Intellectual property rights and "patent wars"

A few weeks ago, I started writing about China, and I promised I would write a post about their moves in the monetary plain (we have already mentioned how the current monetary system is ending). I haven't forgotten my promise, but I will do it after this weekend. For the time being, we shall discuss another subject, intellectual property rights.

We have already talked about piracy and control of the internet in our previous posts. But there are many more fronts in this fight - here is a great piece from npr.org on "patent wars". Most of us have probably heard about one company suing another over pattens and intellectual property rights (for example, Kodak sued Apple and HTC over digital image patents, Motorola Sued Apple Over iPhone 4S and iCloud, and Intel bought RealNetworks' patents and video coding tech over the last month alone), but what does it all mean for us and why do patents inhibit progress, discovery and innovation?

When Patents Attack

The influential blog Techdirt regularly refers to Intellectual Ventures as a patent troll. IPWatchdog, an intellectual property site, called IV "patent troll public enemy #1." These blogs write about how Intellectual Ventures has amassed one of the largest patent portfolios in existence and is going around to technology companies demanding money to license these patents.


Patents are a big deal in the software industry right now. Lawsuits are proliferating. Big technology companies are spending billions of dollars to buy up huge patent portfolios in order to defend themselves. Computer programmers say patents are hindering innovation.

But people at companies that have been approached by Intellectual Ventures don't want to talk publicly.

"There is a lot of fear about Intellectual Ventures," says Chris Sacca, a venture capitalist who was an early investor in Twitter, among other companies. "You don't want to make yourself a target."
[...]
"I tried to put you in touch with other people in this community to talk to you about this and they almost uniformly said they couldn't talk to you," Sacca told us. "They were afraid to." IV has the power to "literally obliterate startups," Sacca says.
[...]
Imagine an inventor out there — someone with a brilliant idea, a breakthrough. This inventor has a patent, but companies are stealing his idea. And this inventor doesn't have the money or legal savvy to stop them. That's where IV comes in. It buys this inventor's patent, and it makes sure that companies who are using the idea pay for it.

When we asked for an example of an inventor in this situation, someone with a breakthrough, who wasn't getting paid for it, two separate people at IV pointed us to a guy named Chris Crawford.
[...]
So we went to talk to Chris Crawford. But that turned out to be harder than we thought — and it led us on a five month journey, where things did not quite fit the story Intellectual Ventures was telling.

When we followed up with IV to get Chris Crawford's contact info, the company told us it no longer owned Chris Crawford's patent. And Crawford probably wouldn't want to talk right now anyway, the company said, because he was in the middle of litigation.

We started digging around and found Chris Crawford in Clearwater, Florida. As predicted, he never responded to our many emails and phone calls. You'll never hear from him in this story. But we were able to locate Chris's patent — number 5771354.

He got it in 1998. And the way IV explained the patent to us, Chris Crawford invented something that we do all the time now: He figured out a way to upgrade the software on your home computer over the Internet. In other words, when you turn on your computer and a little box pops up and says, "Click here to upgrade to the newest version of iTunes," that was Chris Crawford's idea.

But when we looked at the patent, it seemed to claim a lot more than that. The name of the actual invention is "an online back-up system." The patent says this invention makes it possible to connect to an online service provider to do a bunch of stuff — software purchases, online rentals, data back ups, information storage. The patent makes it seem like Chris Crawford invented a lot of the most common things we do on the Internet.

We weren't sure what to make of all this, so we went to see David Martin, who runs a company called M-Cam. It's hired by governments, banks and business to assess patent quality, which the company does with a fancy piece of software. We asked Martin to assess Chris Crawford's patent.

At the same time Crawford's patent was being prosecuted, more than 5,000 other patents were issued for "the same thing," Martin says.

Crawford's patent was for "an online backup system." Another patent from the same time was for "efficiently backing up files using multiple computer systems." Yet another was for "mirroring data in a remote data storage system."

And then there were three different patents with three different patent numbers but that all had the same title: "System and method for backing up computer files over a wide area computer network."


Martin says about 30 percent of U.S. patents are essentially on things that have already been invented. In 2000, for example, the patent office granted a patent on making toast — patent number 6080436, "Bread Refreshing Method."

We also asked Rick Mc Leod, a patent lawyer and former software engineer, to evaluate Chris Crawford's patent.

"None of this was actually new," he told us.

Mc Leod looked to see if anyone else in the field was already doing the thing Chris Crawford claimed to invent in 1993, when he first filed his patent. Here's what he found:

There were institutions, both academic and businesses, that used computers in this way, and I think it's a very interesting collection of things that were well known in the 1980s, with the exception that it adds the word "Internet."

Mc Leod said he didn't think the patent should have been issued in the first place.

For a long time, the patent office would have agreed with Rick Mc Leod. For a long time, the patent office was very reluctant to grant patents for software at all.
[...]
In the 1990s, the Federal courts stepped in and started chipping away at this interpretation. There was a couple big decisions, one in 1994 and another in 1998, which overturned the patent office completely.


A flood of software patents followed. A lot of people in Silicon valley wish that had never happened, including a very surprising group: computer programmers.
[...]
That same afternoon, we talked to a half dozen different software engineers. All of them hated the patent system, and half of them had patents in their names that they felt shouldn't have been granted. In polls, as many as 80 percent of software engineers say the patent system actually hinders innovation. It doesn't encourage them to come up with new ideas and create new products. It actually gets in their way.


Many patents are so broad, engineers say, that everyone's guilty of infringement. This causes huge problems for almost anyone trying to start or grow a business on the Internet.

"We're at a point in the state of intellectual property where existing patents probably cover every behavior that's happening on the Internet or our mobile phones today," says Chris Sacca, the venture capitalist. "[T]he average Silicon Valley start-up or even medium sized company, no matter how truly innovative they are, I have no doubt that aspects of what they're doing violate patents right now. And that's what's fundamentally broken about this system right now."
[...]
And, in fact, that's what's happening with Chris Crawford's patent. Intellectual Venures sold it to a company called Oasis research in June of 2010. Less than a month later, Oasis Research used the patent to sue over a dozen different tech companies, including Rackspace, GoDaddy, and AT&T.


We called Oasis several times, but no one ever answered the phone.
[...]
There was hardly any public information about Oasis Research. No way to know who owned it, or how many employees it had.

One of the few details that was available was an address: 104 E. Houston street, suite 190, Marshall, Texas.

So we went to Marshall. The door to Oasis's office was locked, and through the crack under the door we could see there were no lights were on inside.

It's kind of a cliche to knock on the door of the empty office. But we'd flown a long way. So we knocked. No one answered.

The office was in a corridor where all the other doors looked exactly the same —locked, nameplates over the door, no light coming out. It was a corridor of silent, empty offices with names like "Software Rights Archive," and "Bulletproof Technology of Texas."

It turns out a lot of those companies in that corridor, maybe every single one of them, is doing exactly what Oasis Research is doing. They appear to have no employees. They are not coming up with new inventions. The companies are in Marshall, Texas because they are filing lawsuits for patent infringement.


Patent lawsuits are big business in Marshall, which is part of the eastern district of Texas.

