by Alegria del Prado, Mexico City
Greek ministers are spending this weekend, almost five grinding years since Athens was first bailed out, wrangling over the details of the spending cuts and economic reforms they have drawn up to appease their creditors.
As the recriminations fly between Europe’s capitals, campaigners are warning that the global community has failed to learn the lessons of the Greek debt crisis – or even of Argentina’s default in 2001, the consequences of which are still being contested furiously in courts on both sides of the Atlantic.
As Janet Yellen’s Federal Reserve prepares to raise interest rates, boosting the value of the dollar, while the plunging price of crude puts intense pressure on the finances of oil-exporting countries, there are growing fears of a new debt crisis in the making.
Ann Pettifor of Prime Economics, who foreshadowed the credit crunch in her 2003 book The Coming First World Debt Crisis, says: “We’re going to have another financial crisis. Brazil’s already in great trouble with the strength of the dollar; I dread to think what’s happening in South Africa; then there’s Malaysia. We’re back to where we were, and that for me is really frightening.”
Since the aftershocks of the global financial crisis of 2008 died away, the world’s policymakers have spent countless hours rewriting the banking rulebook and rethinking monetary policy. But next to nothing has been done about the question of what to do about countries that can’t repay their debts, or how to stop them getting into trouble in the first place.
Developing countries are using the UN to demand a change in the way sovereign defaults are dealt with. Led by Bolivian ambassador to the UN Sacha Sergio Llorenti, they are calling for a bankruptcy process akin to the Chapter 11 procedure for companies to be applied to governments.
Unctad, the UN’s Geneva-based trade and investment arm, has been working for several years to draw up a “roadmap” for sovereign debt resolution. It recommends a series of principles, including a moratorium on repayments while a solution is negotiated; the imposition of currency controls to prevent capital fleeing the troubled country; and continued lending by the IMF to prevent the kind of existential financial threat that roils world markets and causes severe economic hardship.
If a new set of rules could be established, Unctad believes, “they should help prevent financial meltdown in countries facing difficulties servicing their external obligations, which often results in a loss of market confidence, currency collapse and drastic interest rates hikes, inflicting serious damage on public and private balance sheets and leading to large losses in output and employment and a sharp increase in poverty”.
It calls for a once-and-for-all write-off, instead of the piecemeal Greek-style approach involving harsh terms and conditions that knock the economy off course and can ultimately make the debt even harder to repay. The threat of a genuine default of this kind could also help to constrain reckless lending by the private sector in the first place.
However, when these proposals were put to the UN general assembly last September, a number of developed countries, including the UK and the US, voted against it, claiming the UN was the wrong forum to discuss the proposal, which is anathema to powerful financial institutions.
Pettifor shares some of the UK and US’s scepticism. “The problem for me is that the UN has no leverage here,” she says. “It can make these moralistic pronouncements but ultimately it’s the IMF and the governments that make the decisions.”
Nevertheless, Llorenti has been touring the world’s capitals making the case for change, and hopes to bring the issue back for fresh discussions next month.
And while the debate rages, developing countries have been taking advantage of rock-bottom interest rates and the cheap money created by quantitative easing to stack up billions in new debt.
Using recently released World Bank data, the Jubilee Debt Campaign calculates that in 2013 alone – the latest period for which figures are available – borrowing by developing countries was up 40% to $17.3bn.
Brazil’s economy is likely to be seriously tested as the greenback rises; Turkey, Malaysia and Chile have large dollar-denominated debts and sliding currencies; and a string of African countries face sharp rises in debt repayments. Ghana and Zambia have already had to turn to the IMF to ask for help. It’s as if, as Pettifor warns, “absolutely nothing has changed since the crisis”.
With the launching of the US-backed military intervention in Yemen, virtually the entire Middle East is engulfed by military conflict, a state of affairs that has no precedent, with the possible exception of the two world wars fought in the 20th century.
Washington’s pursuit of policies from one conflict to the next that are seemingly at odds with one another has provoked mounting expressions of concern from major US think tanks and editorial boards—not to mention nominal allies in Europe—over “strategic incoherence.”
To describe as glaring the contradictions that riddle US foreign policy in the Middle East does not do them justice.
