The US Attempts to Retain Control Over the Financialized Playground

I’m a big fan of Kevin Phillips’ arguments about how increased financialization of their economies lead to the decline of the Spanish, Dutch, and British empires in succession; his latest book warned that Wall Street crash might represent our tipping point. But I’ve been wondering what happens to a globalized world that is that financialized, as we have now. My impression is that it might be different this time around, partly because the world is so interconnected that most of the world has, for better or worse, been integrated into the same financialized system.

As James Galbraith described in his book Inequality and Instability, the the last several decades can be understood as the US first extracting wealth from the rest of the world, and only then turning to the American consumer to do to it what it had already done to developing countries.

First, the massive rise of inequality in the global economy from 1980 to 2000, with a peak in most countries–including the United States–in the millennial year, is a fundamental reflection of the concentration of income and wealth among the richest of the rich, and the corresponding financial fragility affecting everyone else. Crises, and especially debt crises, are thus not new or sudden; in global perspective we see that they have cascaded across the world for a generation, hitting Latin America and African in the early 1980s, the Soviet Union and its satellites in the late 1980s and through the 1990s, and much of Asia in the late 1990s.

Through this period inequality rose in the United States, but the prevalence of external crises also meant that the United States benefited throughout from its position as a refuge for capital. In the 1990s capital flowed in, especially to the benefit of investors in the technology sectors, whose investment euphoria produced a general nationwide prosperity right up to the initial crash of the technology sector–and its NASDAQ stock index–in March and April 2000.

The problem facing the incoming administration of George W. Bush in January 2001 was thus twofold. Externally, there was little scope remaining for extracting capital from the rest of the world. Every region that was open to crisis, with the possible exceptions of China and India, had already had one. Internally, the appeal of the major American leadership sector had worn out.

Galbraith describes how Bush tried first war and then American consumers to sustain growth, which brought about the financial crisis.

The financial crisis (and the world economic crisis it engendered) thus represented not so much the natural outgrowth of rising inequality as a further phase; it was the consequence of a deliberate effort to sustain a model of economic growth based on inequality that had, in the year 2000, already ended. By pressing this model past all legal and ethical limits, the United States succeeded in prolonging an “era of good feeling,” and in ensuring that when the collapse came, it would utterly destroy the financial sector.

In short, you can’t separate the current global system from the US efforts to sustain its financialized empire.

But the big players in the developing world are getting cranky with US efforts to sustain its hegemony over that financialized system.

The view was expressed by Wang Jisi, a high level Chinese insider, in this Brookings report documenting the roots of Chinese-American distrust (see also this NYT article on the report).

Since 2008, several developments have reshaped China’s views of the international structure and global trends, and therefore of its attitude toward the United States. First, many Chinese officials believe that their nation has ascended to be a firstclass power in the world and should be treated as such. China has successfully weathered not only the 1997-98 Asian financial crisis but also the 2008-09 global financial crisis; the latter, in Chinese eyes, was caused by deep deficiencies in the U.S. economy and politics.


Second, the United States is seen in China generally as a declining power over the long run. America’s financial disorder, alarming deficit and unemployment rate, slow economic recovery, and domestic political polarization are viewed as but a few indications that the United States is headed for decline. To be sure, China’s top leadership has been sober-minded enough to observe the resilience of U.S. power and not to have reached the conclusion that America’s superpower status is seriously challenged as of now.


Third, from the perspective of China’s leaders, the shifting power balance between China and the United States is part of an emerging new structure in today’s world. While the Western world at large is faced with economic setbacks, emerging powers like India, Brazil, Russia, and South Africa join China in challenging Western dominance. These countries are referred to collectively as the BRICS and BASIC, with their leaders meeting regularly.7 Their coordination of economic and foreign policies serves as a counterweight to Western predominance. The G20 is replacing the G8 as a more effective and probably more viable international mechanism. The IMF, the World Bank, and other international organizations and regimes now have to take the aspirations and interests of the emerging powers more seriously.

Fourth, it is a popular notion among Chinese political elites, including some national leaders, that China’s development model provides an alternative to Western democracy and experiences for other developing countries to learn from, while many developing countries that have introduced Western values and political systems are experiencing disorder and chaos. The China Model, or Beijing Consensus, features an all-powerful political leadership that effectively manages social and economic affairs, in sharp contrast to some countries where “color revolutions” typically have led to national disunity and Western infringement on their sovereign rights.


It is strongly believed in China that the ultimate goal of the United States in world affairs is to maintain its hegemony and dominance and, as a result, Washington will attempt to prevent the emerging powers, in particular China, from achieving their goals and enhancing their stature. According to typical Chinese understanding of world history, American politicians are true believers of “the law of the jungle,” and their promotion of democracy and human rights are in reality policy tools to achieve goals of power politics. This cynicism is so widespread that no one would openly affirm that the Americans truly believe in  what they say about human rights concerns.

