Saturday, January 7, 2012

Food for thought: Orwell on Pacifism and War

During the Second World War, the battle lines were drawn and they were pretty clear.

But during the last few decades, there were no clear battle lines - but as the ruling class of capitalists is looting us, and more and more people are forced to live (or even die) in poverty, it is time to choose "which side are you on", as the song goes. Exploitation will either grow to unprecedented heights, or it will be abolished.

This post features an essay , written by G.Orwell 60 years ago (in the next post we will repost an essay by A. Einstein as well):

George Orwell - Pacifism and the War

[...] Pacifism is objectively pro-Fascist. This is elementary common sense. If you hamper the war effort of one side you automatically help that of the other. Nor is there any real way of remaining outside such a war as the present one. In practice, ‘he that is not with me is against me’. The idea that you can somehow remain aloof from and superior to the struggle, while living on food which British sailors have to risk their lives to bring you, is a bourgeois illusion bred of money and security. Mr Savage remarks that ‘according to this type of reasoning, a German or Japanese pacifist would be “objectively pro-British”.’ But of course he would be! [even if he wasn't able to realize it - my note] That is why pacifist activities are not permitted in those countries (in both of them the penalty is, or can be, beheading) while both the Germans and the Japanese do all they can to encourage the spread of pacifism in British and American territories. The Germans even run a spurious ‘freedom’ station which serves out pacifist propaganda indistinguishable from that of the P.P.U. [ the P.P.U = Peace Pledge Union, a British pacifists organization - my note] They would stimulate pacifism in Russia as well if they could, but in that case they have tougher babies to deal with. In so far as it takes effect at all, pacifist propaganda can only be effective against those countries where a certain amount of freedom of speech is still permitted; in other words it is helpful to totalitarianism.

I am not interested in pacifism as a ‘moral phenomenon’. If Mr Savage and others imagine that one can somehow ‘overcome’ the German army by lying on one’s back, let them go on imagining it, but let them also wonder occasionally whether this is not an illusion due to security, too much money and a simple ignorance of the way in which things actually happen. As an ex-Indian civil servant, it always makes me shout with laughter to hear, for instance, Gandhi named as an example of the success of non-violence. As long as twenty years ago it was cynically admitted in Anglo-Indian circles that Gandhi was very useful to the British government. So he will be to the Japanese if they get there. Despotic governments can stand ‘moral force’ till the cows come home; what they fear is physical force. But though not much interested in the ‘theory’ of pacifism, I am interested in the psychological processes by which pacifists who have started out with an alleged horror of violence end up with a marked tendency to be fascinated by the success and power of Nazism. Even pacifists who wouldn’t own to any such fascination are beginning to claim that a Nazi victory is desirable in itself. In the letter you sent on to me, Mr Comfort considers that an artist in occupied territory ought to ‘protest against such evils as he sees’, but considers that this is best done by ‘temporarily accepting the status quo’ (like Déat or Bergery, for instance?). a few weeks back he was hoping for a Nazi victory because of the stimulating effect it would have upon the arts:

"As far as I can see, no therapy short of complete military defeat has any chance of re-establishing the common stability of literature and of the man in the street. One can imagine the greater the adversity the greater the sudden realization of a stream of imaginative work, and the greater the sudden katharsis of poetry, from the isolated interpretation of war as calamity to the realization of the imaginative and actual tragedy of Man. When we have access again to the literature of the war years in France, Poland and Czechoslovakia, I am confident that that is what we shall fined." (From a letter to Horizon.)

I pass over the money-sheltered ignorance capable of believing that literary life is still going on in, for instance, Poland, and remark merely that statements like this justify me in saying that our English pacifists are tending towards active pro-Fascism. But I don’t particularly object to that. What I object to is the intellectual cowardice of people who are objectively and to some extent emotionally pro-Fascist, but who don’t care to say so and take refuge behind the formula ‘I am just as anti-fascist as anyone, but—’. The result of this is that so-called peace propaganda is just as dishonest and intellectually disgusting as war propaganda. Like war propaganda, it concentrates on putting forward a ‘case’, obscuring the opponent’s point of view and avoiding awkward questions. The line normally followed is ‘Those who fight against Fascism go Fascist themselves.’ In order to evade the quite obvious objections that can be raised to this, the following propaganda-tricks are used:

The Fascizing processes occurring in Britain as a result of war are systematically exaggerated.

The actual record of Fascism, especially its pre-war history, is ignored or pooh-poohed as ‘propaganda’. Discussion of what the world would actually be like if the Axis dominated it is evaded.

Those who want to struggle against Fascism are accused of being wholehearted defenders of capitalist ‘democracy’. The fact that the rich everywhere tend to be pro-Fascist and the working class are nearly always anti-Fascist is hushed up.

It is tacitly pretended that the war is only between Britain and Germany. Mention of Russia and China, and their fate if Fascism is permitted to win, is avoided. (You won’t find one word about Russia or China in the three letters you sent to me.)

My past and present. Mr Woodcock tries to discredit me by saying that (a) I once served in the Indian Imperial Police, (b) I have written article for the Adelphi and was mixed up with the Trotskyists in Spain, and (c) that I am at the B.B.C. ‘conducting British propaganda to fox the Indian masses’. With regard to (a), it is quite true that I served five years in the Indian Police. It is also true that I gave up that job, partly because it didn’t suit me but mainly because I would not any longer be a servant of imperialism. I am against imperialism because I know something about it from the inside. The whole history of this is to be found in my writings, including a novel (Burmese Days) which I think I can claim was a kind of prophecy of what happened this year in Burma. (b) Of course I have written for the Adelphi. Why not? I once wrote an article for a vegetarian paper. Does that make me a vegetarian? I was associated with the Trotskyists in Spain [Orwell went to Spain during the Spanish Civil War and fought the fascists, by joining POUM, a marxist organization - my note]. It was chance that I was serving in the P.O.U.M. militia and not another, and I largely disagreed with the P.O.U. M. ‘line’ and told its leaders so freely, but when they were afterwards accused of pro-Fascist activities I defended them as best it could. How does this contradict my present anti-Hitler attitude? It is news to me that Trotskyists are either pacifists or pro-Fascists. (c) Does Mr Woodcock really know what kind of stuff I put out in the Indian broadcasts? He does not — though I would be quite glad to tell him about it. He is careful not to mention what other people are associated with these Indian broadcasts. One for instance is Herbert Read, whom he mentions with approval. Others are T. S. Eliot, E. M. Forster, Reginald Reynolds, Stephen Spender, J. B. S. Haldane, Tom Wintringham. Most of our broadcasters are Indian left-wing intellectual, from Liberals to Trotskyists, some of them bitterly anti-British. They don’t do it to ‘fox the Indian masses’ but because they know what a Fascist victory would mean to the chances of India’s independence. Why not try to find out what I am doing before accusing my good faith?

‘Mr Orwell is intellectual-hunting again’ (Mr Comfort). I have never attacked ‘the intellectuals’ or ‘the intelligentsia’ en bloc. I have used a lot of ink and done myself a lot of harm by attacking the successive literary cliques which have infested this country, not because they were intellectuals but precisely because they were not what I mean by true intellectuals. The life of a clique is about five years and I have been writing long enough to see three of them come and two go — the Catholic gang, the Stalinist gang, and the present pacifist or, as they are sometimes nicknamed, Fascifist gang. My case against all of them is that they write mentally dishonest propaganda and degrade literary criticism to mutual arse-licking. But even with these various schools I would differentiate between individuals. I would never think of coupling Christopher Dawson with Arnold Lunn, or Malraux with Palme Dutt, or Max Plowman with the Duke of Bedford. And even the work of one individual can exist at very different levels. For instance Mr Comfort himself wrote one poem I value greatly (‘The Atoll in the Mind’), and I wish he would write more of them instead of lifeless propaganda tracts dressed up as novels. But his letter he has chosen to send you is a different matter. Instead of answering what I have said he tries to prejudice an audience to whom I am little known by a misrepresentation of my general line and sneers about my ‘status’ in England. (A writer isn’t judged by his ‘status’, he is judged by his work.) That is on a par with ‘peace’ propaganda which has to avoid mention of Hitler’s invasion of Russian, and it is not what I mean by intellectual honesty. It is just because I do take the function of the intelligentsia seriously that I don’t like the sneers, libels, parrot phrased and financially profitable back-scratching which flourish in our English literary world, and perhaps in yours also.

Capitalism, as we've already discussed, is a system the workers have to compete against each other in order to get picked by the employers.

In today's environment, employers usually prefer the Asian workers, as they work ridiculously long hours for ridiculously low wages - that makes them more competitive than everyone else, except maybe the German workers, who may be "expensive", but they are also more productive/efficient.

