I will post another installment regarding human rights very soon, but first I'd like to share something else I once wrote that addresses at least some of the causes behind the global economic meltdown.
The International Monetary Fund And The World Bank
In conjunction with their expanding control over global trade by means of the WTO, the political class collaborates to control national currencies and public spending by means of two bureaucracies that have long outlived any usefulness that might have justified their creation: the International Monetary Fund (the “IMF”) and the International Bank For Reconstruction And Development (the “IBRD,” more commonly known as the “World Bank”).
Both of these entities are the brainchildren of the Allied Powers during the waning days of World War II, who met in Bretton Woods, New Hampshire to hammer out a system whereby wealthy nations would impose financial stability on what they saw as an intolerably turbulent world. Under the system they eventually settled upon, the IMF and the World Bank would establish their respective headquarters within a stone’s throw of each other in Washington, D.C., from which they would carry out interrelated yet distinct missions to elevate the dollar into the world’s primary means of exchange, quite literally the equivalent of gold. On the one hand, the IMF would labor to ensure that global currencies remained at “fixed” exchange rates decreed by the Bretton Woods Agreement: by lending dollars to governments worldwide, and by making all dollars exchangeable for U.S. gold at $35 per ounce, the IMF guaranteed that those governments possessed sufficient reserves of dollars and/or gold to prop up the artificial exchange rates notwithstanding the ebb and flow of currency demand. For its part, the World Bank would also lend money to foreign governments, but for the more targeted purpose of financing development projects within those nations (e.g., highways, dams, etc.).
Problems with this system become apparent in short order. The World Bank lends money to governments, not to private entities, which proves a most counterproductive method for fostering economic growth. Governments disburse such monies for reasons of patronage and political expediency, guaranteeing that corrupt insiders will receive the largesse, and accomplishing little to energize free-market innovation and competition. While this did not impair the World Bank’s ability to function, a congenital defect indeed plagued the IMF, whose avowed devotion to a fixed exchange rate and a gold standard stood in fatal opposition to each member nation’s cowardly avoidance of domestic gold standards. Nations the world over are addicted to printing surplus currency as a stealth tactic for raising revenue and paying off creditors, who receive their money before the inflationary effects of this counterfeiting can ripple through the economy and eat away at the savings of ordinary citizens. Politicians prefer this technique because the alternative – raising taxes – proves far too visible and disfavorable for doing business. A domestic gold standard would frustrate this chicanery, so nations have long since spurned the gold standard and opted for “fiat” currency that is backed by nothing more than a governmental promise to honor it. The United States itself switched to a full fiat currency when President Franklin Roosevelt took us off the gold standard during the New Deal. With the IMF now at its disposal, the United States could routinely print excess dollars and obligate other nations to expand their own currencies to maintain the mandated exchange rate, thereby masking the dollar’s own decreasing value. Like a boomerang, those excess dollars came back to haunt the United States because the dollar holders increasingly exercised their right to exchange the dollars for gold. Faced with rapidly vanishing gold reserves, President Nixon abolished the United States’ commitment to the international gold standard in 1971. Hence the very purpose of the IMF – maintaining fixed exchange rates pegged to gold – had vanished. Currencies now “floated” on the open market, and exchange rates among these currencies fluctuated wildly in response to the activities of international traders and currency speculators.
One would be a fool, of course, to entertain the notion that a bureaucracy would depart the scene along with its reason for existing. Consistent with all human experience, the IMF dug in its heels and strained to find (or fabricate) any plausible excuse for continuing forward – and it latched onto a sinister one indeed. Teaming up with the World Bank and some of America’s most prominent private banks, the IMF embarked on a scheme to keep the poor nations of the world in a state of financial crisis that would necessitate perpetual IMF assistance, and along with that assistance, conditions and controls that would forever enthrall those nations to the United States and to their own political rulers. Now off the gold standard, American banks found themselves awash in de-valued, surplus money that they would eagerly lend to foreign governments, such loans to finance development projects awarded to well-connected American companies. Corrupt and irresponsible foreign governments, of course, would borrow far more than they could ever hope to repay their American lenders, eventually falling into a crunch of dwindling dollar reserves. At this point the IMF comes to the rescue under the aegis of protecting the foreign currency’s value with an infusion of taxpayer-provided dollars that, rather conveniently, find their way into the pockets of the original lenders.