And it was evident in the tensions underlyng last week’s visit by Brazil’s President Dilma Rousseff to the White House.

But the friendliness belied a sense that the United States, whose once-dominant sway in Latin America is ebbing, and Brazil, the hemisphere’s rising power, still do not see eye to eye on a range of important issues, from Middle East diplomacy to trade with Cuba and Brazil’s ambitions of obtaining a permanent seat on the United Nations Security Council.
The strength of Brazil’s currency, the real, has been a blessing for Brazilians snapping up properties in Miami and New York. At the same time, the real’s vigor has limited the competitiveness of Brazilian exporters by making their products costlier in foreign markets.
Yet the leaders’ eyes rarely met, and Ms. Rousseff rarely looked at Mr. Obama as he spoke. He looked intently at her during her remarks, nodding in agreement at times. But he seemed to bristle when she expressed concern that America’s “monetary expansion policy” could impair growth in emerging economies like Brazil’s. Monetary policy is the responsibility of the Federal Reserve; the White House and Congress deal with fiscal policy.

Rousseff repeated her complaints today about US policies inflating the value of the real today at the Summit of the Americas; she was seconded by Colombia’s President Juan Manuel Santos.

Which is why I’m so intrigued by the development Nicholas Shaxson reports–an effort to prevent the UN Conference on Trade and Development from engaging in research on finance so as to reserve such tasks exclusively to the World Bank and IMF. As a letter signed by a bunch of former senior UNCTAD officials explains, the developed countries will reportedly attempt this week to changed UNCTAD’s mandate to prevent it from doing macroeconomic research.

Since its establishment almost 50 years ago at the instigation of developing countries UNCTAD has always been a thorn in the flesh of economic orthodoxy. Its analyses of global macro-economic issues from a development perspective have regularly provided an alternative view to that offered by the World Bank and the IMF controlled by the west.
Now efforts are afoot to silence that voice.


As otherwise unfavourable commentators have occasionally admitted, UNCTAD was ahead of the curve in its warnings of how global finance was trumping the real economy, both nationally and internationally. It forecast the Mexican tequila crisis of 1994/5. It warned of the East Asian crisis of 1997 and the Argentinian crisis of 2001. It has consistently sounded the alarm of the dangers of excessive deregulation of financial markets. It has stressed the perils of rapid, nonreciprocal trade liberalization by developing countries. UNCTAD economists have not had to suffer the psychology of denial so prevalent in other organisations.


No organisation correctly foresaw the current crisis, and no organisation has a magic wand to deal with present difficulties. But it is unquestionable that the crisis originated in and is widespread among the countries that now wish to stifle debate about global economic policies, despite their own manifest failings in this area.

Because of the crisis, we do now have a better explanation of the inter-relationships between the real economy and the world of finance. Those explanations are now a good deal closer to what UNCTAD has been saying for nigh on three decades about the dangers of finance-driven globalization. And it is precisely in its analysis of interdependence that UNCTAD brings added value to an understanding of how the functioning of the global economy impacts on the majority of the world’s population who live in developing countries.

The Group of 77 plus China has also issued a response, calling for stark change in response to the crash.

It is therefore of no comfort that we have seen strong opposition from our partners for one of the central themes running through the work and engagement of our Group: that the global economic and financial crisis marks for once and for all the end of the bad old days, and perhaps the dawn of an international regime of global economic governance based on the highest principles and ideals of the United Nations, including sovereignty, equality, and mutual respect. Instead, we see behaviour that seems to indicate a desire for the dawn of a new neocolonialism. We cannot, we will not, accept this.

We firmly believe that UNCTAD XIII can be a contribution to a new beginning. We firmly believe that the theme of development-centered globalization presents an opportunity to articulate a vision of development based on equality, based on a differentiated approach to development, and based on equal respect for all. We still believe this is possible.
Unfortunately, despite being the beneficiaries and the demandeurs, we feel increasingly marginalized by our partners especially when they seem to deny us our own priorities. Perhaps this is partly our own fault. Perhaps, in our desire for consensus, we have accommodated too much and this good faith was misunderstood, and abused. Perhaps this should end now.

One of the key issues is efforts on the part of the Fed to drive down our currency, which in turn has been part of the impetus behind resurgent manufacturing in this country.

But I also wonder whether the dollar reserve isn’t coming to a head more quickly than we imagine (indeed, I’ve wondered whether we’re pursuing such an idiotic policy in the Middle East to keep the Saudis firmly committed to the dollar). With the collapse of the Euro, there’s no ready substitute. But China especially could accelerate our decline by shifting away from the dollar.

Whatever happens, things may start to get far more interesting in the immediate future.

46 replies
  1. eric silverstein says:

    galbraith’s first quotation_second paragraph third sentence “from its position as a refute for capital.” refuge???

  2. MadDog says:

    As I’m probably as relatively ignorant about the major macroeconomic policy players (IMF, the World Bank, etc.) as your average American, I shall ask my questions with more than a wee bit of timidity:

    If, as they themselves argue, China, Brazil, India, et al. are unhappy with the state of play, what realistically are their suggested alternatives?

