Central banks step in to prop up global financial bubble

King-World-News-Man-Who-Predicted-The-Collapse-Of-The-Euro-Against-The-Swiss-Franc-Time-Is-Running-Out-For-Global-Financial-System

31 August 2015

Early last week, global stock markets experienced their worst selloff since the 2008 financial crisis. At the opening of US markets on Monday, the Dow Jones Industrial Average was down more than 1,000 points, its largest intraday fall in history. By the end of the week, however, the markets in the United States and Europe had staged a major rally, recovering much of what they had lost.

The reason for the turnaround in global stock markets was not hard to find. As the New York Times put it: “Once again, the Federal Reserve helped save the day for investors” who were “inspired by soothing words from an influential Fed policy maker.” By “soothing words,” the Times means the promise of further infusions of cash into the financial system, which has fueled the continual rise in equity prices.

In particular, the Times was referring to the comments of William Dudley, president of the Federal Reserve Bank of New York and a key ally of Fed Chairwoman Janet Yellen, who said that the deterioration of the US economy made the case for raising interest rates “less compelling.”

Whether or not the Fed actually raises interests rates a small amount at its meeting next month, these statements were a pledge to do whatever it takes to keep the Wall Street asset bubble inflated.

The same day, European Central Bank Executive Board member Peter Praet made clear that the ECB stood ready to go even further by expanding its ongoing “quantitative easing” money printing operation. “There should be no ambiguity on the willingness and ability of the Governing Council to act if needed,” he declared.

These announcements compounded the moves by the Chinese central bank Tuesday to cut its target interest rate and reduce banks’ reserve requirements simultaneously, sending yet another flood of money into the economy on top of the 900 billion renminbi ($140 billion) it is estimated to have injected in June and July.

It is striking that, largely on the basis of a few hints dropped by monetary policy officials, the biggest global stock market sell-off since 2008 was at least partially reversed.

These developments underscore a basic reality of the contemporary capitalist economy: the ongoing stock market surge, which has seen all three major US stock indexes triple in value since 2009, is the product not any genuine economic “recovery,” but of continual infusions of cash from global central banks.

The present situation is the outcome of an extended process. Over the course of decades, the creation of wealth for the financial elite has become increasingly divorced from any productive activity and tied ever more directly to speculation in financial bubbles—a process most nakedly expressed in the United States. As Raymond Dalio, head of Bridgewater Associates, the world’s largest hedge fund put it, “The money that’s made from manufacturing stuff is a pittance in comparison to the amount of money made from shuffling money around.”

Significantly, Dalio, whose wealth has tripled since 2008, this week called for the Federal Reserve to respond to growing turmoil in financial markets with a new round of quantitative easing.

In fact, so dependent has the global economy become on free money that former Treasury Secretary Lawrence Summers conceded in a column last week that, “Satisfactory growth, if it can be achieved, requires very low interest rates that historically we have only seen during economic crises,” concluding that “new conditions require new policies.”

Of course, the wealth of the financial elite cannot come from nowhere. Ultimately, the continual infusion of asset bubbles is the form taken by a massive transfer of wealth, from the working class to the banks, investors and super-rich. The corollary to the rise of the stock market is the endless demands, all over the world, for austerity, cuts in wages, attacks on health care and pensions.

Nowhere are these processes more clear than in the US. In the aftermath of the 2008 crash, the Obama administration and the US Federal Reserve made trillions of dollars available to the banks and major financial institutions. As a result, the share of wealth held by the richest 0.1 percent of the population grew from 17 percent in 2007 to 22 percent in 2012, while the wealth of the 400 richest families in the US has doubled since 2008.

The same period has witnessed an unprecedented decline in the incomes of working people. According to the latest Federal Reserve survey of consumer finances, between 2007 and 2013 the income of a typical US household fell 12 percent. The median US household now earns $6,400 less per year than it did in 2007.

The threatened bursting of the asset bubbles is driven by concern that the easy money policy is reaching some form of denouement, that the ammunition of central banks is drying up. All the more ferocious will be the ruling elite’s assault on the working class, in the United States and internationally.

As the WSWS wrote in 2009, “The most essential feature of a historically significant crisis is that it leads to a situation where the major class forces within the affected country (and countries) are compelled to formulate and adopt an independent position in relationship to the crisis.”

The ruling class responded to the crisis with a drive to vastly expand its own social wealth and privileges at the expense of the great majority of society. This drive will only intensify in the coming months and years. The working class must advance its own worked out program, based on an understanding of the forces that it confronts: a ruthless financial aristocracy, political institutions that are bought-and-paid for by the banks and giant corporations, and a global social system, capitalism, that has reached a historic dead-end.

