progress or decline? the plight of western economies with special reference to the eu and the...
TRANSCRIPT
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PROGRESS OR DECLINE?
THE PLIGHT OF WESTERN ECONOMIES
WITH SPECIAL REFERENCE
TO THE EU AND THE MEDITERRANEAN
by
Sarah Gildea
A Thesis Submitted in
Partial Fulfillment of the
Requirements for a Degree of
Masters in
Religions and Cultures
Specializing in
Mediterranean Cultures
at
Pontifical Gregorian University
2012
D R A F T
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Contents
Introduction 3
Education 7
Different Cognitive Systems 12
The Importance of TraditionTradition As Identity 16Tradition as Fulfilling Human Needs 18
Confusing Means with Ends 24
Economic History 29
The Seeds of Globalization 301971 40The New Globalization 42
European Relations with Mediterranean Countries 50
Conclusions 52
Appendix I 54Bibliography 55
Introduction
Last year I attended a conference on the subject of the Mediterranean and the idea of a Euro-
Mediterranean Union. Comments from this conference have led me to further investigate the possibility
of such a union. Would it actually be beneficial to the Mediterranean countries? Why would the
European Union countries be interested in such a union? To answer these questions, I first needed to
get a historical picture of the two areas what are their 'track records', what have their relations been
like in the past? For this, I discovered two authors who became fundamental in my research: Carroll
Quigley and Ann Pettifor.
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Carroll Quigley was a famous professor from Georgetown University1 in the United States, who
taught courses on the history and development of civilizations in the School of Foreign Service at the
university. This subject is probably better known as Universal History, or Historiography. His thoughts
were influential with the U.S. Department of Defense and other government entities in the 1960's and
1970's, and many powerful and influential American politicians were his students. His knowledge,
observations and experience cover the whole of man's activities.
Most readers will be unfamiliar with Dr. Quigley. His most important books for our topic are
The Evolution of Civilizations and Tragedy and Hope. Quigley was a historiographer who wanted
our understanding of history to be more scientific, so he began by applying the scientific method to the
social sciences,2 and from this he was able to distinguish seven stages of historical change which can be
witnessed for all civilizations.3
Before going into more detail, we first need to be reminded that most scientific 'laws' are not
statements of what actually happens in the world, but are idealized and perhaps at times, oversimplified
relationships between things or ideas. The scientific 'laws' of Galileo or Newton were of this character.
The planets, in fact, do not follow the laws of planetary motion as described by Newton, except in an
approximate way (and for this, it's best to not even look at the planet Mercury). This same observation
applies to the Social Sciences, and even more so. If in the first case, we have a science of unintelligent
phenomena that follows a certain patterns only generally, how many more variables will enter in to a
science which relies on human action, thought and emotion?4
Knowing this then, Dr. Quigley recognized that there were certain patterns of human behavior
that repeated themselves throughout history, and if we could recognize from these patterns where we
1 Georgetown has the single largest percentage of alumni in Marquis Who's Who.
2 Intellectual, religious, social, political, economic and military sciences.
3 C. QUIGLEY, TheEvolution of Civilizations , Macmillan Press, NY, 1961, page 2. Labeled as Mixture, Gestation,Expansion, Conflict, Universal Empire, Decay, and Invasion.
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The Mediterranean has always been the center of the world. They are the gateway for trade
between the East and West, the South to the North. All reason therefore, should tell us that those
countries, united, should be the economic power of the world but they are not. From approximately
600AD the area has been torn apart through wars and religious division, the Christians and Muslims
both responsible for the destruction, and world wars for which they had very little responsibility. Their
culture, creativity, sense of learning and adventure crumbled to what some call an amoral familism -
a mere shadow of their former intellectual, artistic and ethical greatness for which they had been
known.
The Mediterranean area went through their period of Gestation, Expansion, Conflict, Empire,
Decay and Invasion. The civilization which took their place in greatness and power was Europe.
European countries also went through their periods of Gestation, Expansion and Conflict ultimately
to arriving at two World Wars.
The European Union was initially founded in 1952 to prevent further wars between these
countries, and to increase economic security within the member states. A certain economic criteria had
to be met by member countries, but this criteria didn't need to be met until after their entrance. When
the European monetary union was agreed upon in 1991, only two countries met the criteria: Luxemburg
and Finland.8 The other countries 'promised' to meet the criteria after their entrance. They never did.
Unfortunately, the creation of the European Union as a way to solve financial problems was
nothing more than shuffling the same old deck of cards, done in a rather hurried fashion, with the
benefit that member countries would have easier access to loans from the IMF (International Monetary
6 C. QUIGLEY, TheEvolution of Civilizations , page 15.
7 No one wants to admit that their country may be in decline, or that mistakes were made that need to be addressed.
8 Special Report: The Emu Criteria, http://news.bbc.co.uk/2/hi/special_report/single_currency/66945.stm AccessedJanuary 17, 2012.
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Foundation). This gave the false impression of economic growth, and gave the IMF, a non-elected
body, more political power. The EU member states only weakly addressed and only temporarily
resolved the real issues of their own declining countries, each counting on the other to carry the weight
of the rest. The truth is, the strongest of the European countries England, France, Germany have
very little experience at working at a true economic system. Their means of expansion in the past had
been through invasion and colonization. During the height of colonialization in the United States,
England possessed 39% of all shipping in the world. In 1922, they held sway over almost a quarter of
the Earth's total land mass and were the largest colonial empire in the world. The French colonial
empire was the second-largest in the world, yet today, both struggle with the rest of the European
countries for a stable economy.
What happened to all of their tremendous wealth? In the opinion of Dr. Quigley, in the case of
England, the government wasn't paying attention. The Industrial Revolution spread from them to
Europe and the United States, to South America and to Asia. Then, World War I occurred. If there is
any one way for a rich country to become poor, it is through war. Instead of being a creditor, England
quickly became a debtor to the United States financial institutions.9 Then, the financial institutions
took over.
What we are observing is that the European Union countries are following Dr. Quigleys' 7
Stages of Historical Change, they are currently in the period referred to as Decay, and therefore any
union with them would have to be made in very careful steps, to insure, for example, that the
Mediterranean countries don't simply get pulled down further into decay with the EU.
To further demonstrate the validity of these observations, the next few chapters will be devoted
to providing examples of social and cultural decay within the EU (and the United States). These
examples will include the fields of Education, the recognition of differing Cognitive Systems
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centuries you have what I call misplacement of satisfactions. You find your emotionalsatisfaction in making a lot of money, ...19 or in a host of rather meaningless exercises.
Jacob Viner once noted that people are not narrow in their intellectual interests by nature; it
takes special and rigorous training to accomplish that end.20
What I believe is lacking in many public schools and universities today is something the ancient
Greeks called . This could be simply translated as education, but education in the Greek
mind meant more than studying only the basics. Education for the ancient Greeks wasn't about simply
learning a trade that, they considered ; we might be tempted to translate this as 'banal', but
it etymologically refers to mechanical tasks unworthy of a learned citizen.21 Since the ancient Greeks
strongly believed in self-government, their education also included rhetoric, philosophy, natural
history, geography, as well as ethos - good habits. This training, they believed, made a man good and
made him a capable citizen or king.
Have the courage to use your own intelligence.22 This is the motto of the Enlightenment.
Timothy Leary also boldly bleated out, Think for yourself. Question authority. These statements
weren't made to inspire actual intellectual development; they were made to impose the writers' own
ideology over the current one. Unless one has a proper educational formation, how will he know what
questions to ask? How will he see through complex terminology, the vague phrasing, the intentional
manipulation of authors, the contradictions? How can one presume to call into question a system that
they don't understand?