In Yemen, the Obama administration has announced its full backing, with the provision of logistical assistance, arms (including cluster bombs) and targeting intelligence, to an intervention spearheaded by Saudi Arabia, the other Sunni oil monarchies and the Egyptian regime of Gen. Abdel Fattah al-Sisi.
This coalition of dictatorships and crowned tyrants is waging a war against the most impoverished country in the Arab world. Their aim in bombing cities and killing civilians is to contain the influence of Iran, which has provided support to the Zaydi Shiite Houthi rebels who overthrew President Abd Rabbuh Mansour Hadi, a puppet installed by Washington and Riyadh.
In Iraq, US warplanes have been bombing Tikrit, the hometown of the ousted and murdered Iraqi president, Saddam Hussein, which is now controlled by the Islamic State of Iraq and Syria (ISIS). This operation is providing air support to a besieging force comprised overwhelmingly of Shiite militias operating with Iranian support and advisors.
While the Pentagon had conditioned the air strikes on the withdrawal of these militias, some of which had resisted the eight-year US occupation of Iraq, it is widely acknowledged that this was strictly for the sake of appearances. The Shiite forces remain the principal fighting force on the ground.
Meanwhile, across the border in Syria, Washington is pursuing a policy seemingly at odds with itself, on the one hand pledging to arm and train militias seeking to overthrow the government of President Bashar al-Assad, whose closest ally is Iran, and, on the other, carrying out air strikes against both ISIS and the Al Qaeda-affiliated al-Nusra Front, which together are the principal armed opponents of the Assad regime.
At the same time, negotiations led by US Secretary of State John Kerry in Switzerland are going down to the wire in a bid to secure an agreement with Iran that would curtail its nuclear program in exchange for the lifting (or partial lifting) of punishing economic sanctions imposed by Washington and its European allies. Failure to achieve such a deal could spell a turn toward more direct US military aggression against Iran. Success could well prove to be a tactical preparation for the same thing.
It is now 12 years since the Bush administration launched its war against Iraq. At the time, it claimed that its war of aggression was being waged to eliminate “weapons of mass destruction” and the threat posed by ties between the government of Saddam Hussein and Al Qaeda. Both claims were lies. There were neither weapons nor any connections, outside of mutual hostility, between the secular regime in Baghdad and the Islamist group.
At the same time, Bush portrayed the US intervention as a liberating mission that would bring “democracy” to Iraq and beyond. “The establishment of a free Iraq in the heart of the Middle East will be a watershed event in the global democratic revolution,” he proclaimed in the early stages of the US military occupation.
That the US invasion was a “watershed event” no one can deny. It ushered in a period of wholesale carnage that claimed over 1 million Iraqi lives, destroyed the country’s economic and social infrastructure, and provoked bitter sectarian struggles between Shiites, Sunnis and Kurds as part of a deliberate policy of divide and rule.
For Iraq, the war was a catastrophe. For the US, it proved to be a debacle. Costing the lives of 4,500 American soldiers, injuring tens of thousands more, and consuming trillions of dollars in military expenditures, it succeeded only in creating the social and political conditions for ISIS (an offshoot of Al Qaeda) to overrun more than one third of the country—a country that had had no serious Islamist presence prior to the 2003 invasion.
The war in Iraq profoundly destabilized the entire region, a process that was accelerated by Washington’s launching of proxy wars in both Libya and Syria, backing Islamist militias linked to Al Qaeda in an effort to bring down the secular regimes of Gaddafi and Assad and replace them with American puppets. These efforts likewise turned into bloody debacles, costing hundreds of thousands of lives and ravaging both societies.
There is nothing left of the pretexts used by the Bush administration to justify war 12 years ago. The Obama administration cannot credibly claim that its aggressive operations in the Middle East—linked as they are to Islamists and other sectarian militias, as well as to autocrats and military dictators—are part of a global “war on terrorism” or a crusade for democracy.
The White House makes little or no attempt to explain these operations to the American people, much less win their support for them. In the case of Washington’s backing for the war in Yemen, the sum total of its explanation consists of a “readout” of a phone conversation between Obama and King Salman bin Abdulaziz al-Saud, in which the US president affirmed his “strong friendship” with the despotic monarchy, his “support” for its intervention, and his “commitment to Saudi Arabia’s security.”