So, apart from a few exceptions, the western workers "must" become more competitive, so that the employers will start picking them again in the labour market. After, all, who cares about poverty and inequality? The only thing that matters is maximizing your own personal profit, right? So, the workers need to be productive, obedient and cheap. And that's where "austerity" comes in:

A lot of people, especially the Social-Democrats, criticize austerity because it reinforces the recession and inhibits growth. This is true, but it also misses "the big picture". The capitalists are not stupid, or at least they are not that stupid - they know that these austerity measures inhibit growth, and even if they didn't know, they must have noticed it by know. And yet they persist, because this policy may inhibit growth on the short term, but it will also create a new generation of workers that will work longer hours for less money. So, in the long run, the capitalists will make a profit, even if they have to take some short-term hits as well (some businesses are going bankrupt because of austerity - they are "necessary sacrifices" in order to create a better future for the capitalists, at the expense of the workers). Here's how it works:

As unemployment keeps rising, the workers become desperate, as they have no money to sustain themselves and their families. This situation is very similar to a castle siege - the attackers would cut the supply lines of the people inside the castle, and these people would either starve to death (as they had no food), or they would be forced to surrender. The workers face a similar choice, as they have no job, and the employers will only offer them a job if they agree to give up their demands of an 8-hour day or of a "decent" wage, healthcare benefits, etc.

So, unless the workers fight for a system without employers, a system in which the workers are in charge of themselves, they will eventually be forced to accept working in poverty. The employers have all the labour force they need in Asia, at extremely low prices - so as long as they are in charge of production, they will keep picking the cheaper workers, forcing everyone else to accept similar conditions of poverty, or face unemployment and starvation. They even call today's generation "a lost generation", as a lot of them will not get "picked" for work, and they will be left to starve, in order for the next generations to accept working for pennies.

So how is this strategy working out for the capitalists? Actually, it's working great! Sure, there are some protests, but on the other hand a lot of workers have already accepted working for (a lot) less, and some of them have even accepted working...for free! That's something that even the slaves of the Dark Ages didn't accept, as they masters would at least give them food and water, in order to keep them alive so that they can continue to exploit them for as long as possible.

Today, as it turns out, there are some cases where you don't even have to do that - and I'm not talking about China or Africa or anything like that. I'm talking about the West:

Unpaid jobs: The new normal?

With nearly 14 million unemployed workers in America, many have gotten so desperate that they're willing to work for free. While some businesses are wary of the legal risks and supervision such an arrangement might require, companies that have used free workers say it can pay off when done right. [yeah, sure, it can pay off if you look at it from the capitalist's point of view - my note]

"People who work for free are far hungrier than anybody who has a salary, so they're going to outperform, they're going to try to please, they're going to be creative," says Kelly Fallis, chief executive of Remote Stylist, a Toronto and New York-based startup that provides Web-based interior design services.
[...]
In the last three years, Fallis has used about 50 unpaid interns for duties in marketing, editorial, advertising, sales, account management and public relations. She's convinced it's the wave of the future in human resources. "Ten years from now, this is going to be the norm," she says.
[...]
Cassie Johnson, a 27-year old in San Marcos, Calif., lost her job as an enrollment adviser for an online university in 2009 and was receiving unemployment benefits for a year before finding an assistant manager position at a Starbucks (SBUX) that's so far from her home she spends most of her pay on gas. Since starting a public relations internship in February, she feels a renewed sense of purpose.

"I'm learning a lot and I feel really good about it. I'm happy. I feel relevant. I'm not making any money, so it's tough, but I feel it's setting me up for a career," Johnson says. "I only have $1.50 left in my checking account right now but I'm living with my boyfriend and he's been really good about supporting me." [meanwhile, even the Chinese workers make more money that she does - but at least she's "relevant" - my note]

All work and no pay – the rise of workfare

As consumers, we may all be guilty of ignoring the poverty wages paid by companies such as Primark in their factories abroad. But how many of us are aware of the exploitation going on in the UK, as workfare schemes allow such companies to profit from free labour?

Karina’s story is not uncommon. More and more people are being compelled to work without pay on threat of losing the poverty income of £67 per week (if you’re over 25) that jobseeker’s allowance (JSA) provides.

Karina was mandated to work in Primark under New Labour’s Flexible New Deal. She had been sent to a private ‘welfare to work’ provider whose regime included putting claimants to work without pay in businesses, charity shops and public sector workplaces. Although regulations meant that she could only be obliged to work for up to 12 weeks without pay, she worked for 24 weeks, fearing she would have her benefits stopped if she did not agree. She had signed up to and paid for a college course that would help her find work but she had to give it up to do the placement: ‘They told me they would stop my JSA, so I stopped my English course.’

The younger generation of workers is the one suffering more - some graduates in England are even paying to get get a job (instead of getting paid for it)!

Graduates paying to work for free

When Roz Tuplin graduated in 2010 she thought that a post-graduate degree in English Literature would be good grounding for a job in the media. She knew she would have to gain work experience, but after a year of trying to get a placement, she has decided to pay employers £65 a day to let her through the door. "It seems to be the way things are going," she said.
[...]
Ms Tuplin, 23, from Wirral, will be paying £260 for a four-day work experience placement with a TV production company in London. Access to internships, many said to have been arranged through well-connected parents, has been an area of controversy.

"The government's own lawyers have warned work without pay is often illegal and HMRC should be investigating companies which offer unpaid and paid-for internships."

And it just keeps getting better and better:

Hundreds of Thousands of Lower-Wage Workers, Many of Whom Worked for Decades, Would Be Denied Unemployment Insurance Under Provision Now Under Consideration

A provision that congressional negotiators will consider for legislation to extend the payroll tax cut through the end of 2012 would deny unemployment insurance (UI) to hundreds of thousands of lower-wage workers who worked for years or even decades, effectively paid UI taxes while they worked, and then were laid off.

Unemployed Portuguese told to 'just emigrate'

Hounded by the economic crisis that shows no signs of letting up and by political leaders of all stripes, Portugal's conservative Prime Minister Pedro Passos Coelho sent out an unprecedented message to his fellow citizens: Emigrate.

A wave of indignation was triggered when Passos Coelho, in the face of the growing unemployment that is hitting young people and educators extremely hard, suggested to teachers on December 18 that as an alternative they could move to Portuguese-speaking countries like Brazil or Angola.

Meanwhile, back in "Plutocracy Land":

Since 2009, 88 Percent Of Income Growth Went To Corporate Profits, Just One Percent Went To Wages

“Between the second quarter of 2009 and the fourth quarter of 2010, real national income in the U.S. increased by $528 billion. Pre-tax corporate profits by themselves had increased by $464 billion while aggregate real wages and salaries rose by only $7 billion or only .1%. Over this six quarter period, corporate profits captured 88% of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1% of the growth in real national income. …The absence of any positive share of national income growth due to wages and salaries received by American workers during the current economic recovery is historically unprecedented.”

No wonder the people are out on the streets - it took them long enough. They are of course in the very early stages of a process that could -and should- lead to a revolution, a revolution that should end this system where almost all the economic and political power is concentrated at the hands of a few oligarchs, who don't seem to mind when a lot of suffer, if that suits their interests...

This article from the Huffington Post describes a trend that will probably grow, as the people start opening their minds to alternative ways of organizing our societies. It would be premature, if not foolish, to talk about a socialist revolution in the West, as there is no preparation for such an event, at least not in the near future. But we should start discussing this possibility, as capitalism can only lead us to mass poverty, if not war:

Young People More Likely To Favor Socialism Than Capitalism: Pew

Young people -- the collegiate and post-college crowd, who have served as the most visible face of the Occupy Wall Street movement -- might be getting more comfortable with socialism. That's the surprising result from a Pew Research Center poll that aims to measure American sentiments toward different political labels.

The poll, published Wednesday, found that while Americans overall tend to oppose socialism by a strong margin -- 60 percent say they have a negative view of it, versus just 31 percent who say they have a positive view -- socialism has more fans than opponents among the 18-29 crowd. Forty-nine percent of people in that age bracket say they have a positive view of socialism; only 43 percent say they have a negative view.

And while those numbers aren't very far apart, it's noteworthy that they were reversed just 20 months ago, when Pew conducted a similar poll. In that survey, published May 2010, 43 percent of people age 18-29 said they had a positive view of socialism, and 49 percent said their opinion was negative.

This article is a repost from emsnews.wordpress.com. The article was written a few months ago, but it is as relevant today as it was back then - maybe even more so, with Obama announcing cuts in military spending:

***

The US Debt Death Dance continues with the entire elderly population sitting, watching in horror with a gun to the forehead is interesting since we are at war. We just increased our war against Libya, with London kicking out the Libyan staff there and installing the rebels in a coup de force. The whining about the budget is most astonishing here since we are at war. Bush started his wars while cutting taxes and now this insane tax cutting regime continues as the rich evade paying for their wars which they want very badly. They have basically declared war on nearly all Muslims and are planning a major global war against China while doing hot business with China.