19 C. QUIGLEY, Lecture, "Public Authority and the State in the Western Tradition: A Thousand Years of Growth, A.D. 976 -
1976, Georgetown University, 1978.
http://www.carrollquigley.net/Lectures/The-State-of-Communities-AD-976-1576.htm Accessed January 19, 2012.
20 E. HELLEINER, States and the Reemergence of Global Finance, From Bretton Woods to the 1990s , London: Cornell
University, 1994. page vii.
21 Paideia http://en.wikipedia.org/wiki/Paideia Accessed February 13, 2012.
22 I. KANT, Risposta alla domanda: che cos lilluminismo? 5 dicembre 1783. Traduzione dalloriginale tedesco diFrancesca Di Donato.
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In the Italian language, 'education' and 'culture' appear almost synonimous, and one can only tell
the difference by the context of the sentence. In the English language, we might say a man is 'cultured',
but the presumption is that he is not only educated he is rich. However, the word culture originally
stems from the Latin and was linked to agriculture, and by this is meant the way of life of the people. If
the ancient Romans had been primarily hunters instead of farmers, we might have ended up with a
word (and perhaps an attitude) that was very different from 'culture'. In Italian, this understanding has
developed over the centuries to signify not just civilization, but also knowledge.
Herman Daly wrote that few colleges and universities teach economic history, because
exploring this history ... might expose the frailties and fallacies of economic assumptions that the
profession likes to regard as universal and timeless.23
Lional Curtis wrote, back in 1916, that responsible government
... can only be realized for any body of citizens in so far as they are fit for the exerciseof political power. In the Dependencies the great majority of the citizens are not as yetcapable of governing themselves and for them the path to freedom is primarily aproblem of education In this world commonwealth the function of government isreserved to the European minority, for the unanswerable reason that for the present thisportion of its citizens is alone capable of the task civilized states are obliged to assumecontrol of backward communities to protect them from exploitation by privateadventurers from Europe ...24
The Milner Group had the idea of Westernizing India through education, planning that the
Westernized Indians would in turn, help their backward Indian cousins. Instead, much more money was
spent on higher education than elementary, and those Indians who became Westernized either
23 A. PETTIFOR, The Coming First World Debt Crisis, NY: Palgrave Macmillan, 2006, page 123.
24 C. QUIGLEY, The Anglo-American Establishment, pages 64-65. Regarding the phrase, backward communities:
Although it may sound patronistic, we the basic intelligence of civilizations as those who are more technically
advanced. Those more technically advanced civilizations are naturally going to see themselves as much more adept atleading and governing those less developed civilizations.
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This American readiness to 'do it yourself' contrasts sharply with the Arabunwillingness to engage in any activity of this kind, or, in fact, to undertake any type ofmanual work. Americans like to do such work, while the Arabs of similar socio-economic status not only dislike it, but consider it actually demeaning.
31
No self-respecting Saudi would ever collect trash We leave it to the beasts.32
Arabs detest manual labor as strongly as they hold their scriptures precisely because of their
scriptures. In this case, Genesis, 2:17-19. Cursed is the ground for your sake. In toil shalt you eat of it
all the days of your life '. Why must man toil all his life? In the Arabic world where the Genesis
tradition was formulated, work is a curse. In the Middle Eastern ethic, therefore, from pre-biblical
times down to the present, the ideal has always been to escape the curse of work, to acquire riches
through a stroke of luck, by finding a treasure by buying something cheap and selling it at a high
price ...33
This is contrary to Western thought, which had embraced a Catholic ethic, believing that Jesus -
God, ennobled work by taking it on Himself. Work is therefore no longer a curse, but personally
edifying a means to salvation.
Differing cognitive systems is one reason why, in the case of the Mediterranean countries, there
has been a boundary conflict area between the three post-Classical civilizations (Byzantine, Western,
and Islamic) since A.D. 600. After having been the backbone of the Mediterranean civilization for
over a thousand years,
... the shift was so disruptive of community life in the area from the Golden River tothe Golden Road that its problems have not been solved since, especially in view of thesocial and ethical failures of the two post-Classical religions, Christianity and Islam These failures of religion made it impossible to create any religious, territorial, orsocial community, and forced living patterns back toward the 'amoral familism' of theextended family.34
31 R. PATAI, The Arab Mind, page 120.
32 J. PERKINS, Confessions of an Economic Hit Man, page 42.
33 R. PATAI, The Arab Mind, page 122.
34 C. QUIGLEY,Mexican National Character and Circum-Mediterranean Personality Structure. American Anthropologist,
75: 319-322. This quote is a summation of Raphael Patai's book, Golden River to Golden Road, from 1962.http://www.carrollquigley.net/Articles/Mexican-National-Character-Circum-Mediterranean-Personality-Structure.htm
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In the West today, religion has largely lost its function as an inner sustaining force ... most
Westerners do not feel the need to be saved, although they certainly feel insecure. Toynbee speaks of
'the spiritual vacuum which has been hollowed in our Western hearts by the progressive decay of
religious belief that has been going on for some two-and-a-half centuries.59
By contrast, in the Arab world, and in the entire Middle East, all religions have such spiritual
sustaining power. All share with Islam the 'characteristic of being able to generate a psychological
certainty of possessing the Truth, of following the Right Path, and of wielding the Perfect Key to the
gate of the Great Beyond'.60 Furthermore, a common theme of Arab writers and journalists is the
necessity for scrutinizing Western innovations, adopting what is beneficial and rejecting those that
are harmful. They want to modernize, but not at the expense of certain traditions. 61
This is not to say that retaining ones traditions is the key to economic success, but it is a key to
a healthy, vibrant community. Empires don't collapse because of deficiencies in the military or political
level they collapse because no one cares.
Because Europe has abandoned their traditions and refuses to reform itself in a true sense, they
can only blunder forward into an unexplored future (as in existentialist philosophy or in the
contemporary flood of writings on theology).... No solution is possible or conceivable unless it is
firmly rooted in our Western Christian heritage.
This does not mean going back to anything we had before, but it does mean going backto our roots in the past, and growing onword from those roots, which must be found in aperiod of our past before the alien gods of material affluence, of power-thirsting, of sex-obsession, of egotism and existential self-indulgence, became the chief ames of life,eagerly embraced, as they are by our 'trahison des clercs'.62
things, therefore, an economy.
59 R. PATAI, The Arab Mind, page 153. Patai is referring to Arnold J. Toynbee (1889-1975).
60 R. PATAI, The Arab Mind, page 153.61 M. Nydell, Understanding Arabs: A Guide for Modern Times, Fourth edition, Boston: Intercultural Press, 2006, page 7.
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European civilization is corrupt in its roots, no wholesome fruit can come of it. Itsdominant role is merely the consequence of the decline of Islam.78
Long study of the history of many social organizations has convinced me of one thing: when
any such organization dies be it family, business, nation, religion, civilization or university, the cause
of death is generally 'suicide.' Or, if we must be more specific, 'suicide by self-deception.'79
An example of this 'self-deception' can be seen in this next example - in this case, confusing the
consequence with the cause: The French and German governments had tried to convince the entire
membership of the European Union that they need to give up fiscal sovereignty, or else [face an
international financial crisis]. As Ann Pettifor explains, It is not the answer to the crisis. It's addressing
the wrong problem. It's addressing a problem of fiscal deficits which are a consequence of the financial
crisis, and it's thatwhich they should be addressing. They're not looking at the causes of the crisis,
which is a broken global banking system. Instead, they're looking at the consequences, and trying to fix
fiscal deficit, and that's not going to solve the problem.80
Our last example will be taken from a yet-to-be-published book from the University Santa
Croce in Rome. One of the authors is Michel Camdessus, former Managing Director for the IMF
(1987-2000), and a member of the Pontifical Commission for Justice and Peace, among other high-
level positions. The title of his article is From a 'Culture of Greed' to a Culture of Common Good. In
it, he states that this present economic crisis, is the first true crisis of globalization itself. Dr.