Many people say that juries in Marshall are friendly to patent owners trying to get a large verdict.
[...]
Oasis is a company with no operations, no products, and, as far as we can tell, no employees, that is using a very broad patent from 1998 to sue over a dozen companies.
[...]
All the big tech companies have started amassing troves of software patents — not to build anything, but to defend themselves. If a company's patent horde is big enough, it can essentially say to the world, "If you try to sue me with your patents, I'll sue you with mine."


It's mutually assured destruction. But instead of arsenals of nuclear weapons, it's arsenals of patents. And this was a problem Intellectual Ventures founder Nathan Myhrvold said he was trying to solve when he first started the company.
[...]
The pitch he heard was, basically, Intellectual Ventures helps defend against lawsuits. Intellectual Ventures has this horde of 35,000 patents — patents that, for a price, companies can use to defend themselves.

Technology companies pay Intellectual Ventures fees ranging "from tens of thousands to the millions and millions of dollars ... to buy themselves insurance that protects them from being sued by any harmful, malevolent outsiders," Sacca says.

There's an implication in IV's pitch, Sacca says: If you don't join us, who knows what'll happen?

He says it reminds him of "a mafia-style shakedown, where someone comes in the front door of your building and says, 'It would be a shame if this place burnt down. I know the neighborhood really well and I can make sure that doesn't happen.' "
[...]
One former IV patent was used by an NPE to sue 19 different companies, a broad assortment that included Dell, Abercrombie & Fitch, Visa, and UPS.

These companies all have websites where, when you scroll your mouse over certain sections, pop-up boxes appear. The NPE said, "We have the patent on that." Which would make pretty much the entire Internet guilty of infringing the patent.
[...]
In early July, the bankrupt tech company Nortel put its 6,000 patents up for auction as part of a liquidation. A bidding war broke out among Silicon Valley powerhouses. Google said it wanted the patents purely to defend against lawsuits and it was willing to spend over $3 billion to get them. That wasn't enough, though.

The portfolio eventually sold to Apple and a consortium of other tech companies including Microsoft and Ericsson. The price tag: $4.5 billion dollars. Five times the opening bid. More than double what most people involved were expecting. The largest patent auction in history.

That's $4.5 billion on patents that these companies almost certainly don't want for their technical secrets. That $4.5 billion won't build anything new, won't bring new products to the shelves, won't open up new factories that can hire people who need jobs. That's $4.5 billion dollars that adds to the price of every product these companies sell you. That's $4.5 billion dollars buying arms for an ongoing patent war.

The big companies — Google, Apple, Microsoft — will probably survive. The likely casualties are the companies out there now that no one's ever heard of that could one day take their place.

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SOPA, PIPA, ACTA, private property and internet monopolies (part 1)

Wikipedia was one of the many sites that protested the SOPA act

While I had to spent a few weeks in the hospital, taking care of my sick mother, many things happened in the world - after all, we are in the middle of a crisis, so events tend to unfold very rapidly (and they certainly won't wait for my sick mother to recover)

Iran is always on the news, Europe sanctions against Iran (something that particularly hurts the weaken European economies that are very much dependent on Iranian oil - Greece in particular is committing economic suicide as a state, in order to please its rulers), Iran sells oil to India in exchange for gold, China is ready to do even more business with Iran, as they could become Iran's only client if the West goes ahead with its sanctions. China may even benefit from this situation, as Iran will probably be forced to sell its oil at a cheaper price.

Furthermore, the West is even trying to launch an attack against Syria, the only neighbouring country left that isn't under Western rule. If the West succeeds, Iran will be completely surrounded - but Russia (and China) are vetoing this attack (for obvious reasons).

But hey, who cares about this boring stuff? Maybe we will start caring if (or rather, when) we stop being able to buy oil at "reasonable" prices. For now, let's talk about something else, something that is REALLY serious, SOPA, PIPA, ACTA and all those other weird laws that inhibit piracy on the internet. I mean, you take away whatever you want, except our "free" internet and our "right" to watch, listen, share and download stuff without having to pay any money for it, right? :-)

Let's face it, we are all hooked in this "culture of free", especially when it comes to the internet: Free movies, free music, free books, free information, free news, free TV shows, free sports live coverage, free porn, you name it, it's there and it's for free.

And not only is it cheaper, but it can also be better that the paid version if it (for example, the newspaper provides a much slower coverage of the news, and you can't use any video, etc. So, the internet is a much better medium). Furthermore, the internet is an entirely "new realm", and this means that there are many "unexplored regions", and room for innovation. It also means that it hasn't yet reached the stage of the "game" where a few oligarchs control it (whereas the "real" world HAS reached this stage, and there are monopolies and oligopolies wherever you look, controlling everything - banking, oil, media, telecommunications, even the food we eat (think Monsanto)).

Of course, the ruling class is trying to "establish its authority" on the internet, and a few oligopolies/monopolies are already being formed. And the rich oligarchs are trying to buy whatever they can get their hands on - for example JP Morgan wants to invent a lot of money in Twitter and other internet projects (and so does Goldman Sachs and all the other "big players").

 So, a familiar pattern emerges: A few "players" start owning everything, and there is no real need for to create something, as they can just own it and demand to be paid by the rest of us for the usage of their property (much like the Monopoly board game).

But let's be fair, the internet is not yet monopolized, or at least it isn't as monopolized as everything else. This is why we like it, because we can still innovate, and use it for our benefit (for example, we can share music, videos, books, etc. We can even find cool blogs and sites that provide a much clearer view of world that the traditional media, or use tweeter and facebook to better coordinate events such as "the Arab spring"!).

Was all this "too good to last"?

Gutenberg died on February 3, 1468

Here is an interesting tidbit from a Telegraph article:

One of the most important technological advances in the past thousand years was Gutenberg's printing press. As one Italian bishop put it, it would take three printers working for three months to produce 300 copies of a book – but it would take three scribes a lifetime each to complete the same number.

Yet it wasn't only the speed of the printing press that made it so revolutionary – it was its ability to produce practically perfect copies of written text. No longer would students have to worry about errors or omissions introduced by scribes working off second or third-hand copies – they could instead rest assured that their copy was as accurate as the original master.

Ideas could spread faster, farther, and with more fidelity than ever before – not for nothing does Elizabeth Evenden, a lecturer in the history of books, call the new technology "the internet of its day", with information no longer "coming purely from the pulpits or disseminated by governments."

Over five hundred years on, we can now make 300 copies of a book – and send them across the world – not in three months, but in the blink of an eye. This advance has led to the flowering of online commerce and the exchange of new and diverse ideas between people who would never otherwise have been able to talk, let alone meet [...] 

Yes, we all now have a "printing press" in our very houses, and it is a much better one than the one created by Gutenberg! All it takes is a computer and electricity.

Of course, the fact that now ideas and news can spread at a much faster pace and reach broader audiences doesn't mean that that "we are more wise than ever". In fact, the world seems to be more complicated and difficult to understand than ever before, as lies can also be spread faster now than ever before. The key to knowledge is not just having more information, but it is having a coherent vision of the world, in order to correctly process all the data you receive from it. To put it in another way, what's the point of having a lot of TV stations, if their content is crap, or if your tv is not working, because it's can't decode the signal it receives?

Internet provided the people with a powerful - granted, it hasn't always been used very wisely, but still it enables us to listen to alternative opinions except the usual "talking heads" of the "big media". And it also allows us to share things like music or movies, and even enhance them (for example, you can use the information you found on an article to create a better article of your own, etc.).