Behind the reckless, ad hoc and seemingly disconnected policies pursued by US imperialism in the Middle East, there remains one constant: the aggressive pursuit of US hegemony over the Middle East and its vast energy reserves.
The strategy elaborated from the dissolution of the Soviet Union in 1991 onward, that Washington could freely employ its unrivaled military power to pursue its global interests, has only become more entrenched as American capitalism’s relative economic weight and influence have continued to decline.
The result of this policy can be seen in the involvement of virtually every country of the Middle East in one or another war and the palpable threat that these conflicts will coalesce into a region-wide conflagration that could, in turn, provoke World War III.
Bill Van Auken
In other words: the root causes of the 2008 financial crisis were never truly resolved — policymakers simply moved around some of the symptoms (and not even all of them!). Governments bailed out insolvent banks with taxpayer money, heavily indebting themselves in the process, while central banks turned on the printing presses to pump trillions of dollars into the financial system. The result, in simple terms, has been the accumulation of a vast excess of money in the financial sector and an acute shortage of it everywhere else.
What we are dealing with, then, is a classical example of what David Harvey refers to as the capital surplus absorption problem: an excess of idle money capital lies side by side with an excess of labor power — and somehow the system can’t combine the two to bring about productive outcomes. As one banker toldthe Financial Times, “what’s really driving all this activity is the availability of capital rather than the underlying fundamentals. It just comes down to people needing to deploy capital.”
Investors have dealt with this problem in the same way that they always have: by scouring the surface of the Earth in a frantic quest for the highest possible yields. As long as demand remains low and growth stagnant, yields in so-called “productive” investments will not be very attractive for the average gambler. And so investors have been turning to the same kind of speculative high-risk/high-return bets that caused the 2008 financial meltdown to begin with.
The results have been stark. Just three years after Greece concluded the largest sovereign debt restructuring in the history of capitalism, global bond markets are back on fire. In a UK survey, almost four in five fund managers for major bond-trading firms expressed a concern that bonds are currently “more overvalued than ever before and that government bonds are the most overvalued asset class of all.” John Plender of the Financial Times accuses the ECB of directly stoking this bond bubble through quantitative easing:
Government bond markets are supposed to be sedate places, devoid of the thrills and spills that characterise equities. Not any more. Since central banks started enlarging their balance sheets sovereign bonds have become exciting to the point where investors have bought more than $2tn of them on negative yields, mainly in Europe. Even in the Depression of the 1930s interest rates never fell below zero. Is this that rare thing — a bond market bubble?
It’s not just government debt that’s booming. Last year alone, US companies issued an astonishing $1.43 billion in corporate bonds; 27 percent more than they sold at the peak of the last bubble in 2007. In fact, a reasonable argument could be made that the supposed US recovery of the past years has been based entirely on an energy bubble — which has already burst due to the oil price collapse — and an even larger tech bubble. Billionaire investor Mark Cubanrecently warned that the latter is “worse than the tech bubble of 2000” and is now on the verge of bursting as well.
When this over-excited US corporate bond market collapses, it will inevitably take the stock exchange down with it. Stock valuations have been rising steadily ever since they bottomed out, in March 2009, following the last crash. The S&P 500 has shot up an astonishing 200% since then, while the Nasdaq recently breached 5,000 points for the first time since the collapse of the Dotcom bubble. The fact that this six year bull market has coincided with the deepest economic downturn since the Great Depression should suffice to give pause for thought.
Finally, with memories of the subprime mortgage crisis still fresh, investors are already expressing fears over the build-up of a new housing bubble. The Wall Street Journal points out that UK property prices are now a third above their pre-crisis peak, while property in Australia, Canada, Sweden and Norway is also massively overvalued. Cities like New York, San Francisco, Miami, London, Berlin, Paris and Amsterdam are all experiencing rising real estate prices without any real accompanying improvement in the underlying fundamentals. Even property prices in Spain and Ireland now appear to be rising again.
The conclusion is clear: plus ça change, plus c’est la même chose. All this time, policymakers have tinkered around the edges with half-hearted measures, but none of the structural problems have ever been addressed. Instead, governments bailed out the gamblers as central banks inflated a set of new bubbles to cushion their fall, cover the debris, and delay the final moment of reckoning. Still, down in the real world, blowing bubbles can only take you so far. Nearly seven years since the last financial meltdown, investors and policymakers are already well on their way to the next.