Camdessus seems to have forgotten the Great Depression.
We will see shortly that this is actually the fourth great, global economic crisis.81 Dr.
Camdessus also states that the cause of the crisis is a culture of greed, as if it is the entire world
78 R. PATAI, The Arab Mind, page 156.
79 C. QUIGLEY,Is Georgetown Committing Suicide?
80 A. PETTIFOR, Cross Talk with Peter Lavelle. Recorded December 6, 2011.
http://www.youtube.com/watch?v=UhByd7zSYzc Accessed January 21, 2012.
81 Other authors have counted many more 1873, 1884, 1890, 1893 and 1907, according to E. WICKER,Banking Panics of
the Gilded Age. Cambridge, 2000.
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Camdessus isn't entirely wrong our crisis is certainly the result of greed, but it's not common
consumer greed. It is a result of the greed of private financial institutions who have pressured and
manipulated the governments for over two centuries. His solution is to grant the IMF more political
power (they are a non-elected body), eliminate the veto power of the US and European countries on
critical issues, and to create yet another (unelected) committee to make critical global decisions. His
ideas would be great for the IMF and for bankers in general, but it would be disastrous for the general
population.
Economic History
Having briefly provided examples of social and cultural decay within the northern European
countries and America within the fields of Education, Tradition, Culture and Religion, we can now go
back and retrace European history, and perhaps discover exactly where the problem lies.
Dr. Quigley once told his class that there was little point in discussing the Third World when
they knew so little about how their own society works.84
The work of many economic historians has been very subjective based on their own
experiences or education, bur rarely on the history of economics itself or on the total capacity of a
given society. Francois Quesnay considered the economy as a system of interacting parts but he
considered only agriculture. For him, merchants, artists and manufactures added nothing to labor and
capital. Adam Smith, who saw Glasgow transformed by trade and industry, saw the economy in terms
of labor, discovering that ten men making a pin will make more pins per day than one man making a
http://www.primeeconomics.org/?p=635 Accessed February 18, 2012.84 C. QUIGLEY, Weapons Systems and Political Stability: A History, Washington: University Press of America, Inc., 1983,
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way of economic knowledge or understanding.89 The goal of Economics is to understand how
business activities fit into the broader picture of our society. The field of business, by contrast, takes an
exclusively how-to approach.
90
Globalization begins with this select group of individuals, they controlled almost every aspect
of it, and each period of globalization has ended disastrously. The first period was a time when Britain's
finance sector was bankrolling railway, commodity and mining projects around the world.91 Europe
was able to produce its own iron, steel, and copper to build its own railroads and telegraph wires, but
the non-European world could construct these things only by obtaining the necessary industrial
materials from Europe and thus becoming the debtor of Europe.92
Some members of the group (until 1931, at least) believed that the key to all economics and
prosperity was considered to rest in banking and finance.93 The first part of the group prevailed in
English politics until 1931, then the second part of the group prevailed until at least 1945.
To protect their loans, London bankers needed an international financial system that would
guarantee the value of loans made,94 and guarantee the value of the repayments. They needed a
standard framework that would not fluctuate because it rained too much or not enough in any given
locality. The system selected was the 'gold standard', and the men in charge were not prime ministers
and presidents they were international bankers who wrote the rules of international trade.
International bankers prefer to loan to governments and kings because it is more profitable than loaning
to private individuals. The loans are larger, and are secured by the nations' taxes. These men included
89 Ibid.90 M. LIEBERMANR.HALL,Introduction to Economics, page 2.
91 A. PETTIFOR, The Coming First World Debt Crisis, page 30. Specifically, the first railways were completed in England
in 1830, Canada (1832), India (1855) and Pakistan (1861).
92 C. QUIGLEY,Tragedy and Hope, page 28.
93 C. QUIGLEY,The Anglo-American Establishment, page 122. Milner himself however, insisted that financial questions
must be subordinated to economic questions and economic questions to political questions. As a result, if a deflationary
policy, initiated for financial reasons, has deleterious economic or political effects, it must be abandoned.94 A. PETTIFOR, The Coming First World Debt Crisis, page 30.
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During the period 1880-1914, financial, trade and labour markets continued to be liberalized,
leading to a globally integrated economy,99 but also draining the natural resources of third-world
countries in favor of the more powerful European countries. At the same time, rather than sideline or
minimize the role of the state, the gold standard before and after 1914 'had the ironic effect of
intensifying the importance of the nation as a unified entity'.100 Britain didn't notice the changes that
were taking place in Germany until Germany started to outdo them in sales, service and quality of
goods. Germany started acquiring African colonies and were actually the ones who encouraged the
Boers in their war against Britain.101 Strange alliances began between nations (for financial and
strategic reasons), wars started between Eastern European countries, squabbling initiated over which
European country would colonise which part of in Africa, and a few accidents took place which fueled
popular hysteria between nationalities - the assassination in Austria was a relatively minor event, which
alone, wouldn't have started a world war.
Beginning in 1914, this war once again brought to an end the system that had been so carefully
put in place by London's bankers.102 Because of this second great economic crisis, politicians finally
subordinated the interests of finance through controls over the movement of capital and goods.103
Legislation blocked international transactions and the export of gold was either banned or heavily
restricted.
In late 1918, the first World War ended, and the bankers immediately began again to wrest
control of the financial system. Winston Churchill and others were subject to unrelenting pressure
99 Ibid, page 34.
100 Ibid, page 34, quoting Block, F., 'Introduction' to the new edition ofThe Great Transformation by Karl Polanyi.
Beacon Press, 2001.
101 C. QUIGLEY,Tragedy and Hope, page 187.
102 A. PETTIFOR, The Coming First World Debt Crisis, page 34.103 Op.cit., page 35.
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from Montagu Norman, Benjamin Strong, governor of the Federal Bank of New York, and other
Federal Reserve officials.104
The Treaty of Versailles concluded (among many other things) that Germany was at fault for
the war.105
Under great pressure in 1921, Germany accepted the reparations bill of 132 billion marks.
82 billion was forgiven, but Germany was expected to pay on the other 50 billion at a rate of 2.5
billion a year in interest and 0.5 billion a year to reduce the total debt.106 The German government,
probably resentful at being forced to accept these arrangements, refused to reduce its own expenditures
and made little effort to reduce their spending on imports; for there part, creditors refused to allow a
free flow of German goods (Britian charged a usurious 26% tax on imports from Germany), and they
refused to accept the goods as payment.107 The Dawes plan followed,108 adding the ability for Germany
to make further loans (not adjusting the principle), which put them even further in debt after five years.
Germany paid 10.5 billion marks in reparations but borrowed abroad a total of 18.6 billion marks.
Nothing was settled by all this, but the international bankers sat in heaven, under a rain of fees and
commissions.109 And, everything continued on this course, until the U.S. stopped lending.
The crisis of the 1920s and 1930s had taught western societies grave lessons about the folly of
allowing 'the money-lenders to take over the temple' the main theme of President Franklin D.