This is all great and all, but how can the capitalists ensure that the founding principle on which their system is based will be respected?

Capitalism is a system based on private property. This is something that everyone knows, yet surprisingly few people seem to be able to understand what this means. Here is a very interesting chart + commentary from azizonomics:

[...] the rising trend of file sharing has given media companies the sense that they are “losing revenue”:

Private property: This is what it comes down to. What the "media companies" are essentially saying is that they own this song, this TV series episode, this e-book or this movie. They paid some money in order to acquire this particular "square" on the real-life "monopoly board", and now they want to collect rent everytime someone steps in their square. This is how the system works, isn't it? I mean, what's the point of buying a square on the Monopoly board, if the other players aren't going to pay you if they step on it? What's the point of financing the creation of a movie or a TV series, if the viewrs ("clients") refuse to pay any money for watching it?

This is very bad for you, the owner of this particular square. And this is why you must stop this sort of behaviour, which goes against the very core of the system (private property). I mean, the people do respect private property when it comes to paying their electricity bills, or paying the barber who cuts their hair. But when it comes to paying for watching movies, or reading a book, they don't. This is not just an financial matter of "lost revenue", it is also a political and ideological battle:

The people "must" be taught to respect private property laws on the internet, otherwise they might get some "strange ideas" about abolishing private property all together, thus ending all the monopolies that now control their lives and replacing them with a system the producers of wealth cooperate and share everything, from mp3's and movies to...food and electricity, "from each according to his ability, to each according to his needs".

Here are some more interesting comments by the azizonomics article i mentioned earlier:

[...] The trouble is file sharing isn’t “lost revenue”. There is no guarantee whatever that a file downloaded is somehow a substitute for a sale. It’s a fundamentally different kind of transaction. For a start, it’s free. Consumers will take things for free that they would never buy, because it costs them less to do so. More importantly, it’s not stealing; it’s copying, and there is a difference. It’s not taking a physical product that someone has manufactured. There’s no direct lost revenue. And ultimately, if enough people copy it, it builds exposure for a product. 

This last point is actually correct - piracy is a good way to build exposure. But this is not as important as respecting private property, as it is the cornerstone upon which capitalism is built on. The article claims that downloading something for free is "not stealing; it’s copying, and there is a difference. It’s not taking a physical product that someone has manufactured". But this is not correct:

Capitalism treats everything as "products" that can be sold or bought (for a profit), or at least that's its "natural instinct". NOTHING is free. You have to fight for every little thing in this life ("there is no such thing as a free lunch" in capitalism as the neoliberals famously -and rightly- declared). Movies, books, music songs, all these things are products -the fact that they are not physical doesn't really matter much. In fact, this is a big problem for the capitalists, as the "digital age" is still new, and the people haven't yet been taught that they must respect private property laws on the "digital products" (whereas they have been taught that they must respect private property laws on the "physical products", as they have been around for many years).

Here's another good point made by the azizonomics article:

[...] There are still many ways for big media to monetise their products in this new world: the music industry can stop concentrating on record sales, and started concentrating on concert tickets. Newspapers can move their businesses online, or use Apple’s tablet distribution model. Movie distributors can focus on high-definition content like Blu Ray, which is hard to redistribute online. That’s just off the top of my head.

But of course, this is creative destruction. Times change, societies change, fortunes will be made and fortunes will be lost.

So it’s in the interests of the big media elite to harness the power of government to create draconian laws to snub out the copy and paste new media culture that has developed, because that opens up a whole new revenue stream: litigation. If you can’t earn your millions, you might as well litigate your way to them [...]

This is correct, and if you click the article's link, you will find a lot of interesting graphs about this "creative destruction", as the "old media" are falling, and the "new media" are rising, as they are better, cheaper and they are not as controlled by a few rich oligarchs (who inhibit creation in order to get rich by asking us to respect private property - something that makes a lot of sense for them, the owners of pretty much everything, but makes no real sense to us who have (next to) nothing and are about to go bankrupt, just like it happens on any Monopoly game).

Here is a great article from the people of Pirate Bay (some of them got arrested today). It accurately describes a "cycle of events" that always leads to the formation of monopolies, that control our lives and inhibit growth and creation. This cycle must finally be broken - but this can only happen if our system of private property is replaced by a system run by those who work and actually produce wealth, not by those who own it and use it to control everyone else, with their own profits as their only "moral guide" in life. Today's system has trully reached a point of incredible decay, as it gives people the inceptive to fight against each other in order to survive. A few people will survive only by destroying the lives of many others.

This is what we are witnessing today before our very eyes - the internet is but one of many fronts, although its "digital" nature makes it a more compelling case, as the people haven't yet been taught to "respect private property" and they try to "make up excuses for their disobedience" ("it's not stealing; it's copying", etc.). But true victory can only come for the people only if and when they abolish private property all together - otherwise, they will over and over again be destined to repeat this vicious cycle:

A Message from the People at ThePirateBay.org

 Over a century ago Thomas Edison got the patent for a device which would “do for the eye what the phonograph does for the ear”. He called it the Kinetoscope. He was not only amongst the first to record video, he was also the first person to own the copyright to a motion picture.

Because of Edison’s patents for the motion pictures, it was close to financially impossible to create motion pictures in the North American east coast. The movie studios therefor relocated to California, and founded what we today call Hollywood. The reason was mostly because there was no patent.

There was also no copyright to speak of, so the studios could copy old stories and make movies out of them — like Fantasia, one of Disney’s biggest hits ever.

So, the whole basis of this industry, that today is screaming about losing control over immaterial rights, is that they circumvented immaterial rights. They copied (or put in their terminology: “stole”) other people’s creative works, without paying for it. They did it in order to make a huge profit. Today, they’re all successful and most of the studios are on the Fortune 500 list of the richest companies in the world. Congratulations — it’s all based on being able to re-use other people’s creative works. And today they hold the rights to what other people create.

If you want to get something released, you have to abide [by] their rules. The ones they created after circumventing other people’s rules.

The reason they are always complaining about “pirates” today is simple. We’ve done what they did. We circumvented the rules they created and created our own. We crushed their monopoly by giving people something more efficient. We allow people to have direct communication between each other, circumventing the profitable middle [men, who] in some cases take over 107% of the profits (yes, you pay to work for them).

It’s all based on the fact that we’re competition. We’ve proven that their existence in their current form is no longer needed. We’re just better than they are.

And the funny part is that our rules are very similar to the founding ideas of the USA. We fight for freedom of speech. We see all people as equal. We believe that the public, not the elite, should rule the nation. We believe that laws should be created to serve the public, not the rich corporations.

The Pirate Bay is truly an international community. The team is spread all over the globe — but we’ve stayed out of the USA. We have Swedish roots and a Swedish friend said this:

The word SOPA means “trash” in Swedish. The word PIPA means “a pipe” in Swedish. This is of course not a coincidence. They want to make the Internet into a one way pipe, with them at the top, shoving trash through the pipe down to the rest of us obedient consumers.

The public opinion on this matter is clear. Ask anyone on the street and you’ll learn that no one wants to be fed with trash. Why the US government [wants] the American people to be fed with trash is beyond our imagination, but we hope that you will stop them, before we all drown [...]