    For example, if the Dollar and its policy promoters/managers are unsuitable, and further, that the Euro has failed the test for the immediate future, what does China suggest as a realistic alternative?

    I’m unclear whether the folks complaining (rightly or wrongly, or somewhere in between) have anything more to offer than those very complaints.

    I hope my questions aren’t interpreted as a knee-jerk nationalistic bias for that is not my intent. I have zero affinity for any MOTU institution, private or governmental. I’m just unsure, and perhaps overly ignorant, as to whether anyone has proffered a real solution.

  3. emptywheel says:

    @MadDog: I think they’d all object to quantitative easing, which lowered the value of the dollar (Brazil has FAR more to complain about this front than China, but China gets to weigh in bc they’re the ones who can make us do what they want). I think the developing nations would also want some currency controls, so money isn’t flowing in and out of a country so quickly, leading to instability.

    Point being, if flows were steady and exchange rates weren’t juiced, Brazil would really be building some long term stability. As it is, they’re really exposed to losing that investment overnight, all for the favor of havign to compete against a deflated dollar.

  4. MadDog says:

    Partially OT – Can I say that I appreciate EW’s delving into this subject which is mostly unfamiliar territory for your’s truly.

    The MOTUs who play in the world’s macroeconomic policy sandbox have a tendency to ruminate, when they ruminate in public at all, in a manner that puts even the hardiest soul to sleep. And they apparently like it just that way.

    So I am grateful that EW is willing and courageous enough to peek under their apparel and tell us what she sees. Rather her than me. *g*

    So while EW is pouring through some of the driest and most boring writing ever known to our species, I am on more familiar ground.

    I just started reading McDermott’s and Meyer’s “The Hunt for KSM”. I expect that our host also has it on her reading list.

    As I read through the first pages of the Preface, the authors provided a set of tables listing “The Hunters” and “The Hunted”.

    Already the authors have me Googling. In the table called “The Hunted”, the authors repeatedly refer to someone called “Abdul Basit”. So and so is the brother of “Abdul Basit”. So and so is a partner of “Abdul Basit”. Unfortunately, the authors never identify who “Abdul Basit” is in their table of “The Hunted”.

    I guess I’ll just have to persevere in my reading and Googling. *g*

  5. emptywheel says:

    @MadDog: Yup, read it. It was pretty good–best at talking about the people who worked their ass off in Pakistan to find these people.

  6. MadDog says:

    @emptywheel: This ignoramus had to refer to Wiki’s definition of quantitative easing in order to ensure I had a minimal handle on what it actually is.

    My eyes glazed over, but I think I’ve got a glimmer of what the gist is.

    Central Banks like our Federal Reserve find themselves in a situation where the market interest rates they charge on the money they loan (and print) are close to or effectively zero.

    While trying to expand one’s economy further, they are unable to continue to lower the market interest rates they charge. So instead of just printing more money and selling more government bonds, they buy financial assets from banks and other private institutions.

    This means, theoretically, that banks and other private institutions have more money to loan thus helping to further expand one’s economy.

    All of that sounds super-duper (as those boring economists would like us all to believe), but… *g*

    Is the problem that what the Federal Reserve bought in its quantitative easing literally amounts to the junk that banks and other private institutions had on their books thereby burying their dirty laundry at public expense, or something or things else?

  7. emptywheel says:

    @MadDog: No, thought the Fed did a lot of that too. It just floods the world with dollars, is the easiest explanation (though badly oversimplified).

  8. MadDog says:

    @emptywheel: I can see that would irritate the holders of massive amounts of dollars such as China. The value of that holding would be devalued.

    Did our quantitative easing do more than that? If I remember correctly, there was more than a few miffed folks worldwide who objected.

    I wish I was more informed in this arena, but I’m not. I’ve a brother who spends almost all of his blog time at places like CalculatedRisk, and my youngest sister has spent over 20 years at Ameriprise as a Marketeer of their financial products to large organizations like Employee Pension Funds.

    I can’t say that osmosis helped me the least little bit. *g*

  9. emptywheel says:

    @MadDog: The big problem for Brazil (less so for China bc it holds the RMB steady) is that it makes the dollar cheap by comparison. The big reason manufacturing has returned to the US (not the only one, but sort of the kicker) is bc the dollar has gotten so cheap it takes away the incentive to manufacture overseas. And taht comes at precisely the period when Brazil would be taking off (they’re doing well anyway, but Brazil is a direct competitor to us on a lot of things, like Ag, so having to compete with us when we’ve manufactured an artificial advantage must be maddening).

    I’m particularly sensitive to the Brazilian stuff bc of the way we badly undercut Argentine efforts after WWII. not only did we forgive–for them–the debt England owed them, which was substantial, but we we the one source of investment and made sure they coudln’t import to the US–again, they were direct competitors on a lot of Ag goods–and therefore remained in hock.