These insane things run alongside the US bailing out the entire NATO banking system via letting the Federal Reserve with no oversight by anyone, lending over $16 trillion to private investment bankers and international central banks! At ZIRP rates which is, for free. This unleashed a global commodity/stock exchange inflation flurry which, in turn, is now causing revolutions, riots and defaults across the entire planet. Returning to the author of all this, the US which has run trade and budget deficits nonstop during nearly the entire Cold War and now the War On Terror, the very rich have skipped out on paying for this nearly continuously since 1980 with Reagan’s ascendancy to the throne.

Russia calls for “immediate end” to Libyan conflict and so Russia won’t recognize Libyan rebels – Lavrov. The former KGB officers know defeat when they see it, they have seen it happen before, in Russia so when they say, “There is no military solution to Libya situation”, we should take them seriously. [by the way, this statement was made by Medvedev and Merkel, as Germany sided with Russia and Chin on this one. We shalla talk more about this alliance in future posts - my note]

In Congress, which is now the Knesset on steroids, there is no ability to see looming defeat because the wars have been paid for via cheap credit. So never, ever has there been a call for even the slightest sacrifices by the rich. The rich, incidentally, own our military/industrial complex and make huge profits off of it and they seem little inclined to see this wealth return to the state to pay for the wars which fuel rises in their incomes. They literally want to eat their cakes and bomb them, too. This one-way feed whereby debt piles up while wars rage is a great way to bankrupt a country. Many an empire in the past has tried this and all had the same dire end: bankruptcy.

The wealthy have pushed as hard as possible, the idea that the poorest half of the country that holds approximately 2% of the wealth compared to the top 10% that holds over 50% of the wealth, be taxed heavily for these insane wars, too. Trying desperately to guilt trip the lower working classes who have seen jobs vanish and wages collapse, to pay for wars that enrich the wealthy even further, beyond their wildest dreams, is pure insanity. Yet, this meme has been ruthlessly pushed by wealthy publishers, AIPAC and other creeps who don’t care if the country goes bankrupt, they just don’t want to part with a farthing of their own wealth no matter how dangerous this is in the future.

And history is very clear about this: empires that go to war and then bring back no loot and spend via debt on adventures that bring back little or nothing, countries that do this while letting the elites pay no price for this, countries that tax the poor to pay for fruitless wars, end up dead. That is, their own people revolt and the foreign adventures collapse while the government at home collapses.

We have exactly one socialist in the Senate. He is a voice of reason who is often ignored. Here is his latest public statement about the mess in DC: Majority Rule? – Newsroom: U.S. Senator Bernie Sanders (Vermont)

With the clock ticking on an Aug. 2 deadline for raising the $14.3 trillion debt ceiling, another major national poll found that Washington is out of touch with a big majority of Americans who want to see a combination of government spending cuts and tax increases as part of any deal to bring down the U.S. budget deficit.[...] The idea is popular everywhere in America, it seems, except on Capitol Hill, where Republicans have ruled out ending tax breaks and closing loopholes for the wealthiest Americans and the most profitable corporations.

Since the dawn of religions created by fearful humans, when something goes bad or gods had to be fed human blood, the elites usually didn’t sacrifice themselves to save their followers, they sacrificed someone who was much more helpless. Prisoners, children, virgins, whoever: they tended to toss these into the maws of the irritated gods. So it is in modern times: when there is a need for any sacrifices, the rich and elites all point to the rest of us and tell us to go jump into a fiery lake, not them.
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In the last decade, the very rich who incidentally, own our military complex, have thrown multimillion dollar coming of age ceremonies for their own spawn while at the same time, sending the children of the working class and the poor into the wars which bring these huge profits. Celebrating their brats turning into ‘adults’ (these ceremonies tend to come at 13-16 years of age for the children) with sybaritic displays while the children (often quite young, themselves) come home mutilated, psychotic or dead, is part and parcel of the gulf between the rich and the poor which is ultimately the cause of the future revolt that will happen here eventually.

Here is a good speech by our only socialist Senator: Plutocracy: If Corporations and the Rich Paid 1960s-Level Taxes, the Debt Would Vanish – Newsroom: U.S. Senator Bernie Sanders (Vermont)

If corporations and households taking in $1 million or more in income each year were now paying taxes at the same annual rates as they did back in 1961, the IPS researchers found, the federal treasury would be collecting an additional $716 billion a year.

In other words, if the federal government started taxing the wealthy and their corporations at the same rates in effect a half-century ago, the federal debt to investors would almost totally vanish over the next decade. [In reality, if the government did try to raise taxes on the rich, they would simply take their money and move/invest it somewhere else, like Asia for example. So, this "solution" that Sanders is suggesting will not work, leaving us with no other choice that to try and completely overthrow them, not increase their taxation - my note]

So why aren’t we taxing the rich? Why are we now suffering such fearsome “debt crisis” angst? Why are our politicos so intent on shoving the “fiscal discipline” of layoffs and cutbacks – austerity – down the throats of average Americans?

No mystery here. Our political system is failing to tax the rich because the rich have fortunes large enough to buy off the political system.

The free ride to many wars is now ending. Before, Republican Presidents starting with Reagan, figured out that the public would buy into crazy wars if they didn’t have to pay for them. So the idea of using debt to pay for wars become the Holy Grail of the military/industrialists who thought Pentagon spending could double every 4-6 years and no one would notice this is a classic hockey stick graph which leads to infinity.

Now that the rich are talking about cutting social security and Medicare and possibly all other services used by American citizens while increasing the war spending, Public support is finally waning for defense spending – Stripes Central – Stripes. And about time! The majority of Americans want the war gravy train to stop. If we have to starve at home or die of disease thanks to our wars, then it is much easier to just stop the wars, isn’t it?
[...]

The banks were reliquified by the Fed just 2 years ago and now they are setting themselves up to float above this mess which they and their buddies created in the first place. When the GOP ideology of no regulation of credit markets, no usury laws, no taxes on the rich first were proposed by Reagan’s gang, the bankers cheered. Now that the mess they endorsed and pushed for is pushing our empire off the cliff, they get cold feet. Well, all the cash holdings they have are dwarfed by the FOREX cash held by foreign powers, all of whom ran up huge trade surplus profits against the US since Reagan.
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THEY are getting nervous and Chinese warnings have been disregarded. The US cannot print its way out of this mess without using the Weimar option which is to destroy the value of the dollar until it can’t buy even a loaf of bread with a wheel barrel of cash. Foreign powers hold tons of US debt and if it is suddenly priced at above 3% per annum, this means our government will be forced to spend 100% revenues on interest and this will be money flowing OUT of the US to pay for our red ink, not into the country.

The pirates and gnomes running Goldman Sachs, an entity that ought to have been forced into bankruptcy, a monster bailed out at great cost by our own central bank, is freaking out over all of this: Goldman Sachs: US Faces Credit ‘Downgrade’ if it Counts Eventual End of War as ‘Deficit Reduction’

Senate Democrats have issued a new “savings” plan that would nominally pare the projected deficit by over $1 trillion simply by assuming that the costs of the wars in Iraq and Afghanistan will eventually go away by virtue of those wars ending. This has spawned a myriad of criticism, including a leaked Goldman Sachs memo warning that the nation faces a credit downgrade if it tries to use this sort of on-paper gimmick instead of actual cuts in spending.

Goldman Sachs wants real cuts? HAHAHA. Cut them! Of course, they run our government via bribes to politicians, etc. And these creeps pay little to no taxes. They scheme to enrich themselves and beggar us. And as typical of such fiends, they want cuts to things that keep us alive while evading responsibility for funding our government.
[...]

I grew up in an End of Times household where the adults worked tirelessly to create nuclear missiles so this would happen. I was told, ‘This will protect us!’ even as we talked about how we were going to die. ’That’s OK since Jesus will save us,’ was the answer, one that I seriously doubted. Nay, I feared. Insanity of this sort infects religious believers which is why the many religious wars raging around the planet, sucking us in, are so dangerous.
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Thousands of years ago, humans invented religions due to fear of death. To save themselves, they then created the concept of human sacrifices to save themselves from angry gods. This meant killing someone, of course. So, to save themselves, our ancestors killed others! Who didn’t deserve to be allowed to be saved, of course. This is a fundamental problem with all religions even if they ceased sacrificing humans and animals to bloody gods. The impulse is still very much there. It is part of our brains.
[...]

