taxpayers. When the company needs cash, it simply borrows the money at a near-zero interest rate, often using that cash to pay off shareholders with stock buybacks, which use potential research and development money to pump up the stock prices for shareholders.

After spending $90 billion on stock buybacks last year, Apple has now proudly announced a 2015 “share repurchase authorization” of $140 billion, almost the entire amount of its currently hoarded cash. Buybacks benefit company executives and investors. Beyond that, Apple’s ever-growing $.7 trillion stock market value is spread among relatively few Americans. The richest 10% own 91 percentof U.S. stocks.

Apple’s View 

The tax-avoiding, research-appropriating, cost-escalating, wage-minimizing, self-enriching Apple Corporation has, according to CEO Tim Cook, a very strong moral compass.

Paul Buchheit teaches economic inequality at DePaul University. He is the founder and developer of the Web sites UsAgainstGreed.org,PayUpNow.org and RappingHistory.org, and the editor and main author of “American Wars: Illusions and Realities” (Clarity Press). He can be reached atpaul@UsAgainstGreed.org.

http://www.alternet.org/bad-apple-5-ways-computer-giant-plunder-america?akid=13111.265072.ZtiMvx&rd=1&src=newsletter1036499&t=7

Is the US planning a “Gulf of Tonkin” incident in the South China Sea?

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18 May 2015

Following weeks of scaremongering by American officials over China’s activities in the South China Sea, US Secretary of State John Kerry used his visit to Beijing last weekend to issue an ultimatum to Chinese leaders to halt land reclamation on islets and shoals. His Chinese counterpart Wang Yi bluntly refused, insisting that China would safeguard its sovereignty and territorial integrity “as firm as a rock.”

Washington is not going to take no for an answer. In what is already an explosive situation, the question has to be asked: Is the US preparing a “Gulf of Tonkin” incident as the pretext for direct military action against Chinese facilities and armed forces in the South China Sea? Such reckless brinkmanship would risk war between two nuclear armed powers.

The historic parallels are chilling. In 1964, President Lyndon B. Johnson needed a justification for decisions that had already been made to dramatically escalate US military involvement in a civil war in Vietnam and to begin bombing targets in North Vietnam. Pentagon planners had concluded that Washington’s widely reviled puppet regime in Saigon was incapable of defeating the North Vietnamese-backed National Liberation Front on its own.

Preparations for massively expanding US involvement were drawn up well in advance. In the summer of 1964, the US worked with the South Vietnamese to stage a series of provocations—probes by US-supplied patrol boats to expose North Vietnamese radar systems. On August 2, the USS Maddox was monitoring one of these raids in the Gulf of Tonkin, part of the South China Sea, eight miles offshore and well within the North Vietnam’s 12-mile territorial waters, that provoked an exchange of fire with small North Vietnamese boats.

Two days later the USS Maddox, accompanied by the destroyer C. Turner Joy, reported coming under fire. There was, in fact, no attack. The entirely manufactured incident, surrounded by a barrage of media sensationalism and official lies, was exploited to paint North Vietnam as the aggressor. The belligerent response of the United States was presented as justified, defensive actions to maintain “international peace and security in Southeast Asia.”

The Gulf of Tonkin Resolution was passed by the US Congress on August 7, 1964, with just two votes against. It provided the quasi-legal cover for a criminal, open-ended war in Vietnam that claimed millions of lives, devastated the country’s economy and left a legacy of destruction that remains to this day.

Far more is at stake today. For decades, the US showed little interest in the festering territorial disputes in the South China Sea between China and its South East Asian neighbours. In 2010, however, US Secretary of State Hillary Clinton, as part of the Obama administration’s “pivot to Asia” against China, declared that the US had “a national interest” in ensuring “freedom of navigation” in the strategic waters.

Over the past year, Washington has abandoned its pretence of neutrality in the maritime disputes. It has aggressively challenged the legitimacy of China’s claims and thus its administration of various shoals and reefs. Ignoring similar activities by other claimants, such as the Philippines and Vietnam, the US has portrayed land reclamation in the South China Sea as an aggressive threat to US national interests. In late March, Admiral Harry Harris, commander of the US Pacific Fleet, denounced China’s actions as the construction of “a great wall of sand.”

From words, the US is turning to actions. As part of the “pivot” to Asia, the Pentagon is already engaged in a massive military build-up and strengthening of alliances and strategic partnerships throughout Asia directed against China. One of the latest warships, the USS Fort Worth, has just completed a week-long “freedom of navigation” patrol in the South China Sea designed to test and challenge China’s presence.

While the USS Fort Worth remained outside China’s claimed territorial waters, US Defence Secretary Ashton Carter has called on the Pentagon to draw up plans for US warships and warplanes to enter the 12-mile limit and directly challenge Chinese sovereignty. Undoubtedly behind the scenes, far more detailed war plans have been drawn up.

Significantly in the midst of a US Senate Foreign Relations Committee hearing last week entitled “Safeguarding American Interests in the East and South China Seas,” Assistant Defence Secretary David Shear blurted out that the US was preparing to base B1 bombers in northern Australia as part its military “rebalance” against China. Although later denied, nuclear-capable B-52 bombers are already rotating through Australia air bases.

Layers of the US foreign policy establishment are already braying for more concerted US action in the South China Sea to teach China a lesson. In the course of last week’s Senate Foreign Relations Committee hearing, Chairman Bob Corker repeatedly expressed the review that the Obama administration was not doing enough.

In an article published in the National Interest entitled “Time to Stand Up To China in the South China Sea,” analyst Michael Mazza from the right-wing American Enterprise Institute praised the Pentagon’s plans for more “freedom of navigation” exercises, then added: “It is important that the president make the decision to act, and soon. The longer he waits, the more entrenched Chinese positions will become, both figuratively and literally.”

This logic is unquestioningly being applied more broadly. What is driving the provocative actions of US imperialism in Asia and around the world is the determination to use its still formidable military force to stem its historic decline. From Washington’s standpoint, the longer it waits, the greater the difficulty and dangers in subordinating Beijing to its interests. Thus the willingness to provoke a confrontation in the South China Sea as a test of strength, regardless of its potentially calamitous consequences.

But in confronting China, Washington faces widespread anti-war opposition at home and around the world, born of two decades of continuous wars including the invasions of Afghanistan and Iraq. No one should be surprised by a new “Gulf of Tonkin incident” suddenly emerging in order to try to stampede public opinion behind US aggressive military operations against China.

Peter Symonds

 

http://www.wsws.org/en/articles/2015/05/18/pers-m18.html