    That’s the problem–it’s a way to turn a country that actually does have a competitive advantage into a debtor.

  10. orionATL says:

    “…That’s the problem–it’s a way to turn a country that actually does have a competitive advantage into a debtor…”

    then there’s debtor u.s. and china.

  11. MadDog says:

    @emptywheel: I can understand (I think) the manufacturing scenario. If you are investing in a manufacturing plant, your costs to do so in the US have gone down in comparison to doing so overseas.

    How does it play out for agriculture?

    And don’t mind me. I’m doing my head-scratching real-time. *g*

    I could imagine a similar investment set of choices for growing corn (here in the US or in Brazil), but that doesn’t seem like the primary focus.

    By that I mean, the agriculture scenario is less about future investment and more about selling of existing product.

    Again, real-time stream of consciousness. *g*

    Before quantitative easing:

    US corn is $10 per bushel.
    Brazil corn is $9 per bushel.

    After quantitative easing:

    US corn is still $10 per bushel.
    Brazil corn is still $9 per bushel.

    How does our quantitative easing/devaluing of the dollar make Brazilian corn less attractive to buy?

    Is it because Brazil has to exchange its currency the real for dollars?

    If the Brazilians are selling their corn on the world market for US dollars, why would a currency exchange between their real and dollars be an issue for them?

    By that I mean aren’t the customers for Brazilian corn the ones who are paying for it in dollars?

    As you can tell, I’d never make the grade as an economist. Probably not even as a bank teller. *g*

  12. emptywheel says:

    @MadDog: Right, they may be paying in dollars or, since the dollar is the reserve currency, the real is relatively more expensive. You might find China or Japan choosing to buy corn (actually soybeans is where we compete most aggressively) from the US as opposed to Brazil just bc it’s cheaper.

    Or rather, the cost per ton of soybeans is issued in dollars, and where that used to be 2 real to the dollar now it’s 1.5 real to the dollar.

    And one of the problems–since you raised Ag calendars–is that this happens on a quarter to quarter basis–the rates are so fluid that you can’t plan a year out, much less 5.

    Again, I’m simplifying, but I think that’s generally fair.

  13. MadDog says:

    @emptywheel: Ok, so it’s less about the bushel cost of corn/soybeans, and more about the exchange rates between currencies.

    Or should I say that the fundamentals of the world bushel cost of corn/soybeans is ultimately affected by the exchange rates between currencies?

    Folks will still buy US or Brazilian corn/soybeans, but when Brazil buys other stuff itself, which is usually priced in US dollars, it finds that its real currency buys less US dollars than before hence a negative impact on its trade balance.

    Again as you’ve said, this is all simplified, but I think I’m tenuously grasping it. *g*

  14. MadDog says:

    One other aspect of your post EW brought a question to my mind. That was the title.

    I have no doubt that there are US MOTUs seeking to retain supremacy in the financialized playground, but in a broader sense, isn’t it the entire West who are the macroeconomic nobles?

    That is, the Brits, the French, the Germans, the Japanese, etc. In essence, the developed versus the developing (or the haves versus the wanna have).

    Though there are of course internecine rivalries between these international MOTUs, the Western MOTUs generally play on the same side of the pitch.

  15. MadDog says:

    Reading up on aspects of this topic like the BRIC (Brazil, Russia, India and China) entry in Wiki is like stepping into quicksand.

    I find there is something called the G2 – The Group of Two consisting of the US and China.

    I get the feeling of watching a bunch of crooks plotting their next heist. And then some of those crooks getting together separately to plot about ripping off their fellow crooks after the heist.

    Sheesh! *g*

  16. emptywheel says:

    @MadDog: Not really. Had the EU really succeeded, yeah, that’d be true. But with the EU what it is, what’s really happening is the US is trying to sustain the old rules–which old advantagees like the UK and Germany will defend–but they’re the ones who will most benefit.

    And ultimately the US has the competitiveness problem. We’re huge and rich but we don’t really export anything (aside from non-GMO ag, that is) that doesn’t depent on IP, which is of course all custom, and not reality. The Germans do a bit better job of things.

    But that’s part of the problem. IP is just a custom. And India and Brazil and China are all abiding by it–to the extent they are–bc we bully them and to be nice. They certainly have the tech ability to recreate our goods and services cheaply. At some point they’ll have diminished reason to do so.

  17. MadDog says:

    @emptywheel: Well, they’re our junior partners in the heist at least.

    Seriously, though I agree with you that the EU is facing an identity crisis. And with you on the US export mirage.

    IP, or Intellectual Property for the curious, aside from our agricultural products, is about the only thing that the US creates any longer, and I do agree with you EW that abiding by its ownership, particularly by China to the extent that it does, is at best, self-policed.

    And since we don’t really secure our computer networks, private and government, that US IP which resides on those networks, and is the only crown jewel we have left, is of course a critical US vulnerability.