Andre Damon

 

http://www.wsws.org/en/articles/2015/08/31/pers-a31.html

New York cops spied on activists against police violence

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By Sandy English
29 August 2015

A report published last week in Glenn Greenwald’s Intercept has revealed that police spied and exchanged information on activists who led protests against police violence last winter in New York City.

The spying was conducted by a special counterterrorism squad from police working for the New York Metropolitan Transportation Authority (MTA) and the Intelligence Division of the New York Police Department (NYPD).

The protests erupted after the refusal of a grand jury to indict NYPD officer Daniel Pantaleo for the murder of Eric Garner. Pantaleo was videotaped strangling Garner during a targeted arrest for allegedly selling tax-free cigarettes in the borough of Staten Island on July 17 last year.

As he lay on the ground, Garner told police officers on the scene several times that he could not breathe. He was given no first aid and was pronounced dead at the hospital. His death was later ruled a homicide by the city coroner’s office.

Activists obtained 118 pages of police reports from the MTA and 161 pages from the Metro North Railroad through New York’s Freedom of Information Law. The documents cover protests that took place from December 2014 to February 2015 in Grand Central Station in Manhattan where the MTA police have jurisdiction. A number of protests in the timeline occurred there.

The NYPD has not released any documents, but those that have been supplied reveal an information exchange between the NYPD and the MTA police, and the presence of both NYPD as well as MTA undercover officers at the protests.

Police tracked demonstrators as they were moving around Grand Central Station and in the city and identified specific individuals among the demonstrators. One undercover officer sent frequent email updates on the activities of protesters at the station during a protest on Martin Luther King Day in January. These included notice of the presence of Jose LaSalle, a founder of CopWatch Patrol Unit, in an email that includes his photograph.

Another email chain from December includes a chart of upcoming protests, including one organized by high-school students.

It is worth noting that some of the police spying occurred after Democratic Mayor Bill de Blasio called for a halt to the protests against police violence in the aftermath of the shooting death of two NYPD officers in Brooklyn on December 20 by a deranged gunman, although the documents indicate that surveillance of protesters also took place before de Blasio’s plea.

The political atmosphere during the first half of December in New York City was one of intensifying anger at police violence, particularly over the Garner case, but also including the dozens of police shootings in the city over the past decade, as well as the shooting of Michael Brown in Ferguson, Missouri and the refusal in November of a grand jury to indict his killer, Officer Darren Wilson.

During the period from December 4 to December 15, large demonstrations against police violence took place throughout the city, some of them partly spontaneous, with tens of thousands of workers and youth protesting in Washington Square Park on December 15.

After the December 20 shooting, however, elements of the state apparatus attempted to go on a counteroffensive. Police union officials claimed that de Blasio had blood on his hands for his supposed tolerance of anti-police-violence protests, and the NYPD staged a near-mutiny when cops turned their backs on de Blasio on several occasions in what became a political mobilization of the police. Over the next few weeks, NYPD officers then performed a systematic slowdown in arrests and citations for minor crimes across the city.

While police surveillance and intimidation of protesters during this period were undoubtedly intensified, these practices certainly did not begin from scratch. Spying on protesters in New York City who have not broken the law and represent no threat to public safety is the modus operandi of the NYPD and other state agencies, including the FBI and the Department of Homeland Security.

The NYPD has a long and well-documented history of spying on and harassing Muslims in the aftermath of the terrorist attacks of September 11, 2001. More recently New York cops have video-recorded, photographed, followed and intimidated nonviolent protesters, such as those involved in the 2011 Occupy Wall Street protests in Zuccotti Park in Lower Manhattan. The NYPD also subjected these protesters to beatings, pepper spraying and the use of LRAD sound cannons. One of the most egregious state attacks on protesters’ democratic rights was the frame-up of organizer Cecily MacMillan in 2014.

There can be little doubt that the documents published by the Intercept are only the tip of an iceberg of sustained and extensive surveillance of organizers of and participants in protests against police violence, not only in New York City, but throughout the United States.

 

http://www.wsws.org/en/articles/2015/08/29/poli-a29.html

Is Donald Trump Really a ‘Fascist’?

The Trump campaign doesn’t seem so funny anymore.

Donald Trump speaks in Manchester, New Hampshire, USA, on April 12, 2014
Photo Credit: Andrew Cline / Shutterstock.com

Although he is still a clown, nobody laughs at Donald Trump anymore — which may be the real purpose of his candidacy, at least as far as he is concerned. The casino mogul is pleased to instill fear among Republican elites, as he dominates their presidential nominating contest — and forces them to face a hard question about the man who is exciting such belligerent enthusiasm among Republican voters.