This idiot from Utah thinks it is funny if he destroys the nation in order to stop overspending money. Did he vote for the military budgets? Yup, enthusiastically, every time! Did he vote to raise taxes every time he doubled the Pentagon spending? Nope, never. Perhaps making it impossible to raise taxes will fix our military problems by stopping all wars. Except this won’t happen. They will use this as a way of cutting social services to zero. For the rich want everything and they want to share nothing. Again: this is Ice Age thinking. Eliminate all rivals and then one can hunt mastodons in peace.
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Due to insane religious nuts like Senator Lee, the elites have decided to have a legal but unconstitutional coup: ‘Super Congress’: Debt Ceiling Negotiators Aim To Create New Legislative Body. Good lord, what’s next? The guillotine? French Directory – Wikipedia, the free encyclopedia

Under the French Constitution of 1795, qualified property holders elected 750 legislators, who divided themselves into the Council of Five Hundred and the Council of Ancients. This bicameral legislature had a term of three years, with one-third of the members renewed every year. The Ancients held a suspensory veto, but possessed no initiative in legislation.
[...]
The system made provision for the stringent control of all local authorities by the central government. Since the new constitution sought to create a separation of powers, the directors had no voice in legislation or taxation, nor could directors or ministers sit in either house. The law guaranteed freedom of religion, freedom of the press, and freedom of labour, but forbade armed assemblies and even public meetings of political societies. Only individuals or public authorities could tender petitions…The finances had been so thoroughly ruined that the government could not have met its expenses without the plunder and the tribute of foreign countries. If peace were made, the armies would return home and the directors would have to face the exasperation of the rank-and-file who had lost their livelihood, as well as the ambition of generals who could, in a moment, brush them aside.

The end result was Napoleon. When the Weimar government floundered, the end result was Hitler when Germany finally went bankrupt. Since the military is sucking down a huge, huge hunk of our budget, if this is endangered and the wages of the military aren’t paid on time, they will take over the government just like we saw in Egypt. This will fix nothing since the military leaders want more wars which is what happened when Hitler and Napoleon took over bankrupt empires that still had strong military systems pretty much intact.
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Both Hitler and Napoleon promised guns and butter and brought in lots of loot for a while until military defeats reversed this and the people let invaders (Russia in both cases!) overthrow their armies. In the US, we have a very dangerous military machine that is mainly overseas. If Congress doesn’t pay them or if the US debt is degraded and thus, less desirable, we will have a coup more likely than an election. The military will not tolerate civilian spending if they have to be cut, too. Ending the many wars goes against the grain for the military which wants more of these wars for it increases their power.

. Even if the soldiers don’t want more wars, the generals at the top do. And until the soldiers revolt (and they certainly did in the Vietnam War!) the generals will cheerfully expand wars to infinity. This is a big mess the US has to discuss. Do we want eternal, increasingly expensive wars of attrition run by assassins? Or do we want peace and plenty? The rich want the former, the bulk of Americans wan the latter. But enough Americans want the End of Times to tip the scales in favor of the elites who want wars to enrich themselves. This is a tragedy history has written so often, it becomes tedious to even bring up the many examples of this dynamic and how stupid it all is since we know the obvious end results. History is utterly clear about this. Fatally clear.

Oil wars - The stakes are higher than just Iran

As we all know the West is on the verge of launching an attack against Iran: The Americans have been talking about it for years, trying really hard to look Ahmadinejad look like the bad guy (granted, that's not the hardest thing in the world to accomplish). As for the Israelis, America's watchdog in that area, they would have already launched an attack if they could. There are NATO military bases all around Iran, and Iran's nuclear program is a great excuse for the West to invade them (after all, they invaded Iraq using Saddam's "weapons of mass destruction" as an excuse, even though these weapons never existed. Excuses, unlike facts, are always easy to come by if you truly want to find them).

Anyway, Iran is not an easy target: It has much greater defensive capabilities than Iraq or Libya, not to mention the fact that it has an alliance with Russia and China (who are opposing an invasion - a Chinese military officer even threatened the West with full-scale war if they attack Iran). Iran also controls the Strait of Hormuz, a naval passage of huge importance, as the oil tankers have to cross it to bring the oil to the West. So, if Iran gets attacked, they are threatening to close it down, causing a shortage of oil and a huge spike in its price. This is not bad of course if you are an exporter of oil (like Russia), but it will obviously have devastating consequences for the economies of the West.

Of course, you probably already know most of this stuff - so in this post we're going to talk about the history of oil, and how it is linked to the dollar and the monetary system in general.

After all, everyone knows what the oil states are exporting to the West: They are exporting oil, the world #1 source of energy. That's pretty important, right? But what are they getting in return? They are getting paid in dollars, so in order to truly understand "how the world works", it would be a good idea to see what this "dollar" really is.

This will provide us with a much better understanding of the world economy, and it will also help us understand why the world is heading towards a new "oil crisis", one that will be much bigger than the one we experienced back in the 70's.

The current monetary system, with the dollar as its reserve currency, was born during the Bretton Woods agreement, which was signed right after the end of the Second World War. All the countries had been bombed, even the ones that where on the winning side. Moreover, they all had large budget deficits, as they had to borrow heavily in order to fund their war efforts. But the USA was not bombed, and its economy was almost intact. The factories were working, and its exports accounted for more than 50% of the world's exports. So, they were by far the strongest nation (at least in the West - Soviet Union was pretty strong but they followed a different path), and they were also the world's creditor nation. So, they imposed their will on everyone else - here's something from wikipedia on the subject:

U.S. allies—economically exhausted by the war—accepted this leadership. They needed U.S. assistance to rebuild their domestic production and to finance their international trade; indeed, they needed it to survive.

One of the reasons Bretton Woods worked was that the US was clearly the most powerful country at the table and so ultimately was able to impose its will on the others, including an often-dismayed Britain. At the time, one senior official at the Bank of England described the deal reached at Bretton Woods as “the greatest blow to Britain next to the war”, largely because it underlined the way in which financial power had moved from the UK to the US. (source: Business Spectator_

A devastated Britain had little choice. Two world wars had destroyed the country's principal industries that paid for the importation of half the nation's food and nearly all its raw materials except coal. The British had no choice but to ask for aid. Not until the United States signed an agreement on December 6, 1945 to grant Britain aid of $4.4 billion did the British Parliament ratify the Bretton Woods Agreements

It gets better:

In theory the reserve currency would be the bancor (a World Currency Unit that was never implemented), suggested by John Maynard Keynes; however, the United States objected and their request was granted, making the "reserve currency" the U.S. dollar. This meant that other countries would peg their currencies to the U.S. dollar, and—once convertibility was restored—would buy and sell U.S. dollars to keep market exchange rates within plus or minus 1% of parity. Thus, the U.S. dollar took over the role that gold had played under the gold standard in the international financial system. (Rogue Nation, 2003, Clyde Prestowitz)

Meanwhile, to bolster faith in the dollar, the U.S. agreed separately to link the dollar to gold at the rate of $35 per ounce of gold. At this rate, foreign governments and central banks were able to exchange dollars for gold. Bretton Woods established a system of payments based on the dollar, in which all currencies were defined in relation to the dollar, itself convertible into gold, and above all, "as good as gold".

The only currency strong enough to meet the rising demands for international currency transactions was the U.S. dollar. The strength of the U.S. economy, the fixed relationship of the dollar to gold ($35 an ounce), and the commitment of the U.S. government to convert dollars into gold at that price made the dollar as good as gold.

The U.S. dollar was the currency with the most purchasing power and it was the only currency that was backed by gold. Additionally, all European nations that had been involved in World War II were highly in debt and transferred large amounts of gold into the United States, a fact that contributed to the supremacy of the United States. Thus, the U.S. dollar was strongly appreciated in the rest of the world and therefore became the key currency of the Bretton Woods system.

Another view is that in the time of discount banks, discount was the interest earned on gold, and that the only way to repay interest on government bonds is by printing more dollars, thus raising the price of gold. If gold is fixed at $35 then other countries will demand gold and not accept dollars. The closing of the gold window in 1971 was the result.

A second structural change that undermined monetary management was the decline of U.S. hegemony. The U.S. was no longer the dominant economic power it had been for more than two decades. By the mid-1960s, the E.E.C. and Japan had become international economic powers in their own right. With total reserves exceeding those of the U.S., with higher levels of growth and trade, and with per capita income approaching that of the U.S., Europe and Japan were narrowing the gap between themselves and the United States.

What do all these things have to do with oil? Patience dear reader, the answers are coming.

When the dollar become the world's reserve currency, the USA were ruing huge trade surpluses, and they also owned a lot of gold to back the dollar up. Keynes's proposal of a world reserve currency was dismissed, as there was a state that could impose its will on all the others, the USA.

But as other countries, such as Germany and Japan, rebuilt their productive bases, USA had to face a lot of competition, and they weren't running such huge trade surpluses anymore. Furthermore, as Triffin pointed out in what became known as "the Triffin dilemma", owning the world's reserve currency meant that the USA would have to make a choice:

A) They could continue to print new dollars in order to meet the ever-increasing demand (as everyone wanted dollars in order to do business transactions and store his wealth). This would provide the global economy with enough liquidity to continue to grow, but the result is obviously inflation (devaluation of the dollar).

OR

B) They could stop printing new dollars, in order not to [hyper]inflate the dollar. That however would have devastating results for world trade, as the dollar is what the world uses as a means of transaction.