    If all we have left (most places can do agriculture) is our ideas, and said ideas can be stolen with childish ease, then a manic attempt to retain control over that financialized playground is all the more understandable.

    And somewhat OT, but as I was listening to music all the while I’ve been commenting on this post, it came to me that this tune might be appropriate for this saga of the old being challenged by the new:

    Joe Satriani – Two Sides To Every Story

  18. thatvisionthing says:

    @emptywheel: Is this wrong then?

    …in effect Q.E. is still a transfer of wealth from those who hold any of the currency to those given the new stuff. In other words, more cash from you to the bankers.

    Actually if QE had been used genuinely to stimulate the economy it would have been a marvellous thing. With £350 billion we could have built an enormous amount of social housing on brownfield sites, converted derelict high streets into housing, built the Severn barrage and a high speed rail link from London to Aberdeen and still have had change. We could have reopened the steel industry to do it. a thousand manufacturing firms could have been re-tooled. Millions could have been employed. The entire logic of economic depression could have been turned around.

    Instead we gave more cash to the bankers.

    Like, why do we keeping doing that?

    I’m not understanding much here (of course). But I’m trying to get some kind of grasp on why there is so much work to be done and so many people needing jobs and yet we keep giving the money to MOTU crooks who make it disappear.

    Also, do we need to care if we export and compete worldwide? Why can’t we all just do the physician heal thyself thing and take care of our own houses and rebuild local economies?

    What about economies NOT based on unsustainable development and growth? Has China got better ideas?


  19. emptywheel says:

    @thatvisionthing: No, Murray is right. QE ends up juicing stock markets but basically stealing from the people who have money in savings, rather than stocks. And he’s absolutely right that the other alternative would have been to give this $$ to society rather than banksters. (One alternative path to save the economy would have been to give all the money BANKS got to the people who were underwater on homes, thus allowing BOTH the banks to get paid but also people to keep their houses. Didn’t happen.)

    They don’t say it, but one reason the West is pushing austerity is to drive down wages to better be able to compete with cheap labor in developing countries. They haven’t thought through either what happens when those cheaper wages mean the consumer spending that used to drive the economy doesn’t anymore, AND that those consumers become increasingly unable to afford things like health care, which is a big part of our economy.

    And yes, ultimately the world needs to come up with an alternative to growth (though UNCTAD assumes growth too), not least bc until we get alternative energies growth also means climate change. But even at the level of food (perhaps especially), we now know that Ag production will be more sustainable if it’s done a smaller, more localized scale, and that it can serve part of an internally viable economy, rather than the driver of commodity exports that will (or is supposed to but doesn’t) bring in cash to allow other kinds of investments.

    I actually think that Brazil–and Latin America in general–has more sustainable ideas than China (and a more manageable population). But it involves refusing to get into the dependent debt-driven relationships of the 1980s, and that means refusing to do what the US wants.

    Latin America is also pushing hard for decriminalization of drugs, both bc that will lower the pressure to go into drug versus more positive production, and also because it guts the legitimacy of the central govt. The US doesn’t want that either, probably bc we use it as a means of population control (AKA incarceration) for the urban underclass we haven’t figured out how to provide for in the economy, and presumably partly bc it’s the reason we use for basically conducting special forces ops in their countries.

  20. Compound F says:

    May I recommend you dig into the archives of Ilargi Meijer and Nicole Foss (Stoneleigh) over at Helluva website. Excellent primers.

    I tend to like your work a lot, but this was an unusual and unexpected post, which I also liked. Strikes at the root of all the nitty gritty you do so well.

  21. Compound F says:

    …the the last several decades can be understood as the US first extracting wealth from the rest of the world, and only then turning to the American consumer to do to it what it had already done to developing countries.

    Speaking of wealth pumps, have you been keeping up with the recent essays on empire by It’s really bully stuff. I enjoy his equanimity. He’s not a “hair on fire” person in the least, but his version of history really is “do tell.”

  22. Compound F says:

    For example, I think the Archdruid clears-up Galbraith’s “last several decades” gaffe. Yeah, Wall Street crossed the Rubicon most blatantly in the last several decades, but the empire has always been a wealth pump from periphery to center. Average Americans simply no longer matter to the centers of power.

  23. emptywheel says:

    @Compound F: Thanks, I’ll check them out.

    And yeah, I think you can point to the float of the dollar as a key point, when we decided we were no longer going to extract via Cold War presence but instead by “free” “trade” and debt. But it has been going on much longer.

    One thing I’ve always been fascinated by is the way we originally used the UN as our cover, but then–as the non-aligned nations tried to defend info-sovereignty in their countries–we abandoned the UN in favor of trade organizations. This seems to be a fascinating part of that chronology.

  24. PeasantParty says:

    The US has played Economic Hitman with every country on the globe except for China and Russia. They have done this with the help of the IMF and the UN, either by the CIA or our Military. The hardest lesson for American citizens to learn is that the Power Elites have done this same dirty deed to the US.