This international money-laundering system makes the World Bank and private lenders happy because they have a fail-safe method for making and collecting oversized loans. This makes the IMF happy because it appears to have an ongoing purpose for sucking taxpayer money away from its member nations. This makes major corporations happy because foreign governments can now afford to pay them princely sums to implement “development” projects. This makes Third-World politicians happy because they can continue to dispense money and favors to their friends. This makes Washington, D.C. happy because it showers taxpayer dollars around the globe with which to dictate other nations’ domestic policy via the IMF’s loan conditions.
The ones who feel unhappy are the very ones whom this system is purportedly designed to assist, namely the peoples of the developing world, since they endure the economic and political chaos wrought by perpetual indebtedness.
In 1994, for example, Mexico was in the process of defaulting on its enormous foreign loans when the IMF and the World Bank stepped in to help orchestrate a relief package of tens of billion dollars, money that provided relief only to the original lenders and did nothing to avert a serious recession in the Mexican economy. This sorry episode paved the way for a similar catastrophe in East Asia only a few years later, as lenders had absorbed the lesson that any unwise investment decisions they might make would be covered. Countries such as Thailand, South Korea, and Indonesia had enjoyed several years of foreign-financed growth until they found themselves drowning in a sea of debt and unable to re-pay, touching off a collapse in the region’s currency values and stock prices. Once again, the IMF and company swooped down to the rescue, further demolishing any incentive for sound financial planning. And once again, the IMF’s actions did not avert the turmoil: hundreds of businesses collapsed; millions of people plunged into poverty; and civil unrest in Thailand and Indonesia led to the ouster of both countries’ heads of state. Not long thereafter, Argentina found itself in a similar ordeal resulting from years of obscenely large loans and prior IMF bailouts, touching off a wave of bank withdrawals and capital flight. Riots erupted when citizens learned that the government was freezing their bank accounts to prevent a total collapse, and Buenos Aires witnessed vandalism, fires, and clashes with police (leaving several people dead). The president declared a state of emergency, but he soon had no choice but to flee the country and leave an imploding government behind him – which soon announced that it was defaulting on its debt of several hundred billion dollars. One notable exception to the default was the IMF, which received from Argentina’s government a complete re-payment of its prior loans. Although the private lenders did not fare so well, the IMF went to bat for these partners in crime and criticized Argentina’s government for not fully re-paying them as well. As the oligarchs quibbled over details, thousands of newly-impoverished Argentines darkened the streets in search of sustenance.
In the final analysis, the World Bank and the IMF embody the worst aspects of crony capitalism on the world stage: the fusion of big business with big government in a conspiracy to protect their mutual interests at the expense of ours. With the recent meltdown in financial markets worldwide – a direct result of governmental distortions of the economy – the political class has spared no expense to bail out its well-heeled friends on Wall Street with taxpayer money, and they have also come forward with a proposal for even greater control over economic affairs than currently exists. Timothy Geithner, president of the Federal Reserve Bank of New York, expressed his frustration at “a confusing mix of diffused accountability, regulatory competition, and a complex web of rules that create perverse incentives and leave huge opportunities for arbitrage and evasion.” To deal with this situation, he opined that “the Fed has broad responsibility for financial stability not matched by direct authority, and the consequences of the actions we have taken in this crisis make it more important that we close that gap.” Otherwise stated, Geithner (who recently became the Secretary of the Treasury) imagines that the Fed has a responsibility greater than the sum of its powers, so he wishes “to close the gap” between his imagination and the frustrating reality he confronts. Echoing these sinister sentiments, the U.N.’s 2008 World Economic And Social Survey proclaimed that “[m]arkets cannot be left to their own devices in respect of delivering appropriate and desired levels of economic security,” a conclusion that the IMF heartily concurred with in its own report. And more recently, Treasury Secretary Henry Paulson openly proclaimed that American taxpayers should foot the bill to establish the federal government’s hegemony over foreign banks by bailing them out as well. When answering the question whether Americans really wanted to spend their tax dollars this way, Paulson had the gall to state the following:
Both of these entities are the brainchildren of the Allied Powers during the waning days of World War II, who met in Bretton Woods, New Hampshire to hammer out a system whereby wealthy nations would impose financial stability on what they saw as an intolerably turbulent world. Under the system they eventually settled upon, the IMF and the World Bank would establish their respective headquarters within a stone’s throw of each other in Washington, D.C., from which they would carry out interrelated yet distinct missions to elevate the dollar into the world’s primary means of exchange, quite literally the equivalent of gold. On the one hand, the IMF would labor to ensure that global currencies remained at “fixed” exchange rates decreed by the Bretton Woods Agreement: by lending dollars to governments worldwide, and by making all dollars exchangeable for U.S. gold at $35 per ounce, the IMF guaranteed that those governments possessed sufficient reserves of dollars and/or gold to prop up the artificial exchange rates notwithstanding the ebb and flow of currency demand. For its part, the World Bank would also lend money to foreign governments, but for the more targeted purpose of financing development projects within those nations (e.g., highways, dams, etc.).