The U.S. chose to print money, and during the Vietnam war in the Nixon years, they needed a lot of new dollars in order to fund it. So, they printed even more dollars.

But remember what we said earlier: The dollar was linked to gold at a fixed rate.

But gold remains stable - so the 35$/ounce exchange rate could not be kept stable anymore, as the dollar was constantly being devalued. So, Nixon decided to end the gold standard, and print as many dollars as the USA wanted.

Here's a video of Nixon's public announcement of this policy - if you listen to him, you will see that he is blaming the "evil speculators" who are for some "unknown reason" attacking the economy of the USA. Not that i like the speculators myself, but they are of course not "evil", nor "psychopaths". They simply want "to make a profit", no matter the cost, and when they realized that gold's true value was greater than 35$/ounce, they started demanding gold instead of dollars. The most notable example of this was De Gaulle's preference of gold over dollars (De Gaulle was the president of France). Here's a link to an article from the Times of that period (Feb. 12, 1965) for those of you we wish to know more. De Gaulle even called for a new, international reserve currency to replace the dollar, and he thought of gold as the "centre" of this new monetary system.

A few years later, things got even uglier for the dollar:

Nixon abolished the gold standard in 1971. Two years later, in 1973, the world was shocked by an"oil crisis", as the oil states stopped accepting the dollar as a means of payment, and demanded gold instead. This is why the gas station depicted in the photograph above had "no gas" during that time. Here's wikipedia on the subject:

US off the Gold Exchange Standard (whereby only the value of the US dollar had been pegged to the price of gold and all other currencies were pegged to the US dollar), allowing the dollar to "float".

Shortly thereafter, Britain followed, floating the pound sterling. The industrialized nations followed suit with their respective currencies. In anticipation of the fluctuation of currencies as they stabilized against each other, the industrialized nations also increased their reserves (printing money) in amounts far greater than ever before. The result was a depreciation of the value of the US dollar, as well as the other currencies of the world. Because oil was priced in dollars, this meant that oil producers were receiving less real income for the same price. The OPEC cartel issued a joint communique stating that forthwith they would price a barrel of oil against gold.

This led to the "Oil Shock" of the mid-seventies. In the years after 1971, OPEC was slow to readjust prices to reflect this depreciation. From 1947-1967 the price of oil in U.S. dollars had risen by less than two percent per year. Until the Oil Shock, the price remained fairly stable versus other currencies and commodities, but suddenly became extremely volatile thereafter. OPEC ministers had not developed the institutional mechanisms to update prices rapidly enough to keep up with changing market conditions, so their real incomes lagged for several years. The substantial price increases of 1973-74 largely caught up their incomes to Bretton Woods levels in terms of other commodities such as gold.

Today, these "long forgotten" problems are resurfacing, as everyone is engaged in massive "money printing" - and the oil states are not happy about it. The USA managed to overcome the oil crisis of 1973, but know their productive base is much worse off, and the money printing has intensified, in order to bail out the banks and impoverish the workers.

But as the oil crisis of 1973 has proven, there is at least one powerful force amongst the imperialists that does not like money printing: The oil states. Moreover, Russia and China are obviously also not in favour of the USA - they too want the dollar's reign to end. We shall talk about their moves, and also about Europe's moves and the euro in future posts.

For now, let's just say that 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.

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.

Here is a brief history of the oil states that the USA has attacked (or is about to attack) over the last 10 years - these states all tried to "move away" from the dollar:

Back in 2000, Iraq began selling oil for euros, and they even made a profit, as the euro appreciated against to the dollar. Here's an article from "the Guardian":

Iraq nets handsome profit by dumping dollar for euro

A bizarre political statement by Saddam Hussein has earned Iraq a windfall of hundreds of million of euros. In October 2000 Iraq insisted on dumping the US dollar - 'the currency of the enemy' - for the more multilateral euro.

Almost all of Iraq's oil exports under the United Nations oil-for-food programme have been paid in euros since 2001.

After this move by Saddam, the USA invaded Iraq and one of the first things they did when they destroyed him, was to force Iraq to sell its oil for dollars, not euros. They also hung Saddam Hussein, in order to show to the world what would happen if they even tried to get away from the dollar.

But a few years later, another "crazy" guy appeared, and he didn't seem to like the dollar either:

Here is an article from Reuters, published in 2007:

Iran stops selling oil in U.S. dollars -report

For nearly two years, OPEC's second biggest producer has been reducing its exposure to the dollar, saying the weak U.S. currency is eroding its purchasing power.

Iranian President Mahmoud Ahmadinejad, who often rails against the West, has called the U.S. currency a "worthless piece of paper."

Nozari told ISNA: "In regards to the decrease in the dollar's value and the loss exporters of crude oil have endured from this trend, the dollar is no longer a reliable currency."

"This is why, at the meeting of the heads of states, Iran proposed to OPEC members that a currency (for oil exports) would be determined that would be reliable and would not cause any loss to exporter countries," he said.

Ahmadinejad is no saint, but he is right: the weak U.S. currency is eroding the dollar's purchasing power, and this is why he doesn't like it. I am not sure if the USA can handle Iran, Iraq and Afghanistan at the same time: Three war fronts is a lot to handle, especially if you are "an empire in decline". Maybe this is why the Americans left Iraq - in order to allocate more resources to Iran. But even if one oil state is allowed to reject the dollar, the USA is finished, as the others will quickly follow suit. This is why the Americans want to invade Iran. And it also one of the main reasons the the recent NATO invasion in Libya:

Saving the world economy from Gaddafi

Some believe it is about protecting civilians, others say it is about oil, but some are convinced intervention in Libya is all about Gaddafi’s plan to introduce the gold dinar, a single African currency made from gold, a true sharing of the wealth.

In the months leading up to the military intervention, he called on African and Muslim nations to join together to create this new currency that would rival the dollar and euro. They would sell oil and other resources around the world only for gold dinars.

Trade wars, protectionism, military spending and war; Who is Nikolai Bukharin?

As smaller capitalists are being eradicated by the bigger capitalists, and the workers are not yet ready to take matters into their own hands, a return to protectionism is likely, as smaller capitalists would love to reinstate tariffs as a way to protect themselves against cheaper goods that are being imported from places like China or India.

Here's something from Marx's "Communist Manifesto":

Of all the classes that stand face to face with the bourgeoisie today, the proletariat alone is a genuinely revolutionary class. The other classes decay and finally disappear in the face of Modern Industry; the proletariat is its special and essential product.

The lower middle class, the small manufacturer, the shopkeeper, the artisan, the peasant, all these fight against the bourgeoisie, to save from extinction their existence as fractions of the middle class. They are therefore not revolutionary, but conservative. Nay, more, they are reactionary, for they try to roll back the wheel of history. If, by chance, they are revolutionary, they are only so in view of their impending transfer into the proletariat; they thus defend not their present, but their future interests; they desert their own standpoint to place themselves at that of the proletariat.

Capitalism has created a world market through the process of "globalization" - that's great, but as capitalism has found a new, better "host" in Asia, the western people are experiencing a huge drop in their standard of living. Apart from a few oligarchs, and especially multinational corporations, the majority of the population is suffering. Will the workers rise up? In the near term, that seems unlikely.

Most of the protests we've seen so far are not "anti-capitalist", they are simply demanding a "social-democratic" version of capitalism. However, this version of capitalism is not possible anymore, as the western nations cannot compete against the likes of China and India under such terms: Why would any capitalist invest his capital in the West, and share some of the profits with the workers (giving them higher wages, health care, public education, etc.), when he can invest his capital in Asia, and keep almost all the profits for himself?

Sure, there are many exceptions to this trend - for example Germany has been able to counteract it thanks to its higher quality of manufacturing and its superior technical "know-how", which make German products very competitive, despite the higher labour costs. But this is just an exception - the general trend is "the end of the "social-democratic" version of capitalism, with "neo-liberalism" as the only version that is competitive enough (as it breaks the working class down to coolie status).

But what about the other nations? We've already mentioned that they are all engaged in money-printing ("currency wars') in order to bail-out the banks and indirectly reduce the wages of the workers, thus making them "more competitive".

But as they are still failing to "restore their competitiveness", protectionism is a rising trend - here's a WTO report:

Crisis Threatens to Increase Protectionism: WTO

The economic crisis threatens to increase protectionism as governments think more on a national than an international level, Pascal Lamy, Director General of the World Trade Organization (WTO) told CNBC Thursday.

He added that it is now much more difficult to get big players such as the US and China to commit to agreements than a few years ago, and warned of “increasing protectionism pressures” and a “vicious circle” if countries don’t co-operate.

“We are in a vicious circle where crisis erodes the capacity of governance to cooperate well as the necessity of co-operation increases,” Lamy said.

“The paradox being that the less they co-operate on international issues, the more difficult exiting this global crisis will be.”