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How's that for competitiveness? Jon Stewart's video on the Foxconn workers and more

Sorry for not posting during the last few days, but i had to deal with a medical emergency (my mother was in the hospital), so there was no time for me to write. I will resume writing about China, in the third and final post on the subject, where we shall discuss China's moves on the monetary plain, as it seeks to end the dollar's rain as the world reserve currency.

But for now, let's talk about something else - let's talk about my sick mother who went to the hospital and got better:

You see, if you get sick, you can (?) go to the hospital and get well. But what happens if you you have no or little money? Then you obviously or you are forced to carry this medical problem/injury for a long time, maybe even forever.

Not everyone is supposeed to make it - in fact the system relies on NOT everyone making it, as it tries to rationalize why a lot of people "should" die (mass murder) just because they were born in poverty, or because they just happened to be born during a war or a generalized capitalistic crisis.

The system has been very good at "rationalizing" this muss murdering process for a long time - in fact, there are many people who are genuinly surprised that the capitalist system is now leading them to their death or to mass poverty, as they don't even understand that this is not a failure of the system, but a necessary process for it to continue to function.


Think of it like monopoly:

Monopoly is a great simulation board game for the capitalist system, as it is based on the concept of private property (of course, the real thing is much more complicated than the board game).

In the early stages of the game, all the little squares of the board that represent streets, airports, the electric company, etc., are for sale. So, all the players can buy them. It's fun, isn't it?

But as game progresses, then sooner or later a few players (those who are luckier and/or better investors) will end up owning almost everything, forming powerful monopolies/oligopolies. As for the rest of the players, they end up going bankrupt one by one, as they own less and less, and they have to pay rent to the rich players on almsost every turn, as the rich players end up owning all the squares of the board. This is NOT a "failure" of the game, it is in fact its purpose. I mean, how can you play monopoly without bankrupting most of the players? It is simply not possible, and it is only a matter of time before it happens.

Real-life capitalism is of course a great system for creating new, better "squares" in order to replace the older ones, especially through technological advances (for example, M. Zuckerberg  created Facebook, an entirely new "square in the board" and he now earns a lot of money ("rent") as everyone wants to use it).

So, the real-life "board" is constantly changing, and it does provide opportunities for someone to create a new "square". This makes the real-life game much more "interesting", and it also helps in delaying the inevitable bankruptcy of a lot of people. But, especially it times like these, when there aren't a lot of new "squares" being created, the process of bankrupting a lot of players cannot be stopped. It is the nature of the game - a lot of players must go bankrupt, so that a few oligarchs can own everything.

Sure, there are plenty of squares to go around for everybody - in fact, this is what marxism is all about: Abolishing private property, as it is the only way for the working class people, the majority of the population, to actually be able to produce without having to live in poverty, when at the same time a few oligarchs are living like kings. And, surprise surprise, they seem to prefer it of the workers live in poverty, just like the oligarxhs of the past, the oligarxhs they once violently overthrew during the Frech Revolution. Capitalism has created a lot of wealth, enough for everyone - and we whould praise capitalism for this great achievement. But capitalism has also helped a tiny minority of the population to control almost all the squares of the board. So, most of us will have to suffer greatly, or we have to abolish private property, so that all the squares of the board are free for everyone. This will of course NOT go down well with the oligarxhs, who will never accept this. But if they are not aliminated by us, then a lot of us WILL be elimited by them. This is a process that is becoming increasingly clear as time goes by. And let's not forget this very important fact: In the earleier stages of the "game", the palyers that were eliminated were usually people from the poorer countries (Third world countries, etc.). But now that the global workforce also includes the Asian workers, there are a lot of Western people who are deemed "not-competitive". So, for the first time in years, a lot of the people that are going bankrupt are Westerners, not just "unimportant" people from "unimportant" places.

Let's take a closer look at what it takes for a worker to be "competivie enough" to stay in the game and not go bankrupt. After all, the capitalists want us to give them incentives to do business in the West, instead of Asia, right? So, it would be a good idea to check out what is it about the Asian workers that they like so much:

Cage dogs of Hong Kong: The tragedy of tens of thousands living in 6ft by 2ft rabbit hutches - in a city with more Louis Vuitton shops than Paris

Hong Kong, one of the world's richest cities, is abuzz with a luxury property boom that has seen homes exchanged for record sums.

But the wealth of the city has a darker side, with tens of thousands priced out of housing altogether and forced to live in the most degrading conditions.

These pictures by British photographer Brian Cassey capture the misery of people - some estimates put the figure as high as 100,000 - who are forced to live in cages measuring just 6ft by 2 1/2ft.

Unscrupulous landlords are charging around US$200 a month for each cage, which are packed 20 to a room, and up to three levels high. Cockroaches, wall lizards, lice and rats are common.

And if that isn't enough, you should definately check out Jon Stewart's latest video from "The Daily Show", about the Chinese workers at Foxconn:
How's 

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Fear Factory
www.thedailyshow.com
Daily Show Full Episodes Political Humor & Satire Blog The Daily Show on Facebook

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On 100 Year Anniversery of 'Bread and Roses' Strike, Many Draw Connections to Today's Hurdles

Repost from "Common Dreams":

Bread and Roses Strikers March

January 12, 2012 was the 100 year anniversary of the 'Bread and Roses' textile workers Strike in Lawrence, Mass. The dire conditions leading up to the strike remind some of the current socio-political climate and offer lessons for workers' struggles today.

The Boston Globe reports today:

The action, known as the Bread and Roses Strike, not only called attention to horrific conditions in the mills, but also to the concentration of wealth and power in the United States, an issue that 100 years later would spur protesters to Occupy Wall Street, Boston, and other cities across the country.

The essence of the Lawrence strike resonates loudly in today’s Main Street vs. Wall Street fight, with income disparities brought to light by the 1912 walkout reexamined through the lens of high unemployment, a shrinking middle class, and the view that most economic benefits have flowed to the wealthiest Americans. [...]

The desperation that drove poor textile workers to abandon their jobs for the picket lines is echoed in the frustration that drove people to camp out in financial districts across the country.

James Green, a labor historian at UMass Boston, sees similarities to the 1912 uprising in many recent events, not only in the Occupy movement but in the Tea Party, the aggressive tactics of striking Verizon workers last summer, and customers railing against new Bank of America fees.

Steve Early recently examined contemporary Lawrence for In These Times:

Lawrence remains a city of the working poor, better known for its sub-standard housing, high unemployment, political corruption, and troublesome street crime. Ninety percent of its public school students are Hispanic and few speak English as a first language. Although not condemned to factory work at an early age, these children struggle to learn under tenement-like conditions. A recent report by the teachers’ union describes “crowded classrooms and physical infrastructure in distress: leaking roofs, poor air quality, persistent mold problems, crumbling walls and rodent infestation.” Demoralized teachers have been working without a new contract for two years; student performance is so dismal that a state take-over the school system has been actively considered.

When worker solidarity prevailed over corporate power in the icy streets of Lawrence a century ago, it made the promise of a better life real for many. The Bread and Roses strike became a consciousness-raising experience, not only for textile workers and their families, but the nation as a whole. Nevertheless, at centennial events in Lawrence over the next several months, it will be hard not to notice that many immigrant workers there still lack “bread and roses”—in the form of living wage jobs, affordable housing, and better schools.