Problems with this system become apparent in short order. The World Bank lends money to governments, not to private entities, which proves a most counterproductive method for fostering economic growth. Governments disburse such monies for reasons of patronage and political expediency, guaranteeing that corrupt insiders will receive the largesse, and accomplishing little to energize free-market innovation and competition. While this did not impair the World Bank’s ability to function, a congenital defect indeed plagued the IMF, whose avowed devotion to a fixed exchange rate and a gold standard stood in fatal opposition to each member nation’s cowardly avoidance of domestic gold standards. Nations the world over are addicted to printing surplus currency as a stealth tactic for raising revenue and paying off creditors, who receive their money before the inflationary effects of this counterfeiting can ripple through the economy and eat away at the savings of ordinary citizens. Politicians prefer this technique because the alternative – raising taxes – proves far too visible and disfavorable for doing business. A domestic gold standard would frustrate this chicanery, so nations have long since spurned the gold standard and opted for “fiat” currency that is backed by nothing more than a governmental promise to honor it. The United States itself switched to a full fiat currency when President Franklin Roosevelt took us off the gold standard during the New Deal. With the IMF now at its disposal, the United States could routinely print excess dollars and obligate other nations to expand their own currencies to maintain the mandated exchange rate, thereby masking the dollar’s own decreasing value. Like a boomerang, those excess dollars came back to haunt the United States because the dollar holders increasingly exercised their right to exchange the dollars for gold. Faced with rapidly vanishing gold reserves, President Nixon abolished the United States’ commitment to the international gold standard in 1971. Hence the very purpose of the IMF – maintaining fixed exchange rates pegged to gold – had vanished. Currencies now “floated” on the open market, and exchange rates among these currencies fluctuated wildly in response to the activities of international traders and currency speculators.
One would be a fool, of course, to entertain the notion that a bureaucracy would depart the scene along with its reason for existing. Consistent with all human experience, the IMF dug in its heels and strained to find (or fabricate) any plausible excuse for continuing forward – and it latched onto a sinister one indeed. Teaming up with the World Bank and some of America’s most prominent private banks, the IMF embarked on a scheme to keep the poor nations of the world in a state of financial crisis that would necessitate perpetual IMF assistance, and along with that assistance, conditions and controls that would forever enthrall those nations to the United States and to their own political rulers. Now off the gold standard, American banks found themselves awash in de-valued, surplus money that they would eagerly lend to foreign governments, such loans to finance development projects awarded to well-connected American companies. Corrupt and irresponsible foreign governments, of course, would borrow far more than they could ever hope to repay their American lenders, eventually falling into a crunch of dwindling dollar reserves. At this point the IMF comes to the rescue under the aegis of protecting the foreign currency’s value with an infusion of taxpayer-provided dollars that, rather conveniently, find their way into the pockets of the original lenders.
This international money-laundering system makes the World Bank and private lenders happy because they have a fail-safe method for making and collecting oversized loans. This makes the IMF happy because it appears to have an ongoing purpose for sucking taxpayer money away from its member nations. This makes major corporations happy because foreign governments can now afford to pay them princely sums to implement “development” projects. This makes Third-World politicians happy because they can continue to dispense money and favors to their friends. This makes Washington, D.C. happy because it showers taxpayer dollars around the globe with which to dictate other nations’ domestic policy via the IMF’s loan conditions.