“I’m afraid we have to expect difficult times for the world economy at large. This leads national politicians to focus more on their numerous problems at home, with unemployment rising,” said Lamy.

“They are obviously less available for international cooperation.”

WTO in right - " the less they co-operate on international issues, the more difficult exiting this global crisis will be". Then again, capitalism has never been about "cooperation" between the nation-states , it's always been about them competing against each other, , over economic and political power ("law of the jungle").

This cartoon colorfully demonstrates the doctrine of "mutual destruction", where two opposing factions destroy each other precisely because of the competition between them. The doctrine of "mutual destruction" became very popular during the "Cold War" between the U.S.A. and the former USSR, as each one of these two superpowers had the firepower to potentially to destroy the other.

However, this doctrine of "mutual destruction" can be applied on many occasions - and one of them is a return to protectionism.

After all, a return to protectionism was exactly what the nations-states did during the Great Depression of 1929: As the states are competing against each other, each one "attacks" the exports of the others, by imposing duties on their exports.

Protectionism is by nature NOT a "creative" policy - quite the opposite, it is a "destructive" policy. More - it is a "mutual destruction", as country A targets and hits state B's exports, which leads the state B to hit back at the exports of country A, etc.

Those who advocate a return to protectionism claim that they want to help domestic production to grow. But what protectionism actually does is not to help domestic production to grow, but to hurt the production of the other states. The end result is the collapse of global trade (this is what happened during the Great Crash of 1929). Many historians even believe that this collapse in trade, which exacerbated the crisis, was as a major cause for the outbreak of the Second World War.

- From an ideological standpoint, protectionism leads to the rising of nationalism (eg "we are Americans so we must buy American products", "we are English so we must buy English products", "we are German so we must buy German products", etc.).

- From an economic perspective, protectionism brought about an even greater collapse of world trade. Every worker essentially sided with his domestic ruling class, in hitting the workers of the other states. Rather than attack against their exploiters, the workers started hitting each other. And as each state's ruling class started attacking against the ruling classes of the other states, each state destroyed some parts of the other state's productive base, causing even more bankruptcies, and workers suffered even more, as unemployment spiked. However, in some sectors of the economy, this return to protectionism actually did create (or retained) jobs, but at the same time it deprived us of other jobs in other sectors, due to tariffs that were making a lot of exported goods not-competitive. Duties caused prices to rise, and ultimately consumption fell even further, as the workers could not afford to buy those expensive imported goods, and the depression deepened.

Unless we overthrow the capitalist system, which gives wealth and power to a handful of capitalists, who in order to maximize their profits go to Asia, leaving the West to rot, we can only expect poverty for the workers, and increasing trade wars, that could escalate to a full scale war (war is a topic that we shall discuss in more detail in future posts).

For now, here's something from N. Bukharin's "Imperialism and World Economy":

Both Bukharin and Lenin wrote about imperialism, heavily criticizing those who viewed militarism and war as a "deviation" from "normal" capitalism.

The most prominent theoretician of social democracy of that time, Karl Kaoutski, put forward this view. For Kaoutski, imperialism, the acquisition of colonies, and the spending of money on military weapons and supplies, was something that only benefited a few capitalists, not the bourgeoisie as a whole. This is the reason why 'every far-sighted capitalist', as Kautsky put it, 'must call to his comrades: Capitalists of the world, unite!'. Capitalists are of course adversaries, not comrades, and this is why they simply ignored Kautsky's cries and they have already given us two world wars. Kaoutski is the father of the theory of "Ultra-imperialism", which is followed today by some economists, including M. Hudson.

Bukharin and Lenin disagreed with that view - and rightly so: Imperialism is not a "deviation" from "normal" capitalism, but rather its "next logical step", the next stage in the system's evolution, as it becomes completely rotten.

What has changed since the time Marx presented us with his analysis of capitalism, argues Bukharin, is the appearance of gigantic capitalist enterprises, which control entire sectors of the economy of each country, eliminating or "swallowing" their competitors. They eventually reach a point when the "national" market is too small for the activities of these giant companies.

The economy becomes truly global, says Bukharin. Today, just like the times of Bukharin and Lenin so today, there are some who think that in a global economy, states and the competition between them are an "anachronism".

These views were wrong then, and they are wrong now as well. The capitalists need their own state, in order to defend their interests both at home and abroad. Capitalism is a system based on blind and chaotic competition for profits, and this turns one capitalist against the other in a race to secure more markets, more access to raw materials, sales and profits.

That's why Bukharin stresses that "It does not follow from this, however, that social progress has already reached a stage where "national" states can co-exist harmoniously. For the process of the intemationalisation of economic life is by no means identical with the process of the intemationalisation of capital interests".

Competition between the capitalists becomes global, and the various "ethnic groups of the ruling class" resort to their own state's power to promote their interests. The state has the power to pass laws that are in their favour, impose favourable taxation, impose tariffs on foreign companies or even to subsidize their "own" capitalists at the expense of its competitors (today's fights on subsidies between China, USA, and the EU is one such example). Above all, the state has at its disposal weapons and military force.

Here's Bukharin's take on it:

If state power is generally growing in significance, the growth of its military organisation, the army and the navy, is particularly striking. The struggle between state capitalist trusts is decided in the first place by the relation between their military forces, for the military power of the country is the last resort of the struggling "national" groups of capitalists.
[..]
And just as it is not true that low prices cause competition but, on the contrary, competition causes low prices, it is equally not true that the existence of arms is the prime cause and the moving force in wars (although wars are obviously impossible without arms) but, on the contrary, the inevitableness of economic conflicts conditions the existence of arms. This is why in our times, when economic conflicts have reached an unusual degree of intensity, we are witnessing a mad orgy of armaments. Thus the rule of finance capital implies both imperialism and militarism. In this sense militarism is no less a typical historic phenomenon than finance capital itself.

“Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.”
- Archimedes

In this post, we will refer to a "technical term" that constantly keep appearing on TV, newpapers and in all kinds of political and economic discussion, but very few people really understand exactly what it means: Leveraging (and de-leveraging).

Through this "technical term" we can increase our understanding of how the monetary and banking system works, as leveraging plays an important role in our daily lives, even we don't fully realize it..

To better understand what leveraging is, we will use a simple example from everyday life: The health care system.

In order to have maximum protection, a health care system should privide "one doctor per person" (ratio 1:1). If we could achieve this ratio, then the population would be very secured in case of disease, even in "extreme" cases of an epidemic, as there would be enough medical staff to treat the sick and fight the epidemic.

But if we do apply a ratio of 1:1 ("one doctor per person"), then half of the world's population would have to be doctors (!). That only leaves the remaining 50% of the population to actually produce wealth. For this, and for a number of other reasons, the option of having one doctor per person was rejected.

So what we do have is a health care system where there is one doctor per 10, 20 or even 100 people (i do not know the exact numbers - and of course the exact numbers vary from one country to another, depending on the state of each country's economy, or how "humanitarian" each society is (how much people view life as "the most important thing in the world"), etc.).

Thus, the health care system is based on a ratio much greater than 1:1. For simplicity reasons, suppose that the ratio is 1:100 ("one doctor per 100 people"). Such a ratio does not privide us with as much protection as to have "one doctor per person" (eg in case of an epidemic or some other major medical emergency). However, such a ratio provides a "good enough" coverage, and it does so without converting 50% of the population into doctors.

A doctor simply treats the "worker-drones" that have been "damaged" so that they can return to production, just like the parts of a machine need repair or maintenance every now and again. Therefore, the doctor provides an important but secondary (auxiliary) service. He does not directly produce wealth, he is however necessaryin order to "keep the machine going" for as long as possible and as efficiently as possible. And of course he also treats the capitalists, who own the machine.

This basic principle that "one doctor can treat many people" (for example one doctor can treat up to 100 people, if the ratio is 1:100), is an example of leveraging.

The same principle is used in the banking system: If the bank has 10$ in its vault, it can give out loans of up to 100$ (leverage 1:10). This is why if all depositors simultaneously go to the bank and withdraw their deposits, the bank will go bankrupt. This is called "fractional reserve banking", and many people think of it as "the source of all evil". Here's wikipedia on how the system works:

Fractional reserve banking

Fractional-reserve banking is a form of banking where banks maintain reserves (of cash and coin or deposits at the central bank) that are only a fraction of the customer's deposits. Funds deposited into a bank are mostly lent out, and a bank keeps only a fraction (called the reserve ratio) of the quantity of deposits as reserves. Some of the funds lent out are subsequently deposited with another bank, increasing deposits at that second bank and allowing further lending. As most bank deposits are treated as money in their own right, fractional reserve banking increases the money supply, and banks are said to create money. Due to the prevalence of fractional reserve banking, the broad money supply of most countries is a multiple larger than the amount of base money created by the country's central bank...