104 Ibid, concurs with C. QUIGLEY, Tragedy and Hope, page 67:
Naturally, the influence of bankers over governments during the age of financial capitalism (roughly 1850-1931) was
not something about which anyone talked freely, but it has been admitted frequently enough by those on the inside,
especially in England. In 1852 Gladstone, chancellor of the Exchequer, declared, 'The hinge of the whole situation wasthis: the government itself was not to be a substantive power in matters of Finance, but was to leave the Money Power
supreme and unquestioned.' On September 26, 1921, The Financial Times wrote, 'Half a dozen men at the top of the Big
Five Banks could upset the whole fabric of government finance by refraining from renewing Treasury Bills.' In 1924 Sir
Drummond Fraser, vice-president of the Institute of Bankers, stated, 'The Governor of the Bank of England must be theautocrat who dictates the terms upon which alone the Government can obtain borrowed money.'
105 "Un'assurdit internazionale": in questi termini poco diplomatici che Eugenio Pacelli nell'agusto 1920 giudicava
"quella che viene chiamata la 'pace' di Versailles." P. CHENAUX, Pio XII. Diplomatico e pastore, Paris: Edizioni San
Paolo, 2004, page 111.
106 Op.cit., page 263.
107 Ibid, page 264.
108 Largely a J.P. Morgan production (C. QUIGLEY,Tragedy and Hope, page 265), ... the Milner Group has alwayshad very close relationships with the associates of J.P. Morgan and with the various branches of the Carnegie trust. (C.
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Roosevelt's inaugural speech, in 1933 at the height of the international financial crisis.110 His speech
has a contemporary resonance: The measure of the restoration lies in the extent to which we apply
social values more noble than mere monetary profit. They [financial institutions] know only the rules of
a generation of self-seekers. They have no vision, and when there is no vision the people perish.111
By 1925, all of the most important economies of the world were once again tied to the gold
standard.112 Most countries were in a hurry to go back. The US went first, because they had the
advantage of a large supply of gold. Britain was next, but they weren't so lucky. Churchill didn't know
that speculators saw the pound rising and started selling their dollars to buy pounds, driving the value
of the pound up faster than it was actually worth, which discouraged exports. He brought Britain back
into the gold standard, only to find that the pound was overvalued and their gold reserves were low.
Unions protected their wages, and taxing the upper classes failed since they were in control of the
government. Britian went into deflation, and only after many years reached stabilization. Belgium and
France on the other hand, devalued their currency which encouraged exports. Mussolini overvalued the
lira higher than the French franc for the simple motive of prestige, which hurt Italy's economy.113
After all the major countries re-accepted the gold standard, it only took - this time - four years
before the New York Stock Market crashed. It was bankers, British and foreign, who dictated the
QUIGLEY,The Anglo-American Establishment, page 183).
109 C. QUIGLEY,Tragedy and Hope, page 266. The Young plan followed after the Dawes plan.
110 A. PETTIFOR, The Coming First World Debt Crisis, page 26.
111 A. PETTIFOR, ed.,Real World Economic Outlook, page 8. Roosevelt is the only US president elected to four termsin office (1933 1945).
Primary source: Franklin D. Roosevelt, First Inaugural Address, http://www.bartleby.com/124/pres49.html Accessed
January 9, 2012.
112 Op.cit., page 36. Also, C. QUIGLEY,Tragedy and Hope, page 282, where Quigley clarifies, ... the financial efforts
of the period after 1918 became concentrated on a very simple (and superficial) goalto get back to the gold standard
not 'a' gold standard but 'the' gold standard, by which was meant the identical exchange ratios and gold contents that
monetary units had had in 1914.113 C. QUIGLEY,Tragedy and Hope, pages 286-287.
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The chief cause of World War II was the banker-engendered deflationary crisis of 1927-
1940.121 Some say it was Treaty of Versailles itself, but the decisions made there didn't have to be
carried out with such rigor. The leading characteristic was an extraordinary willingness to borrow
money for the purposes of new real investment at very high rates of interest rates of interest which
were extravagantly high on pre-war standards, which have never in the history of the world been
earned.122 It weakened both the democratic and parlimentary systems, prolonging the war by the early
defeats of these states, and gave the energy necessary for aggression in those countries where the
government did collapse.
During the Second World War, and in the immediate post-war years, politicians and
economists tried hard to restore stability and equity to the international financial system.123 If we get
through the present crisis and are given a further chance to try and put the world in order, we shall then
feel a need to take a broader and deeper view of our problems than we were inclined to take after the
War of 1914-1918 ...124
dominated by two (I. G. Farben and Vereinigte Stahl Werke); the United States was dominated by two (Morgan and
Rockefeller). Other countries, like Italy or Britain, were dominated by somewhat larger groups. C. QUIGLEY, Tragedy
and Hope, page 458.121 Ibid, page 309. Hitler wanted revenge for what took place after the the Treaty of Versailles. He didn't care about
Jews until the Austrian bank collapsed.
A. HITLER,Mein Kampf, London, Hurst and Blackett Ltd, English translation, 1939:
As I thought that they [Jews] were persecuted on account of their Faith my aversion to hearing remarks against them
grew almost into a feeling of abhorrence. I did not in the least suspect that there could be such a thing as a systematic
anti-Semitism. Then I came to Vienna. pages 52-53.
... the present Reich has no other possible means of bearing the burden of charges which an insane domestic and
foreign policy has laid on it. Here still another wedge is placed on the former, to drive it in still deeper. Every new debtwhich the Reich contracts, through the criminal way in which the interests of Germany are represented vis--vis foreign
countries, necessitates a new and stronger blow which drives the under wedges still deeper. That blow demands another
step in the progressive abolition of the sovereign rights of the individual states, so as not to allow the germs of
opposition to rise up into activity or even to exist. pages 435-436.Hitler was not a trained politician; he was a trained soldier, and reacted to the financial pressure by doing what soldiers
do - attacking those he thought responsible not only the Jews, but also the French and English rather than challenge
those responsible for the crisis, or to transform the international financial system.
- A. PETTIFOR, The Coming First World Debt Crisis, page 96.
122 A. PETTIFOR, The Coming First World Debt Crisis, page 38, quoting John Keynes.
123 A. PETTIFOR, ed.,Real World Economic Outlook, page 8.
124 C. QUIGLEY,The Anglo-American Establishment, page 309, quoting a letter by Toynbee to the Council of theRoyal Institute for International Affairs.
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They had learned that unrestrained capital flows led to financial instability and ... financing old
liabilities with new liabilities ... were incompatible with, and hindered free trade.125 The bankers, not
the least embarrassed or inhibited because of the damage they had done, dominated U.S. Foreign
economic policy and tried to create a more open international financial order by applying more
aggressive pressure on Western European countries to liberalize their exchange controls ...126
Towards the close and continuing after World War II, the northern powers began to lay their
foundations for the post-war world. A series of conferences were held, and these are the meetings
which created such international organizations as FAO, UNESCO, the UN, the IMF, the World Bank
and the Bretton Woods system of economics. The most important aspects of this system for our
concerns was that it imposed controls over the movement of capital exchange controls, and restored
to governments the power to fix interest rates, which gave them policy autonomy and allowed them to
cut back on foreign imports and balance these with exports.127
The IMF was created to supervise these arrangements, to act as emergency lending to countries
with temporary difficulties, and also to negotiate any necessary changes to fixed exchange rates.128
However, what the members of the IMF really wanted was complete power to run as much of the world
as possible. John Maynard Keynes ... wanted the IMF to have a matching power to draw funds from
countries with surpluses to give it the even-handed capacity to maintain international equilibrium
between counties. The US, at that time the only surplus country, vetoed this proposal.129
125 Op.cit.
126 E. HELLEINER, States and the Reemergence of Global Finance, page 6.
127 The Bretton Woods system was by no means perfect, but it led to a period of economic and social stability .
elected governments and their people were put in the driving seat. The movement of capital was regulated and
provided the means and mechanisms for governments to set interest rates. Britain's Labour government, led by Clement
Attlee, attempted a deliberate cheap money policy.A. PETTIFOR, The Coming First World Debt Crisis, page 27.