Is Trump a real live fire-breathing fascist?

From Newsweek to Salon to the Daily Caller, commentators of various colorations have found ample reason to apply that often-discredited label to him. While these observers hesitate to lump Trump in with totalitarian dictatorships and historic crimes against humanity, they are clearly concerned over his strongman appeal, his populist rhetoric, and his rejection of GOP free-market orthodoxy.

Genuine conservatives aren’t wrong to fret, but they seem unwilling or unable to grasp the clearest evidence that Trump is channeling toxic currents from the past — namely, his appeals to racial bigotry, his truculent attitude toward other nations, and his extremist “solution” to illegal immigration.

Obvious clues to the noxious nature of Trumpism keep cropping up across the political landscape like poison mushrooms. In Boston’s “Southie” neighborhood, once headquarters of the openly racist anti-busing movement known as ROAR (Restore Our Alienated Rights), two white males severely beat an older Hispanic man. When arrested, one of the thugs told police, “Donald Trump was right, all these illegals need to be deported.”

Rather than deplore this ugly assault, Trump’s impulse was to praise the zeal of his supporters. “It would be a shame,” he said when first told of the beating, then added: “I will say that people who are following me are very passionate. They love this country and they want this country to be great again. They are passionate.”

At a big rally in Mobile, Alabama, Trump welcomed Senator Jefferson Beauregard Sessions, R-Ala., the only prominent politician singled out for praise. Sessions is a dubious figure whose federal judicial nomination was once rejected by the Senate Judiciary Committee over his record of racially inflammatory behavior and remarks — which included calling a white civil rights lawyer “a disgrace to his race” and opposing the Voting Rights Act. Today, he is the chief Senate opponent of legal immigration to the United States.

Opposition to legal as well as illegal immigration is a foundation of the white nationalist movement in the United States. So perhaps nobody should have been too surprised when a loud voice in the Mobile audience greeted Sessions’ arrival by screaming “White Power!”

Again, the reaction of the Trump campaign was telling. Campaign manager Corey Lewandowski responded that he wasn’t aware of the “white power” shouter. “I don’t know about the individual you’re talking about in Alabama,” he insisted. “I know there were 30-plus thousand people in that stadium. They were very receptive to the message of ‘making America great again’ because they want to be proud to be Americans again.”

Asked about the Boston beating, Lewandowski acknowledged that violence is “unacceptable,” continuing: “However, we should not be ashamed to be Americans. We should be proud of our country, proud of our heritage, and continue to be the greatest country in the world.” Like his boss, Lewandowski isn’t subtle. His dog-whistle about “heritage” and being “proud” was heard loud and clear by the white supremacist underworld, which is rallying behind Trump.

The troubling tone in Trump’s language can be detected when he talks about foreign policy, too. As David Cay Johnston recently reported, the draft-dodging billionaire boasts that he is the “most militaristic” candidate, and has blatantly advocated attacking other countries to “take” their oil. Imperial warmongering is a classic hallmark of fascism — indeed, it was military aggression by Nazi Germany that led to World War II.

Finally there is Trump’s “solution” to illegal immigration. He promises to deport an estimated 11-12 million people, a plan that would be ruinously expensive and grossly inhumane to even attempt. The only analogous projects on that scale were atrocities carried out by the Turks against Armenians and, later, by the Nazis against European Jews.

Imagine a country that seeks to round up millions of brown-skinned people by force, transforming itself into a police state, while mobs of vigilantes in militias scourge frightened families out of hiding. It is not hard to predict scenes of bloodshed and horror.

No Donald, that isn’t the way to “make America great again.” For most of us — the majority of citizens who have no use for Trump and Trumpism — that isn’t America at all.

Joe Conason is the editor of the National Memo and writes a column for creators.com

 

http://www.alternet.org/election-2016/donald-trump-really-fascist?akid=13427.265072.KrNupL&rd=1&src=newsletter1041631&t=4

David G. Spielman’s The Katrina Decade

An unsentimental look at how things are now

By Christine Schofelt
29 August 2015

The Katrina Decade: Images of an Altered City, David G. Spielman, with essays by Jack Davis and John H. Lawrence, The Historic New Orleans Collection, New Orleans, Louisiana, 2015

Photographer David G. Spielman (born 1950) documented the immediate aftermath of the devastation in New Orleans in his previous book, Katrinaville Chronicles(2007). The story of that book is itself remarkable.