    The Power Elites have created their own eco-system (economic system), where not only do they hold all the assests and monies, they are also being subsidized to do this through our government with our own tax dollars. The reason that US citizens have become the enemy and the need to constantly surveil is to keep them from revolting against their oppressors.

  25. lefty665 says:

    @20 thatvisonthing “Like, why do we keeping doing that?”

    One reason is that QE is monetary policy, unilaterally executed by the Fed.

    Building things, investing in infrastructure… is fiscal policy.

    Fiscal policy is Congress and the Administration. Obama has never had any stomach for fiscal policy that would actually help the country recover. That starts with his 2009 “stimulus” package that was too small by half, and nearly half of that was tax cuts, which do not build things or stimulate the economy.

    The result was it stopped the free fall, but was not big enough to actually stimulate recovery. It’s more “Who’s on first?”. You know who, the fat cats and the finance sector once again made out like bandits.

  26. What Constitution says:

    I lost interest at “we predicted the Tequila Crisis of 1994.” Either that, or I was just overcome by the image of Don Quixote tilting at the windmills. Yet all the while, the one line that was ringing in my ears was Gus Grissom in The Right Stuff: “Fuckin’ A, Bubba.” Guys like Geithner will destroy the world before they’ll allow it to equalize along lines advocated by the “non-American opinions” arrayed here. We’re watching that happen. Not proud of it.

  27. Jeff Kaye says:

    Off the economic topic somewhat, but quoted in your posting, I’d say you don’t have to be a Cinese bureaucrat to believe that US “promotion of democracy and human rights are in reality policy tools to achieve goals of power politics. This cynicism is so widespread that no one would openly affirm that the Americans truly believe in  what they say about human rights concerns.”

  28. person1597 says:

    The historical perspectives seem to be generally overlooked — except as a remote notion whose specter is raised as a counterpoint. The immediacy of the politics tends to relegate “reasonableness” to the mulch pile when there is a partisan row to hoe.

    Dems say reducing unemployment should be the Fed’s focus. Tories, er, conservatives fear Weimar-style inflation (when it serves their purpose) as the outcome of the Fed’s ability to increase the money supply to counteract deflationary spirals.

    Both parties seem frustrated with the Fed’s so-called dual mandate (to maximize employment and control cost-push inflation — aka “price stability”). Perhaps the frustration is that the Fed’s supposed independence can only be compromised by the sitting President, thus the caterwauling. Mrrroowww! SSSSSSSSS! Haaaaaaeeeeeerrraaawwwww!

    Really, it is too bad that conservatives have lost the ability to be objective. It is all about the “messaging” and nothing about actual governance. Long live the Tea-Party — your message resonates throughout FoxNewsLand. Go partisan zealots! Git yer RAGE on!

    Is there a silver lining from the upcoming fiscal paralysis we are facing? The trick is to maintain the socio-economic status-quo in the face of an urgent need to reallocate investment prerogatives. The impetus for innovation can migrate away from the financial domain back to the historically productive area of technological innovation.

    The advance of semiconductor technology has brought more “price stability” to the information business’s price-performance trajectory than any banking innovation ever will. The cost of money is one thing, the cost of computational efficacy is quite another.

    A buck is just a buck, but yesterday’s bazillion instructions per second was just another benchmark, a milestone along the way to today’s Teraflop. Square that and what do you get? Your very own Yattaflop-Nooscruiser! Kind of like Mr Toad circumnavigates all known human thoughts in less than the amount of time light travels an inch.


    Why not?

    And yes, it will be downloadable.

    If the paths to progress are left untrodden, it’s only because we lost track of where we’ve been and how we got to where we are. There is no “forward” when there is no recognition of the past’s role in how we got here. The problem is always asymmetrical information. You’re either “in the know” or “left behind”.

    It isn’t easy being indy. But at least you get to think for yourself — with the help of a few history lessons from EW that put things into some four dimensional perspective!

  29. PeasantParty says:

    @person1597: @person1597: Good One! We have been circling the Medieval stages the past 40 years. Some call it feudal, others call it serfdom, still others call it Authoritarian. All are the same end results and Americans have placed too much trust in their leadership.

  30. emptywheel says:

    @person1597: Incidentally, William Greider just wrote a fascinating article (for him, especially) piece on what the Fed could do to try to push the govt to do what it can fiscally.

    The Federal Reserve should act because nobody else will. That sounds unfair, since the Fed has already taken heavy flak for poaching beyond its traditional domain. Further experiment will enrage right-wing critics, but the central bank is running out of options. Monetary policy-makers say they face formidable legal limits that people like me don’t appreciate. But the Fed still has enormous leverage. I believe what Wall Street financiers tell me: the Fed can usually find a way to accomplish what it really wants to do. In this case, it can break the political impasse and goad other parties into taking action. That does not require it to violate the Federal Reserve Act. It does require reinterpretation of the vaguely defined “dual mandate,” which has always been heavily biased in favor of Wall Street finance over the real economy. If stagnation drags on for years, tearing up society and destabilizing politics, demands for more radical action will swell and eventually overwhelm the old restraints.