But that injustice will not be cured until U.S. workers and their allies, in Lawrence and elsewhere, find a way to make history again, not just celebrate it.

Writing for Common Dreams last week John de Graaf and David Batker remind us:

The strike is commonly referred to as the “Bread and Roses” strike, because some women were said to have held up a banner declaring, “We want bread, and roses, too!” [...]

Hearts starve as well as bodies.  We do not live by bread alone.  It’s an old message with wellsprings deep in our religious traditions, and one the Bread and Roses centennial calls back to our attention.  And it’s a message we should not forget.

***

Here's another interesting article from the "Washington Post":

Study: Americans believe conflict between rich, poor is growing

About two-thirds of the public now believes there are strong conflicts between the rich and poor in America, making class a likelier source of tension than traditional flash points of race or nationality, a study from the Pew Research Center found.

“It is kind of amazing,” said Richard Morin, a senior editor at Pew who authored the study. “This is people not only sensing conflict, but people sensing an intensity of these conflicts — that’s what makes it striking and politically important.”

 

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On China-Part 2: Is China a bubble? What about all those poor Chinese workers?

This is a "before and after" picture of Shanghai that we found via the Atlantic magazine. It depicts the city's extraordinary growth within the last 20 years (1990-2010).

When the Berlin Wall fell, a whole new world was assimilated by the capitalists: The countries of the former "Soviet bloc" and, of course, China.

We have already discussed how this process of "globalization" affected the West (here) - as John Stapleton, British M.P., argued back in 1873 "If China should become a great manufacturing country, I do not see how the manufacturing population of Europe could sustain the contest without descending to the level of their competitors".

But how did "globalization" affect China? The picture we posted above is a great example of how good capitalism is at assimilating other societies that are using inferior modes of production:

Today, there is much more wealth being created in China than ever before - but of course inequalities are also greater than ever before.

This is because capitalism is based on the exploitation of the workers by the capitalists. China was like finding a "goldmine" of cheaplabour. So they started exploiting this "goldmine", by off shoring production to China at an amazing pace.

In the early stages of this process, the Chinese workforce was not skilled, so the only companies that could go to China were companies that only needed manual labour and very little specialization from their workers (for example companies that were making clothes, shoes, etc.). We' ve all seen the documentaries and we' ve all read the
articles that talk about the conditions there (horrible for the workers - great for the capitalists), so there is no need for me to repeat them.

But as China started accumulating more and more capital, the government build new schools and universities, and now a part of the Chinese workforce is skilled and can perform (almost) anything that a western worker can (and at a lower "price" (wage) too...).

So, now even the "white collar" jobs are being off shored to China, and there are Chinese companies that are competing against the Western companies even in sectors of the economy like solar-power (China is #1 in that sector worldwide), or telecommunications (Huawai, a Chinese company, is now Ericsson's main competitor).

Here's an article from the BBC:

China attracts record foreign investment in 2010

The country attracted $106bn of foreign direct investment - which excludes investments in financial instruments such as shares - up 17.4% from 2009, according to the Ministry of Commerce. That was enough to more than reverse the 2.3% fall seen during the previous year caused by the global recession.

Over a fifth of the money went into China's property sector. The Chinese authorities have been trying - with limited success - to head off a perceived bubble in property prices. 

We shall talk more about this "bubble in property prices" soon. But for now, as capital continues to pile up in China, it is no wonder that the country has 3 of its banks in the top-10 of the world's biggest banks. Via The Economist:

Here are a few more of China's "accomplishments" - here are some infrastructure projects for example:

China to invest $106b in railways in 2011

China builds world's longest bridge

ANOTHER RECORD: China Is Now The World's Largest Shipbuilder

China, Colombia in talks over Panama canal rival
CHINA is in talks to build a 'dry canal' linking Colombia's Atlantic and Pacific coasts by rail, Colombian President Juan Manuel Santos was quoted as saying on Sunday.

And if you have keep getting bigger and bigger, then it obviously "makes sense" for you to expand, much like all the other the colonial/imperial powers of the past:

China beats out World Bank as biggest lender to Africa

As China increases its economic ties in Africa, has the continent entered a new era of colonialism?

And of course, as China grows into a great imperialist force, as any growing capitalist nation would do, they build up their military forces. After all, how can you become the world dominant force, unless you have a strong military? Who's going to protect your lands and investments? Who's going to fight for you, in order to gain control of
more lands and resources? Soldiers and weapons are necessary, as the imperialists have to "fight it out", as they always do, about "who gets what".

China Takes Aim at U.S. Naval Might
China is building a new class of ballistic missiles designed to arc through the stratosphere and explode onto the deck of a U.S. carrier, killing sailors and crippling its flight deck

China is even trying to end the dollar's rain as the world's reserve currency. This is pretty important, as the current monetary system is about to end, as we've mentioned in previous articles. But we shall discuss this topic in our next article.


So, let's get back to what we were saying for now, as China continues to grow and grow. It even surpassed Germany as the world leading export nation, and the USA as the world biggest consumer of oil.

At the same time of course, there are millions and millions of Chinese workers who are working incredibly long hours for just a few dollars/month, barely enough to keep them alive so that they can return to work the next day (after all, even if some of them don't
survive, who cares? There are plenty more workers that can take their place - in fact, it is a "good" thing for the capitalists if some of them die due to an accident or by killing themselves, because it helps keep unemployment levels down, and thus it is easier to control all the social unrest).

There are thousand of strikes each year in China, but "so far so good" for the capitalists, who don't even allow for "democratic elections", or for a free press in China. This is "great" for them, as it helps their authority to remain unchallenged.

An entire village (named Wukan) recentlyrevolted against the government's decision to take away the lands of the people, and of course everyone now knows about Foxconn, the Chinese company that makes all these gadgets we use, as it employs 1.000.000 workers who often commit suicide (or threaten to do so), due to the "ultra-competitive" working conditions.
Even as we speak, some of them are about to commit suicide, with Microsoft "investigating this issue", as they "had no idea" about the
conditions at this factory (in reality, of course they know, but who give a damn about the workers? After all, there are plenty more where they came from, right? So let's pay them 1$/day, and we'll make a fortune by selling them to the western consumers until they've run out of money).

Imagine if those 1.000.000 Foxconn employees would organize and revolt - they would form one of the largest armies in history! But they are "too poor" to realize their potential - and the same goes for almost all the workers in China. When you barely have enough money to eat, then it is not that easy to think about organizing a revolution, especially when your employer and the State are prepared to fire you or send the police and the army against you. Then again, when you barely have enough money to eat, then it is a good time to start thinking about a revolution, isn't? Unless the Chinese workers fight back against their oppressors, in order to at least improve their lives a bit, then not much can be done on a worldwide scale.

But there are "internal" problems as well: As we mentioned before, there are signs of a real estate bubble in China, and it seems to be a "hot" topic amongst the "investor's community", as some of them predict a "rosy" future for China, whereas others predict a huge crash because of this bubble. Here's a great piece on the subject:

China 2012: The Year of the Bull (Rogers) or the Bear (Chanos)?