128 Ibid, page 37.129 Ibid page 38.
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At the same time, those in the banking and finance industry were determined to get the financial
system back under their control.130 Just as Churchill had been pressured after World War I,
Attlee's Chancellor Hugh Dalton, who succeeded in nationalizing the Bank of England,was ... challenged by Finance, in the shape of the City of London. In his memoirs hewrote: 'The forces against me, in the City and elsewhere, were very powerful anddetermined I felt I could not count on a good chance of victory. I was not well armed.So I retreated.131
When the European Monetary Union was founded, not 50 years later, the IMF asked for and
received substantially what had been rejected by the US, and was rejected by Britain, about twenty-two
years ago:
Yes, the Commission [IMF] does want to increase its powers. Yes, it is a non-electedbody, and I do not want the Commission to increase its powers against this House. Mr Delors, President of the Commission,132 said in a press conference that he wantedthe European parliament to be the Democratic body of the Community, he wanted theCommission to be the Executive, and he wanted the Council of Ministers to be theSenate. No! Or, perhaps the [British] Labor party would give all those things up easily? Perhaps being totally incompetent with monetary matters, they'd be only toodelighted to hand over the full responsibility as they did to the IMF to a centralbank. The fact is, they have no competence in money, no competence on the economy,so yes, the right, honorable gentleman would be glad to hand it all over. What is thepoint of trying to get elected to parliament, only to hand over your sterling, and to handover the powers of this House to Europe?133
Every economic system has to be regulated. That is, somehow, decisions must be made as to
what is produced, how much of it, and who gets it.134 Every other aspect of our life also engages some
type of regulation; job duties and responsibilities, personal diet and exercise, studies and tests before a
diploma, driving rules and tickets for infractions against driving laws, proper conduct at a restaurant,
130 After the war Keynesian policies for the management of interest rates were gradually abandoned, under great
pressure from the finance sector. Ibid, page 74.
131 Ibid, page 27.
132 French Economist, President of the European Commission from 1985-1995.
133 Margaret Thatcher's statement of 30 October 1990 to the House of Commons on the European Council meeting at
Rome held on 27/28 October. http://www.youtube.com/watch?v=U2f8nYMCO2I Accessed January 16, 2012.134 C. QUIGLEY, The Evolution of Civilizations, page 384.
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and moral and religious beliefs are regulated by that particular religion. The same must also be said for
economics.
Broadly speaking, between 1945 and 1975, governments did their best to restrict imports to
what they could pay for Per capita GDP growth in Latin America, for example, in the years from
1960 to 1980, rose by 80%. By contrast, per capita GDP growth in Latin America since liberalization in
1980 has risen by only 10%.135 Citing the WTO, the IMF notes that annual growth rates in world
trade reaching 12% a year between 1951 and 1975, but never rose above 10% after 1975.136
We must be honest and say that the Cold War was also responsible for some of this economic
success. The Cold War allowed the build-up of arms (which made up for what was lacking in consumer
spending), the development of more sophisticated machinery, and the occasional small war. Quigley, in
comparing the domestic politics of 1929 and 1957 noted, the graduate of June 1929 was eager to
get out into the prosperity rat-race, while the graduate of June 1957 is hesitant to leave the relative
quiet of academic life. The goal of the new alumnus has shifted from riches to security.137
1971
As mentioned earlier, British financers did very well for themselves in the 1800's colonizing
Africa, India, and had completed the Suez Canal by 1869. They fell into huge debt with the US as a
result of WWII. To pay these loans, the US demanded of Britain that it pay its debts by selling off
gold reserves and international investments. This considerably weakened Britain's position as a world
power.138 Twenty years later, partially as a result of the Korean and Vietnam wars, the US became a
huge debtor. In 1971, President Nixon declared that the US would no longer conform to the Bretton
135 A. PETTIFOR, The Coming First World Debt Crisis, page 39. See Appendix I for an understanding of what Gross
Daily Product truly encompasses.
136 Ibid, page 27.137 C. QUIGLEY,Politics. SFS yearbook Protocol, 1957. http://www.carrollquigley.net/Articles/Politics.htm
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Woods system (the US would not deplete their gold reserves to pay debts). Not only did they default on
all of their foreign loans, Nixon declared that creditors should offer new loans to the US, and in
exchanget, the US would offer Treasury Bills a receipt for the debt. It is through this maneuver that
the dollar became the global reserve currency and today, instead of holding gold reserves, all countries
mainly hold low-cost loans to the US (Treasury Bills) as reserves. Rich and poor countries alike
hold these Treasury Bills in their central banks, as evidence of their creditworthiness, and of the health
of their economies.139
All of this comes about, not as a result of several meetings over a period of months or years,
with a committee of scholars or responsible government leaders, or experienced economists, but by a
country who was able to default on their loans and get away with it because they were so large and
important in the global economic market.
Since 1970 the world has changed beyond recognition. ... Banks and finance centers are
the centers of the cities now [no longer churches, or even community centers], and finance companies
do business around the clock, all a result of the experiment known as 'globalization' or market
liberalism ...140 Quite simply, financial globalization has taken place because it is in the interests of a
small elite of politically and economically dominant people who have done extremely well out of it
...141
Today, our exchange rates are determined by financial flows as opposed to the balance of
trade.142 Removal of these controls allows owners of money to move their funds to any part of the
world. Naturaly, they move it to where returns, profits, or capital gains were highest. This made them
richer, but also more powerful. In 1970, 90% of international transactions were accounted for by
Accessed January 9, 2012.
138 A. PETTIFOR, The Coming First World Debt Crisis, page 40.
139 Ibid, page 42.140 A. Pettifor, ed.,Real World Economic Outlook, page 5.
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trade: 10% by capital flows (the movement of money). Today, we have a complete reversal: 90% of
transactions are accounted for by financial flows not directly related to trade in goods and services.143
Before 1970, investors - owners of money - could only invest in engineering or
manufacturing within their own country. Now, with this control removed, these owners of money can
invest in any manufacturing anywhere in the world. We could invest in General Motors in the US, but
we won't make as much profit as we would investing in Toyota in Communist China (where citizens
are treated as slaves, and, we will take our profit the new capital out of China and invest it in stock
somewhere else). If GM wants our investment money, we can pressure them to do better, or threaten
to take our money somewhere else. It is this very attitude and 'freedom' that pressured CEO's and
managers to manipulate their balance sheets; to inflate the real value of their companies144 and other
such tricks. This is also why there hasn't been any growth with finance-led globalization -
companies have been reducing their levels of investment in order to increase dividend payouts to
aggressive shareholders.145 Ninety percent of the economic growth that we read about in the
newspaper is through banking.
The first of the policy changes required by the economists was that government
regulations are removed over capital, over lending and borrowing, and over the creation of different
financial instruments.146 This began in the 1980's, when consumers could suddenly finance home
entertainment systems, power tools, musical instruments, and even cell phones. The average consumer
didn't pay much attention to the interest rates, which could be as high as 25%. Especially important for
the economists was that controls and regulations were removed over capital moving across national
141 Ibid, page 31.
142 Ibid, page 47.
143 Ibid, page 14-15.
144 Ibid, page 15.
145 Ibid, page 39.146 Ibid, page 12. This began in the US under Ronald Reagan, and in Britain, under Margaret Thatcher.
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boundaries. Most governments agreed to this except two, who also happen to have the highest
officially recorded rates of economic growth in the recent past.147 These countries are India and China.