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.
The decision by the Pentagon to bring charges of desertion and misbehavior before the enemy against former Afghanistan prisoner of war Bowe Bergdahl is vindictive and politically reactionary. Its purpose is to intimidate rank-and-file soldiers who, like Bergdahl, turn against the savagery of the wars American imperialism is waging in the Middle East and Central Asia, or who oppose future American wars around the world.
Bergdahl, a private first class near the beginning of a yearlong tour of duty in Afghanistan, walked away from his unit in Paktika province in June 2009. He was captured by the Taliban and held as a prisoner, often under barbaric conditions, and forced to participate in propaganda videos. The Obama administration negotiated his release last May as part of a prisoner exchange in which five long-held Taliban prisoners were allowed to leave Guantanamo Bay.
While the American media and the ultra-right have long peddled myths about Vietnam War-era POWs in an effort to retrospectively justify that imperialist bloodbath, these same elements immediately launched a campaign of vilification against the sole Afghan War POW upon his return home from captivity. Former members of Bergdahl’s unit played a prominent role in these efforts.
There were claims—all later proven false—that Bergdahl had left his unit in order to join the Taliban and fight on their side, and that as many as a dozen American soldiers had been killed in the course of fruitless efforts to find and rescue him in the months after his disappearance. At the height of this campaign, the Wall Street Journal published a commentary suggesting that Bergdahl should face the death penalty for desertion under fire in wartime.
The real reason for the ferocity of the attack on Bergdahl was his public disaffection from the war in Afghanistan and, in particular, his caustic criticism of the conduct of the American military in that devastated country. In 2012,Rolling Stone magazine had published excerpts of emails from Bergdahl to his parents in Idaho in which he declared, “I am ashamed to even be American. The horror of the self-righteous arrogance that they thrive in. It is all revolting.”
“I am sorry for everything here,” he continued. “These people need help, yet what they get is the most conceited country in the world telling them that they are nothing and that they are stupid, that they have no idea how to live.” Referring to a particularly gruesome incident he had witnessed, he added, “We don’t even care when we hear each other talk about running their children down in the dirt streets with our armored trucks.”
In response to the right-wing campaign against Bergdahl, the machinery of the Pentagon began to grind out the mockery that passes for “military justice.” Lt. Gen. Kenneth Dahl interviewed Bergdahl and other members of his unit and filed a report with the top brass. Last week, Gen. Mark Milley, head of the Army Forces Command at Fort Bragg, North Carolina, authorized charges against Bergdahl. A preliminary hearing is set for April 22 to determine whether to order a court-martial, accept a negotiated plea, or dismiss the charges.
Eugene Fidell, one of Bergdahl’s attorneys, said the Army report contains evidence that Bergdahl left his post not to desert, but to go to another military outpost to report on the conditions in his own unit. In a memorandum that he made public, Fidell wrote: “[T]he report basically concludes that Sgt. Bergdahl did not intend to remain away from the Army permanently, as classic ‘long’ desertion requires… It also concludes that his specific intent was to bring what he thought were disturbing circumstances to the attention of the nearest general officer.” This might have been a violation of military discipline, but it hardly warrants the charge of desertion.
Two military officials confirmed Fidell’s account of the secret report in interviews with CNN. “This was a kid who had leadership concerns on his mind,” one of the officials said. “He wasn’t fed up, he wasn’t planning to desert.”
The vendetta against Bergdahl reveals two interconnected political facts. First, the military brass is determined to make an example of the former POW because, in addition to popular opposition to the wars in the Middle East and Central Asia, there is increasing turmoil within the ranks of the military itself, as the Afghanistan War approaches its fifteenth year and the war in Iraq is resumed twelve years after the US invasion of that country.
Second, the Obama administration, which initially hailed Bergdahl’s safe return as a diplomatic triumph, to be celebrated with photo ops with the POW’s parents in the White House Rose Garden, takes its lead from the Pentagon chiefs. It is the military-intelligence apparatus, not its nominal civilian “commander,” that calls the shots in Washington.
Behind the vendetta against Bergdahl is the fear of a Vietnam War-like growth of demoralization and opposition within the ranks, under conditions of a continuous escalation of US military operations, not only in the Middle East, but directed increasingly against major powers such as Russia and China.