Jim Chanos famously said that China's real estate market is "Dubai times 1,000 -- or worse." He's been saying that for over two years. Chanos points to a credit bubble, and says he's early and sticking with his short positions. Rogers insists "China is not in a
[credit] bubble," rather it's been in a price bubble in urban, coastal real estate, and to compare China to Dubai is a false analogy. Jim Rogers is bullish on China's long term prospects: "China is going to have many serious problems along the way as it rises, but 'Dubai 1000 times over'?!"

According to Rogers, China will have many set-backs as it grows, as did the U.K. and the U.S. He notes "the U.S.'s many Depressions in the 19th century, a devastating civil war, periodic massacres in the streets, and little rule of law, few human rights, and several military governments. As recently as 1907 the whole system collapsed just as the U.S. was on the verge of becoming the greatest success of the 20th century. Yet the U.S. did a good job for a long time."

This is a picture from one of China's "ghost cities". There are many cities (or malls and other infrastructure projects, etc.) in China that have been build, but the people don't have enough money to actually use/buy them.

This is the root cause of all crises: The capitalists are accumulating more and more wealth for themselves, leaving very little wealth for the workers. But the workers are not just creators of wealth, they are also supposed to consume some of it, otherwise the products will not be sold, and the shops that sell them will go bankrupt, then the factories that make them will also go bankrupt, etc.

The Chinese workers have almost no money to spend - so they cant afford to buy all these homes that they have built. The ruling class gave out a lot of loans and spent a lot of money in order to "keep the economy going", as the workers would have no jobs if there were no building/infrastructure projects. That would lead to even more social unrest, so they built "ghost cities" instead. The workers were relatively "happy", as they at least had a job, but now noone can afford to buy these houses (and the US real estate bubble shows us what happens when the bubble "bursts").

The Chinese government is aware of this, and they' ve been trying to give out less loans and "contain" the problem. They also decided to stop announcing home price data, in order to keep the whole thing as quiet as possible. But if they don't give out a lot of loans, then there is no growth, as you cant start a business if you don't get a loan. So, China is between a rock and a hard place, and banking lending is not really showing signs of any significant slowdown.

But, like Rogers says, China will face a big crisis, but it won't be "terminal". It will be more like the crisis the USA experienced before becoming the world's leading power. Even the Great Crash of 1929 didn't "kill" the USA - in fact, 15 years later, they were the Western world's leader. Of course, a lot of people suffered, especially the workers, as they went through 10 years of high unemployment and then they went to war, so many of them died (this is always how capitalists solve the "rising unemployment problem" if anything else fails).

Furthermore, the western consumer is "dying". The capitalists have been using a very effective model for maximizing their profits for the last 20 years or so: They would employ the cheaper Asian workers in order to actually make the goods, and they would sell them to the western workers, who spent all their money, and them some more through heavy borrowing (this is why the western workers are referred to as "consumers" instead of "workers", as this is their function in the world economy. If they don't consume, the world economy doesn't work).

As the age of the "western consumer" is coming to an end, who is going to buy all these products that are made in China?

The Chinese workers are "too poor" in order to do that. And the capitalists don't really like giving a raise to the workers, do they?

So, China has a big problem, as noone has the necessary "purchasing power" in order to buy the goods they export. This is after all the reason why trade is collapsing on a worldwide scale.

What can China do?

It can "create some consumers of its own". That is, to create a "middle class", so that there are some Chinese people with enough money to buy some of the things that used to be exported (these people must also have a "consumer-mentality", which is also very hard, as these people must be educated in such a way to "be addicted to shopping").

In order to do that, China must increase the wages of some workers (it is already doing so), either in a direct way, or in an "indirect" way (ie revalue the Yuan, its currency. This is also happening, but at a "slow pace". We will talk more about the Yuan in our next post)

Here's what Spiegel reported on the subject a while ago (Germany in very interested in this, because they are also a big exporting nation, and they are facing similar problems, as the western consumer is dying. So, the too want China to create a middle class that can consume their goods as well as China's. We shall talk more about China and Germany coming together in future posts):

How Beijing Plans to Turn the Chinese into Consumers

Exports fueled the initial stages of China's ongoing economic boom. Now, however, the government in Beijing is placing a greater emphasis on domestic consumption.

The arrival of Western chain stores symbolizes the beginning of China's next revolution. The country's rising middle class has embarked on a collective spending spree, at least in the affluent belt along the country's east coast, from Beijing to Shanghai and down to Shenzhen in the south.

The shift is a delight to Western brand-name companies. "Now is precisely the right time for us to enter the Chinese market," says Redmond Yeung, the head of the Gap's operations in China. Yeung plans to open another store in Shanghai and two in Beijing almost simultaneously. Competitors, such as the apparel retailers H&M and C&A, already have outlets in China.

China is becoming a promising market for Western corporations, particularly in light of the warm welcome they often receive from government economic planners. Consumption has become an acceptable form of patriotism. [LOL - it's amazing how the capitalists can name anything that suits them as "being patriotic" and force the masses into accepting it - my note] International experience, Vice Premier Li says, teaches us that "any major power's development process must be led by domestic demand."
[...]
"Many citizens of our city cannot afford the products that are on display, at least not yet," says one saleswoman there with a shy smile. "I can't afford them either." Most customers are high-ranking officials or business executives. "When they go shopping," she adds, "they spend 10,000 yuan or more, all in one go" -- more than she makes in an entire year.

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Work till you drop, so that we can become even richer

- THIS IS CAPITALISM: We don't need all of you, and we need need all of your children. We have many workers in Asia, who work longer hours for less money. And they teach their kids to do so, unlike the western workers who have the "audacity" to demand an 8-hour day, or a decent salary. So let the western workers starve, until they start accepting (much) lower wages and working conditions - here are some good examples:  

Greece's financial crisis has made some families so desperate they are giving up their children 

One morning a few weeks before Christmas a kindergarten teacher in Athens found a note about one of her four-year-old pupils.

"I will not be coming to pick up Anna today because I cannot afford to look after her," it read. "Please take good care of her. Sorry. Her mother."

In the last two months Father Antonios, a young Orthodox priest who runs a youth centre for the city's poor, has found four children on his doorstep - including a baby just days old.

Another charity was approached by a couple whose twin babies were in hospital being treated for malnutrition, because the mother herself was malnourished and unable to breastfeed.

"Over the last year we have hundreds of cases of parents who want to leave their children with us - they know us and trust us," Father Antonios says.

"They say they do not have any money or shelter or food for their kids, so they hope we might be able to provide them with what they need."

Requests of this kind were not unknown before the crisis - but Father Antonios has never until now come across children being simply abandoned.

- England: Pensioners 'will work into 70s'

A generation of "Wearies" - Working, Entrepreneurial and Active Retirees - could be forced to work into their 70s and beyond due to the looming pensions crisis.
It will result in the traditional image of the pensioner relaxing in old age changing completely as many will simply not be able to afford to retire, experts say.

 Unilever Workers Announce 12 Days Of Strikes Starting 17 January Over End To Final Salary Pensions

Workers at consumer goods giant Unilever are to stage a new series of strikes in a huge escalation of a row over pensions, it was announced today.

Unilver said: "We believe the provision of final salary pensions is a broken model which is no longer appropriate for Unilever.