The New Globalization
Some observers believe the 'new Milner' is Friedrich A. Hayek. He won the Nobel Prize in
Economics in 1974 for his pioneering work in the theory of money and economic fluctuations and for
their penetrating analysis of the interdependence of economic, social and institutional phenomena.148
It was he who approached politicians in Britain, and through the perseverance of he and his colleagues
(the Mont Plerin Society), re-educated politicians both right and left in the virtues and powers of
market liberalism. When we hear our politicians pushing for 'reforms' of the financial system, labor
markets or trade they actually mean fundamental changes both to social and political relationships,
and their impact in the past has been revolutionary.149 These reforms follow the laissez-faire policies
desired by these economists, which in reality means, 'leave us alone'.150
When the politicians and governments changed their policies and removed these regulations,
they abandoned their responsibility for managing finance, for preventing crises, for managing their
country's exchange rate, and for protecting the weak, immature, the elderly, the unemployed and, the
147 Ibid.
148 "Laureates, 1974", http://www.nobelprize.org/nobel_prizes/economics/laureates/1974/index.html Hayek sharedthe award with Gunnar Myrdal. Accessed February 19, 2012.
149 Op.cit., page 11.
150 Just as the negative idea of the nature of evil flowed from the belief that human nature was good, so the idea of
liberalism flowed from the belief that society was bad. For, if society was bad, the state, which was the organizedcoercive power of society, was doubly bad, and if man was good, he should be freed, above all, from the coercive power
of the state. Liberalism was the crop which emerged from this soil. In its broadest aspect liberalism believed that men
should be freed from coercive power as completely as possible. In its narrowest aspect liberalism believed that the
economic activities of man should be freed completely from "state interference." This latter belief, summed up in the
battle-cry "No government in business," was commonly called "laissez-faire." Liberalism, which included laissez-faire,
was a wider term because it would have freed men from the coercive power of any church, army, or other institution,
and would have left to society little power beyond that required to prevent the strong from physically oppressing theweak. C. QUIGLEY,Tragedy and Hope, page 35.
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infirm.151 They no longer protected the nave from slick sales gimmicks that provoked poorer citizens
into financing products and homes at ridiculous interests rates, in order to keep up appearances with
their richer acquaintances.
152
Today, because of the restrictions that were lifted, credit is created from nothing. It is created on
demand when a corporation or country applies for a loan from a commercial bank. The commercial
bank does not have billions of dollars locked up in its vaults. When a loan is approved, this money is
then printed ex nihilo and then interest rates are charged on top of that principle. The bank pays an
interest rate to the printing bank (the central bank), and passes that charge (along with their own
interest rates, processing fees and other charges) to the borrower and there is no legal limit to how
much interest they can charge. The rate of interest is set by the central bank, and it is nothing more than
a social construct, varied only by rational choice.153 In 1978 for example, the Bank of England's
Minimum Lending Rate was 6.6%. In 1979, capital controls were lifted, and the Bank rate was
15.6%.154
As payments are made, the bank then gets an increase in actual, physical cash they have given
the lender only numbers in an account balance credit the banks know they only need about 1% of
the loan in actual cash at the bank location, and can have the currency printed on demand if need be. If
a country falls behind on their payments, banks then charge additional fees. If it was an IMF styled
151 A. PETTIFOR, ed.,Real World Economic Outlook, page 12.
152 In 1977, the Community Reinvestment Act was passed in the US. Deregulation begain in 1980. Mortgage
activity grew at least 25% a year from 1994 2003. The US government encouraged banks to provide loans to peoplewho could not afford them. Called the subprime mortgage, the plan was designed to create affordable housing, but
many of the people who were given these loans weren't actually qualified to receive them. This also gave a very false
impression of economic well-being of the country. These worthless loans were translated into 'mortgage-backed
securities' that were sold to other unsuspecting investors until there was no one left to buy them. Both the government
(for allowing it) and the banks (for pushing for the reform, and then taking advantage of it) were responsible for the
economic problems that emerged from this. And, England did the same thing.
153 A. PETTIFOR, The Coming First World Debt Crisis, page 70.154 Ibid, page 75.
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loan, restrictive measures are added to the increased debt burden, making it all the more difficult for a
country to repay the loans.
Therefore, if a country defaults on their loan, they have actually not hurt anyone. No one suffers
a loss of100 billion dollars only the cost of printing and other paperwork involved. It is all just
numbers in a computer. This is why it is possible to cancel billions of dollars in debt owed by a
country. This type of financing is the new capital. The bank takes no risk the borrower believes he
can pay the loan from the sale of their natural resources, or by raising taxes on the citizens. The
problem with natural resources is that it can run out, or a larger, cheaper supply might be found
somewhere else, driving prices lower. If workers can't work, there is little point in raising taxes.
Before 1970, governments allocated resources for the weak and defenseless in society public
transport, cultural activities and communication, for example. Today, these roles are being 'privatized'
or 'marketized' in many countries, including Europe. The allocation of resources for health, clean
water, sanitation, education, pensions, scientific research, transport, broadcasting, sport, culture,
mineral extraction, and marketing are but a few of the government functions that, in many countries,
are now carried out by 'the invisible hand of the market'.155 Remember, this is not the 'invisible hand'
that Adam Smith wrote about, where the poor benefit from the gluttany of the rich this 'invisible
hand' is the finance industry who sets interest rates and tells states they must privatize water (for
example) in order to re-pay their high-interest loans.
This is a grave concern, especially in developing countries, because the void left when these
resources aren't allocated to the weak and poor can easily be filled by Non Governmental
Organizations, such as extremist groups, who thrive most when economic times are hard for ordinary
people.156
155 A. PETTIFOR, ed.,Real World Economic Outlook, page 17.156 Ibid.
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Global marketshave acted to extract and transfer assets from poor countries to rich countries ... Thispolarization and divergence is not accidental or 'natural'. It is not because humaningenuity, geography, new technology, and advancement are preset in one part of the
world, and lacking in others. Instead, it is a direct consequence of the remarkableeconomic experiment of market liberalism, which has brought our world to a point ofgrave peril.
157
This 'grave peril' is witnessed in a world made insecure by rises in crime, random violence,
opportunistic diseases, and the threat of nuclear weapons.158
Textbooks tell us that capital should flow from countries in which it is plentiful the rich
world to those in which it is scarce the poor world. But the opposite is happening.
159
Even the
World Bank has admitted this. The poor are indeed financing the rich, through loans made to them at
high interest rates, besides being required to purchase Treasury Bills low-interest loans to the US. In
2001, developing countries paid a total of $122 billion in interest payments on their debt, and $55
billion in the form of profits sent back home by multinational corporations.160 This accounted for
about 3% of their GDP, and does not count 'capital flight' from those poor countries, (talented people,
like doctors or lawyers who leave the country) which, in 1994 was estimated at some $122.4 billion
for all developing countries.161 The flow of resources from the poor South to the rich North has
increased steadily.
Unfortunately, there is a real paucity of reliable global data on inequalities in wealth.Institutions such as the World Bank, the IMF, and the UN have let us down badly; theydo not collect the required figures, arguing that it would be too difficult to provide anaccurate assessment. But in our view, there may also be another motive; if the numberswere made available, the polarization in wealth would be too unpalatable for words.162
157 A. PETTIFOR, ed.,Real World Economic Outlook, page 6.
158 Ibid. These destructive and frightening consequences are not very different from the consequences of a similar
experiment in market liberalism, tried out in the 1920s and 1930s but abandoned between 1945 and 1970.