    Here is a modest example of what the Fed could do to shake up the system and help housing revive. It could announce its intention to buy only new mortgage-backed securities that have been subjected to the process of refinancing and modification to establish positive equity and more realistic valuations. The mere announcement would cast a cloud over the existing stock of GSE mortgages and probably trigger a wave of market-driven mortgage adjustments. The Fed, in effect, would not only provide a model for debt write-downs generally but help create the market for them. The Fed’s presence would assure people the process does not threaten the banking system. For distressed homeowners, it would amount to redistribution of income and wealth—sharing the costs of the financial catastrophe among other players instead of dumping all the pain on borrowers. Unilateral action would send a cleansing shock wave through the political system.

  31. person1597 says:

    This: The Fed’s presence would assure people the process does not threaten the banking system.

    Plus this: Unilateral action would send a cleansing shock wave through the political system.

    Equals this: FULL STEAL AHEAD (From ZH’s WB7.)

  32. person1597 says:

    The Fed can’t put a man on Mars, but they can buy the bonds…


    Start with the moonbase and a make-shift lunar magnetic field… Then, off to the future of the imagination, whenever, wherever we observe.

  33. thatvisionthing says:


    Here is a modest example of what the Fed could do to shake up the system and help housing revive. It could announce its intention to buy only new mortgage-backed securities that have been subjected to the process of refinancing and modification to establish positive equity and more realistic valuations.

    I started to snort. Bubble up bridge buyers!

    The mere announcement would cast a cloud over the existing stock of GSE mortgages and probably trigger a wave of market-driven mortgage adjustments. The Fed, in effect, would not only provide a model for debt write-downs generally but help create the market for them.

    Hey… wait…

    I have more questions. The problem is to get the financial fantasy world to connect to the real world (yes?). As long as they keep printing money and skimming the real stuff off the top, it’s like they’ll always keep making more masthead to shimmy up while the rest of us sink (yes?). Same with the judicial system now, as long as they can keep finding (and making) witches to burn, they’re still “winning,” and they will keep honing the “rules” to do so. Eventually all fail, but they’ll be the last to fail so it’s not their problem. They have no incentive to save everyone equally because what they know how to do is win fat guy musical chairs, fat guy gets the chair.

    But if there’s a way for mortgages to get real — are we now getting to the point where there’s only fat guys left, and no food? Where goes round finally needs to come round? (I don’t know anything about William Greider so I don’t know how to evaluate this proposal source. Is he… fat?)

  34. Glen says:

    Interesting post. History, as you note, records the decline of previous “superpowers” linked to when their financial markets ran wild. We are surely repeating history in our own unique way. It’s most pointed when we’re told in hushed tones that it’s only the “prowess” of our FIRE sector that gives us an “edge” in this financial war. I don’t know whether to read that as we have the best crooks or not, they have certainly demonstrated significant abilities to destroy the American economy, get bailed out, and then disavow all responsibility.

    I fully expect we’ll be told going to war with Iran is a surefire way to revive our economy, and the Chinese will love this. Estimate were in early 2000 that the Chinese economy would eclipse America’s in about 2040, Bush managed to advance that to sometime right about now with his silly a$$ polices of tax cuts, deregulation, and war. I don’t see Obama doing anything different, what little sources I have in the DOD world tell me the Iran war is a go. Probably not till the election is done since it’s surely not a vote getter.

  35. thatvisionthing says:


    Here is a modest example of what the Fed could do to shake up the system and help housing revive. It could announce its intention to buy only new mortgage-backed securities that have been subjected to the process of refinancing and modification to establish positive equity and more realistic valuations.

    Another Fed question. Over on Naked Capitalism there was a big fuss recently when Steve Keen got into an argument with Paul Krugman, one which of course I did not understand. (Visualize “Huh?” on my forehead.) The closest I got was that maybe Keen says the Fed creates money out of thin air, and is led to do so by the banks because it is required to fill blanks the banks create, whereas maybe Krugman said that was nuts, it’s not an open-ended system? Did you see that, understand that, and can you translate for dummies? (Krugman shut down comments and Keen’s side claimed victory.) If Keen was right, then the Fed is just the banks’ helpless money-synthesizer puppet? And the more crap the banks make, the more bad they have to trade to the Fed for good? Kinda perfect if you’re a bank? Kinda sucks if you’re not?

    (Why stop at robosigning mortgages for homebuyers? Why not robosign for mortgage and other securities investors too? Fantasy is fantasy, and the Fed couldn’t care — ?)

  36. thatvisionthing says:

    @emptywheel: Also, can I just say thank you for that answer? I can imagine seeing the outline of an elephant in my fog. Would love to hear you say more about this:

    I actually think that Brazil–and Latin America in general–has more sustainable ideas than China (and a more manageable population). But it involves refusing to get into the dependent debt-driven relationships of the 1980s, and that means refusing to do what the US wants.