"It is our responsibility to protect the long-term sustainability and competitiveness of our business, and to do so is in the best interests of our people.

Meanwhile, the working conditions in China are "great" (if you're looking at it from the side of the capitalists) - so there is growth there (for now at least - we shall discuss more about China in the next couple of posts):

Volkswagen Brand Sales Surge As China Demand Matches Europe's

China became as important a market as Europe for Volkswagen AG's passenger car brand in 2011, as Chinese sales rose 14% to a record 1.72 million vehicles, the German auto maker said Friday.

Volkswagen, Europe's biggest auto maker by sales, said it is also gearing up to increase production in China and India.

Move Over Germany, China Is Now The Number 2 Market For Luxury Cars

Germany's luxury automakers are starting to shift more of their focus to the Far East.

According to Bloomberg, China is on track to edge out Germany as the second largest market for luxury cars. It is anticipated that 969,000 luxury models will be sold in China this year, while 914,000 will be delivered in Germany.

Here's why capitalists like China: Because they can keep all the profits for themselves, while the workers get nothing - this is the "most competitive" business environment the capitalists can find, but it is also the reason why the workers have a motive to overthrow them, as they are left to live (or even die) in poverty, while the capitalists are starting to look more and more like the feudal lords they once overthrew:

China Communist Party bureaucrats like their cars high end

A remnant of a decades-old Communist Party perks system, the luxe wheels are a conspicuous target of growing public outrage over the privileges of the elite. Angry Chinese have started posting photos.

Chinese officials love their cars — big, fancy, expensive cars. A chocolate-colored Bentley worth $560,000 is cruising the streets of Beijing with license plates indicating it is registered to Zhongnanhai, the Communist Party headquarters. The armed police, who handle riots and crowd control, have the same model of Bentley in blue.

And just in case it needs to go racing off to war, the Chinese army has a black Maserati that sells in China for $330,000.

"Corruption on wheels is an accurate description of this problem," said Wang Yukai, a professor at the Chinese Academy of Governance in Beijing, who has been advocating restrictions on officials' cars for years.

A remnant of a decades-old party perks system, the luxe wheels are a conspicuous target of growing public outrage over the privileges of the elite.

 

"Becoming like China" - a great way (for the capitalists) to "restore competitiveness". After all, we can't have the workers rallying against our policies, can we?

Obama Signs Bill Allowing Indefinite Detention of Americans

Obama signed the NDAA – including a provision allowing the indefinite detention of Americans - on New Year’s eve.

Obama issued a “signing statement” with the bill, which – at first blush – appears to say he won’t indefinitely detain Americans.

But a closer reading shows that the signing statement is just smoke and mirrors.

Specifically, it was Obama - not Congress – who originally requested that an exception for American citizens be removed from the bill. As such, his professed reluctance is wholly disingenuous.

Moreover, Obama signed a bill which would allow future presidents to indefinitely detain U.S. citizens, and his signing statement in no way limits their power to run roughshod over our rights.

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If only I had a dime for every time someone said "The Euro Is Dead"...

This was the cover of "The Economist" a few months ago, when concerns about the future of the euro had reached an all-time high, and the British (who of course never really liked the euro) were even talking about a British government's plan to help its citizens that have been "stranded" in in country that was part of the eurozone to get back to England!

But the euro didn't break up - not yet at least. And despite all the noise about its death (especially by the British/American media), the currency that is most in danger is...the dollar, as we've already discussed in a previous article. You see, the dollar is dying, as the world as about to reject it due to the continuous money-printing by the FED, and the euro is trying to become the "anti-dollar". After all, that was its mission when it was first launched, wasn't it?

Of course, the euro-system has many problems, and we shall discuss them in this article. So how can it become the "anti-dollar"? This is an important question, and we will try to answer it - but first we must discuss the flaws of the euro-system and remember a few things that we've previously mentioned when talking about the dollar.

The EU and the eurozone projects are proof that it is possible to have temporary agreements between capitalists and between states. However, we must never forget that in capitalism, each capitalist has to compete against the other capitalists, and each state has to compete against the other states. Europe is after all a continent that has hosted many battles between many nations, city-states, etc. for thousands of years.

In fact, the last few decades of relative "peace" are somewhat of a "paradox", as it is historically very rare for all those states to "unite" together for as long as they have, and history suggests that monetary unions in particular don't really last that long. The reasons for this "unification" were the following:

1) The European imperialists wanted to "counteract" the influence of the USA (and of other powerful states).

2) The stronger states (eg Germany, France) wanted a better way to exploit the weaker states.

In this article, we are not going to discuss about the EU, as we will concentrate on the euro-system of a common currency between all the member-states.

For each country to compete in the world market, they have a set of "tools" at their disposal, and one of them is monetary policy.

If for example a country's exports are not doing very well, then this country can devalue its currency, a policy that lowers the wages of the workers who are getting paid in that currency.

And if the labour costs are reduced, then the capitalists can sell the products at lower prices in the market, making them "more competitive". As the products become cheaper, more people prefer to buy them, and the country's exports start doing better.

In today's environment, all the western countries are more or less facing this problem, as they find it hard to compete against the cheaper Chinese goods. So, they all want to devalue their currencies - and they all do up to a point.

Furthermore, their economies are even worse than you think, as not only have the industrial capitalists fled to Asia, but the western nations have been "masking" this fact by using debt as a substitute, to keep their economies going. These debts cannot be repaid, so the banks that have given them out are now insolvent. So, the western nations want to "print money" and devalue their currencies not just to "screw the workers", but to "save the banks" as well (it's amazing how often these two objectives coincide).

This is the reason why the oil states are starting to reject the dollar, as they don't want to continue getting paid in a currency that is constantly being devalued. China and Russia don't like the dollar either. But what about the euro?

The theory is that currency unions work can work as long as the economies that are participating in them are “reasonably homogeneous”, i.e. they are almost "equals" in terms of how competitive they are, how much political and economic power each nation has, etc. This is known as an "optimal currency area".

Is the eurozone an optimal currency area? Obviously not. Didn't the politicians, the bankers and the corporations that are in charge know this? Of course they did (although few of them will publicly admit it - in fact, most of them will try to "play dumb"). But is suits their interests, so they did it anyway.

The eurozone was politically a creation of the Germans, and economically a creation of the bankers. It was relatively easy to get in (even Greece made it in - all it took was a little "creative accounting"), but it certainly isn't easy to get out.

Each state has different problems, in terms of debt and competitiveness. But the weaker member states have surrendered their right to devalue the currency they use. And the Germans don't want a lot of money-printing, as their economy is doing much better than the others (Germany is able to do well because labour costs are much higher than China's or India's, but the German workers are more productive and the products they produce have greater quality).

So, Germany can withstand a "strong euro", at least much more so than the rest of the eurozone members. So, they continue to do well, as their "eurozone partners" (competitors) are left to rot. This is great for the Germans, as they are become more and more dominant over them.

Everyone else is at their mercy, and the Germans are taking full advantage of this, as they ask for more and more "concessions" in exchange for devaluing the euro (it is obvious that they are pretty much in control of the ECB, as they are -by far- the strongest nation). Spiegel even went so far as to admit that Greece "has become little more than an EU protectorate" two years ago, and Germany is now on its way to do the same in Ireland, Italy and who knows where else. So, the Germans are quite happy to keep destroying the other nations economies - here's a German banker's response when asked about the implications of Germany's policy of not printing as much money as the others:

ECB Weidmann:Italy Can Cope W/Bond Yields Over 7% For A While

European Central Bank Governing Council member Jens Weidmann expects that Italy will be able to cope with interest rates on its government bonds of above 7% for a while.