Criticism of fractional-reserve banking

One criticism posits that since debt and the interest on the debt can only be paid in the same form of money, the total debt (principal plus interest) can never be paid in a debt-based monetary system unless more money is created through the same process. For example: if 100 credits are created and loaned into the economy at 10% per year, at the end of the year 110 credits will be needed to pay the loan and extinguish the debt. However, since the additional 10 credits does not yet exist, it too must be borrowed. This implies that debt must grow exponentially in order for the monetary system to remain solvent....

Leveraging is also used today in the monetary system: When the gold standard was in place, each state was forced to issue currency that corresponded to the amount of gold it owned (ratio 1:1). Now that the gold standard is gone, states can print as much much surrency as they want (the ratio of currency:gold has been rising for years).

But is leveraging really that bad? Moreover, is it really "the source of all evil"?

Here is Marx's take on it - from wikipedia:

Fictitious capital is a concept used by Karl Marx in his critique of political economy. It is introduced in chapter 29 of the third volume of Capital. Fictitious capital contrasts with what Marx calls "real capital" which is capital actually invested in physical means of production and workers, and "money capital" (actual cash held). The market value of fictitious capital assets (such as stocks and securities) varies according to the expected return or yield of those assets in the future, which is at best only indirectly related to the growth of real production. Effectively, fictitious capital represents "accumulated claims, legal titles, to future production" and more specifically claims to the income generated by that production.
[...]
The formation of fictitious capital is, for Marx, linked to the wider contradiction between the financial system in capitalism and its monetary basis. Marx writes: "With the development of interest-bearing capital and the credit system, all capital seems to double itself, and sometimes treble itself, by the various modes in which the same capital, or perhaps even the same claim on a debt, appears in different forms in different hands. The greater portion of this 'money-capital' is purely fictitious. All the deposits, with the exception of the reserve fund, are merely claims on the banker, which, however, never exist as deposits." The expansion of the credit system can, in periods of capitalist expansion, be beneficial for the system; but in periods of economic crisis and uncertainty, capitalists tend, Marx argues, to look to the security of the "money-commodity" (gold) as the ultimate measure of value. Marx tends to assume the convertibility of paper money into gold. However, the modern system of inconvertible paper money, backed by the authority of states, poses greater problems. Here, in periods of crisis, "the capitalist class appears to have a choice between devaluing money or commodities, between inflation or depression. In the event that monetary policy is dedicated to avoiding both, it will merely end up incurring both"

As Marx correctly pointed out, "The expansion of the credit system can, in periods of capitalist expansion, be beneficial for the system". So, those who support capitalism should in fact thank the bankers and the politicians who make all this leveraging possible. Leveraging allows the capitalist system to grow - and bank loans or other forms of leveraging have always existed. In fact, there are many capitalists that will tell us, and they would be right, that they got a business loan from a bank, they started a business, and now factory workers are working, goods are being produced, etc. That's not that bad, is it?

Leveraging can help capitalism achieve growth. If it wasn't for leveraging, then banks wouldn't have been able to give out all these loans, and there would have been no growth. This is why most people liked this system, until they realized that they can no long pay all these loans. But we will get to that in a minute.

First, let's go back to the example of the health care system: If there was no leveraging, then we should have "one doctor per person", and half the population would have to be doctors! This would obviously inhibit production and growth. In today's "leveraged" health care system, we need less doctors, so that the majority of people can be mobilized in production. To have half the world's population practicing medicine is absurd, because it actually prevents the production of new wealth.

Here is a contradiction of capitalism:

If the ratio of leveraging is "low" (eg, 1:1 in the most extreme case where there is no leveraging), then it inhibits growth. There would be little growth if half the population are doctors, or if banks do not give out business loans. Leveraging is a good way for banks to utilize their capitals more efficiently, as they can give out a lot more loans that they could if their only utilize their capital at a ratio of 1:1 (= if they only give out a few loans, using only the moeny they actually have in their vaults).

If the ratio of leveraging is "high", then although there is growth, the system becomes unstable and collapses. For example, if there is only one doctor per 1.000.000 people, then even an "ordinary" case of flu can become really serious. If there are no doctors in a society, then this society will have the greatest possible number of workers producing goods, but who will "fix" all these workers if they "brake down"? The same goes for the "excessive leveraging" of today's banking system.

Some might get the impression that the best solution would be to "restrain the banks", and to use "moderate" leveraging (ie a "social-democratic" approach). In fact, there are many Keynesian -and other- economists who -rightly- accuse the banking system for being "out of control", asking essentially a status of "moderate leveraging".

This approach was in fact tried during the Great Despession of 1929 - the big banks were broken up, and the ratio of leveraging was somewhat reduced, in order to prevent the system from crashing again. This approach worked for a few decades, but as always, it didn't last long.

This is because, as we said before, greater leveraging leads to greater growth, even if it makes the system more unstable in the long run. The capitalists, blinded by their greed, always end up applying more and more leverage. If for example a bank has 10$, then deep down inside it prefers to give out loans totaling 1000$ instead of "just" 100$, because that will increase its profits, at least in the short term. But this makes the system more unstable. Here lies the problem with capitalism as a system based on accumulation of personal wealth.

Today we are being told that there is "too much leveraging": For example, financial derivatives that circulate globally are worth 700 trillion $ (!) - W. Buffett called derivatives "financial weapons of mass destruction", as their value far exceeds the world's GDP.

The system has being growing for many years through accumulating debt - this is why it needed increased leveraging, so that the banks could create this debt and "compesate" for the flight of industrial capital from the West to Asia.

Now that these loans can not be repaid, the system collapses, and this is why even a "small" country like Greece is causing such large shocks in the world's financial market: Leveraging is so great that even if one borrower can't pay what the bank expects, then the bank will collapse. This is called "de-leveraging", as the banks are forced to accept major losses. This is not something that the banks like of course, so in order to avoid bankruptcy, the banks are looting theworkers, constantly asking for "sacrifices".And will not stop until they get trillions more.

EFSF, the fund that the European capitalists set up in order to save "the PIIGS nations" (=in order to save the banks), is a good example of how the world does not accept any more leveraging: EFSF was only given a few billions at best, and the Germans wanted to use a high ratio of leveraging those billions, so that the EFSF could lend out 1 trillion euros (even though its actual funds were nowhere near that number). The world rejected it, as everyone is starting to reralize that the PIIGS nations will require a lot of money, and the EFSF does not actually have this money. So, nobody really liked the EFSF - here's a great comic illustration of it as a box that is shinny on the outside, but...empty on the inside:

We are going to see a lot more of these "rejections" over the next few years. In the mean time, here's a famous quote by JP Morgan - something for everyone to think about:

"Gold is Money. Everything Else is Credit".

What happens when an "era of leveraging" ends? Maybe "credit" will not do so well from now on...

What is "money"? Is it the same as "currency"? What about gold?

What is money? Everyone talks about it, but what is it exactly? Why did we created it the first place? A lot of people seem to blame money for all the problems in the world, and yet "money makes the world go round".

In order to truly understand what is happening today, we must first explore how money came to be, and the purpose it serves.

In primitive human societies, humans were all hunters, with no or little/simple tools, so there was no real specialization. These people barely had enough in order to survive - nothing more.This is why there was no private property, or trade transactions (some primitive races in places like the Amazon still live in such a state).

But then humans began to improve their tools and weapons, and they also developed agriculture as well, which was a huge leap forward. It today's terms, people become more productive, and "specialization" started to appear, as some people became "professional farmers", some others were "professional craftsman" creating tools etc. For the first time in history, there were different "professions" - this "specialization" allowed people to become more productive in more and more tasks, and every "professional" (eg farmer, hunter, builder, craftsman, etc) was not self-sufficient, but also relied on others in order to live a better life.

By increasing productivity, humanity could create more wealth than before, and by increasing specialization some people (eg the farmers) had a surplus of wheat, and some other people (eg the craftsmen) had a surplus of tools or clothes. So, this is when private property firsts appears, and trade starts to grow, as one person exchanges "something that belongs to him" with "something else" that belongs to "someone else".

This barter system had some problems however: For example, some products are not easy to carry, or they don't last long (food is a good example, as it must be consumed within a few days). Furthermore, as specialization deepens, there are more and more trade transactions.

This is why people turned to something else, a "super-product" that could be used as a benchmark for all other products: Money. All other goods have a value that could now be expressed through it.

Mankind has used many different forms of money, but gold (and secondarily silver) is the form that dominated over all the other forms. The reason is that gold is durable, easily transferable from one place to another and rare. Many other forms of money where tried, but nothing could beat gold's advantages as money.

Today, specialization has grown to an incredible degree - capitalism has created an international system, where everyone is more or less dependent on others from around the world in order to live a good life. When such systems collapse, humanity suffers greatly - here's Tony Jackson from the Financial Times:

Four years ago, I related in this column how a stockbroker acquaintance of mine had likened the outlook to 1929. A couple of weeks ago he was back on the phone. Forget 1929, he said: we are looking at the Dark Ages.