His publisher, Louisiana State University press, explains: “When Hurricane Katrina approached New Orleans, photographer David G. Spielman decided to stay and weather the storm, assisting his Uptown neighbors, a community of Poor Clare nuns. Katrina passed, and as the flood waters filled the city, the scope of the devastation only gradually dawned on Spielman, who was cut off from outside communication. Faced with the greatest personal and professional challenge of his life, he determined to document the scene unfolding around him. He managed to secure a generator to power his laptop computer, and in the days, weeks, and months after August 29, 2005, he transmitted e-mails to hundreds of friends and clients and cautiously traversed the city taking photographs. Katrinaville Chroniclesgathers Spielman’s images and observations, relating his unique perspective on and experience of a historic catastrophe.”

Spielman revisits the subject in his most recent book, The Katrina Decade. Documenting the state of the city in black-and-white photos taken between 2009 and 2014 or so, he leaves the well-traveled paths taken by the tourist industry and Chamber of Commerce, who tout the “resilience” and supposed recovery of the city.

Mid-City; 2015; © David G. Spielman

Unlike much of the photography devoted to New Orleans, before or after Katrina, Spielman’s work includes many more recent buildings and scenes. The French Quarter and genteel mansions are entirely absent. Since those are well-documented elsewhere, this is not a great loss. Spielman’s focus is on the low-lying areas of the city, those most hard-hit. These areas were largely unknown, poor and unfashionable at the time of Katrina, and remain so. Very few people are present in the photos, and those who are bring out the lingering desolation.

Buildings overgrown with vines are common–whether in the Seventh Ward, Mid-City or Central City. One in particular, possibly a shotgun double in New Orleans East, is totally enveloped–its triangular outlines the only indication that humanity had any hand in things at all. In the distance sits another building seen as the glimpse of a roof in good repair. The buildings cannot be more than a few hundred yards from each other, but the distance seems unbridgeable.

The majority of the photos are of residences or infrastructure such as hospitals and retail stores. Both the storm itself and the intervening years have taken their toll. Graffiti (some quite poignant), occasional squatters and the unrelenting natural elements contribute in their various ways to push buildings that might have been salvageable into a state of irretrievable decay.

Hollygrove; 2012; © David G. Spielman

The image of Charity Hospital taken in 2014 is one of the starkest, however surrounded by traffic and life it may be. Indeed, this is the most bustling of the photos in the book, but the hospital, which never re-opened after Katrina, is caught here under a looming sky and stands as a symbol of incredible lost potential.

As the WSWS noted at the time, “The catastrophe unleashed by Katrina has unmistakably revealed that America is two countries, one for the wealthy and privileged and another in which the vast majority of working people stand on the edge of a social precipice.” The processes of official neglect and searing poverty exposed to the world’s view by the hurricane ten years ago have continued on. This finds sharpest expression in tracts of untouched or barely touched neighborhoods to which people have not been able to return or, if they never left, have not had the resources to rehabilitate.

Central City; 2012; © David G. Spielman

One notes the similarities between certain pictures of the West Bank [of the Mississippi River] or Uptown and images of de-industrialized areas from many US cities (Detroit, Cleveland, Baltimore, etc.): burned out, stripped-down cars sit in front of abandoned mid-century housing developments, children play basketball in a broken hoop set before a broken house.

Spielman is not given to the current fetish for “Ruins Photography.” There is no romanticism in these pages. A news photographer by trade, he cites the Works Project Administration’s Dust Bowl documentation in the 1930s as his chosen approach to his city, and is careful to avoid sentimentality. That the images are aesthetically effective is the result, in the first place, of the objective situation being taken for what it is. The buildings are largely shot head-on, and there is no attempt to prettify or make them approachable. If someone happens to live or work there, he or she is taken as part of the whole.

New Orleans East; 2014; © David G. Spielman

Such honesty is particularly welcome when dealing with this much-mythologized city. It is seemingly forgotten in the anniversary events marking the catastrophe that actual people lived here, or live here still–some in appalling conditions more reminiscent of the turn of the last century than this one.

The promoters who want to welcome tourists or entice investors are full of bravado and boasting. New Orleans, they say, is “back.” Much, however, is still missing and still slipping away. Spielman’s book is a quiet and potent reminder of this.