159 Ibid, page 34
160 Ibid, page 35.
161 Ibid, page 36.162 Ibid, page 33.
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A long time ago Henry Ford wrote, It is well enough that people of the nation do not
understand our banking and monetary system, for if they did, I believe there would be a revolution
before tomorrow morning.
163
Robert Lucas asked the question back in 1990 with his article, Why Doesn't Capital Flow from
Rich to Poor Countries?164 Sebastian Dullien also seemed somewhat surprised to note that, in many
cases, net capital flows have reversed and are now flowing from developing and emerging countries
towards the rich world, especially towards the United States, United Kingdom, Australia and Spain. 165
The power of these international finance markets, like the the power of the IMF, have stripped
governments of their political autonomy. Governments are obliged to implement policies effectively
dictated by foreign creditors/investors.166 Governments, according to 'neoliberal economists'167
should divest themselves of power, transferring control to unaccountable markets, including financial
markets.168 This explains why the European Union can make loans to countries like Nicaragua,
conditionalon legislating legalized abortion.
Developed countries are now getting a taste of the medicine that the IMF has long imposed on
others. Developed countries have given up their ability to control the supply of credit and they have
given away their capacity to manage their exchange rates and hence their external balances.169
Entire governments namely, the poor ones suffered similar pressures from the finance
sector. The IMF and others have forced governments to
163 The quote is repeated by countless authors, but no one seems to know the source. He apparently also stated, A
business that makes nothing but money is a poor business.
164 R. LUCAS, "Why Doesn't Capital Flow from Rich to Poor Countries". American Economic Review. Vol 80, No. 2
(May, 1990): 9296. http://www.jstor.org/pss/2006549. Accessed February 12, 2012.165 S. DULLIEN, Central Banking, Financial Institutions and Credit Creation in Developing Countries, United Nations
Conference on Trade and Development, Discussion Papers. No. 193, January, 2009.
http://www.unctad.org/en/docs/osgdp20091_en.pdf. Accessed February 12, 2012.
166 A. PETTIFOR, ed.,Real World Economic Outlook, page 16.
167 'Neoliberal' is a difficult term, used for both Adam Smith and some economists today. Some liberals today do not
want to be referred to as 'neo-liberal'.
168 Op.cit., page 16.169 Ibid, page 46.
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re-orient their economies towards foreign creditors, and expand revenue-generatingexports to raise money for debt repayments. So the pressure has been on to expandexports, which generate hard currency; domestic priorities such as feeding its people andtrying to keep them healthy have had to go by the board in many developing
countries.
170
This also often means the stripping of forests, and the handing over of natural assets171 (gold,
diamonds, oil). It is the colonial mercantile system all over again, set up to make it easy for those with
power and limited natural resources to exploit those with resources but no power.172 The worst
extreme was Malawi, who was told by the IMF to sell of is excess grain to pay debts. They
unfortunately had a drought the following year, and because they didn't have that grain, about a
thousand peopled starved to death.173
To Summarise how the poor stay poor: Because central banks operate under conditions of
great secrecy, these facts are not widely known to the citizens of poor countries or indeed of rich
countries like Japan, the US's biggest creditor.174
1. Low income countries who show a profit must use that profit to 'build up reserves' ofUS Treasury Bills (give that profit to the US), rather than use that surplus for domesticspending or reduce poverty in their own country.2. Each year low-income countries pay hundreds of billions of dollars in repayment ofinterest and (a little on the) principal on loans to high-income countries.3. Since there are no controls over the movement of capital, international corporationsthat work in those 'developing countries' can move their profits to rich countries in USdollars.4. 'Developing countries' were forced to adopt US-style patent and copyright laws,meaning they pay the same royalties as rich countries.
170 Ibid, page 16.
171 Ibid.
172 J. PERKINS, Confessions of an Economic Hit Man, page 28.
173 Malawi at that point told the IMF to get out, and purchased subsidies for fertiliser so their people could feed
themselves. Johann Hari: It's not just Dominique Strauss-Kahn. The IMF itself should be on trial
http://www.independent.co.uk/opinion/commentators/johann-hari/johann-hari-its-not-just-dominique-strausskahn-
the-imf-itself-should-be-on-trial-2292270.html Accessed January 21, 2012.174 Op.cit., page 49.
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at least sustain the country. But, people usually go for the cheap, simple or easy solution. Until the
banks stop lending.
Now, the world is in the midst of an economic crisis that responsible governments should have
seen coming and should have implimented ways to invert. Michael Camdessus recognises that
economic crisis strikes first and foremost at the poorest among us. Then, why didn't he see the present
economic crisis coming?
Ann Pettifor, Fellow, New Economics Foundation179 states:
We did see it coming, a small group of us the thing that really bugged me was that
the IMF had gotten things wrong, all the way down the line. They had failed to predictthe Mexican debt crisis, they cheered on investors buying tesobonos in Mexico beforethat crisis, and the IMF failed totally to predict those crisis in September, 2003,absolutely no one was interesting in hearing about a coming first world debt crisis. By 2006, I began to panic, actually. Why no one saw it coming was because we rely onthe economists who've got it wrong, systematically. Not just this time, but throughoutthe '70s and the '80s and the '90s.180Elected democratic governments have been weakened, and lack the powers, resources and
institutions to protect their citizens and firms and to compensate citizens when shocks occur the
failure of government to afford protection to citizens is leading to disillusionment with spineless
parliaments; and with leaders that have given away to invisible 'markets' key powers to allocate
resources for health, public sanitation, transport etc.181
178 A. PETTIFOR, The Coming First World Debt Crisis, page 49.
179 The New Economics Foundation is a thinktank dedicated to economic well-being for people and the planet.
180 A. PETTIFOR, The IMF Has A History of Getting it Wrong - Accessed February 14, 2012:
http://www.guardian.co.uk/commentisfree/video/2009/feb/27/ann-pettifor-capitalism-crisis?fb=nativeA full transcription is available at http://www.guardian.co.uk/commentisfree/2009/feb/26/recession-economy-capitalism
To be fair, there were others who also saw it coming:
... The special privileges granted to Fannie [Mae Federal National Mortgage Assoc.] and Freddie [Mac Federal
Home Loan Mortgage Corp.] have distorted the housing market by allowing them to attract capital [money] they couldnot attract under pure market conditions [giving loans only to those who could afford to pay them back] like all
artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will
experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss.
These losses will be greater than they would have otherwise been had government policy not actively encouraged over-
investment in housing.
Transcribed fromDr. Ron Paul Discusses Austrian vs. Keynesian Economics on Morning Joe recorded 15/05/2009
http://youtu.be/Gf3NxGM5IkU Accessed February 14, 2012.181 A. PETTIFOR, The Coming First World Debt Crisis, page 52.
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European Relations with Mediterranean Countries
Having seen how the European countries have treated themselves as well as their neighbors over
the past few centuries,182 it will come as little surprise that in my opinion, any type of union with them
spells suicide.
The Mediterranean countries, in spite of their faults, have some advantages that could protect
them from financial totalitarianism. For example, some brag about their strong religious beliefs -
History demonstrates that faithsoul, a belief in higher powersis essential. We Muslims have it.