    Also, when I was thinking local economies, I was thinking of my idea of the good old days in America, a la Hannah Stiles’ 1835 Trade and Commerce quilt — all that bustling happy American energy — but I see the big energy is the ships, so maybe not so local:

    Still — sail power. Good old days.

  37. person1597 says:

    @Glen: Interesting perspective. So the war stimulus would appear to be on the table for next year except for the lack of a real casus belli — at the moment.

    Sure, someone could cook up an incident and get it to escalate, but why bother? What’s in it for the US? Anything? It can’t be the 22% enrichable Uranium. That’s all they can do with their own stuff anyway and no one else wants that Mo contaminated crap.

    What pressure would give rise to a rupture in diplomacy? Is their oil that important? Is our economy going to benefit from an ME conflagration? It is not clear to me how this helps any energy-dependent economy thrive. But to a hawk, even allies can be invaded.

    The deja vu is not all over again. Iran is not the droid we are looking for. The economy is going to have to find another path to continuity. Besides, it is more fun to battle it out in cyberspace where you can get a coffee between ops. Just like COD on the Xbox. Heck, even drones re-spawn.

    Guns are fine for the shooting gallery, but blowing DU all across the ME and western Asia sounds like a very bad idea. Really, tell me, what’s the big deal with Iran? They’re clever? They revere their culture? They don’t descend from Noah? Doesn’t it just boil down to their hate, our hate, anybody’s hate — that fuels the war economy… until it doesn’t.

    Does the Israeli population believe that Iran is a threat to their continuity when the actual problems are closer to home? The Persian people should not support abusing other populations with some sort of Xerxian imperialism, and neither should we. A coordinated Allied first strike is unimaginable given the lack of any clear, achievable objective.

    Even if we think there is a “problem”, trying to make it better should include due consideration to not making it worse. That’s the message the financial-MOTU-types should be sending — it’s not us against them anymore. It is a world in which we live, married to a social paradigm that favors rational forms of problem solving… and it might just help prevent some embarrassing “Wet Firecraker” clean-up.

  38. klynn says:


    “One thing I’ve always been fascinated by is the way we originally used the UN as our cover, but then–as the non-aligned nations tried to defend info-sovereignty in their countries–we abandoned the UN in favor of trade organizations. This seems to be a fascinating part of that chronology.”

    Well written point. Add in the elimination of USIA to this chronology too.

  39. thatvisionthing says:


    But if there’s a way for mortgages to get real — are we now getting to the point where there’s only fat guys left, and no food? Where goes round finally needs to come round?

    Neil Young: “You have to plant. You can’t just eat.”

  40. thatvisionthing says:

    @emptywheel: Phoenix Woman has a post up at FDL with a lovely proposal from Sheila Bair:

    Sheila Bair’s Fabulous Idea: $10 Million Loans for Everyone!

    Former FDIC chair Sheila Bair makes the following provocative proposal:

    For several years now, the Fed has been making money available to the financial sector at near-zero interest rates. Big banks and hedge funds, among others, have taken this cheap money and invested it in securities with high yields. This type of profit-making, called the “carry trade,” has been enormously profitable for them.

    So why not let everyone participate?

    Under my plan, each American household could borrow $10 million from the Fed at zero interest. The more conservative among us can take that money and buy 10-year Treasury bonds. At the current 2 percent annual interest rate, we can pocket a nice $200,000 a year to live on. The more adventuresome can buy 10-year Greek debt at 21 percent, for an annual income of $2.1 million. Or if Greece is a little too risky for you, go with Portugal, at about 12 percent, or $1.2 million dollars a year. (No sense in getting greedy.)


    Because we will be making money in basically the same way as hedge fund managers, we should have to pay only 15 percent in taxes, just like they do. And since we will be earning money through investments, not work, we won’t have to pay Social Security taxes or Medicare premiums. That means no more money will go into these programs, but so what? No one will need them anymore, with all the cash we’ll be raking in thanks to our cheap loans from the Fed.

    This is WAY better than William Greider’s plan for the Fed…

  41. Glen says:


    There is NO reason to go to war with Iran. The only explanation I can think of is Ike’s warning about the industrial war complex being very astute. The only way to make any progress against this crap is to start getting real reviews of all the no-contest cost plus contracts the DOD seem to reward to everybody related to Dick Cheney or every company for which he has worked. Then compare/contrast to all the dead people and all the real good this same blood money could do at home fixing America. Yes, I know, it’s tough to make this argument even though it’s the truth.

  42. Bob Schacht says:

    Wasn’t there Naomi Klein’s book about the Shock Doctrine and disaster capitalism? Also another book “Confessions of an Economic Hit Man”?

    I’m wondering what Obama’s appointment of Jim Yong Kim to Head the World Bank will relate to this. Will he work for change? or is he in the pocket of certain MOTUs?

    Bob in AZ

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