 

http://www.wsws.org/en/articles/2015/08/29/kdec-a29.html

China’s economic downturn raises concerns about political instability

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By Peter Symonds
28 August 2015

Amid continuing global share market volatility, the financial elites around the world have been intently focussed on the movement of Chinese stock markets and more broadly on the state of the Chinese economy. Yesterday’s rise of the benchmark Shanghai Composite Index, after falls in six successive trading sessions, produced an almost audible sigh of relief as share prices responded by rising on major markets internationally.

The deluge of media commentary on the Chinese economy reflects the degree to which the world economy as a whole is dependent on continued growth in China. Speaking on the Australian Broadcasting Corporation’s “Lateline” program last night, Ken Courtis, chairman of Starfort Holdings, pointed out that “this year we’re expecting 35 to 40 percent of all the world’s growth to come from China.” If that did not happen, “then we have a real problem.”

Concerns in ruling circles that China’s economic slowdown will lead to political instability were evident in an article published in the Financial Times (FT) on Tuesday entitled, “Questions over Li Keqiang’s future amid China market turmoil.” Analysts and party insiders who spoke to the FT suggested that the Chinese premier was “fighting for his political future” after the Shanghai Composite Index plunged by 8.5 percent on Monday—its largest decline since early 2007.

Analyst Willy Lam from the Chinese University of Hong Kong told the newspaper: “Premier Li’s position has certainly become more precarious as a result of the current crisis. If the situation worsens and if there comes a point where [President Xi Jinping] really needs a scapegoat, then Li fits the bill.”

Li and Vice Premier Ma Kai were closely associated with efforts in early July to stem the falling share markets, including a ban on short selling and new stock offerings and share sales by large investors. According to the FT, state-owned institutions pumped an estimated $200 billion into the share market, only to see it plummet over the past week.

The Chinese leadership is more broadly under fire. A lengthy article in the New York Times last weekend reported that Xi had been told by powerful party elders to focus more on restoring economic growth and less on his anti-corruption drive.

Xi, however, has exploited high-profile anti-corruption cases to consolidate his grip on power, jail potential rivals or challengers, and intimidate factions critical of his government’s accelerating pro-market reform and further opening up to investment. A shrinking economy will only fuel tensions within the isolated and sclerotic Chinese Communist Party (CCP) regime and open up the prospect of renewed factional infighting.

Having all but abandoned its socialistic posturing, the CCP leadership has depended for its legitimacy on continued high levels of economic growth. The fear in Beijing and major financial centres around the globe is that rising unemployment and deepening social inequality will lead to social unrest, particularly in the working class, which is now estimated to number 400 million.

The official growth figures have fallen this year to 7 percent—well below the 8 percent level that the CCP long regarded as the minimum required for social stability. Many analysts, however, regard even 7 percent as significantly overstating actual growth. A recent Bloomberg survey of 11 economists put the median estimate of Chinese growth at 6.3 percent.

Others put the figure far lower. Analyst Gordon Chang told the Diplomatwebsite that “influential people in Beijing” were “privately saying that the Chinese economy was growing at a 2.2 percent rate.” He pointed to other indicators of declining economic activity: rail freight (down 10.1 percent in the first two quarters of 2015), trade volume (down 6.9 percent), construction starts by area (down 15.8 percent) and electricity usage (up by just 1.3 percent).

While the Beijing leadership is under pressure to boost the economy, the slowdown in China is bound up with the broader global crisis of capitalism. The restoration of capitalism in China over the past three decades has transformed the country into a vast cheap labour manufacturing platform that is heavily reliant on exports to the major economies.

In highlighting China’s contribution to world growth, Ken Courtis noted on “Lateline” yesterday that “Japan is contracting or in great difficulty still, the US is growing at 2, 2.5 percent, [and] Europe is slugging around at 1.5, 1 percent.” These economies, however, are precisely the markets on which China depends. The latest figures for July showed that exports slumped by 8.3 percent year-on-year, with exports to Europe and Japan down 4 percent, partially compensated by a rise of 7 percent to the US.

Following the 2008 global financial crisis, the CCP leadership only maintained economic growth through a massive stimulus package and the expansion of credit. However, with exports and industrial production stagnating, the money flowed into infrastructure spending, property speculation and, more recently, stock market speculation. Notwithstanding occasional rallies in response to government measures to ease credit, falling property prices over the past year, and now plunging share prices, underscore the fact that these speculative bubbles are unsustainable.

The Chinese regime is under international pressure to accelerate its pro-market reform agenda, including privatisation of state-owned enterprises (SOEs) and the further liberalisation of the financial sector to open up new profit opportunities for foreign investors. Such measures, however, will only heighten the social gulf between rich and poor and provoke wider social unrest. The last round of privatisations in China resulted in the destruction of tens of millions of jobs.