We have it more than anyone else in the world, even more than the Christians. So we wait. We grow
strong.183 The major religions, with the exception of Islam, have on the whole acquiesced, focusing
mainly on matters of private morality. Islam itself is under pressure from the finance sector to dilute
the condemnation of usury ...184
The current situation in Greece should stand as a very loud warning to all the other
Mediterranean (and Middle Eastern) countries: Today, they are being used as a scapegoat. Instead of
accepting that it is the broken banking system; the de-regulated financial Eurozone, and the
deflationary monetarist policies of the Maastricht Treaty that are the roots of the crisis,185 the 'Troika'
Here is a quote from Bob Traa, doing exactly what Dr. Pettifor is warning:... the public sector is very large and another essential element of a credible fiscal strategy must be to reduce the
public sectors claim on resources: a credible strategy must primarily focus on sustainable expenditure cuts. This inevitably
will require closure of inefficient state entities as well as reductions in the exceptionally large public sector work force and
in generous public sector wage ...Remarks by Bob Traa, Senior IMF Resident Representative in Athens, Greece,
http://www.imf.org/external/np/speeches/2011/091911.htm Accessed February 19, 2012.
182 When we read about the terrible attrocities done during the process of colonization, we should also remember the
60-80,000 German civilian massacres during World War II, the 7 to 15 million Christian Russian kulaks of 1924-30 who
were starved to death, the Spanish Civil War massacre as well as the more recent wars in the former Yugoslavia.
183 J. PERKINS, Confessions of an Economic Hit Man, page 27.
184 A. PETTIFOR, The Coming First World Debt Crisis, page 121.185 A. PETTIFOR, Greece as Whipping Boy for 'Troika' Bullies,
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[the IMF/EU/ECB, the three banks that are participating] want to blame Greece and its taxpayers. At
least their problems have certainly alerted all the Mediterranean and Middle Eastern countries of the
dangers of the 'Troika'.
They borrowed the money and they have to pay it back. Seems fair enough, but let us look at
some details.
One loan, from May, 2010 was for110bn. For that, they were expected to pay an additional
131bn in interest and refinancing charges.186 Greece is in its' fifth year of a recession, and the 'Troika'
want Greece to re-capitalise its banks with the loans it may receive in the year 2012. The banks want
the money that Greece borrows to go to banks.
Private sectors (the private banks who have added up the 131bn in interest and other charges)
have offered to write off 50-70% of the debt, which would leave Greece paying 53bn interest on a
110bn loan.187 And, the IMF just increased its membership fee to 1.5 billion for all members.
The loans are made to suite the private banking system; they are not suited for the people of a
particular country, and the austerity measures imposed on them are very similar to the austerity
measures imposed on Germany after World War I. It was these measures that paved the way for
Nazism.
Ann Pettifor believes that if Greece defaulted, they would regain autonomy over their policy
making, they could determine their own economic policy. In 2001, Argentina defaulted from their
loans, and ran their economy to suit their people, not to suit creditors. How well they are doing as a
result, is another matter.
http://www.huffingtonpost.com/ann-pettifor/greek-debt-crisis_b_977733.html Accessed January 7, 2012.
186 C. DOUZINAS, P. PAPACONSTANTINOU, Greece is Standing up to EU Neocolonialism,
http://www.guardian.co.uk/commentisfree/2011/jun/27/greece-bailout-eu-neocolonialism Accessed February 14, 2012.187 The loans initiated at 14% interest, the same as the loans to Portugal. Refinancing charges and other fees actually
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Conclusions
In spite of its economic and technical superiority, Europe is actually quite poor. As noted
briefly, our educational system in the public realm needs a complete overhaul that would allow more
citizens to be better informed of political and economic currents, and it would create better politicians.
Today, a quality education is cost prohibitive to most creating class differences and preventing the
equal opportunity to educate and improve the citizens. This creates an oligarchy, not a democracy. The
classical definition of 'democracy' is etymologically from demos, 'the people of the country' + arche,
'rule'.
The financial system has to be closely regulated. Interests rates need to drop to a level that
encourages small and medium sized business investment and production. Some have asked why
interest should be paid at all. Banks do have a right to make a profit, but there is a saying among some
Egyptians, make a living; not a killing. Bankers have been making a killing (sometimes literally) for
over 200 years or more. Loans to states or international bodies need to follow certain standards:
Responsibility, impartiality and accountability equally to both parties the lender as well as the
borrower.
Several principles should guide the design of institutional arrangements that can dealjustly with debt. The first is that there should be recognition that it takes two parties tomake a loan, and that each of these two parties can be reckless, irresponsible, anddelinquent in its actions. Insofar as either party to a loan acts in this way, it ought toshoulder part of the burden of the crises that often ensue. Losses from bad loans and baddebts should not, therefore, fall solely on the debtor. The second principle, based on afundamental principle of the rule of law, is that no one ought to be judge in their owncourt. Any courts that are developed to resolve debt crises must be fair and impartialwith respect to the parties to the loans in question. The third principle is the principle ofaccountability. Sovereign debt crises are public, not private, crises involving the use oftaxpayer funds. If the resolution of these crises is to be achieved within a framework of
bring the interest rate up closer to 50%.
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justice, and if democratic scrutiny of public funds is to be strengthened, then it will bevital for the process to be open, transparent, and accountable to citizens andtaxpayers.188
Government also needs to reorganize themselves so as to better serve the intentions they are
meant to serve. The have become institutions serving their own needs, and they need to revolutionize
and become once again the instruments that create great societies.
Full employment and good wages are vital to social and political stability; they nurture a sense
of stability and well-being in society, and give us the confidenceadn assurance to do more than just
pursue money, profit and consumption.189
The only thing that might possibly save Western society is that its' ontology is such that it
always seeks to understand reality, which is perceived as in constant change.190 We understand that
circumstances change, and we adapt. Since we can understand that reality is subject to change, reform
is always possible.191 Reform is clearly necessary. What we need are courageous reformers
politicians who are willing first to reform themselves, rather than asking the common people to suffer
more sacrifices.
Historiographers have become too specialized today. There is no 'universal history', scholars
typically specialize in a particular theme and region.
188 A. PETTIFOR, Resolving International Debt Crises Fairly,
http://www.carnegiecouncil.org/resources/journal/17_2/roundtable/1023.html Accessed February 14, 2012.
189 A. PETTIFOR, The Coming First World Debt Crisis, page 51.
190 C. QUIGLEY,The Evolution of Civilizations, pages 17-18.191 R. PATAI, The Arab Mind, page 273.
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Appendix I
What is the 'GDP'?
Gross Domestic Product, is supposed to be the total value of all final goods andservices produced within that economy during a specified period. This means financialassets as well as physical capital, human capital, and research and developmentexpenditures. In the late 1970s and early 1980s, the two were roughly the same. By2000, financial assets were worth about three times the value of real assets underlyingthem. There was a total divorce from economic reality.192
But, financial assets don't represent anything real, and don't aways have physicalworth. Some derive value simply from a contractual claim. Mortages and sub-primemortgages are a good example of financial assets.
So, the GDP is equal to total expenditure and total income. This measures economicperformance across nations. Higher GDP growth is seen as a measure of success.193 It
fails to account for the economic impact on the environment; it counts clean up costs fornatural disasters as 'goods' rather than 'bads' it only measuresflows so a country thatis very much in debt can be seen as the richest county in the world, according to theGDP. 'Savings' are defined as any income that is not consumed. Debt repayments aretherefore defined as savings!194 The total external US debt already stands at more than$2.3 trillion, more than the total foreign debt of all developing countries combined!195
EU members were initially asked to keep their deficits from exceeding 3% of their GDP.196
Most never achieved that goal. Now, they're trying to get it down to 100% of their GDP.
If poor countries can develop and accumulate capital domestically without capital inflows (or
even with net capital outflows), where do they get their capital from? Natural resources, such as metals.
192 A. Pettifor, ed.,Real World Economic Outlook, page 23.
193 Ibid, page 30.
194 Ibid, page 30.
195 Ibid, page 52., according to IMF International Financial Statistics.196 M. SCHUMAN, The Euro's Last Stand?, Time Magazine, December 5, 2011, page 30.
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