The Dark Ages, of course, are something else again. But let me repeat here what I said four years ago: that the purpose of such comparisons is not to indulge in fancies about history repeating itself, but to expand our conception of the possible.

Quantifying the effects of the collapse of the Roman Empire is not an exact science. But from the start to the finish of the first millenium AD, according to the economic historian Angus Maddison, the economy of Western Europe shrank by around a quarter, and that of Italy itself by nearly half.

What this meant for Britain has been spelt out by the Oxford historian Bryan Ward-Perkins. After the Romans left in 410 AD, the archaeological record suggests that the economy slumped to a much more primitive level than on their arrival nearly 400 years earlier.

The reason is clear enough. The more complex and specialised an economy becomes, the more helpless its individuals are in the face of breakdown. The Romans introduced a higher level of complexity to Britain, then took it back home again.

It is here that parallels with today start to look rather stretched. But the theme of periodic collapse is perhaps borne out by the longer historical record.

Unless capitalism is overthrown, and private property is abolished, capitalism is about to send us in a new "Dark Age”, as antagonisms create trade wars, protectionism and full-scale military wars. We are dependent on each other, but we are divided by a handful of oligarchs, who don't produce anything but exploit us, grabbing an ever-increasing part of the wealth for themselves, leaving nothing but crumbs for us to fight over.

We will talk more about this in the future, but for now let's get back to the history of money, as gold ("money") has today been replaced by "currency".

Money and currency are two different things - and the fact that most people thing of them as being the same thing is one of the great misconceptions of our time.

When the Roman Empire collapsed, the coins it was issuing as currency had no silver in them (the Romans used silver, not gold). As it has happened many times before in history, gold has today been replaced by fiat currencies. We will discuss the reasons for this in future posts over the next few days.

For now, we will discuss something else:

If today's currency is not money (gold), and there is no gold standard to link these two, then what holds these currencies together? There is not enough gold to back all of them up (at least not in today's exchange rates), so what does back them up?

These currencies are 100% based on faith ("trust"). Faith is always an important factor in capitalism and in the monetary plane in particular, but today's currency in circulation is of value purely because the world believes that they are. If people stop believing that they are "of value", then the value of these currencies will go down to zero. Today's currency is ultimately nothing more than pieces of paper with some beautiful images and the signature of the Trichets and Bernankes of the world.

How much do you trust their signature?

Many say that "gold is a bubble" or "i am not interested in investing my money in gold because i do not want to invest, I want my money to be stable and not having to worry about how my investment will perform".

In reality, these people have no money. They only have currency.

All of humanity is today participating in an "experiment" where we are all investors, even without realizing it. We are by default investing our money in various currencies (apart from all the other investments that someone can make such as shares, etc).

These currencies, like any other investment, can rise and fall - maybe you will make a profit if the currency you use rises, or even completely lose your money (if the value of the currency in which you invest goes to zero (hyperinflation)).

In contrast, gold is money (not currency), and it remains constant. In fact, it is the only thing that remains constant. Its value has never gone down to zero in the thousand of years that it has been used as money, and actually it has not changed much. Gold just stays constant, as a storage of wealth.

As for the value of gold against all the currencies breaking one record after another, it is not because gold is rising, but because the currencies are falling.

So, anyone looking for stability and wanting to protect his wealth, will actually have to resort to gold.

Unfortunately, most people are economically illiterate (the ruling class has made sure of it for it, and the today's "left" has not done much better). This is why most people think that that the currency is what remains constant, and that gold is what is changing. This way of thinking suits the ruling class, which is why they propagate it, as it enables them to steal from people by inflating the currency, without the people realizing it (since in the minds of most people, the currency is stable, and gold is "an investment" that may or may not do well. Most people do not want to invest their money, they just want to store it, so they choose currency over gold, when if fact gold is what they are looking for stability-wise).

Someone could argue that maybe the dollar, the euro or some other currency will actually do well - if they do, then maybe it is better for someone to own currency instead of money (gold). And if the economy is growing, then this is true - for the short term at least: If you decide to invest your money and start a business, maybe this business will do well, and you will become a rich person with lots of money. But what happens if your business does not go well?

“Don’t be a pessimist”, some will say, maybe businesses will do well in the future.

In today's environment however, this is impossible - and here's why:

We have already explained that after the fall of the USSR, and the integration of China in the global market, the productive base of the West is being wiped out because industrial capitalists are fleeing to Asia (mainly because of cheap labor costs which make them more competitive).

The West would have collapsed, if it wasn't for all the loans the banks have been giving out, in order to "mask" the flight of industrial capital.

But these loans can not be repaid, so the West now has a very small productive sector, and it is also loaded with huge debts (and of course the ruling class wants us to pay for them, while they are getting "bailed out").

Since these loans can not be repaid, banks are insolvent (like Lehman Brothers was).

The only way for the global banking system not to go bankrupt, governments around the world are printing massive amounts of "money" (currency), and giving it out to the banks.

This process is possible because there are no limits to the amount of currency that the governments can print. There is no gold standard, so they will print as much as they need in order to save the banks. The banks are their friends, not "the people". So, they obviously have the political will to "print until we run out of paper". The derivatives market alone is worth 700 trillion $ according to Marketwatch, so we will see a lot of "money" printing over the next few years.

But as governments are printing huge amounts of "money", the value of this "money" is falling - this is why gold is making such a comeback after decades of being considered as "a fringe investment"

This policy of unlimited "money" printing is supported primarily by banks, but it is also supported by the industrial capitalists as well, because the more the currency depreciates, the lower the salary of the worker becomes. Thus, labor costs become smaller, and "competitiveness" is restored, so exports rise.

All states want to save their banks and to enhance their exports against foreign competitors - so all states print money. Hence the phrase "currency wars", with each state competing against the others in a game of who will devalue their currency more than their competitors.

But the more "money" governments print, the more people's thinking about them changes.

The U.S. dollar, euro, yen, etc. have value because people think that they do and they use them. But as these currencies are being inflated, people are starting to think that "these currencies are becoming worthless" (and this is why ordinary citizens, and -especially- central banks of the non-Western world are buying gold at an increasing rate - see here, here and here for some examples of this trend).

And this is also why the oil oligarchs who control humanity's #1 source of energy, but are paid exclusively in dollars are against the USA - because they do not want to be paid in a currency when its value is constantly falling (this is why the oil crisis of 1973 happened: It took place shortly after the abolition of the gold standard by Nixon. The oil states did not want to be paid in dollars but in gold. This is something that has to be discussed in more detail in future posts. However, it is interesting to note that Saddam Hussein, Qaddafi and Ahmadinejad were all trying to sell their oil in a currency other than the dollar...).

This process of "moving away" from the dollar as the world's reserve currency (and all the other fiat currencies as well) will continue, as more and more people start to realize that the value of all currencies is constantly falling. So, sooner or later, people will reject these currencies, because nobody wants a currency when he knows that the value of it is constantly falling. Then, there will be chaos as everyone will try to convert all of their currencies to money, ie in gold. [note: Before that happens, we will first witness the destruction of the "paper gold" market that capitalists have created. But "paper gold" is something that we haven't yet discussed, so i'll just leave it as a sidenote for now)

Many riches will be lost (because they is "paper"), while some others who are more "awake" who own gold will escape the real bubble (ie currencies). Gold is the only thing that will remain "stable" when the rest of the monetary system is destroyed and replaced by a new one, in which clearly gold will play a central role.

As for the future of the workers, it is dystopic to say the least, unless they organize in order to overthrow their masters - even if they do find a job, they will be paid in [hyper]inflated currencies (a tremendous reduction in wages).

Of course, the transfer of wealth and power from the U.S. and the West to China, Russia (the Est), will probably not be allowed to continue in a "peaceful" fashion. The U.S. will not fall without a fight, especially since their military machine is the only thing that they have going for them. Wars may be expensive, but they are also the only thing that keeps the rest of the world in place, as all the oil states are forced to use dollars as a "means of payment" for their oil. This is the only thing that keeps the dollar and the USA going (Russia and China are already rejecting the dollar - they are buying gold and they are using their own currencies for the exchanges between them. Even Japan, a traditional US ally, decided to use its own currency in its transactions with China instead of the dollar).

What About Marx

Saturday, January 7, 2012

Food for thought: Orwell on Pacifism and War

George Orwell - Pacifism and the War

Restoring competitiveness by even "working for free"!

No More ZIRP For US Government - and what about those cuts on military spending?

Friday, January 6, 2012

Oil wars - The stakes are higher than just Iran

Thursday, January 5, 2012

Trade wars, protectionism, military spending and war; Who is Nikolai Bukharin?

Leveraging/Deleveraging: “Give me a lever long enough and a fulcrum on which to place it, and I shall move the world”

Wednesday, January 4, 2012

What is "money"? Is it the same as "currency"? What about gold?

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Saturday, January 7, 2012

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Wednesday, January 4, 2012

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