The Beijing regime, which represents the interests of the tiny layer of Chinese millionaires and billionaires, is deeply fearful of the emergence of a movement of the working class. The fact that questions are being raised about the future of Prime Minister Li Keqiang is an indicator of the existing sharp tensions that will only intensify as financial and economic turmoil worsens and impacts on the lives of hundreds of millions of people.

 

http://www.wsws.org/en/articles/2015/08/28/chin-a28.html

What’s Behind the Stock Market’s Rollercoaster Ride?

ECONOMY
The real problem is that we’re in a nonrecovery in America, and Europe is in an absolute class war of austerity.

In an interview with Democracy Now!. economist Michael Hudson talked about the wild ride on Wall Street Monday that saw the Dow Jones Industrial Average initially fell a record 1,100 points before closing down nearly 600 points. “The real problem is that we’re still in the aftermath of when the bubble burst in 2008,” he told Amy Goodman, “that all of the growth in the economy has only been in the financial sector, in the monopolies—only for the 1 percent. And it’s as if there are two economies, and the 99 percent has not grown. And so, the American economy is still in a debt deflation. So the real problem is, stocks have doubled in price since 2008, and the economy, for most people, certainly who listen to your show, hasn’t grown at all.

Below is an interview with Hudson, followed by a transcript:

http://www.democracynow.org/embed/story/2015/8/25/casino_capitalism_economist_michael_hudson_onAMY GOODMAN: “Black Monday.” That’s how economists are describing yesterday’s market turmoil, which saw stock prices tumble across the globe, from China to Europe to the United States. China’s stock indexes fell over 8 percent Monday and another 7 percent today. On Wall Street, the Dow Jones Industrial Average initially fell a record 1,100 points before closing down nearly 600 points. The decline also caused oil prices to plunge to their lowest levels in almost six years.

Joining us now to try to make sense of what’s really behind the fluctuations in the market is economist Michael Hudson, president of the Institute for the Study of Long-Term Economic Trends, a Wall Street financial analyst and distinguished research professor of economics at the University of Missouri, Kansas City. His latest book, Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.

MICHAEL HUDSON: Welcome to Democracy Now! It’s great to have you with us.

Thanks for having me again.

AMY GOODMAN: Professor Hudson, talk about what happened in China and what happened here in the United States.

MICHAEL HUDSON: Well, what happened in China doesn’t have very much to do at all with what happened in the United States. Wall Street would love to blame China, and the Obama administration would love to blame China, and Europe would love to blame China. But most of the Chinese stocks went down because small Chinese investors were borrowing from, let’s say, the equivalent of payday loan lenders to buy stocks. There was a lot of small speculation in Chinese stocks pushing it up. But this was an internal Chinese phenomenon. And China, as a whole, doesn’t really have the problems.

The real problem is that we’re still in the aftermath of when the bubble burst in 2008, that all of the growth in the economy has only been in the financial sector, in the monopolies—only for the 1 percent. And it’s as if there are two economies, and the 99 percent has not grown. And so, the American economy is still in a debt deflation. So the real problem is, stocks have doubled in price since 2008, and the economy, for most people, certainly who listen to your show, hasn’t grown at all.

So, finally, the stocks were inflated really by the central bank, by the Fed, creating an enormous amount of money, $4.5 trillion, essentially, to drop over Wall Street to buy bonds that have pushed the yields down so high—so low, to about 0.1 percent for government bonds, that pension funds and investors say, “How can we make money?” So they buy stocks. And they borrowed at 1 percent to buy up stocks that yield maybe 4 percent. But who are the largest people who buy the stocks? They’re the companies themselves that have done stock buybacks. They’re the managers of the companies that have used their earnings, essentially, to push up stock prices so they get more bonuses. Ninety precent of all the earnings of the biggest companies in America in the last five years have gone for stock buybacks and dividends. It’s not being invested. It’s not building new factories. It’s not employing more people.

So, the real problem is that we’re in a nonrecovery in America, and Europe is in an absolute class war of austerity. That’s what the eurozone is, an austerity zone. So that’s not growing. And that’s really what’s happening. And all that you saw on Monday was just sort of like a shift, tectonic shift, is people realizing, “Well, the game is up, it’s time to get out.” And once a few people want to get out, everybody sees the game’s up.

AMY GOODMAN: And China?