The ones who feel unhappy are the very ones whom this system is purportedly designed to assist, namely the peoples of the developing world, since they endure the economic and political chaos wrought by perpetual indebtedness.
In 1994, for example, Mexico was in the process of defaulting on its enormous foreign loans when the IMF and the World Bank stepped in to help orchestrate a relief package of tens of billion dollars, money that provided relief only to the original lenders and did nothing to avert a serious recession in the Mexican economy. This sorry episode paved the way for a similar catastrophe in East Asia only a few years later, as lenders had absorbed the lesson that any unwise investment decisions they might make would be covered. Countries such as Thailand, South Korea, and Indonesia had enjoyed several years of foreign-financed growth until they found themselves drowning in a sea of debt and unable to re-pay, touching off a collapse in the region’s currency values and stock prices. Once again, the IMF and company swooped down to the rescue, further demolishing any incentive for sound financial planning. And once again, the IMF’s actions did not avert the turmoil: hundreds of businesses collapsed; millions of people plunged into poverty; and civil unrest in Thailand and Indonesia led to the ouster of both countries’ heads of state. Not long thereafter, Argentina found itself in a similar ordeal resulting from years of obscenely large loans and prior IMF bailouts, touching off a wave of bank withdrawals and capital flight. Riots erupted when citizens learned that the government was freezing their bank accounts to prevent a total collapse, and Buenos Aires witnessed vandalism, fires, and clashes with police (leaving several people dead). The president declared a state of emergency, but he soon had no choice but to flee the country and leave an imploding government behind him – which soon announced that it was defaulting on its debt of several hundred billion dollars. One notable exception to the default was the IMF, which received from Argentina’s government a complete re-payment of its prior loans. Although the private lenders did not fare so well, the IMF went to bat for these partners in crime and criticized Argentina’s government for not fully re-paying them as well. As the oligarchs quibbled over details, thousands of newly-impoverished Argentines darkened the streets in search of sustenance.
In the final analysis, the World Bank and the IMF embody the worst aspects of crony capitalism on the world stage: the fusion of big business with big government in a conspiracy to protect their mutual interests at the expense of ours. With the recent meltdown in financial markets worldwide – a direct result of governmental distortions of the economy – the political class has spared no expense to bail out its well-heeled friends on Wall Street with taxpayer money, and they have also come forward with a proposal for even greater control over economic affairs than currently exists. Timothy Geithner, president of the Federal Reserve Bank of New York, expressed his frustration at “a confusing mix of diffused accountability, regulatory competition, and a complex web of rules that create perverse incentives and leave huge opportunities for arbitrage and evasion.” To deal with this situation, he opined that “the Fed has broad responsibility for financial stability not matched by direct authority, and the consequences of the actions we have taken in this crisis make it more important that we close that gap.” Otherwise stated, Geithner (who recently became the Secretary of the Treasury) imagines that the Fed has a responsibility greater than the sum of its powers, so he wishes “to close the gap” between his imagination and the frustrating reality he confronts. Echoing these sinister sentiments, the U.N.’s 2008 World Economic And Social Survey proclaimed that “[m]arkets cannot be left to their own devices in respect of delivering appropriate and desired levels of economic security,” a conclusion that the IMF heartily concurred with in its own report. And more recently, Treasury Secretary Henry Paulson openly proclaimed that American taxpayers should foot the bill to establish the federal government’s hegemony over foreign banks by bailing them out as well. When answering the question whether Americans really wanted to spend their tax dollars this way, Paulson had the gall to state the following:
That's a distinction without a difference to the American people. The key here is protecting the system. . . . We have a global financial system and we are talking very aggressively with other countries around the world and encouraging them to do similar things, and I believe a number of them will.These statements leave no doubt as to the totalitarian mindset at play here: national boundaries mean nothing; governments should conspire to rule their own citizens as well as each other's; “financial stability” and the “appropriate levels of economic activity” on the world stage are to be determined by politicians, not by free people pursuing their own ends. We are witnessing the creation of a global New Deal that shreds the Constitution even more than previously imagined and will have no one to “bail it out” when it too goes bankrupt.
No comments:
Post a Comment