In other words, let them suffer a bit longer, they can take it - and after all this suffering, they will have become even more desperate, so they'll agree to anything - even becoming a protectorate. This is also the reason why the Germans reject policies like the eurobond, because that would "share the burden" between Germany and the weaker countries. Why "share the burden", when you can dominate?

Furthermore, from a historical perspective, Germany experienced hyperinflation during the 1920's, and so they aren't very comfortable with this whole idea of "printing money out of thin air". But that's obviously not the only reason for their behaviour:

If there was no euro, the other countries would have been able to devalue their currencies and do a little better - so they wouldn't have to become "little more than EU protectorates". As for Germany, they would actually do worse, because their economy is doing well, so the Deutsch mark would rise, and that would make Germany's exports less competitive. But now, within the eurozone, Germany gets a slightly devalued currency (thanks to the PIIGS and some other state who are keeping it down), while the other nations get a revalued currency, which only worsens their competitiveness, and pushes them further into debt, as they "must" borrow money in order to "compensate" for their growing trade deficits (by the way, this is the reason why their bond yields are exploding higher, as the investors don't really believe that these nations can repay all these loans, especially when their productive base is being destroyed).

The best solution for these nations is to officially declare bankruptcy, but of course that would be a huge blow for the bankers, as they can't "absorb" all these losses (at least not now). So, no government is willing to do that until they've given enough "bailout packages" to the banks in order to keep them from going bankrupt when the weaker nations start defaulting on their debts.

Moreover, the austerity measures that are being implemented have the support of the big industrial capitalists of each country, as they reduce their labour costs, and eliminate some of their smaller competitors.

But what about the banks? Aren't they being bailed out? Sure they are. The ECB IS printing money. The Germans are delaying this process as much as they can, in order to make the others desperate/willing to accept their conditions. And they are trying to print as little as possible. But, after all, even the German banks are in trouble, so they have to choice but to print (a lot of) money and bail them out. Here's The Economist on the subject:

Is this really the end?
Unless Germany and the ECB move quickly, the single currency’s collapse is looming

Investors’ growing fears of a euro break-up have fed a run from the assets of weaker economies, a stampede that even strong actions by their governments cannot seem to stop. The latest example is Spain. Despite a sweeping election victory on November 20th for the People’s Party, committed to reform and austerity, the country’s borrowing costs have surged again. The government has just had to pay a 5.1% yield on three-month paper, more than twice as much as a month ago. Yields on ten-year bonds are above 6.5%. Italy’s new technocratic government under Mario Monti has not seen any relief either: ten-year yields remain well above 6%. Belgian and French borrowing costs are rising.

Add the ever greater fiscal austerity being imposed across Europe and a collapse in business and consumer confidence, and there is little doubt that the euro zone will see a deep recession in 2012—with a fall in output of perhaps as much as 2%. That will lead to a vicious feedback loop in which recession widens budget deficits, swells government debts and feeds popular opposition to austerity and reform. Fear of the consequences will then drive investors even faster towards the exits.
[...]
Can anything be done to avert disaster? The answer is still yes, but the scale of action needed is growing even as the time to act is running out. The only institution that can provide immediate relief is the ECB. As the lender of last resort, it must do more to save the banks by offering unlimited liquidity for longer duration against a broader range of collateral.

It is interesting to note however that the Germans are even "playing chicken" against the Americans, as the American banks would also be in trouble if Europe falls. So, by not printing enough money, the Germans are forcing the USA to print dollars in order to bail out European banks as well (via financing the IMF - the USA is the IMF's main creditor).

As for the people, they are starting to reject the euro (there is a rise of Euroscepticism in all countries, including Germany):

- The German people don't want to bail out "the lazy Greeks" (in reality of course, they are bailing out the bankers, including the German bankers, but it is so much more convenient for the elites to accuse all the Greeks of being lazy, and a lot of people buy into this sort of propagnada)

- The people of the other countries don't like the austerity measures, the endless bank bailouts, etc.

But the elites like the euro - especially the bankers. This is why they will try to keep it, even when -in the worst possible scenario- some countries fail or even if a two-tier euro-system is implemented, so that the weaken countries can use a weaker currency and not go into full-scale revolt (note: There is some talk of this two-tier euro, with the Euro of the North consisting of Germany, Holland, Finland, etc, and the Euro of the South consisting of the PIIGS, and possibly France).

But why do the bankers like the euro so much?

Click to enlarge - this table shows the world official gold holdings, and as you can see the combined gold holdings of all the eurozone countries rank as #1 on that list. The euro is the "least bad" major currency of the world, as it offers more gold backup that the dollar (which is its main rival).

Yes, I know what some of you might say? The world has been off the gold standard for years. And yet the banks keep hoarding gold, don't they?

And as the dollar's reign as the world's reserve currency is coming to an end, as we've discussed, the euro is the least bad option (apart from gold of course, which is already "making a comeback" in the hearts and minds of people as the world "truest" form of money).

For those of you who haven't read our article on the subject, here's the gist:

As the dollar -and the rest of the fiat currencies- are losing their value due to money printing, we are approaching a point where the world will simply reject them, and the West will not be able to have oil - at least not at "reasonable" prices by today's standards. We got a taste of that when Nixon first abolished the gold standard - the oil states demanded to be paid in gold instead of (inflated) dollars for their oil - thus the "oil crisis" of 1973.

This is why the USA "must" attack all the oil states who try to break free from the dollar, and start accepting other means of payment - because no mater how much it costs them to go to war, it will cost them a lot more if the world finally gets of the "dollar standard", and the value of the dollar goes to almost zero.

The main thing that prevents the oil states from rejecting the dollar right now is their fear of being attacked by the USA - if that fear goes away, then they will be free to choose what currency to accept as means of payment.

But, in the end,it is only a matter of time before the world "moves away" from the dollar. China, Russia, Iran, and even Japan have already signed various treaties, stating that they will use their own currencies instead of the dollar when they trade with each other.

When this happens, "gold will be king" - and the euro will be the least bad currency, as it has the most gold backing. This is why China is supportive of the euro, and of course Russia has great ties with Germany (Germany gets over 50% of its energy from Russia - we will talk more about how Germany is forming an alliance with Russia and China in a future post, as this is obviously an alliance that will upset the balance of power in the world).

The Euro-system even has a mark to market valuation of its gold - so when for example the euro falls, the gold holdings of the euro-system increase in value (and vice versa). The dollar system does not do that - the USA never change the exchage rate of their official gold holdings. In fact, they still value them at 35$/ounce, which was the original exchange rate between the dollar and gold that was set during the Bretton Woods agreement. In a nutshell, they don't want to officially accept that the dollar has lost almost all of its value since then.

The euro-system however can handle the end of the current dollar-centric monetary system. Not that it will do well, but will do "less bad" than the others. So, even if it destroys the lives of many people, even if entire European States fail, the elites like the euro-system, and they will fight to keep it running. 

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