MICHAEL HUDSON: In China, it’s largely small borrowers who borrowed from intermediate lenders, that have borrowed from the big banks. So a lot of individuals in China that tried to get rich fast by riding the stock market all of a sudden find out that they have a lot of debt to intermediate, you know, non-bank lenders, insiders, people who banks will lend to. It’s like the British banks lending to real estate speculators to lend out to homebuyers. So this is essentially the attempt to get rich by riding the stock market in China went way overboard. Chinese stocks are still above what they were at the beginning of the year. This is not a crisis. This is not very much. It’s just that the artificial increase in the market has now ended some of the artificial push-up. And it’s still artificial, and it will still go down some more.

AMY GOODMAN: I’m surprised you say that what happened in China and what happened in the United States are not related.

MICHAEL HUDSON: They are related in a way, but the U.S. funds have not invested very much in the Chinese stocks. Most of the China fund stocks are inHSBC, which lends to China—the bank. The break first happened in China, but the break itself was within China. And this showed investors—this is a symptom—that what happened in China is going to happen in Europe, and it’s going to happen in the United States.

AMY GOODMAN: Talk about China as the world’s second largest economy, and what you think would be the healthiest relationship between China and the United States.

MICHAEL HUDSON: Well, the economy is not the stock market. China’s economy had to accumulate a large amount of foreign reserves just to withstand the kind of American financial war that brought the Asia crisis of 1997. So China acted defensively. It exported a lot, developed huge international reserves to make itself independent of the West. And now it’s in the middle of shifting away from an export economy to begin to produce for its own people. I mean, why should Chinese workers spend all their lives making goods for Wal-Mart to sell in the United States and Europe? Why don’t they make goods for themselves to raise their own standard of living? That was what China’s doing, and that means that China doesn’t have to export more, and there’s really nowhere to export to, if Europe isn’t growing and the U.S. consumers aren’t spending. Obviously, the attempt is to make China itself grow. But the Chinese took the money; instead of consumer goods, they bought stocks.

AMY GOODMAN: As markets in China plunged Monday, former U.S. treasury secretary and president emeritus of Harvard University, Larry Summers, tweeted this dire prediction: “As in August 1997, 1998, 2007 and 2008 we could be in the [early] stage of a very serious situation.” Is he overstating what’s going on?

MICHAEL HUDSON: The question is: What does he mean by “situation”? When he says “situation,” he means his constituency, the 1 percent. He doesn’t mean the economy as a whole, the 99 percent. He’s been wrong on almost everything that he’s called. What he’s calling for now is: You have to cut taxes on the 1 percent more; you have to give the 1 percent more money, and it will all trickle down. This is part of his patter talk, trying to support his usual right-wing position. But you have to be very careful when you listen to Larry Summers.

AMY GOODMAN: Michael Hudson, your book is titled Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy. Explain what you mean.

MICHAEL HUDSON: Well, most people think of parasites as sort of just taking, taking money from the economy, and the 1 percent is sort of sucking up all the income from the 99 percent. But in nature, what parasites do, they don’t simply take. In order to take, they have to take over the brain of the host. And economists have a word, “host economy.” It’s for a foreign country that lets American investors in. Smart parasites help the host grow. But the parasite, first of all, has to make the host believe that the intruder is actually part of the body, to be nurtured and taken care of. And that’s what’s happened in national income accounting in America and in other countries. The newspapers and the media—not your show, but most of the media—treat the financial sector as if that’s really the economy, and when the stock market goes up, the economy is going up. But the economy isn’t going up at all.

And the financial sector somehow depicts itself as the brains of the economy, and it would like to replace government. What Larry Summers said is what—governments have to pay their debts by privatizing more, essentially, by doing what Margaret Thatcher did in England. That’s his solution to the crisis: All the governments have to do is balance the budget, sell everything to Wall Street on credit, and we won’t have any more problem. And that’s basically—the financial sector is almost at war, not only against labor, as most of the socialists talk about, but against governments and against industry. It’s cannibalizing industry. So now most of the corporations in America are using their income not to do what industrial capitalism did a century ago, not to build more factories and employ more people and make more profits; they’re just using it, as I said, to push it to pay dividends and to buy back their shares and to somehow manipulate the financial sector in the stock prices, not the economy as a whole. So there’s been a divergence between the real economy and what I call the—economists call the FIRE sector—finance, insurance and real estate. And they’re going in separate directions.

AMY GOODMAN: You are—you have been an adviser to the Syriza party in Greece. You’re a friend of the former finance minister, Yanis Varoufakis. Can you talk about what’s happening there now and what that bodes for the economy, not only in Greece, but in Europe, maybe even here?

MICHAEL HUDSON: Well, the story begins, actually, about four years ago, when Greece had a very large foreign debt, taken on basically by the military government and what followed. And it was obvious that as soon as thePASOK, the socialist party, came in, they said, “Look, the debt’s much larger than we thought. We can’t pay it.” And they were going to write it down. TheIMF looked in and said, “Greece can’t pay the debts. We’ve got to write them down.” The board looked in, said they can’t pay the debts. But then the European central banks came in and said, “Look, our job as central bankers is to support the banks. Greece owes the debt to the, essentially, French banks and German banks, and we’ve got to support them.” So, despite the fact that the IMF was pushing for a debt write-down four years ago—the head of theIMF at that time, Dominique Strauss-Kahn, wanted to run for president of France, and he was told by French President Sarkozy, “Well, wait a minute, if French banks hold most of Greek debts, you can’t, at the IMF, say that we’re going to write down the debts.” So they didn’t. And meanwhile, the eurozone said, “We won’t let you, the IMF, be part of our program, the troika, if you don’t pretend that Greece can pay the debt.”

So Greece was left with a huge debt. It was pushed into depression. The GDP fell worse than it did in the 1930s. Finally, the Syriza party came in, in January, and Varoufakis and Tsipras thought, “Well, then, OK, we can explain to the finance ministers of Europe that you can’t expect to push Greece into a depression, push more austerity, and somehow austerity will enable us to repay the debt. That’s crazy.” And he thought that he could reason with them. And the Europeans, who he was reasoning with, the central bankers, said, “We’re not here to talk about economics. We’re lawyers. We’re here to collect money. It doesn’t matter that you’re going to go into a depression. It doesn’t matter that you’re going to have to have another 20 percent of your population emigrate. We’re only here to collect the payments. And if you don’t pay, then we’re going to pull the plug.”

And they pulled the plug on the Greek banks a few months ago and said, “We’re not going to accept any of the bank transfers, payments with Greek banks here. So, if you’re exporting and you want credit for export, you’re not going to give it to you. We’re going to treat Greece like America treated Cuba and America treated North Korea. You’re going to be the North Korea of Europe if you don’t succumb, surrender and pay.” And that’s why Tsipras said, “Oh, my—we don’t want to bring an absolute, you know, total breakdown, because that would bring the right wing to power.” Varoufakis said, well, he agrees that there’s no alternative but to sort of surrender for the present and try to join hands with Italy, Spain and Portugal, but he wasn’t going to be the administrator of the depression. So you had the referendum, and the Greeks now say, “Well, no matter what, we’re not going to pay.” And the eurozone says, “Then we’re going to just wreck you, or smash and grab.”

AMY GOODMAN: I want to ask you very quickly about presidential politics, about two of the Republican presidential candidates, Jeb Bush and John Kasich. Both worked for Lehman Brothers, Kasich after he ran for—after he was a congressman; Jeb Bush, according to The Wall Street Journal, Bush signed on with Lehman after leaving the Florida Governor’s Mansion, making it clear he wanted to work as a hands-on investment banker. I believe he made something like $14 million working for Lehman and then Barclays.

MICHAEL HUDSON: Well, almost—both parties are basically run by Wall Street. The Democratic Party, ever since Bill Clinton, was run by Robert Rubin. And all of the secretaries of the treasury, the officials, have basically come from Goldman Sachs, especially Tim Geithner. One of the problems in Greece, by the way, was that Obama and Geithner, coming from the Rubin group, met at the Group of Eight meetings and told—were told, basically, Greece, “You have to pay, because the American banks have made so many big bets on Greek bonds that if Greece doesn’t repay”—this is back in 2011—”then the American banks will go under, and if we go under, we’re going to pull Europe down.” So, the American banks basically—we’re talking about Wall Street investment firms. They don’t—they’re called investment bankers, but they don’t invest. They gamble. And we’re really much more in casino capitalism than finance capitalism.

So you have Wall Street people basically running politics, whether they’re the actual politicians—Obama didn’t work on Wall Street, but he worked with the real estate families. No matter who the president is, they’re going to appoint Treasury heads and Fed, Federal Reserve, heads from Wall Street. Wall Street has a veto power on all the major Cabinet positions, and so, essentially, the economy is being run by the financial sector for the financial sector. That’s the problem with politics in America today.

AMY GOODMAN: Michael Hudson, thank you very much for being with us, president of the Institute for the Study of Long-Term Economic Trends, a Wall Street financial analyst, distinguished research professor of economics at the University of Missouri, Kansas City. His latest book, Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.

 

Amy Goodman is the host of Democracy Now! and the co-author of The Silenced Majority.

 

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